For centuries, theorists, like Karl Marx, have discussed the impact of capitalism and division of labor within aneconomy. With the writing of Capital by Karl Marx came a clearer understandingof the systemic structure of a capitalist economy based on private ownership of the means of production. In Capital,Karl Marx rationalizes that individuals in different social classes are hugelyimpacted by economic structures resulting in sizeable income inequalities, withthe bourgeoisie obtaining the greatest percentage of benefit from increasedproductivity through the exploitation of the proletariat. Before 1973, the trend in growth ofwages in relation to productivity is constant mainly due to the power ofcollective bargaining by unions to negotiate an equal percentage increase ofwages relative to percentage increases of productivity plus percentage increaseof consumer prices.
Post 1973, the data shows a widening gap between increasesin productivity relative to hourly wages. This trend continues for decades andcan be attributed to the deregulation of key industries in the early 1970’s;implementations of policies that prevented the adoption of laws that wouldessentially update labor management practices to pursue collective bargainingand the erosion of unions. Under these circumstances, the loss of power of laborers,the minimum wage has failed to keep pace with productivity. Through theanalysis of the data presented in figure 1, Karl Marx’s general law ofaccumulation is relevant to understanding the post 1973 wage inequalities.
The golden era was a time of economic prosperity in theUnited States spanning from the end of World War II and continuing until 1973marking growth of the middle class. The economic growth is often attributed tothe development and expansion of infrastructure and private sectors. Forexample, automotive production quadrupled during this time with technologicaladvancement while the Federal Aid Highway Act of 1956 facilitated 41,000 milesof road construction allowing for greater ease of transportation of manufacturedgoods and accessibility for Americans. Additionally, record low mortgage ratesincited a housing boom, consequently growing suburban neighborhoods. These keyindustries triggered a steady increase in productivity during this time period,and thus contributing to the constant parallel line trend seen in figure 1comparing the productivity and hourly compensation.
According to Solow, thenegotiated Reuther’s Treaty ofDetroit of 1950 enabled wages to increase at the same percentage rate ofproductivity and consumer prices. The United Automobile Workers negotiated acontract with the United Autoworkers and General Motors “average annual rate ofwage increase would be the percentage increase in productivity plus thepercentage increase in consumer prices” (Solow). During the golden era, capitalismthrived ultimately disproving, during this period, Marx’s belief thatcapitalism would lead to self-destruction. However, Marx’s argument against acapitalist society is supported through the growing gaps in what he refers toas class distribution during the later years, after 1973, of an expandingeconomy. Post 1973 productivity grows in comparison to hourly compensation increasewhich can be explained through Marx’s theory of innovation and class distribution.As time passes, technology improves thus increasing productivity with theimplementation of newer more efficient machineries and replacing slowerinefficient manual labor, and thus contributing to the stagnation of wages.
Thecontinued expansion of the automotive industry is an example of this continuedimproved mechanization of factories within the private sector.Karl Marx’s general law of accumulationis extremely relevant to economic trends observed in the United States afterWorld War II, figure 1. Capitalism is always expanding through accumulationenabling reinvestment in competitive markets by capitalists.
Marx expounds onthe general law of accumulation as causing a wide inequality of wages producedby a vastly wealthy capitalist economic system, consequently the laboring classsuffers economically because the wealth concentration remains limited to thebourgeoisie. Essentially the wealthy get wealthier while the proletariatscontinue to make enough money to subsist, leaving no excess money to retain andinvest for economic growth. Marx argues that the capitalists and laborers are intrinsically dependent on each other.The post 1973 trends where wages did not increase at the same rate ofproductivity provides evidence that, according to Marx, the general law ofcapitalist accumulation creates both wealth and poverty.Thepost 1973 trend of high productivity growth with minimal hourly compensation ofworkers allows for the exploration of Marx’s theory of class distribution ofincome because with such high increases in productivity one has to wonder wheredid the profits go if hourly wages did not increase.
Marx develops this theoryof distribution to show that the distribution of income is ultimately governedby conditions of exploitation between capitalists and laborers. He argued that capitalists are great liberatorsbecause their historical mission is to revolutionize the methods of production;although he also considers them to be the classic exploiters, ultimatelyresponsible for the exploitation of laborers. Marx characterizes a class through theownership of property. He further develops this idea of class distribution withthe construction of two main categories to classify people within a capitalist economy:the bourgeoisie or capitalist and proletariats or laborers.
The capitalist source of income is profitwhereas laborers income is obtained through an exchange of their labor for awage. In the early 1970’s, CEO’s lobbied politicians to implement policies thatprevented the adoption of laws that would allow improvement of labor managementto pursue collective bargaining. This in turn, led to the erosion of unions askey industries, such as telecommunications and airlines, were deregulated(Mishel). Additionally, the substantial wage increases ofthe top ten percent and the erosion of the collective bargaining power ofworkers apparent in the years following 1973 can be seen as one of the maincauses of rising wage inequality that Marx predicted. Prior to 1973, due to theTreaty of Detroit, collective bargaining agreements set the standard for unionand non-union wages. Unions not only provide higher wages and benefits throughnegotiated contracts, they also support laborers’ rights, and thus decreasepotential exploitation prevalent in a capitalist economy. Furthermore, union membershippromotes education to laborers, safety enforcement in the workplace, and forty-hourwork weeks with overtime pay.
Marx would agree that the loss of labor power dueto the decrease in union membership hurt all workers as it allowed for capitaliststo increase their wages at the expense of the laborers wages. Withoutcollective bargaining power, all workers lose.