NZ: Piketty vs Marx

 

The publication of Piketty’s book “Capital in the 21st Century”, on the historic inequality of capitalism, has sparked a debate globally, and in NZ with the publication of “The Piketty Phenomenon: NZ Perspectives”. We have commented that Piketty fails to understand the basic cause of capitalist inequality so that his wealth tax cannot be the solution. The OECD Report on Inequality goes further that Piketty to show that income inequality has a negative impact on economic growth. It argues that income must be redistributed to increase labour productivity. We explain that this solution means further increasing the exploitation of labour by capital. It will fail because capital in the 21st century has outlived its capacity to meet the needs of humanity so that humanity will refuse to be super-exploited. What is needed is Socialism in the 21st Century!

Piketty’s New Law

Piketty challenges the crude assumption of neo-liberal economics, that capitalist growth works automatically (‘trickle down’) to produce equality. He has discovered a ‘new’ law where capitalism works so that those with wealth accumulate more wealth at a faster rate than everyone else unless the state steps in to regulate this inequality. The solution is to tax wealth by 1 or 2% to keep it in line with long-term GDP growth. Several contributors to the Piketty Phenomenon (PP) see this challenge as a ‘paradigm shift’ in economics that carries a ‘progressive payoff’ for social democrats. (Geoff Bertram in PP)

The rejoinder from the right is that the Gini Index for NZ has been flat at 32 since the late 90s. So Piketty’s law didn’t operate during the Clark and Key governments. Bernard Hickey in PP, points out that wages, benefits, ‘Working for Families’ and subsidised health and education kept the Gini rate flat. But Hickey says Piketty’s work is a warning against any further erosion of the welfare state.

Radicals critique the Gini Index as a blunt statistic, and GDP as a measure of growth. Inequalities around gender, ethnicity, youth etc., fly under Piketty’s radar. Given the prevailing labour market super-exploitation of women, Maori and Pacifica, and youth workers, such groups are doubly unequal. Radical economists have been doing much more detailed work for years to redress such inequalities. (Susan St John in PP) For Gareth Morgan (in PP) a reformed tax structure that includes a Tax on Capital Assets and an Unconditional Basic Income will do this. Feminists and unions have been actually fighting on the streets for such reforms. For Prue Hyman (in PP) taxing capital is not the answer. Capitalism as a system that demands destructive and wasteful growth at the expense of inequalities must be ‘unplugged.’

OECD says inequality stops growth

The IMF and OECD have taken this challenge to neo-liberal economics a step further. They say inequality stops growth. The OECD research paper says that in NZ rising inequality since 1985 has cut GDP growth by 10%. The solution is a wealth tax in some form provided it is targeted at increasing labour productivity. In the OECD language GDP growth depends on Human Capital Accumulation (HCA). It argues that taxing the top 10% will not damage growth, implying that much of this income is not productively invested. The state should redirect this ‘surplus’ unproductive capital into ‘human’ capital’.

Unlike classic Keynesian attempts to boost consumption, or the bailing out of the banks, the OECD fixates on education. Putting money into the pockets of capitalists and/or consumers does not necessarily restore growth. Just look at the printed money that has flooded into the pockets of the rich. And raising the dole may lead to more consumption but not necessarily to more investment. Work for the Dole everyone?

The research shows that increasing labour productivity will increase profits and hence encourage capital to invest in more production. So improving the quality and quantity of education [HCA] and creating incentives to work is the answer. Has the OECD come up with education and workfare as the ‘holy grail’ of Social Democracy? No. We will show that while education is related to rising labour productivity, there is no guarantee that that will induce capitalists to invest in more production. This is no guarantee of profits. This is because increasing labour productivity means rising labour exploitation. Piketty/OECD type policies can’t work if the owners of capital resist taxation. Or the owners of labour power resist super-exploitation. The progressives seem to have overlooked one small detail and that is the class struggle!

Marxist critique

Piketty is really lost without Marx. He lumps real productive capital (that produces value) together with unproductive assets (that don’t produce value) to make up his ‘Pikapital’. He discovers booms periods when the wealthy accumulate much more rapidly, then busts when they lose much of their wealth. Had he bothered to read Das Kapital, he would have realised that the switchback rides of the wealthy is a symptom of the inbuilt tendency for capitalist crises.

This is a telling gap in Piketty’s economics. The underlying reality he ignores is the exploitative relation between capital and labour where wage labour is employed to produce more value than it needs to reproduce itself; that is, surplus value the source of profit. This is capitalist inequality at the level of productive relations. Crises arise when profits begin to fall when the amount of surplus value is insufficient to cover total capital investment. As the Tendency for the Rate of Profit to Fall (TRPF) kicks in capital in plant and machines and wages must be destroyed, and cheaper means of production employed, so that the amount of surplus value is now sufficient to return a profit on total capital outlayed. The destruction of the wealth of Piketty’s wealthy class then, is merely a symptom of capitalism’s crises of falling profits.

As Marx explains, this relation of production appears in the marketplace as a relation of exchange as capitalists buy the labour power as a commodity. Marx calls this ‘commodity fetishism’. The expropriation of surplus value in production is perceived to be based on unequal exchange in the market. Crises then occur when labour demands the full price of labour and profits fall. Or, capital demands low wages, so consumption falls; in both cases investment stalls.

Neo-liberal economics in the thrall of commodity fetishism argues that the market will automatically correct the share of wages and profits so that demand rises and production results. The crises, wars and depressions that Piketty stumbles over are such ‘corrections’. Yet as Keynes recognised in the 1920s, these painful ‘corrections’ might be avoided if wages were boosted by the state to create ‘sufficient’ demand that would then be supplied by thankful capitalists. Oh for a world with no more slumps!

NZ: a test of Marx v Keynes

However, Keynes was still a bourgeois economist. Boosting demand did not create new production unless investment was profitable. Demand was not the key factor; it was the rate of exploitation. The state could intervene in the market but only to the extent that it met the need for rising profits. In NZ the election of the First Labour Government in 1935 put this reality to the test.

However, far from representing a solution to capitalist crises, The Labour Party acted to guarantee profits for the emerging NZ capitalist class. The First Labour Gov't was able to create a ‘welfare state’ for workers because the protected domestic manufacturers operated at low efficiency and there was a demand for labour. Full employment was the hallmark of Labour’s social policy because it could be exploited profitably not because it could buy what it produced. This was proven after the WW2 created boom busted. The return of a crisis of falling profits could not be averted by the Keynesian state boosting consumption, so by the mid 1960s the TRPF re-emerged as the cause of a new slump.

This time the return to profits required the end of protectionism of both domestic capital and the labour movement. The destruction (restructuring) of productive capital (plants, machinery) and jobs and the driving down of wages, was achieved by opening up the domestic economy to the global economy. The conditions under which Keynesian intervention operated from the 1930s to the 1960s were replaced by neo-liberal globalisation. The destruction of wealth by depression, its revival by war/boom, and now its further restructuring by neo-liberalism, has inserted NZ into the global division of labour where the concentration of wealth and power in foreign and local crony capitalist hands results from the rise of inequality and deprivation in the working class.

So what are the prospects for “progressive politics”, a revival of Social Democracy in defence of the ‘Welfare State’, or even a modest Piketty/Morgan/OECD type wealth tax? Piketty knows that the power of the wealthy to resist a even a 1% tax on their wealth makes it a utopia. But this does not stop progressives in NZ from proposing various forms of wealth tax backed up by the OECD claim that profits flow from increasing labour productivity!

Marxist Revolution in thought and deed

The detail that is overlooked here is that greater labour productivity creates more inequality not less. Not the superficial market inequality measured by the national Gini Index, but the concentration of capital in fewer and fewer hands, and the accumulation of poverty and misery in the lives of the masses of workers. Raising the rate of exploitation means workers produce more per hour (because of HCA) but get a lesser share of the new value produced. This confirms Marx law that the rise in the rate of exploitation is set by class struggle and is ultimately the barrier that capitalism cannot overcome. Workers’ resistance to rising labour exploitation is the single factor that guarantees that capitalist crises will sooner or later result in the proletarian revolution and the rise of socialism out of the ashes of capitalism.

We need a Marxist revolution in thought and deed. A Marxist revolution in thought means understanding that capitalism is a finite social system based on the ultimate destruction of the only sources of wealth - labour and nature. The survival of humanity depends on this consciousness that capital is nothing but the expropriation of labour value, and that if labour is to survive it has to take control over the value it produces.

The Marxist revolution in deed is the task of organising the proletarian revolutionary class as capital’s “gravediggers”. It will require the formation of mass workers parties in every country that unite internationally to confront capitalism’s power and wealth on every front, creating workers governments with the power to socialise the wealth expropriated by capital over centuries as the basis for building a new socialist world that values the survival of humanity and nature.