Экономические науки/14.Экономическая теория

Valizade D.R.

Associate professor, Saint Petersburg University of Humanities and Social Sciences

The Capital-Labor Relation: from Industrial to Post-industrial Economy

         Industrial revolution with its total machinery production led to formation of the working class and then to the transformations in economics and social spheres. This processes resulted in development of capital-labor relation which from the very beginning  was contradictory in terms of relation between the working class and the bourgeoisie. The nature of this contradiction according to Karl Marx is in the surplus value which is mostly appropriated by capitalists [3]. The situation when the rules of the labor-capital relation were created by employers caused an increase in labor movement activity, first in Great Britain (as the most developed country of the 18th – 19th centuries), and then in other European countries. And only in the end of the 19th century in the United States, and in the beginning of the 20th century in Russia. But the fact that one of the most important demonstrations, which initiated the global fight for an 8-hour working day, took place in the USA, Chicago, in 1886 is of interest. [4, p.3] 

         Increased labor movement caused redistribution of Gross Domestic Product (GDP) from bourgeoisie to workers and it was a key factor on the way to decreasing poverty in developed countries.

As Marx claimed workers were fighting for several values such as [3]:

1.     Decreasing of the length of the workday. For example, in the first two decades of the 20th century the length of the workday in Russia was ten to fourteen hours. Nowadays it is eight hours.

2.     Improving of living standards of the working class, which were at very low level especially during the primitive accumulation of capital.

3.        Increasing of wages. It engendered another fundamental contradiction between the productivity of labor and the level of wages, which caused global conflicts in industrial economy and continue causing conflicts in post-industrial economy.

Thus in the industrial economy it was essentially important to find a fair relation between the growth of labor productivity and growth of wages. [1, p.4] The initial situation (refer to graph 1) was characterized by dominating of labor productivity over wages.

Time (years)
 

Growth (%)
 

 Graph1. Relation between the growth of labor productivity and growth of wages in industrial economy.

When the growth of wages caught up with the growth of labor productivity, the labor-capital balance in the industrial society was achieved. It is hard to say whether it was a fair relation or not. Anyway it lead to a new type of capital-labor relation which allowed the International Labor Organization (ILO) to develop the concept of Decent Work in 1997. From this moment the ideas of decent work prevailed over ideas of profit and firms efficiency. This situation in economics illustrated the global trend of transforming industrial society to postindustrial society. 

According to David M. Kotz from the University of Massachusetts there were three phases of capital-labor relation [2, p.2-12]:

1.     Capitalists Dominance (before the World War II).

2.     Capital-Labor Compromise (1948-1973).

3.     Capitalists Dominance (1979 to today).

4.     Prospects for the Future.

The ILO’s Decent Work concept represents the end of the fourth stage described by David M. Klotz, which appears to be a strong evidence of labor dominance in developed countries. Another evidence of this claim is an increasing level of minimum wages described by Kaitz Index (the relationship between minimal wage and average wage in the country). According to European Committee for Social Rights it should be no less than 60%. [5, p.65]

At present national economies see the last phase named Post-industrial Economy. In the most relevant researches the Post-industrial Economy is described as “last known stage of economic growth which has started in the late 20th century and which means the shift of some major industrial economies away from producing goods and toward producing services”. [7, p.8]

The main contradiction in Post-industrial Economy is that between rapidly increasing needs of people and slower modernization of production means. Increasing needs require the growth of wages which (according to the specified contradiction) can’t be supported by the growth of labor productivity. It causes the gap between wages and labor productivity which is shown in graph 2.  

Graph 2. Gap between the growth of wages and growth of labor productivity

This gap determines a new phase of capital-labor relation in post-industrial society. It is hard to predict the development of this relation but it is possible to determine the main trend in capital cooperation and labor cooperation. One of the most important issues in post-industrial economy is not only to overcome this problem but to overcome the gap between the living standards in developed and developing countries.

Developing countries are not able to avoid modern trends in post-industrial economy, especially the wages-productivity contradiction, but these countries didn’t achieve the balance between the level of wages and labor productivity which was one of the key factors in transformation of industrial economy to post-industrial economy. It can be confirmed by many statistical researches provided by developing countries. For example, in India minimum base wage was 15% of minimum cost of living in 1984[9]. In Russia in the beginning of 2011 this relation was 75% [8].

Thus labor-capital relation in post-industrial economy features three main issues:

1.     Contradiction between the growth of wages and growth of labor productivity.

2.     Gap in living standards between developed and developing countries with similar consumption and similar trends on the labor market.

3.     Cooperation of global capital and cooperation of global labor as the answer to modern challenges.

To avoid global crisis in labor-capital relation it is vitally important to investigate possible ways of increasing efficiency of production as the base for meeting the society requirements.  

References:

1.     Aslam, Naheed. Level of real wages and labour productivity in the manufacturing sector of the Punjab. Pakistan. 1983.

2.     Kotz, David M. The Capital-Labor Relation: Contemporary Character and Prospects for Change. University of Massachusetts. 2007.

3.     Marx, Karl. Capital: A Critical Analysis of Capitalist Production. Volume I. Moscow. 1995.

4.     Saville, Kerrie, Hearn-Mackinnon, Bruce, Morris, Leanne, Waddell, Dianne. Work Choices: Increasing Productivity, Job Creation and Work-Family Balance? Not Likely! New Zealand. 2008.

5.     The European Committee for Social Rights. Annual Report 2005-2006.

6.     The Relation of Capital to Labor// http://www.oldandsold.com/articles26/economics-45.shtml

7.     Wolfson, Martin. Neoliberalism and the Social Structure of Accumulation, Review of Radical Political Economics. 2003. p. 255-262.

8.     Worker Needs – a Factor in Wage Determination // http://dspace.vidyanidhi.org.in:8080/dspace/bitstream/2009/2708/6/UOM-1988-1343-5.pdf

9.     www.gks.ru// Federal Department of Statistics of Russian Federation.