        C.3 What determines the distribution between labour and capital?

   In short, class struggle determines the distribution of income between
   classes (As Proudhon put it, the expression "the relations of profits
   to wages" means "the war between labour and capital." [System of
   Economical Contradictions, p. 130]). This, in turn, is dependent on the
   balance of power within any given economy at any given time.

   Given our analysis of the source of surplus value in [1]section C.2.2,
   this should come as no surprise. Given the central role of labour in
   creating both goods (things with value) and surplus value, production
   prices determine market prices. This means that market prices are
   governed, however indirectly, by what goes on in production. In any
   company, wages determine a large percentage of the production costs.
   Looking at other costs (such as raw materials), again wages play a
   large role in determining their price. Obviously the division of a
   commodity's price into costs and profits is not a fixed ratio, which
   mean that prices are the result of complex interactions of wage levels
   and productivity. Within the limits of a given situation, the class
   struggle between employers and employees over wages, working conditions
   and benefits determines the degree of exploitation within a society and
   so the distribution of income, i.e. the relative amount of money which
   goes to labour (i.e. wages) and capital (surplus value).

   To quote libertarian socialist Cornelius Castoriadis:

     "Far from being completely dominated by the will of the capitalist
     and forced to increase indefinitely the yield of labour, production
     is determined just as much by the workers' individual and collective
     resistance to such increases. The extraction of 'use value form
     labour power' is not a technical operation; it is a process of
     bitter struggle in which half the time, so to speak, the capitalists
     turn out to be losers.

     "The same thing holds true for living standards, i.e., real wage
     levels. From its beginnings, the working class has fought to reduce
     the length of the workday and to raise wage levels. It is this
     struggle that has determined how these levels have risen and fallen
     over the years . . .

     "Neither the actual labour rendered during an hour of labour time
     nor the wage received in exchange for this work can be determined by
     any kind of 'objective' law, norm, or calculation . . . What we are
     saying does not mean that specifically economic or even 'objective'
     factors play no real in determining wage levels. Quite the contrary.
     At any given instant, the class struggle comes into play only within
     a given economic -- and, more generally, objective -- framework, and
     it acts not only directly but also through the intermediary of a
     series of partial 'economic mechanisms.' To give only one example
     among thousands, an economic victory for workers in one sector has a
     ripple effect on overall wage levels, not only because it can
     encourage other workers to be more combative, but also because
     sectors with lower wage levels will experience greater difficulties
     recruiting manpower. None of these mechanisms, however, can
     effectively act on its own and have its own significance if taken
     separately from the class struggle. And the economic context itself
     is always gradually affected one way or another by this struggle."
     [Political and Social Writings, vol. 2, p. 248]

   The essential point is that the extraction of surplus value from
   workers is not a simple technical operation, as implied by the
   neo-classical perspective (and, ironically, classical Marxism as
   Castoriadis explains in his classic work "Modern Capitalism and
   Revolution" [Op. Cit., pp. 226-343]). As noted previously, unlike the
   extraction of so many joules from a ton of coal, extracting surplus
   value ("use value") from labour power involves conflict between people,
   between classes. Labour power is unlike all other commodities - it is
   and remains inseparably embodied in human beings. This means that the
   division of profits and wages in a company and in the economy as a
   whole is dependent upon and modified by the actions of workers (and
   capitalists), both as individuals and as a class. It is this struggle
   which, ultimately, drives the capitalist economy, it is this conflict
   between the human and commodity aspects of labour power that ultimately
   brings capitalism into repeated crisis (see [2]section C.7).

   From this perspective, the neo-classical argument that a factor in
   production (labour, capital or land) receives an income share that
   indicates its productive power "at the margin" is false. Rather, it is
   a question of power -- and the willingness to use it. As Christopher
   Eaton Gunn points out, the neo-classical argument "take[s] no account
   of power -- of politics, conflict, and bargaining -- as more likely
   indicators of relative shares of income in the real world." [Workers'
   Self-Management in the United States, p. 185] Ultimately, working class
   struggle is an "indispensable means of raising their standard of living
   or defending their attained advantages against the concerted measures
   of the employers." It is "not only a means for the defence of immediate
   economic interests, it is also a continuous schooling for their powers
   of resistance, showing them every day that every last right has to be
   won by unceasing struggle against the existing system." [Rocker,
   Anarcho-Syndicalism, p. 78]

   If the power of labour is increasing, its share in income will tend to
   increase and, obviously, if the power of labour decreased it would
   fall. And the history of the post-war economy supports such an
   analysis, with labour in the advanced countries share of income falling
   from 68% in the 1970s to 65.1% in 1995 (in the EU, it fell from 69.2%
   to 62%). In the USA, labour's share of income in the manufacturing
   sector fell from 74.8% to 70.6% over the 1979-89 period, reversing the
   rise in labour's share that occurred over the 1950s, 1960s and 1970s.
   The reversal in labour's share occurred at the same time as labour's
   power was undercut by right-wing governments who have pursued business
   friendly "free market" policies to combat "inflation" (an euphemism for
   working class militancy and resistance) by undermining working class
   power and organisation by generating high unemployment.

   Thus, for many anarchists, the relative power between labour and
   capital determines the distribution of income between them. In periods
   of full employment or growing workplace organisation and solidarity,
   workers wages will tend to rise faster. In periods where there is high
   unemployment and weaker unions and less direct action, labour's share
   will fall. From this analysis anarchists support collective
   organisation and action in order to increase the power of labour and
   ensure we receive more of the value we produce.

   The neo-classical notion that rising productivity allows for increasing
   wages is one that has suffered numerous shocks since the early 1970s.
   Usually wage increases lag behind productivity. For example, during
   Thatcher's reign of freer markets, productivity rose by 4.2%, 1.4%
   higher than the increase in real earnings between 1980-88. Under
   Reagan, productivity increased by 3.3%, accompanied by a fall of 0.8%
   in real earnings. Remember, though, these are averages and hide the
   actual increases in pay differentials between workers and managers. To
   take one example, the real wages for employed single men between 1978
   and 1984 in the UK rose by 1.8% for the bottom 10% of that group, for
   the highest 10%, it was a massive 18.4%. The average rise (10.1%) hides
   the vast differences between top and bottom. In addition, these figures
   ignore the starting point of these rises -- the often massive
   differences in wages between employees (compare the earnings of the CEO
   of McDonalds and one of its cleaners). In other words, 2.8% of nearly
   nothing is still nearly nothing!

   Looking at the USA again, we find that workers who are paid by the hour
   (the majority of employees) saw their average pay peak in 1973. Since
   then, it had declined substantially and stood at its mid-1960s level in
   1992. For over 80 per cent of the US workforce (production and
   non-supervisory workers), real wages have fallen by 19.2 per cent for
   weekly earnings and 13.4 per cent for hourly earnings between 1973 and
   1994. Productivity had risen by 23.2 per cent. Combined with this drop
   in real wages in the USA, we have seen an increase in hours worked. In
   order to maintain their current standard of living, working class
   people have turned to both debt and longer working hours. Since 1979,
   the annual hours worked by middle-income families rose from 3 020 to 3
   206 in 1989, 3 287 in 1996 and 3 335 in 1997. In Mexico we find a
   similar process. Between 1980 and 1992, productivity rose by 48 per
   cent while salaries (adjusted for inflation) fell by 21 per cent.

   Between 1989 to 1997, productivity increased by 9.7% in the USA while
   median compensation decreased by 4.2%. In addition, median family
   working hours grew by 4% (or three weeks of full-time work) while its
   income increased by only 0.6 % (in other words, increases in working
   hours helped to create this slight growth). If the wages of workers
   were related to their productivity, as argued by neo-classical
   economics, you would expect wages to increase as productivity rose,
   rather than fall. However, if wages are related to economic power, then
   this fall is to be expected. This explains the desire for "flexible"
   labour markets, where workers' bargaining power is eroded and so more
   income can go to profits rather than wages.

   It is amazing how far the US in 2005, the paradigm for neo-liberalism,
   is from the predictions of neo-classical economic textbooks. Since the
   1970s, there has only been one period of sustained good times for
   working people, the late 1990s. Before and after this period, there has
   been wage stagnation (between 2000 and 2004, for example, the real
   median family income fell by 3%). While the real income of households
   in the lowest fifth grew by 6.1% between 1979 and 2000, the top fifth
   saw an increase of 70% and the average income of the top 1% grew by
   184%. This rising inequality was fuelled by the expansion of income
   from capital and an increased concentration of capital income in the
   top 1% (who received 57.5% of all capital income in 2003, compared to
   37.8% in 1979). This reflected the increased share of income flowing to
   corporate profits (profits rates in 2005 were the highest in 36 years).
   If the pre-tax return to capital had remained at its 1979 level, then
   hourly compensation would have been 5% higher. In 2005 dollars, this
   represents an annual transfer of $235 billion from labour to capital.
   [Lawrence Mishel, Jered Bernstein, and Sylvia Allegretto, The State of
   Working America 2006/7, pp. 2-3]

   Labour's share of income in the corporate sector fell from 82.1% in 179
   to 81.1% in 1989, and then to 79.1% in 2005. However, this fall is even
   worse for labour as labour income "includes the pay of Chief Executive
   Officers (CEOs), thereby overstating the income share going to
   'workers' and understating 'profits,' since the bonuses and stock
   options given CEOs are more akin to profits than wages" and so "some of
   the profits are showing up in CEO paychecks and are counted as worker
   pay." [Op. Cit., p. 83 and p. 84]

   Unsurprisingly, there has been a "stunning disconnect between the rapid
   productivity growth and pay growth," along with a "tremendous widening
   of the wage gap between those at the top of the wage scale,
   particularly corporate chief executive officers [CEO], and other wage
   earners." Between 1979 and 1995, wages "were stagnant or fell for the
   bottom 60% of wage earners" and grew by 5% for the 80th percentile.
   Between 1992 and 2005, saw median CEO pay rise by 186.2% while the
   media worker saw only a 7.2% rise in their wages. Wealth inequality was
   even worse, with the wealth share of the bottom 80% shrinking by 3.8
   percentage points (which was gained by the top 5% of households). Using
   the official standard of poverty, 11.3% of Americans were in poverty in
   2000, rising to 12.7% in 2004 ("This is the first time that poverty
   rose through each of the first three years of a recovery"). However,
   the official poverty line is hopelessly out of date (for a family of
   four it was 48% of median family income in 1960, in 2006 it is 29%).
   Using a threshold of twice the official value sees an increase in
   poverty from 29.3% to 31.2% [Op. Cit., p. 4, p. 5, p. 7, p. 9 and p.
   11]

   Of course, it will be argued that only in a perfectly competitive
   market (or, more realistically, a truly "free" one) will wages increase
   in-line with productivity. However, you would expect that a regime of
   freer markets would make things better, not worse. This has not
   happened. The neo-classical argument that unions, struggling over wages
   and working conditions will harm workers in the "long run" has been
   dramatically refuted since the 1970s -- the decline of the labour
   movement in the USA has been marked by falling wages, not rising ones,
   for example. Despite of rising productivity, wealth has not "trickled
   down" -- rather it has flooded up (a situation only surprising to those
   who believe economic textbooks or what politicians say). In fact,
   between 1947 and 1973, the median family income rose by 103.9% while
   productivity rose by 103.7% and so wages and productivity went
   hand-in-hand. Since the mid-1970s this close mapping broke down. From
   1973 to 2005, productivity rose by 75.5% while income increased by a
   mere 21.8%, less than one-third the rate of productivity (from 2000 to
   2004, productivity rose by 14% while family income fell by 2.9%). This
   wedge is the source of rising inequality, with the upper classes
   claiming most of the income growth. [Op. Cit., p. 46]

   All of which refutes those apologists for capitalism who cite the
   empirical fact that, in a modern capitalist economy, a large majority
   of all income goes to "labour," with profit, interest and rent adding
   up to something under twenty percent of the total. Of course, even if
   surplus value were less than 20% of a workers' output, this does not
   change its exploitative nature (just as, for the capitalist apologist,
   taxation does not stop being "theft" just because it is around 10% of
   all income). However, this value for profit, interest and rent is based
   on a statistical sleight-of-hand, as "worker" is defined as including
   everyone who has a salary in a company, including managers and CEOs.
   The large incomes which many managers and all CEOs receive would, of
   course, ensure that a large majority of all income does go to "labour."
   Thus this "fact" ignores the role of most managers as de facto
   capitalists and their income represents a slice of surplus value rather
   than wages. This sleight-of-hand also obscures the results of this
   distribution for while the 70% of "labour" income goes into many hands,
   the 20% representing surplus value goes into the hands of a few. So
   even if we ignore the issue of CEO "wages", the fact is that a
   substantial amount of money is going into the hands of a small minority
   which will, obviously, skew income, wealth and economic power away from
   the vast majority.

   To get a better picture of the nature of exploitation within modern
   capitalism we have to compare workers wages to their productivity.
   According to the World Bank, in 1966, US manufacturing wages were equal
   to 46% of the value-added in production (value-added is the difference
   between selling price and the costs of raw materials and other inputs
   to the production process). In 1990, that figure had fallen to 36% and
   by 1993, to 35%. Figures from the 1992 Economic Census of the US Census
   Bureau indicate it had reached 19.76% (39.24% if we take the total
   payroll which includes managers and so on). In the US construction
   industry, wages were 35.4% of value added in 1992 (with total payroll,
   50.18%). Therefore the argument that because a large percentage of
   income goes to "labour" capitalism is fine hides the realities of that
   system and the exploitation its hierarchical nature creates.

   Overall, since the 1970s working class America has seen stagnating
   income, rising working hours and falling social (i.e. income-class)
   mobility while, at the same time, productivity has been rising and
   inequality soaring. While this may come as a surprise (or be considered
   a paradox by capitalist economics, a paradox usually to be justified
   and rationalised id acknowledged at all) anarchists consider this to be
   a striking confirmation of their analysis. Unsurprisingly, in a
   hierarchical system those at the top do better than those at the
   bottom. The system is set up so that the majority enrich the minority.
   That is way anarchists argue that workplace organisation and resistance
   is essential to maintain -- and even increase -- labour's income. For
   if the share of income between labour and capital depends on their
   relative power -- and it does -- then only the actions of workers
   themselves can improve their situation and determine the distribution
   of the value they create.

   This analysis obviously applied within classes as well. At any time,
   there is a given amount of unpaid labour in circulation in the form of
   goods or services representing more added value than workers were paid
   for. This given sum of unpaid labour (surplus value) represents a total
   over which the different capitalists, landlords and bankers fight over.
   Each company tries to maximise its share of that total, and if a
   company does realise an above-average share, it means that some other
   companies receive less than average.

   The key to distribution within the capitalist class is, as between that
   class and the working class, power. Looking at what is normally,
   although somewhat inaccurately, called monopoly this is obvious. The
   larger the company with respect to its market, the more likely it is to
   obtain a larger share of the available surplus, for reasons discussed
   later (see [3]section C.5). While this represents a distribution of
   surplus value between capitalists based on market power, the important
   thing to note here is that while companies compete on the market to
   realise their share of the total surplus (unpaid labour) the source of
   these profits does not lie in the market, but in production. One cannot
   buy what does not exist and if one gains, another loses.

   Market power also plays a key role in producing inflation, which has
   its roots in the ability of firms to pass cost increases to consumers
   in the form of higher prices. This represents a distribution of income
   from lenders to borrowers, i.e. from finance capital to industrial
   capital and labour to capital (as capital "borrows" labour, i.e. the
   workers are paid after they have produced goods for their bosses). How
   able capitalists are to pass on costs to the general population depends
   on how able they are to withstand competition from other companies,
   i.e. how much they dominate their market and can act as a price setter.
   Of course, inflation is not the only possible outcome of rising costs
   (such as wage rises). It is always possible to reduce profits or
   increase the productivity of labour (i.e. increase the rate of
   exploitation). The former is rarely raised as a possibility, as the
   underlying assumption seems to be that profits are sacrosanct, and the
   latter is dependent, of course, on the balance of forces within the
   economy.

   In the next section, we discuss why capitalism is marked by big
   business and what this concentrated market power means to the
   capitalist economy.

References

   1. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC2.html#secc22
   2. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC7.html
   3. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC5.html
