Revenues
Wages
Wages are the phenomenal form of the value of labour-power. They appear, on the surface, as the market price of labour. Like every other market price, they fluctuate around a central point, what orthodox economics calls the equilibrium price, where supply and demand is balanced. Unlike other commodities, labour-power does not have a price of production, because workers do not get the average profit as a component part of the price of their labour. They only get its cost price, i.e. what it costs to reproduce. Under capitalism, however, as Marx sets out in Capital III, Chapter 12, the value of labour-power is also no longer equal to the value of the commodities required for its reproduction, because these commodities no longer sell at their exchange value. The worker must buy them at the price of production. That is why, as Marx sets out, surplus value is not the same under a regime of prices of production as under exchange values. If the price of production of wage goods is higher than their exchange-value, then workers will have to pay more for these necessaries, so the amount of necessary labour rises, and the amount of surplus labour falls. The total amount of surplus value is reduced, and the rate of surplus value, and rate of profit falls.
“It is therefore possible that even the cost-price of commodities produced by capitals of average composition may differ from the sum of the values of the elements which make up this component of their price of production. Suppose, the average composition is 80c + 20v. Now, it is possible that in the actual capitals of this composition 80c may be greater or smaller than the value of c, i.e., the constant capital, because this c may be made up of commodities whose price of production differs from their value. In the same way, 20v might diverge from its value if the consumption of the wage includes commodities whose price of production diverges from their value; in which case the labourer would work a longer, or shorter, time to buy them back (to replace them) and would thus perform more, or less, necessary labour than would be required if the price of production of such necessities of life coincided with their value.”
(Capital III, Chapter 12)
This also shows why, according to Marx, input prices have to be transformed alongside output prices, into prices of production.
So, what happens to wages in a post-Covid economy is itself dependent on what happens to prices of production of wage goods following such a dramatic economic shock. If the price of production of wage goods rises, the value of labour-power will rise, the rate of surplus value will fall, and, all else being equal, the mass of surplus value, and rate of profit will fall. In fact, already, we have seen unemployment, in the US, rise by 40 million, only slightly offset by an increase of 2.5 million jobs (NB update, yesterday the release of US non-farm payrolls showed that a further 4.5 million jobs have returned, making 7 million in total), as workers begin to return to work, as the lockdown is lifted. In Britain, it looks set to reach 3 million jobs being lost, as the lock down causes the worst economic slowdown in 300 years. This is not just a rise in unemployment, but also a fall in employment. The mass of surplus value/profit is a function of two things – the rate of surplus value and the mass of simultaneously employed labour/social working day. If the former falls, because rising costs increase the value of labour-power, and the latter falls because the lockdown has caused mass unemployment, and reduction in the mass of labour employed, then the mass of surplus value/profit will also fall substantially, making resumed economic growth out of realised profits far more difficult. Lower employment, and lower profits means that the government will suffer a large reduction in tax revenues, so any hope of its engaging in a fiscal stimulus without additional borrowing is a forlorn hope. The idea that the crisis is going to lead conservatives to want to pay higher wages to essential workers or put huge amounts of additional spending into hospitals and care homes is just the Utopian pious wishes of sentimental and moralising liberals.
But, wages, as a market price for labour, are determined, in the short-term by changes in supply and demand. The sharp rise in unemployment caused by the government imposed lockdown means that the supply of available labour is effectively increased. That increased supply is, of course, simply the corollary of the reduction in demand for labour-power, as workers have been laid off, small businesses and the self-employed have gone bust etc. A lot depends upon how long the lockdown continues, and how quickly consumer demand returns. Even before governments started to lift the lockdown, and before thousands turned out to demonstrate for Black Live Matter, the packed beaches, the regular parties and shabeens held by, particularly younger people, on estates across the country, showed that it was falling apart. As governments remove all of the draconian measures and limitations on free movement and civil liberties, at least all these younger, healthier members of the population, i.e. the 80% at no serious risk from the virus, will resume their social activities, visits to the pubs, clubs, restaurants, gyms and so on, so that demand in those spheres will quickly resume.
My wife is desperate to get her hair cut, because although she cuts mine, she is sensible enough not to have me reciprocate, and after months without being cut, its getting long. Because we are in the 20%, even when restrictions are lifted, we will continue to self isolate, so she will still have to wait, but millions more people will quickly want to make a visit to the hairdressers, so those small businesses may see a rapid resumption of demand. However, many such self-employed people and small businesses, employing a few people, may already have gone bust. I expect, after the resumption, we may see people, with available capital, open up facilities where they rent out chairs in salons. In that way they avoid paying wages, and taking on other costs of employment, but what the “self-employed” hairdressers, manicurists, beauticians etc., get, after paying out such rents will be only equal to wages. It is a form of share-cropping, or perhaps (s)hair-cropping.
In practice, in the short-term, what happens with wages will be determined by these peculiarities. Its also necessary to distinguish what happens in Britain compared to elsewhere, because of the effects of Brexit. That throws up a lot of peculiarities. A lot has been made of Nissan's decision to continue production at Sunderland. However, that decision seems to have been, in part, based on a belief by them that other car makers will be leaving Britain. It is a bet that if all other UK car production closes down, and the UK introduces tariffs on imported cars, Nissan will be able to clean up on sales within the UK market. Its not clear that is viable, but what is more important is the belief that other carmakers will leave, and move to the EU. That would lead to sizeable job losses in the UK, both directly and indirectly. The same is likely in aircraft production, where the EU is likely to put tens or even hundreds of billions into bailing out Airbus, but will see no reason why such money should flow to the UK.
Brexit acts to raise costs even more than the measures in response to Covid imply, and creates incentives for larger businesses to relocate to the EU or other large single markets. That has a depressive effect on British wages, but will create a corresponding increase in demand for labour-power in the EU. The fact that large numbers of workers in hair salons, nail bars, pubs, restaurants and so on lose their jobs will not necessarily mean that their labour can immediately be used in sports centres, or other industry that sees a rise in demand for labour. As Marx describes, and as happened in the 1930's, a large rise in unemployment does not at all mean that the released labour can be employed elsewhere, and, in the meantime, a rise in demand for labour in those other industries may only be met by paying higher wages, as, for example, happened with the car factories and domestic appliance industries created in the 1930's. On the one hand capital may face higher wages in those industries, whilst paying out a higher social wage, to keep millions of other workers that were in fake self-employment, and underemployment, who have been thrown out of work, on the dole. In Britain that is compounded by Brexit which will see large numbers of the skilled workers from the EU it previously relied upon, disappear. It means a further squeeze on profits, and, so a greater reliance on borrowing to finance expansion, leading to further upward pressure on interest rates.
Some of the 5 million self-employed and small businesses are ones that have been going for some time, though 75% of new businesses stop trading within five years. Some of those, where they had resources, may have been able to mothball themselves during the lockdown, and be able to restart once its lifted. But, many self-employed people had fallen into it only because they could not obtain permanent full-time employment, in a highly casualised labour market. In practice, many of these people were under-employed or their employment was essentially fake. Its one reason that Britain's productivity is so appallingly low. So, the availability of this labour will not really have changed, meaning that its effect on the supply of labour will not be as great as the rise in unemployment might suggest.
Again, bearing in mind the caveats in respect of Britain and Brexit, states are not going to allow large car and aircraft producers to go bust. Not only are they strategic industries, but a collapse of such businesses, and all of the businesses that depend on them, would cause a major economic catastrophe, even in economies that are now 80% dependent on service industry. Already, there is talk of governments introducing car scrappage schemes similar to those put in place after 2008. There are already incentives for first time buyers of electric cars, and, as car makers must make the switch to electric vehicles, there seems every reason for governments to focus any such schemes on payments for scrapping old petrol/diesel vehicles and buying new electric vehicles. That could quickly revive demand for vehicles, and for labour to produce these vehicles.
The fact remains that the long wave uptrend, which began in 1999, is still in place. It was disrupted, not by the financial crisis of 2008/9, but by the response to it by states. That response, specifically from 2010, was to slow down economic recovery, by the imposition of austerity, and to divert money-capital into speculation in financial and property assets, so as to reflate their prices. In so doing, it drained liquidity from general circulation, and this constrained economic growth further. In short, the Spring Phase of the long wave cycle, which should have run from 1999 to around 2013, was cut short and suppressed, or effectively put into hibernation. But, the lockdown now means that all those polices used to create that hibernation are being put into reverse. Anatomists talk about someone's biological age as opposed to their chronological age. Its as though, as far as the long wave is concerned, we are still in 2009/10 rather than 2020, that its biological age is 10/11 rather than 20/21.
So, when this lockdown ends, the fact that liquidity is now diverted into the real economy, and not asset price inflation, that all of the increase in borrowing, at the same time that the supply of money-capital, from realised profits, and savings, has become constrained, means that interest rates will rise, asset prices will crash, and so the only leg left that was propping up this continued diversion of money-capital into speculation rather than real capital accumulation will have been kicked away. Real profits from real investment will become the magnet that attracts money-capital, rather than the fake capital gains that drew it in over the last thirty years.
Its not only investment in electric vehicles, and all of the infrastructure related to it that is likely to increase rapidly. The experience of home-working will mean that companies, like Microsoft, that have developed software for team working, and activity are likely to advance. We have also seen why the high street, and even retail parks are dead, and the future lies with online shopping. I'm unlikely to return to Sainsbury's, who proved incapable of providing me with delivery slots, whereas TESCO, Morrisons and Iceland did. But, this increase in online activity, along with the roll-out of 5G, means much greater investment in the infrastructure is required.
People having online consultations with their GP's has also increased, showing why its no longer necessary to be tied to just one GP practice. It means that the NHS will have to adopt the Babylon model, or else be eclipsed by private providers of it. But, it will need to be linked to far greater technology to provide constant monitoring of bodily functions, wearable or implanted technology and so on. Indeed, the virus is a good example of why comprehensive genome mapping is required so as to identify who is likely to be susceptible to various diseases, and so provide preventive measures before they become ill. That in itself raises the question of the need to have all of this data under workers ownership and control.
These are just a few of the new industries and commodities set to flourish out of the base technologies developed in the last Innovation Cycle. As money and money-capital floods out of collapsing financial and property markets, and into the real economy, and real capital accumulation, I expect the Spring Phase of the long-wave cycle, hibernated in 2010, to resume with a bang, and it will create a surge in demand for labour-power that will see wages for those actually in employment surge. For those cast out of employment, as a result of the lockdown, this will appear as even more egregious, as their incomes fall even further behind, creating a further divide between old, unskilled workers in decaying towns, with younger better educated workers in cities. It may take several years for that situation to resolve itself as strong economic growth eventually sucks in these remaining pockets of workers, or as they die out, the jobs being taken up by their grandchildren, as they enter the labour market.
Interest Rates
Next Revenues - Interest and Rent
Interest Rates
Next Revenues - Interest and Rent
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