Labor: How Private Enterprise Today Gets Capitalism Wrong

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The annual labor of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consists always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.

Adam Smith, The Wealth of Nations

The opening lines of most works are often the most important in terms of underlying message. This was the lesson illustrated many years ago by a professor of mine as we studied Machiavelli’s, The Prince. Indubitably, whether ones reads the tract as genuine or satire, the message Machiavelli conveys is the acquisition of power. Here is the first sentence from chapter 1 of his work:

All states, all dominions that have held and do hold empire over men have been and are either republics or principalities.

From the first line, alone, we understand Machiavelli is discussing the ways in which dominions are held over the masses of people, and the specifics of this dominion/power is the subject of the rest of the work. Even his dedicatory letter that precedes his first chapter speaks of the way in which one may acquire their own power (favor) with a prince:

It is customary most of the time for those who desire to acquire favor with a Prince to come to meet him with things that they care most for among their own or with the things that they see please him most.

Similarly, Adam Smith speaks of an underlying theme in his most famous – and surprisingly unread – work, The Wealth of Nations. That first line indicates to the reader what “the wealth of nations” really is: labor. Without labor, there would be no produce, nothing to trade, and nothing in which to invest; indeed labor is the most fundamental unit of both wealth and economies. Without labor, there would be no wealth.

It is disheartening, then, to see that in the United States laborers – those who perform the labor – are not only vilified but denied its significance as an economic force; that laborers, i.e suppliers, are being stripped of their right to negotiate with the buyers of their commodity in the labor market. Today, corporatists-capitalists and “free-market” proponents speak of the evils of unionized labor – how it makes business hard to function, how it drives the cost of goods up, how it’s wrecking the economy as a whole, and is a socialist institution threatening the very existence of American enterprise. But Smith, father of Capitalism, the ideological inspiration for this country’s economic model, couldn’t disagree more with such sentiments.

Smith was a moral philosopher by training; he was an economist insofar as he used he philosophical inclination to look at economics and best methods of economic organization. As such, he was primarily concerned with human beings. But Smith was no utopian, he knew people were motivated by self-interest (for the most part). So he devised his system based on observations about people and industry, but that had infused into it moral elements in order to make it just and equitable. Most people are rarely familiar with the morality that Smith infused into Capitalism but it suffuses the work, throughout. For example, he was concerned about workers rights and well-being, promoted public education, a welfare system, a progressive tax system, and on and on. And he was acutely aware of the exploitation that could be wrought by financially powerful interests. But these elements of his philosophy are rarely mentioned, if not ignored altogether.

This begs the question: “Why?”

Is it because the morality of such systems is hard to quantify mathematically and as such keeps the economic theory of capitalism unscientific? It’s possible to argue that point but anyone familiar even with the basics of economic theory know that while there are some good working models, economics is hardly a “hard,” science, the ways physics, chemistry, or biology are; in fact, much of it remains theory (lower case “t”). This is why Alan Greenspan, Federal Reserve Chairman at the time, was unable to see the lead up to the economic meltdown as it was happening in front of him (despite warnings from other economists and forecasters) – because the real-world data contradicted the theory of how it should have played out. The same goes with advertising – dominant economic theory asserts that consumers will seek information that will allow them to make the best purchase of a good/service of all the options presented; but advertising is a direct undermining of that information-seeking because it appeals not to a sense of understanding of the product but of feelings about a product upon which advertisement plays.

The answer may, ironically enough, be answered by Smith himself: self interest. Like advertising, if consumers had all the information they needed they would make the best purchase possible, or more than likely: none at all. This would make it hard to persuade a consumer into buying an inferior product or good (Remember: we live in an economic society who’s credo is “buyer beware”). In fact, it is likely consumers would consume less than they do because they would be informed of the fact that companies want them to buy products, even if they do not need them – this would definitely affect a nation conditioned to consume, and whose consumption constitutes 70% of its annual GDP. Similarly, if laborers in an economy were aware of just how important they were, it’d be less likely that businesses could exploit their labor so brazenly.

Does this sound cynical? Then I would remind the reader of the history of labor movements in this United States – there was a time when children worked; when adults worked to scrape by a meager living (and still do – most households fund their living with revolving debt, for example); when American immigrants were unabashedly and shamefully exploited (and still are – see: Mexicans); when working conditions were unsafe and often led to worker deaths; when the only weekend was a half-day on Sunday, and the work-day was 12 hours or more; when monopolies existed and the government had to break them apart. And let’s not forget the ultimate exploitation – that which gave America a head start as an economic powerhouse: slavery. The exploitation of labor is a part of American history, although, it is seldom discussed; and it continues to this day Another example: do major corporations outsource manufacturing jobs in the U.S. to foreign countries because they can’t turn a profit? or is it because they want to selfishly increase their profits as much as possible by paying foreign labor a fraction of what it takes to pay a U.S. worker living wages (a practice that Smith was opposed to)?

Whatever the explanation, it is no secret that Corporations are rapacious profit-seekers and that they disproportionately influence the markets (and the government that makes the laws that govern the rules of the market place). And, though, this is just one of many examples of the incongruity, it is clear that the U.S. version of “Capitalism” is not Adam Smith’s version. And this discrepancy is costing labor in the U.S. significantly.

This train of thought begs another question: if several major tenets of the original Capitalism are stripped away, is what remains still Capitalism? It reminds me of a question about identity that another professor asked class one day: “What is essential in a thing? What parts of the whole are necessary in order for the whole to still be considered that essential thing? For example: a table. If we remove one leg, is it still a table? If we remove, two? three? if we remove all four legs, is it still a table?”

Are there enough legs left of Smith’s philosophy in today’s Capitalism to be truly considered Capitalism? And what do we do about the mistreatment of the wealth of our nation? Let us labor together to discover the answers.

7 thoughts on “Labor: How Private Enterprise Today Gets Capitalism Wrong

    • They are not any less money hungry. All people are self-interested and seek their own gain. What this piece discusses concerning this issue is that the corporatists who seek to dismantle unions are removing the ability of laborers to negotiate their wages, working conditions, hours, benefits, etc. In short, their self-interest seeking is being curtailed by the self-interest seeking of corporatists – this is a violation of the buyer-seller/supply-demand dynamic that determines pricing for commodities such as labor. Not to mention the ethics inherent in Smith’s philosophy.

      • Not necessarily. The higher the supply, and lower the demand, the lower the price in the supply and demand model. In industries where the supply of labor is greater than the demand for their work, market power will fall in the hand of the consumer, i.e. the employer. Comparing this to another market where consumers hold the most of the market power sheds light on the real issue in the market for labor. Despite branding, businesses are forced to sell their products in price-taker markets at a relatively low price, otherwise the consumer will find a substitute. The corporate suppliers in price-taker markets make large profits by diversifying the products they sell. For example, Procter and Gamble is responsible for Bounty Paper Towels, Febreze Odor Control, and Crest Toothpaste. Laborers, contrastingly, are limited by skills and time. They typically rely on one source of income, and when the market price for that income is not adequate enough for them to live comfortably business gets personal.

        Another problem is the conflict of visions in viewing labor. While workers and labor unions see it as a commodity, business see it as a factor of production. Having ethical intentions does not solve problems, partly because the mind is too clouded with emotion to recognize them.

  1. The welfare state offers complacency. It guarantees generation after generation a consistent lifestyle, or that is the intention. Capitalism at least encourages specialization. The more replacable the worker, the lower the wage. If your skills can produce a highly desirable product or service that cannot be replicated you are in for a high salary plus benefits. Labor in developed countries has destandardized in response to incentives. A great example is the increasing amount of years people spend in school. Note the correlation of the level of degrees with the amount of money people make. People are becoming more learned for a reason. If they are not studying, they are creating, separating themselves with entrepreneurial ideas.

    • The welfare system does not necessarily guarantee generation after generation of complacency and exploitation of that system by its beneficiaries; and it certainly isn’t the intention of the welfare system to do so. There are plenty – and I’m willing to bet: a vast majority – that do not take advantage of the welfare system; I know some personally who do/did not. (Also, I assume you mean the food stamp program because welfare in this country is more than that – it is also scholarships and grants the government gives students for college; disability for veterans and civilians; public school lunches for kids who can’t afford it; retirement and medical care for the elderly who have worked all their life; even disaster relief funds for placed like New Orleans after devastation like that wrought by Katrina). That the few exploit the system does not mean that system itself encourages exploitation; if it did, then this would be the argument in favor of dismantling Wall Street, who costs American society way more each year in negative externalities and outright crime than any welfare fraud could hope.

      Yes, workers with lower skill sets are necessarily going to get paid lower wages but that doesn’t mean that they can be exploited – workers should be able to live off their work without killing themselves. Does it seem fair, for example, that a minimum wage earner should have to work 3 jobs and close to 80 hours just to subsist? This country is very wealthy, and almost ever year profits increase across the board but that extra cash goes to the top income earners while wages for everyone else decline in real terms – this doesn’t seem fair given that those at the bottom, as well as the rest of us, are doing our share of the actual work.

      It makes total sense for more educated people to earn more, but it doesn’t make sense that the uneducated don’t benefit from the gains of their work too. They often innovate, get more efficient at their own jobs, etc. Let’s also not forget, as Adam Smith would remind us, we are part of a social structure in which every person is dependent on more than himself. You can sleep easy at night because you know the police, fire department, and other EMS services are going to be there for you if you need them. Public libraries offer information to free for those who aren’t at the university and provide a continuing source of education for many; similarly, art galleries and museums bring culture and beauty to many who would have nothing else except for mass media. The roads you drive on every single day were built by laborers who sweat and bled to make your commute to work possible. Even the trash men who collect garbage – who improve not only the aesthetic of communities but who keep diseases from running rampant by removing rotting food and other trash which serve as a magnet and breeding ground for microorganisms and offer food for other disease vectors – contribute to the quality of social life. In short, on any given day, your life is assisted and improved in some way by someone you aren’t aware of. As much as we are individuals, we are also social creatures who need each other in order to make society possible. It’s only fair that when society gets wealthier that we all should since we’re all doing the work (with few exceptions).

  2. When there is an incentive, people will always take advantage of others. The welfare system simply allows for it to occur frequently. You assumed I was talking about food stamps. I was not, but that is a great example of how large corporations benefit from the government limiting choices. From everything you listed that the welfare state provides I doubt you will encounter very many citizens who exploit the benefits, unless they are part of the government. Our welfare state places many restrictions on the people and gives many exceptions to regulators.

    The main problem with the welfare system is not exploitation, it is idealism. It cannot sustain itself unless we can generate and enlist an idea for it to do so. Here is one. The government could regulate the amount of children people have annually. This way, the number of people receiving welfare would not exhaust the people bearing the cost. But cost allocation is not the main problem with the welfare state, it is the knowledge problem. Central planners on any scale deal with issues they will never fix. The policies they enact will not be able to control all the other constantly changing factors that were not considered at the time of planning. Increasing wages of workers may have good intentions, but it will not achieve the goal of enabling hard working people to live the lifestyle they so deserve.

    The only person that can make the best decision for him or herself at a given time and place is the individual. Too frequently the focus of economic planning is arguing “who should plan and what they should plan.” The better question is “should there be planning?” I agree, a system that ensures people safety from others is necessary. A system that ensures economic safety is beyond reality.

  3. In retraction to my former statement, systems are unnecessary and will ensure nothing. When reading any work, we must not restrict our minds to the ideas expressed by the author in striving to understand his or her perspective perfectly; and examine them for possible transfer into the present context. The world only develops when ideas serve as inspiration. We need not remodel Smith’s, or anyone’s, ideal society, just build on them. Reconstruction presents the danger of becoming a “man of system.” “The man of system, on the contrary, is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it.” -Adam Smith, “Theory of Moral Sentiments” (part IV, section II, chapter 1).

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