Smith actually hits upon the right idea, because he goes on to argue that because capital is driven to then accumulate the profits it appropriates, this mass of capital rises, increasing its supply, and this process raises the demand for labour, so that wages rise, and profits fall. Smith, therefore, recognises an endogenous process, that Mill and subjective perspectives miss, which is that the demand for labour is itself a consequence of capital accumulation, which is a function of the rate of profit, which is in turn a function of wages, and productivity.
What is the objective basis? It is ultimately the value of labour-power. Put starkly, the slave, in order to continue as a slave, and produce a surplus product for the slave owner, must, at least, be allowed to consume enough of what they produce, in order to live, and reproduce their labour-power. In the same way, they can only produce within objectively determined limits of duration and intensity of working-day. The difference between the two, the minimum required for the slave's reproduction, and the maximum they can sustainably produce, determines the surplus product, and it's only within these boundaries that scope for bargaining exists.
The Tories boast of high levels of employment, as low wages and poor conditions abound. But, of course, under systems of slavery there is always full employment of slaves. Under capitalism, the demand for labour declines as the wages of the wage slaves begin to squeeze profits. And, what Smith and Mill failed to take account of was not only does capital, thereby, determine the demand for labour, as a consequence of whether potential profits are high or low, but it also acts to determine the supply of labour. When wages are high, and profits are squeezed, capital engages in innovation. It introduces labour-saving technology, and thereby creates a relative surplus population, so that the supply of labour rises, relative to demand, pushing wages down and profits up.
The determination of wages then can never be fully explained solely on the basis of the demand and supply for labour, because capital is able to determine both demand and supply of labour, in accordance with its needs. The notion that wages are high, because productivity is high, which Carey advocated, and is often repeated today, is also, therefore, perverse.
In societies with a low level of development, the labourer has to spend a large part of the day simply producing enough to reproduce their labour-power. In such societies, wages are high, relative to output, even though the standard of living is low. It is precisely because wages are high that this creates an incentive for innovation, and capital accumulation, so as to reduce wages, to reduce the portion of the working-day that is required as wages, simply to reproduce labour-power. It is when wages are low, and profits high, that less incentive arises for capital to innovate, to introduce new labour-saving technologies, and thereby, raise productivity. Those developing economies that have industrialised most successfully have been those which sought to continually move up the value chain, and to systematically raise wages, so that the supply of labour is not used wastefully, and capitals were thereby incentivised to continually innovate. Singapore adopted that stance in the 1980's, for example, and China has been adopting the same approach in the last decade or so.
In this 1983 document I wrote, in relation to Singapore,
“In that year (1959) 4% of the island’s labour force was involved in manufacturing. Today, 34% of the labour force is in manufacturing.
Wages are set by the National Wages Council. Since the early 70’s they were set at about 6% above the expected rate of inflation (which in 1976 was in fact negative). Real wages have risen very rapidly. The labour force rose from 726,700 in 1970 to 994,700 in 1978. The number of unemployed in 1970 was 75,800 (10.4%) in 1978 it was 35,700 (3.6%). Wages have, in fact, been rising less than many employers would have been willing to pay. The government has encouraged a high wage economy in order to encourage firms to go upmarket. At the end of 1979, the NWC raised the average wage of a semi-skilled worker (then about 450 dollars a month) by 18%, lower paid workers got rather more, higher paid workers less, and the employers contribution to the state pension scheme was increased from 16.5 to 20.5% of payroll cost. Singapore started by attracting large numbers of foreign firms using lots of labour to do low value jobs. Now the Government is telling these firms to move on. Many are at the end of their 5 year tax holiday and are facing the prospect of paying 40% tax on their profits.
The next stage of the development programme consists of spending large sums on educating and training workers for the new highly skilled jobs. The Government has spent a lot on training colleges and firms are subsidised to provide their own training schemes. Phillips of Holland, Rollei of Germany and Tata of India run training schools jointly with the Government. As the supply of full trained Singaporeans increases the conditions on which foreign firms can get work permits for their managers and technicians are tightened.”
As I noted in relation to China, a while ago The Guardian wrote,
““The People's Daily, the mouthpiece of the ruling party, warned that the country's manufacturing model faced a turning point as demographic and social changes slowed the influx of low-cost labour from the countryside.
Coming a day after the premier, Wen Jiabao, made similar comments, the editorial suggests the authorities may be encouraging businesses to restructure the economy by putting less emphasis on cheap exports and more on higher-value goods and domestic consumption.”
As David Pilling put it in the FT, the authorities are reflecting in their statements a basic reality. He says,
“The years of an endless supply of cheap labour, on which the first three decades of China's economic lift-off was built, are coming to an end. That is partly demographic. Because of China's one child policy, the supply of workers under 40 has dwindled by as much as a fifth. Fewer workers means more bargaining power.”
In response firms have moved further inland to the rural areas from where the migrants come. Others have relocated to other economies such as Vietnam. Pilling also suggests that the other reason for the support being given is that the Communist party itself has a stake in better working conditions.
“Providing cheap Chinese labour to multinationals from Japan, the US and Europe was a means, not an end. Deng Xiaoping said it was glorious to get rich, not to make foreign-invested capital rich. As elsewhere, the share of labour in corporate profits has been falling. That runs counter to the emphasis placed by China's leadership on a 'harmonious society'...
There are other signs that the scales may be tipping labour's way. In 2008, Beijing enacted the the labour contract law, stipulating that workers be given written contracts.”
Marx says,
“Whether his wages are high or low is not determined by his share of the product but, on the contrary, his share of the product is determined by the amount of his wages. He actually receives a share of the value of the product. But the share he receives is determined by the value of labour, not conversely, the value of labour-by his share in the product. The value of labour, that is, the labour-time required by the worker for his own reproduction, is a definite magnitude; it is determined by the sale of his labour power to the capitalist. This virtually determines his share of the product as well. It does not happen the other way round, that his share of the product is determined first, and as a result, the amount or value of his wages. This is precisely one of Ricardo’s most important and most emphasised propositions, for otherwise the price of labour would determine the prices of the commodities it produces, whereas, according to Ricardo, the price of labour determines nothing but the rate of profit.” (p 94)
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