The Invisible Handcuffs of Capitalism: How Market Tyranny Stifles the Economy by Stunting Workers (12 page)

An August 8, 2008, search of the seventy-six economics journals collected electronically in the JSTOR database revealed how marginal work, workers, and working conditions have become in the economic literature. Within the articles published since January 2004, the term “working conditions” appeared in only twelve, in addition to four substantial articles in the
Review of African Political Economy
, a progressive publication that would hold little interest for most mainstream economists. Of the remaining articles, three concerned the problem of retention of teachers. Another had a footnote with the observation that people can learn about working conditions from websites. One article noted that faculty members in colleges and universities should join unions to improve working conditions. A book review considered whether globalization could improve working conditions. Two articles
mentioned legislation that took working conditions into account. One article disputed that child labor abroad experienced hideous working conditions. Another cited a mid-nineteenth-century British economist who said that factory working conditions were good. Hardly an indication of serious scholarship!

My favorite entry was from Martin Feldstein, whose contempt for “spiteful egalitarians” was discussed earlier. This article was one of his many attacks on Social Security. Here, he proposed treating good working conditions as taxable income.
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What makes this piece so intriguing is that Feldstein is an ardent anti-taxer. He teaches that business taxes are destructive for economic growth. Yet here he is willing to consider working conditions, not with workers’ interest in mind, but as a source of tax revenue!

None of the articles had even a hint of serious engagement with work, workers, or working conditions. In contrast, the sociology collection, with ten fewer journals, returned 107 articles. Human resource economics would likewise provide more articles than traditional economics, but that subdiscipline is more often associated with business.

In the late nineteenth century, economists did discuss labor in terms of policy questions. Their concern for what they called “The Labor Problem” was that labor was insufficiently submissive. At the same time, questions of labor were fast disappearing from the theoretical literature, except to “prove” that labor markets were fair. Instead, economics began to elevate the status of investors’ financial claims, insisting that owners of this form of property had rights equal to those of owners of real goods, such as land or factories. Even something as ephemeral as the monetary value “goodwill”—not the kind of goodwill associated with charitable behavior—became recognized as property.

In effect, economics, which one might expect to be the study of the material well-being of society, turns out to emphasize a subset of psychological processes—consumers’ supposed introspection, with matters such as corporate estimates of goodwill thrown in. Because economics stubbornly treats this psychology as rational, the discipline
assumes that the outcome will be efficient, even when facts on the ground indicate otherwise.

Despite the emphasis on psychology, economics carefully looks away from anything regarding the real mental and physical states of the people who do the work necessary to keep the economy going. While people commonly speak of an information economy, one might expect that the mental state of workers might have some relevance!

In short, the ideological underpinnings of economics serve to reinforce the Procrustean structure of the system, carefully ignoring the glaring inefficiencies of Procrusteanism.

The Unrealistic Realism of Procrustean Economics

Within the context of a Procrustean economy, treating workers as objects actually lends a touch of realism to mainstream economic theory. However, my crediting the theoretical treatment of the reification of labor is not so much meant as praise for economic theory but as a rebuke to the current system of production.

Within this context, business mostly treats workers as interchangeable parts, relying on the threat of job loss in order to extract the maximum possible effort. In the words of Frank Knight, “The Economic man … treats other human beings as if they were slot machines.”
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From the perspective of this theory, employers hire labor with no more thought of the future than a typical consumer paying for a gallon of gas or a six-pack of beer. This simplification of the role of labor makes economics both easier and less relevant.

Indeed, employers do sometimes regard labor as disposable objects. For example, a Massachusetts state factory agent reported this exchange with a factory manager in 1855:

I inquired of the agent of a principal factory whether it was the custom of the manufacturers to do anything for the physical, intellectual, and moral welfare of their work people. “We never do,” he said. “As for myself, I regard people just as I regard my machinery. So long as they do my work
for what I choose to pay them, I keep them, getting out of them all I can. What they do or how they fare outside my wall I don’t know. They must look out for themselves. When my machines get old and useless, I reject them and get new, and these people are part of my machinery.”
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A recent biography of Charles Schwab, Andrew Carnegie’s assistant, reported a similar attitude at the Homestead plant in 1897. Here was “a remarkable steel making operation,” a “world leader,” but one that five years earlier had been the scene of the country’s bloodiest battle between labor and capital. Workers had learned to understand that they were nothing more than objects in the labor market. Schwab’s biographer reported that from their perspective, Schwab’s operation was “a soulless industrial monster. Men, like machinery, became items to use, write off, and replace.”
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During the New Deal, the power of unions meant that some industries had to acknowledge a more enduring relationship with its workers. But during the height of union power, economists still taught that training workers would not necessarily be in management’s best interest, because workers could use their training to bargain for higher wages elsewhere. Today, now that only a shadow of the union movement remains, the business press openly writes about disposable labor.

According to its own logic, capitalism does not use its slot machines very effectively. For example, workers’ productivity would increase if business trained as many workers as possible. Yet under this system, the highest corporate priority is to show continual increases in profit to satisfy the financial interests that hold their stock. Efforts to improve workers’ skills will not immediately boost short-term profits.

In addition, training may only allow workers to seek higher salaries from a different employer. As a result, what may make sense for business as a whole seems unattractive for individual firms. In short, business intentionally underinvests in workers’ training, undermining long-term growth, which apologists claim to be the objective of the economy.

Another quirk of economics reinforces the inability of economists to recognize labor’s potential. In order to make the theory simple enough to express with equations or with a diagram, economics typically eliminates time from consideration. Anyone familiar with a simple graph of supply and demand has seen an obvious example of this method of analysis. It starts with a situation in which supply equals demand. Then supply and/or demand shifts, causing prices to adjust to a level where supply and demand come into balance once again. The story tells nothing about how the market restores this balance, how long it will take, or how people adjust. Could this imbalance be temporary, or will further adjustments be necessary? Will the adjustments affect other parts of the economy?

Most crucially, to include time would mean that economists would have to contend with the uncertainty of the future. How could they prove that markets were efficient while taking time into account? Emphasizing consumption rather than production is useful in this regard. Consumers typically purchase finished goods. Producers, in contrast, may have to sink substantial funds in capital goods that may be unable to contribute to production for a considerable period. In the meantime, market conditions may have changed, making such investments inappropriate. Unless business has perfect foresight, market efficiency will be impossible.

Economics rarely addresses the problems associated with miscalculations by business. Most often economics merely assumes business rationality without taking into account the problem of investing for an uncertain future. In a slightly more sophisticated approach, economists can assume that some individual businesses might err, but on the whole such mistakes would not amount to much.

In contrast, despite the inattention to work, workers, and working conditions, economists tend to hold workers to a high standard of responsibility. Economists’ inner Procrustes blames workers for their own misfortunes, even when business miscalculations are at fault. Workers’ wages are low only because they fail to upgrade their skills—generally ignoring that workers rarely get the same educational opportunities that more affluent members of society do, especially
when business “rationally” withholds training. When the economy fares poorly, workers, along with government regulation, are taken to task. Workers’ unions impede efficiency. Workers’ demands for better wages and working conditions are excessive, and so forth.

Practical Concerns about Working Conditions

In a sense, economists seem to have been swimming against the tide in ignoring the labor process. Management, which has the practical responsibility of running business, wants to minimize costs. Since labor is a cost of doing business, the simplest methods are to cut wages, drive workers harder, or adopt labor-saving equipment. In a competitive environment, the labor process must eventually become a matter of serious concern for business.

The obsession with reducing the wage bill actually reaches the point of irrationality—at least according to conventional economic logic. Profit maximization requires that businesses root out any unnecessary costs; however, businesses often ignore non-labor costs, concentrating their efforts on cutting back on payrolls. For example, based on a survey of sixty New England factories, Michael Piore found that employers instructed engineers to pursue the single-minded goal of developing methods to reduce labor inputs, without regard for the more rational criterion of overall cost minimization. He went on to say:

Virtually without exception, the engineers distrusted hourly labor and admitted a tendency to substitute capital whenever they had the discretion to do so. As one engineer explained, “If the cost comparison favored labor but we were close, I would mechanize anyway.”
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Labor-saving technology can do away with certain types of work altogether, or it can force workers to work harder or faster. To the extent that business is intent on driving workers harder, their welfare,
if not their health and safety, is put at risk, as George Schultz noted earlier in this chapter.

Before the Industrial Revolution, overseeing the labor process was not nearly as challenging for managers. Those who ran factories tended to be the skilled workers, who were thoroughly steeped in the production process. After modern technology required more expensive capital goods, ownership passed into the hands of people whose major qualification was access to finance. At this point, management frequently had little or no technical knowledge. Instead, employers had to rely on the knowledge of their most skilled workers.

This deficiency of knowledge put management at a distinct disadvantage. Industrialists tried to reduce the powers of skilled workers by finding machinery that could allow unskilled laborers—often children—to perform challenging tasks. One such transformation took place in the nineteenth-century U.S. cannery industry. The California Gold Rush triggered rapid growth in the demand for canned goods. The industry expanded fifteen-fold between 1860 and 1880. Skilled tinsmiths, known as cappers, responsible for sealing the cans, were the most important workers in the industry. The perishability of the product gave them significant bargaining power. Many cannery owners had to hire a boss capper who then contracted to hire and manage related craft workers and assistants. The capitalists in the canning industry thought that the cappers used their strategic position to take unfair advantage of their employers. James D. Cox invented the first successful capping machine in 1887. He described the resentment against the cappers in the following way:

In those days the capping all having to be done by hand, a Boss Capper took the contract to do the work, furnishing his men for the purpose, and even the owner stood in great awe of him, for of what use was it to purchase tomatoes and prepare them if, at the important moment, the Capper decided he would go on strike; or having received his pay, required more time to sober up than the boss thought necessary. He knew his importance and he used his advantage to the full, and to the too frequent annoyance and heavy loss of the canner. It was this helplessness
of the canner that made him a willing advocate of every mechanical means, and made possible the working out, through frequent failures and heavy losses, perfected mechanical means now in use. The Boss-Capper helped hasten the day of his own exit through his overbearing thought lessness.
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Many kinds of work defied such simple mechanization. More direct control of the labor process became a priority for business. Frederick Winslow Taylor introduced his concept of scientific management, based on the idea that management could and should acquire, through detailed study of work on the shop floor, the knowledge that would allow it to take control of the production process.

Taylor’s project was the context of his previously cited prediction: “In the past the man has been first; in the future the system must be first.” An example of the extent of Taylor’s ambition to develop a comprehensive understanding of the labor process is his extensive experiments and observations just to discover better methods of shoveling.
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Although management had no interest in training workers, Taylor used workers to train management. Through his meticulous observation of workers’ performance, Taylor argued that he could teach business how to make workers perform at peak levels without any wasted motions or unnecessary moments of rest. Armed with that knowledge, employers would be in a better position to make demands on workers.