I’m sharing a talk I gave tonight at the event “What is Socialism?” held at the University of Wisconsin-Green Bay. The event was organized by the Critical Left.
It helps in answering the question “What is Socialism?” to compare it to what it will replace, namely capitalism. To introduce the distinction between capitalism and socialism, and make that distinction accessible, I reduce the respective political economic dynamics to the level of contrasting business firms.
Imagine a small company selling tables, each table has a $1000 price tag. Raw materials, equipment wear, energy costs, advertising, rent, and so forth comes to $200 per table. These are the constant (or fixed) capital inputs (or costs). The other $800 of the price comes from the value of labor expended, what in technical terms economists call value added. This is the variable capital component. It is termed “variable” because it adds more value that it takes to reproduce it, whereas constant capital is used up in production and only transfers the value contained in it. Out of it, $160 goes to the carpenter in wages. The working day is eight hours long, so the carpenter makes $20/hour. He makes a table per day. The remainder of the value added – $640 dollars – goes to the person who owns the company. Let’s say his name is Bob Fortner.
If Bob pays the carpenter the difference between what the table sells for and what it costs to reproduce the constant capital inputs, then Bob will have nothing at the end of the day. Bob is in business to make money. To make a profit, Bob must pay the carpenter less than the full amount of the value added in production. The larger the portion of value added is paid in wages, the less profit there is for Bob. Bob can reduce labor costs, and thus make more profit, either by paying lower wages or by increasing worker productivity. All this depends on Bob’s tables selling. Let’s assume that they are.
Let’s assume further that Bob employs ten carpenters and they produce ten tables/day. The daily constant capital inputs are $2,000. The daily variable capital costs are $1600. The value added by labor is $8,000. The company subtracts the $1600 a day in wages and banks $6,400 daily. By the end of the week, at $20/hour, each worker will have earned $800 in wages. The owner, earning $800/hour (what each worker makes in a day), will have earned $32,000 in the week. Annually, before taxes, the worker will have earned $41,600. However, Bob will have made $1,664,000 that year. By taking 75% of the value added in production, Bob makes 40 times what each worker makes in a year. Bob becomes a millionaire without making any tables.
Heres the math: Daily constant capital inputs: $2,000 = $200 X 10 tables. Daily variable capital inputs: $1600 = $160 X 10 tables. Daily value added: $8,000 = $800 X 10 tables. Daily surplus value: $6,400 = ($640 X 10 tables).
This is the basic premise of capitalism. The state and law protect Bob’s right to own a business in order to derive an unearned income from the labor of others, individuals who rent themselves to capitalists like Bob in order to obtain the resources they need to live. The prevailing ideology celebrates this arrangement as virtuous. Bob is a “risk taker,” a “job creator,” and the carpenters are expected to be grateful and industrious while he tells them what to do all day.
The capitalist scheme has some variability culturally and historically. In some societies/sectors, workers toil at the will of owners and accept the wages capitalists like Bob provide (it’s better than going hungry). In other societies/ sectors, workers have protections (e.g. no dismissal without cause) and can collectively bargain for wages and benefits (if there are unions). Such a society might even allow for popular elections and provide social welfare, universal healthcare, and public education to all its people. However much these improve the social situation, none of these features change the essence of the economic relationship: Bob appropriates the value of the carpenters’ labor.
Now, imagine a society in which the carpenters collectively own the company that produces the tables. The carpenters keep the value added in production, or $800 a day for each worker instead of the $160/day salary. At this rate, each worker will earn $208,000 a year, a salary that puts the carpenter in the top 2 percent of income earners in the state of Wisconsin. This is the basic premise of a socialist society. Under these arrangements, the state and law protect and promote the carpenters’ right to collectively own the means of production and to derive their income from their labor efforts and prevent situations in which persons have to give up most of the value added in work to people like Bob who do not add value.
As with capitalism, the character of socialism is also variable. A socialist society might allow for popular elections, as well as provide for social welfare, universal healthcare, and public education. This is what would properly be termed “democratic socialism,” a term we are hearing quite a lot in the current political campaign (which I think it is misapplied in the case of Bernie Sanders, who is really a social democrat). Such a society may even decide to divide the social surplus among the population based on need rather than productive output, what Karl Marx called communism. However, a socialist society may instead be governed by an authoritarian state apparatus. Of course, authoritarianism is also a possibility in capitalist societies, and there are plenty of historical examples of authoritarian state capitalism, for example, Nazi Germany.
Since I am here to advocate, as well as define and explain, I want to note three possible benefits of socialism:
- Since control over the means of production is the locus of power that shapes other forms of power, a more equitable distribution of economic power carries with it the potential for deepening democratic culture.
- Whereas a capitalist uses labor-saving technology – robotics and automation – to generate more profits for a small number of families and enlarge the population of redundant and impoverished labor, a socialist might instead use labor-saving technology to reduce the amount of necessary labor performed by members of society, in turn using those productivity gains to create more free time for individuals, time that could be spent on friends and families and creative activities of their choosing.
- Capitalism’s imperative is to grow, and the more freely it is allowed the grow, the more destructive it is to humans and their environment. Tightly regulated capitalist countries, such as those in Scandinavia, have better living conditions and have a smaller ecological footprint than less well-regulated capitalist countries. However, production in the more democratic capitalist countries is still motivated by the growth imperative. By deepening democratic culture and raising the standard of living for everyone through the socialism I am describing, it is possible to devise systems of production based on renewable resources that sharply reduces our ecological footprint.
Okay, so let’s take the parable of the table-makers to the real economy. The Bureau Census routinely collects data on economic activity in the United States in its Survey of Manufacturers. If we take a look at the data from the manufacturing sector, we find that manufacturing workers earn on average $22.15/hour. That’s $886 a week or a before-tax annual income of $46,072. In 2014, the median family income in the United States was $53,657. A household earning the average manufacturing wage needs two income earners to have a chance of reaching the median household income. However, the hourly value added by a manufacturing worker is $151.50. This value is free and clear of the constant or fixed capital costs. Subtracting the wage paid to the worker, the surplus value is $129.35/hr. This means that the amount of value produced by the worker appropriated by capitalist firm is nearly six times greater than the wage the worker earns. Is it any wonder that the top wealthiest 1% of the US population possess 40% of the nation’s wealth, while the bottom 80% can claim only 7%?
Now imagine if the manufacturing worker owned the firm collectively with her fellow workers and they were able to keep the full value of their labor. Assuming the averages that we have been discussing. Under these arrangements, each worker would earn $6,060 a week, or $315,120 a year. This would put them in the top 1% of wage earners. This is the truth that capitalists don’t want you to know or to act upon. Because if you did, it would surely bring an end to the gravy train they’re riding – at your expense. They’re living off your labor, comrade.