How Capitalism Exploits Workers

Capitalism is the insanity of a company making a fortune each year but paying the very people whose labors created this wealth so little they live in poverty.

In 2011, Walmart made $15.7 billion in profits, or net income after expenses and taxes; its CEO took $17.6 million in total compensation and its average U.S. employee made $22,100.[1] The CEO made almost 800 times what his average American employee earned. Over the last few decades, executive pay and corporate profits skyrocketed, while worker wages in America barely budged. On average, American CEOs are earning some 300 times the annual pay of their workers (in 1965 it was a 20:1 ratio). That’s just salaries – forget about the value of company shares that come with ownership! The Walton family, which owns the majority shares of Walmart, is worth $140 billion. Nike makes over $4 billion in profit, and its founder is worth $25 billion. In a matter of decades or even mere years, the capitalist’s wealth explodes – thousands, millions, billions of dollars. Are the workers who made this possible also growing tens of thousands or hundreds of thousands of times richer? This is also merely a comparison to American workers. Corporations like Walmart, H&M, and Gap find it more profitable to exploit impoverish Third World nations, so they move plants overseas and pay people starvation wages. Bangladesh employees suffered through terribly unsafe working conditions (1,100 died in 2013 when their factory collapsed in on them; others burned to death in early 2015 in a factory without proper sprinkler systems[2]) to earn on average $1,097 in 2011, meaning the CEO made more money than 16,043 of his foreign laborers.

Is the value of a capitalist’s daily work really 800 times greater than an employee’s? Or 16,000 times greater? This is like believing the work of the king a thousand times more valuable than the work of the serf, whose very labors keep the king’s belly full. It is simple exploitation, a ruling minority growing wealthy off the hard labors of the poor majority. Business owners use their workers and the wealth created by worker hands to grow rich and live easier, more luxurious lives. Decision-making power is under the total control of one person, or a small handful of directors, making a business very much a dictatorship.

Richard D. Wolff, economics professor at the University of Massachusetts-Amherst, writes:

[We] need to democratize our enterprises. We need to stop an economic system in which all the enterprises that produce the goods and services we depend upon are organized un-democratically. The vast majority of people come to work Monday through Friday, 9:00 a.m. to 5:00 p.m. They arrive and they use their brains and muscles to work with equipment provided by the employer to produce an output, a good or a service. At the end of the day they go home. They take with them their brain and their body, but they leave behind what they’ve produced, and the employer takes it and sells it and makes as much money as possible.

Who makes all the decisions in this arrangement? A tiny group of people. In most U.S. corporations, that group is called the board of directors, fifteen to twenty people who decide what to produce, how to produce, where to produce, and what to do with the profits. And who selects these people? The major shareholders. Another tiny group of fifteen to twenty people. They make all the decisions. The vast majority of working people make no decisions. If the company decides to close down here and go somewhere else, what does that mean? It means that a small group of board members and major shareholders are moving the factory from Ohio to Canton, China…all the people who work in the Ohio plant are going to lose their jobs…

We permit that decision to be made by a minority. That’s capitalism. And we’ve allowed it as a system to dominate over democracy as a system. The majority of people who have to live with the consequences of a decision ought to participate in making it, but they don’t…[3]

Apologists for this system argue, as Chris Harman writes in Economics of the Madhouse, that “profits… [are] a reward to the capitalist for using his wealth to employ people rather for his own immediate consumption.”[4] We take exploitation for granted, hardly giving it a second thought. The capitalist deserves his millions, doesn’t he? He built a business from nothing, he worked hard for decades to make it profitable, he gave others jobs.

Well, in the beginning the founder creates the good or provides the service (creating the wealth), but without workers he or she cannot produce on a scale larger than him- or herself. Would Bill Gates be where he is today without employees?

The founder must hire workers and become a manager, leaving the workers to take his place as producer. The capitalist exploits workers because it is they who create the wealth by producing the good or providing the service. For the capitalist, the sale of each good or service must cover the cost of production, the cost of labor (worker compensation), and a little extra: profit the owner uses as he or she chooses. Therefore workers are not paid the full value of what they produce. This is exploitation. The wealth the workers produce is controlled and pocketed by the capitalist. The capitalist awards herself much while keeping worker wages as low as possible–to increase profits. The capitalist holds all decision-making power, making capitalism authoritarian as well as a grand theft from the people who generate wealth. Capitalism is the few growing rich off the labor of the many.

Say a woman begins a business by herself. She is creating her own wealth, selling a good or service to others and exploiting no one when she decides how much profit she will keep for herself as income and how much she will use to invest and expand. Should this woman take an equal partner, and they together decide where to take their business and what earnings to subtract from the year’s profits, exploitation is still a non-issue. But when the woman assumes a managerial role by hiring people to perform the good or service, they will not democratically decide earnings or business goals. As the owner, the woman will retain total decision-making control, and take a larger income out of the profit pool than she will award to her employees.

Exploitation has begun. The workers are creating the commodity, but the capitalist will reap more of the wealth created by their hands than they will. The capitalist, while perhaps still working hard, is no longer doing the miserable tasks necessary to directly generate wealth. Anyone who has held a job would surely agree with Marx: “In proportion, therefore, as the repulsiveness of the work increases, the wage decreases.”[5] The owner no longer scrubs dishes in the back of a fast food joint or operates sweatshop machines sewing our clothing. Instead, she decides what to do with the profits created by others. And by taking more of the wealth as personal income, she steadily builds for herself a better life. She keeps worker wages down to protect profits, her means of making a higher income and expanding her business. She will hire more people, but they will be exploited too, the majority of the wealth they create being appropriated by her, “not by force,” as Einstein noted, “but on the whole in faithful compliance with legally established rules.”[6] The workers do not get to take an equitable portion of the money they have made for the company. Their wages are kept low by the capitalist, their lives seeing little improvement unless they strike to convince her that more of the profits should go to those who produced it.

Privately, capitalists will admit that they grow wealthy at the expense of labor, as in Citigroup’s 2005 and 2006 internal strategy documents.

Expanding on the absurdities, Harman points out:

Employing people involves buying their labor. If a capitalist gets a profit for doing this, than everyone else who buys something should get a profit… [Plus,] the capitalist does not sacrifice his existing wealth when he invests. In fact, his investment preserves its worth, while profit is something he gets on top for doing nothing.

So if real profit rates are 10 percent (quite a low figure by capitalist standards) someone with a million pounds to invest can spend £100,000 a year (£2,000 a week) on indulging themselves in the most unabstemious way and still be worth as much at the end of the year as at the beginning—and get another £100,000 the next year for doing nothing…

What is really happening, Marx insisted, is that the capitalist is able to make a profit by seizing some of the labour of his workers.[7]

Even Adam Smith, author of what is now considered a conservative bible, The Wealth of Nations (1776), knew that wealth is created by the labor of workers. He wrote:

The real price of everything, what it really costs the men who want to acquire it, is the toil and trouble of acquiring it… It is not by gold or silver, but by labour, that all the wealth of the world was originally purchased, and its value to those who possess it and who want to exchange it for some other object, is precisely equal to the quantity of labour which it enables them to purchase or command.[8]

He noted how profit was the wealth generated by labor that was taken by the capitalist:

The landlord demands a share of almost all the produce which the labourer can either raise or collect from it. His rent makes the first deduction from the produce of the labour which is employed upon the land… The produce of almost all other labour is subject to the like deduction of profit… He shares in the produce of their labour…and this share consists his profit.[9]

Smith also describes the fundamental clash of interests between workers and owners, the poor and the rich, and the imbalance of power between them:

The interests of the two parties are by no means the same. The workmen desire to get as much as possible, the masters to give as little as possible. The former are disposed to combine in order to raise, the latter in order to lower the wages of labour. It is not difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute and force the other into compliance with their terms.[10]

This description of an adversarial relationship is similar to what University of Oxford fellow G. A. Cohen wrote in his little book Why Not Socialism? in 2009, when he discussed what the cash reward motive of the marketplace did to people:

It is true that people can engage in market activity under other inspirations, but the motives of greed and fear are what the market brings to prominence, and that includes the greed on behalf of, and fear for the safety of, one’s family. Even when one’s concerns are thus wider than those of one’s mere self, the market posture is greedy and fearful in that one’s opposite-number marketers are predominantly seen as possible sources of enrichments, and as threats to one’s success.[11]

Smith, comparing feudalism with the property owners and business owners of his time, wrote, “All for ourselves and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.”[12] Chomsky notes that Smith believed in markets because he thought free markets could produce perfect equality, and give workers a chance to control their own work and lives.[13] This was before early capitalism had full formed into industrial capitalism. Smith’s ideas were later accepted by and expanded upon by Marx, who knew that even when capitalists provide machines, factories, or tools for the worker to use to generate new wealth, that technology was likewise the product of labor, which was also exploited by capitalist owners, and on and on into the past. This reveals the absurdity of capitalist claims that they are the true creators of wealth. Workers create wealth and create the machines that enable other workers to do the same. Capitalists are not the creators of wealth, they are the hoarders of wealth created by others. And as we will see in our discussion of worker ownership, capitalist control is by no means necessary to run a business.

Abraham Lincoln, while no socialist, understood all this. As John Nichols points out in The “S” Word: A Short History of an American Tradition…Socialism, Lincoln was close to socialist editor of the New York Tribune Horace Greeley, befriended and allied himself with radicals who fled after the failed revolutions in Europe in 1848 (some of them friends of Marx), appointed one socialist as his assistant secretary of war and another his ambassador to Spain, and even cordially corresponded with Marx, who opposed black slavery, about the American Civil War.[14] Lincoln said in his 1861 State of the Union Address:

Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration. Capital has its rights, which are as worthy of protection as any other rights. Nor is it denied that there is, and probably always will be, a relation between labor and capital producing mutual benefits. The error is in assuming that the whole labor of community exists within that relation. A few men own capital, and that few avoid labor themselves, and with their capital hire or buy another few to labor for them…[15]

But, one might protest, isn’t it the capitalist’s right as creator of the company to do this? Shouldn’t ideals of basic human freedom allow her to delegate more unpleasant tasks to employees, to award herself more money than employees, and to maintain all decision-making power over the business she launched? It seems you are hinting at, one might say, a structure where the employees have decision-making power and award themselves higher, equal incomes.

Socialistic worker cooperatives are the goal indeed, as explained in detail elsewhere. They are non-exploitative, democratic institutions. This is about human freedom for the many, the workers. To put it bluntly, it is about a higher form of ethical thinking. After all, the freedom for business owners has often come at the expense of the freedom of workers, such as when the former desires the “freedom” to refuse to higher women, blacks, Hispanics, gays, and so on, or the “freedom” to pay them less than white males. Dr. King once said humanity needed “a revolution of values”—I think the idea applies here. Whose freedom will we prioritize? How much do we value democracy? Will we reject exploitation and poverty? Humanity must move beyond a system that transforms the labor of the majority into the riches of the minority. An ethical person should not tolerate a system that embraces authoritarianism, exploits the labor of others, and creates massive inequality.

Dylan Monahan says:

It goes without saying that capitalism causes economic inequality. This is actually a point of pride for defenders of the system—they believe that the free market thrives because the deserving few are rewarded. The Marxist critique of capitalism takes the exact opposite position: The tiny few who live so well compared to the rest of us are completely undeserving of their immense wealth—they amassed their fortunes through systematic theft of the labor of the working majority in society.[16]

Apologists insist that under capitalism, everyone is free to sell their labor to whomever they wish. So if the woman exploits you, you can work elsewhere. However:

As Marx put it, ‘the worker can leave the individual capitalist to whom he hires himself whenever he likes… But the worker, whose sole source of livelihood is the sale of his labor, cannot leave the whole class of purchasers, that is the capitalist class, without renouncing his existence.’

The worker may not be a slave, the personal property of one capitalist. But he or she is a ‘wage slave’, compelled to toil for some member of the class of capitalists. This puts the worker in a position where he or she has to accept a wage less than the total product of their labour. The value of their wage under capitalism is never nearly as big as the value of the labour they actually do.[17]

Einstein agreed: “What the worker receives is determined not by the real value of the goods he produces, but by his minimum needs and by the capitalists’ requirements for labor power in relation to the number of workers competing for jobs. It is important to understand that even in theory the payment of the worker is not determined by the value of his product.”[18] Remember how the price of a good or service is divided up. The worker’s wage is not equal to the value of what he or she produces, because if it was there would be no profit for the capitalist.

Because you and your fellow workers are not adequately paid for the value of your labor, capitalist profits can build up immensely while your own wages improve only marginally, remain the same, or even fall.

Take a company that announces a ‘net rate profit’ of 10 per cent. It is saying that if the cost of all the machinery, factories and so on that they own is £100 million, then they are left with £10 million profit after paying the wages, raw material costs and the cost of replacing machinery that wears out in a year.

You don’t have to be a genius to see that after ten years the company will have made a total profit of £100 million—the full cost of the original investment…the capitalist is twice as wealthy as before. He owns his original investment and the accumulated profits.

The worker, in the mean time, has sacrificed most of his life’s energy to working eight hours a day, 48 weeks a year, in the factory. Is he twice as well off at the end of that time as at the beginning? You bet your boots he’s not.[19]

This is why our minimum wage is absurd. The prosperity of the business class has skyrocketed, but worker wages have stagnated. In the 1960s and 70s, average CEO compensation was 30-40 times greater than the average worker compensation. Today, it’s on average 300-400 times greater (in 2011, the J.C. Penny CEO earned 1,795 times as much as the average department store worker[20]). From 1979 to 2013, middle class incomes rose only 6 percent, while lower class incomes fell 5%.[21] According to The New York Times, in 2012 corporate profits comprised its largest share of the national income since 1950, but employees had nearly its smallest portion of the national income since 1966.[22] Productivity rose 72.2% from 1973-2014, while hourly compensation rose only 9.2% (but owners’ compensation rose with the productivity, up 63.3%).[23] See The Last Article on the Minimum Wage You Will Ever Need to Read for a refutation of conservative myths on the topic.

The massive increases in the prosperity of the corporate class can allow for substantial increases in worker wages. In fact, wages must rise with profits and productivity to preserve a stable and successful economy, to allow buyers to keep up with production. But the free market, in pursuit of profit, doesn’t do this. The richest 1% saw its share of the national income double since 1979. The share of the richest 0.1% almost tripled. Between 1989 and 2006, the top 10% in the U.S. appropriated 91% of the income growth; the top 1% took 59%![24] Between 2009 and 2012, 95% of income gains went to the top 1%.[25] Income inequality worsens. More wealth is concentrated in fewer hands. There exists

trillions in cash the so-called “job creators” and “captains of industry” have parked unproductively in bank accounts, while millions of able and willing workers languish in unemployment. The top 1% have as much wealth as the bottom 95%. The richest 400 families in the U.S. have as much wealth as the bottom 50% of the population… The poorest 50% own just 2.5% of the country’s wealth.[26]

The bottom 80% of the people own 16% of American wealth, and the share of the top 1% is nearing 50%.[27] Globally, the richest 85 people have more money than the poorest 3.5 billion. The bottom half of earth’s population has less than 1% of humanity’s wealth, the top 10% of the population has 86% (the top 1%, 46%).[28]

Besides increased productivity and employers taking higher percentages of profits as salaries, all while wages remain stagnant, why else does this wealth gap keep growing?

There are many factors, but let us consider a few major ones. First, capitalists shift to temporary, contract, or part-time workers who don’t get benefits. Second, they invest in new technology that makes their systems more automated, allowing them to further reduce their workforce and save on labor costs. I have written more on technology under capitalism (versus under socialism) elsewhere. Third, as union membership and collective bargaining power shrink, income inequality grows. Finally, firms outsource their workforces to places like China, Bangladesh, Mexico, and the Philippines, since they can get away with paying workers pennies in comparison to American employees, with the added benefit of weaker environmental and workplace safety regulations. The conditions of the factories overseas are often horrific. Sometimes workers live at the factory, packed into dormitories like sardines. They work long hours at exhausting speeds, and can be exposed to dangerous toxins. Companies like Apple have had to deal with suicide scandals, as some workers cannot tolerate the conditions (Goldin, Smith, and Smith, Imagine: Living in a Socialist USA).

Outsourcing became common practice, as capitalism grew more global and corporations became international. There are sometimes strategic exceptions to these trends (raising wages is used by corporations to gain highly-skilled, specialized workers, drive competitors into the ground by sapping their workforce, or, among an enlightened few, to prevent economic failure by increasing consumer purchasing power). But keeping low-skill labor costs down is central to higher revenue, and is the driving force behind the loss of American jobs and the brutal exploitation of foreign workers. In the 2000s, the largest U.S. corporations alone, employing a fifth of American workers, reduced their American workforce by 3 million jobs while increasing outsourced jobs by 2.5 million. The nation as a whole sent 3 million jobs to China alone between 2001 and 2013. Some 14 million people work for American corporations overseas – far higher than the typical U.S. unemployment rate. Most at risk are manufacturing jobs, as well as call center, tech, and human resources jobs.

 

Notes

[1] http://fortune.com/fortune500/2012/wal-mart-stores-inc-2/

[2] http://www.cbsnews.com/news/the-bangladesh-factory-collapse-one-year-later/; http://www.wsws.org/en/articles/2015/02/03/bang-f03.html

[3] Wolff, Occupy the Economy

[4] Harman, Madhouse

[5] Marx, Communist Manifesto

[6] Einstein, “Why Socialism?”

[7] Harman, Madhouse

[8] Smith, Wealth of Nations

[9] Smith, Wealth of Nations

[10] Smith, Wealth of Nations

[11] Cohen, Why Not Socialism?

[12] Smith, Wealth of Nations

[13] Chomsky, Anarchism

[14] Nichols, The S-Word

[15] http://www.presidency.ucsb.edu/ws/?pid=29502

[16] http://socialistworker.org/2014/03/31/snapshots-of-inequality

[17] Harman, Madhouse

[18] Einstein, “Why Socialism?”

[19] Harman, Madhouse

[20] http://www.bloomberg.com/news/2013-04-30/ceo-pay-1-795-to-1-multiple-of-workers-skirts-law-as-sec-delays.html

[21] http://www.epi.org/publication/charting-wage-stagnation/

[22] http://www.nytimes.com/2013/03/04/business/economy/corporate-profits-soar-as-worker-income-limps.html

[23] http://www.epi.org/publication/the-top-charts-of-2015/?utm_content=buffer791fd&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

[24] Milanovic, The Haves and Have Nots

[25]http://www.slate.com/blogs/moneybox/2013/09/10/one_percent_recovery_95_percent_of_gains_have_gone_to_the_top_one_percent.html

[26] http://www.marxist.com/is-capitalism-dying.htm

[27] http://www.people.hbs.edu/mnorton/norton%20ariely.pdf

[28] http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/22/10-startling-facts-about-global-wealth-inequality/

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