Capitalism is having a tough time. These days few are willing to stand up in defence of free markets, trade and enterprise. The left has successfully revived an interventionist agenda and many voices on the right are joining the chorus against big business and for mercantilism. The centre-right (like the UK Tory Party) have seemingly given up the fight. The appeal of redistribution, protectionism and regulation if depressingly easy to see. The UK Labour Party has skilfully pitted the few, who are supposed to pay for their generous spending plans, against the many, who are supposed to benefit. And since the Global Financial Crisis, a (false) perception of rising inequality has furthered the anti-capitalist cause. We cannot let this go unanswered. Those of us with unwavering belief in capitalism must present a compelling case for capitalism based on a track record of unparalleled economic progress which has benefited all whom it has come in contact with. But we must not fall for the temptation of blaming those who fall for the easy solutions and simplified scapegoating on offer from the populist left of being gullible and naïve. First, we have to understand the underlying motivations for the criticism of the capitalist order.
Most critique of capitalism springs from the notion that it allows the capital owning class to exploit workers and consumers. In this post we will address the first of those claims.
The claim that business takes advantage of employees can be traced back to Karl Marx. The Marxian thesis is based on the labour theory of value, which purports that what determines the value of a good or service is the number of labour hours needed to produce it. This is the basis for Marx’s theory of labour exploitation, where capitalists pay workers a subsistence wage – the cost of producing labour – and extract so-called surplus labour for profit.
In recent decades, such thinking has had little traction outside hard-left radical circles – regrettably including some unions and – incredibly – the current Labour leadership. The fact is that business owners run the financial risk of their venture and pay their employees salaries – often for a significant period where the business does not turn a profit.
But the rise of the gig economy has brought worker exploitation back on the agenda. Whereas proponents emphasise the flexibility it offers employers and employees, many worry about working conditions, insecurity and low pay. Is the gig economy an example of Marxian labour exploitation? In general, no.
The gig economy is far from just bike delivery and taxi driving. Only 20% of UK gig workers fit into those categories. Professional services like accounting and legal advice makes up 28%, creative work 26% and skilled builders 18%. These are mostly professionals who actively chose this kind of contract work because of the increased control it offers them. The gig economy is based on workers owning their own capital and therefore being in control of their own work life. It is in that sense the very opposite of Marxian exploitation. True, some jobs are low skilled and therefore low paid, but these jobs are rarely career choices but gigs taken by students, as second jobs or as fillers in between full-time employment. According to the Office for National Statistics, only 3% of the UK work force work part time because they cannot find fulltime work. Less than 3% of people with a job don’t have guaranteed minimum hours. Of those, about a third want more hours and about a third of them consider themselves to be full-time in practice.
So it’s clear that the accusation of exploitation does not apply to the gig economy as a whole. But what about those at the bottom? Are some workers left with no choice but to accept subsistence wages in order to survive? And do business owners takes advantage of this weak bargaining position to pay them less than their marginal value? Do the capitalists extract surplus value?
Wage labour is entered into voluntarily because the alternative, self employment, is considered a worse option. As self-employed the worker obviously enjoys 100% of the value of his labour – there is clearly no ‘exploitation’ or extraction of surplus value. But the self-employed can voluntarily choose to give up working for himself to enjoy the benefits of working for a capitalist, leveraging off the capital accumulated by his employer to increase his productivity and therefore his wage. The delivery driver could chose to work for himself. If he chooses to work for Deliveroo it is obviously in recognition of how the value of the capital invested in Deliveroo’s platform allows him to increase his income.
Remember also, the premise of Marx’s theory was that the capitalist can buy labour at the ‘cost of production’, i.e. subsistence wages. But the idea of what constitutes such wages has changed over time. What we characterise as low wage today of course affords a much more comfortable and affluent lifestyle than a 1860s low wage did. This rise in general living standards, which has enabled us to these days talk about relative rather than absolute poverty, is down to capitalism – the very order which is being accused of being the instrument of exploitation. It is clearly nonsensical to blame capitalism for condemning workers to subsistence living unless you disregard the role free trade and enterprise has played in improving what we define as subsistence beyond the wildest imagination of those who lived in times predating capitalism. It is also capitalism which, when operating unimpeded, will enable competition for labour to ensures that wages are bid up to the marginal value – i.e. to prevent extraction of surplus value.
To answer those who accuse capitalism of leading to exploitation of workers, we must point to the inescapable fact that capitalism has for more than two centuries been the engine which has provided ever more options for ever more people at ever increasing wages, leading to ever increasing living standards, as capital accumulation has increased worker productivity. Even Marx himself, despite his faulty analysis of its inevitable downfall, was full of praise for capitalism. His words provide a stark reminder for the anti-capitalists: ‘The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature’s forces to man, machinery, application of chemistry to industry and agriculture, steam-navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalization of rivers, whole populations conjured out of the ground–what earlier century had even a presentiment that such productive forces slumbered in the lap of social labour?’ Well said.