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The minimum wage and the crisis of capitalism

By: 
Michael T Fenn

March 27, 2015

With significant movements getting under way across Canada to increase minimum wages, like BC’s fight for $15, it’s important to consider what higher wages mean—or what it does not mean.
 
There’s the prevailing view that if wages at the bottom are significantly increased it will harm the economy in some way. Either prices will rise to compensate for wage gains (inflation), or there will be higher unemployment because employers will find it insufficiently remunerative to hire more workers at higher wages. It is also commonly said that small business will be especially affected by an increase in wages.
 
Myth busting
The CCPA did a robust analysis that yielded no significant relationship between a rise in minimum wage in Canada and a rise in either inflation or unemployment. Nor did inflation or unemployment result when Australia sharply raised its minimum wage to a “living wage” of 15 and 16 dollars an hour. Furthermore there is some compelling evidence to suggest that high wages and low inequality produce less unemployment. For example in Scandinavian countries, like Denmark, where unemployment is extremely low, high wages and low income inequality seems to promote high worker moral and less structural employment. Workers there don’t feel compelled to seek better paying jobs, and thus retain skills and on the job experience, while saving employers considerable costs of retraining.
 
There’s also been opposition to raising the minimum wage—including from the Ontario NDP—because of concerns for “small business.” But as a previous article in socialist.ca pointed out, “According to Statistics Canada’s Perspectives on Labour and Income, published in 2010, the sector of the economy that had ‘by far the highest incidence’ of minimum wage jobs was accommodation and food services. This is a sector dominated by large corporations like McDonald’s, Tim Hortons, Marriott hotels and Revera nursing and retirement homes. The retail sector, another significant employer of minimum wage workers, is increasingly dominated by large multinationals like Wal-Mart, Target and Gap. These are companies that can easily afford to pay their workers higher wages—Wal-Mart had total revenues worldwide of US$466.1 billion in 2013; Tim Hortons, a small company by comparison, had revenues of C$3.225 billion in the same year.”
 
Economic competition produces the concentration and centralization of capital, where markets are increasingly dominated by larger corporations. Larger firms with market power are able to drive smaller business out of the market. Or if small business depends on larger firms for their business, either as suppliers or buyers, large firms can drive up or down the price that they buy from or sell to small business. Large corporations are the main threat to small business, and their survival should not be balanced on the back of their poverty-wage workers. But the corporate media and big business blame the economic hardship of small business on workers, rather than the 1% (big business, banks and landlords) who are the real enemy. The survival of small business thereby becomes an argument to increase the exploitation of workers—which provides a cover for big business to keep wages for their own workers down, and turns the frustrations of small business against workers instead of the 1%.
 
Value, price and profit
Why do higher wages not lead to higher prices? The answer, which Marx gave more than century and a half ago, and is contained in his theory of value, illuminates what the fight for higher wages is really about.
 
The price of any commodity is always going to fluctuate—based on supply and demand—around its true value, that is, the amount of socially necessary labour required to produce it. Marx referred to this as the Law of Value. It explains how as economic “progress” proceeds, increases in productivity actually reduce the value (price) of goods. While more goods are produced there is actually less value embodied in each, as it takes less labour as before to produce them.  
 
Capital, which is simply money invested in machinery, factories, commodities and labour, does not actually work, and thus produces no value. The capitalist might own the machine (the product of previous workers) but only living labour creates new value. But if labour creates all value, where do profits come from? The answer is that profits simply come from the difference between what labour produces and what it is actually paid. The value that Capital receives (surplus value) must be expropriated from the workers who create it. So profits for capitalists are based on exploiting workers.
 
As Marx wrote in Value, Price and Profit, “Deduct from the value of a commodity the value replacing the value of the raw materials and other means of production used upon it, that is to say, deduct the value representing the past labour contained in it, and the remainder of its value will resolve into the quantity of labour added by the working man (or woman) last employed… This given value, determined by the time of his (or her) labour, is the only fund from which both he (or she) and the capitalist have to draw their respective shares or dividends, the only value to be divided into wages and profits. It is evident that this value itself will not be altered by the variable proportions in which it may be divided amongst the two parties… Since the capitalist and workman (or woman) have only to divide this limited value, that is, the value measured by the total labour of the working man (or woman), the more the one gets the less will the other get, and vice versa. Whenever a quantity is given, one part of it will increase inversely as the other decreases. If the wages change, profits will change in an opposite direction. If wages fall, profits will rise; and if wages rise, profits will fall…but all these variations will not affect the value of the commodity. A general rise of wages would, therefore, result in a fall of the general rate of profit, but not affect values.”
 
So a higher wage will reduce profits but not affected prices. Looking at the rate of profit explains the opposition to a minimum wage increase.
 
Capitalist crisis
Because capitalists are in competition with each other they are driven to invest in technology to beat their rivals; while this might temporarily an individual capitalist it puts pressure on all capitalist to do the same, so there’s a tendency for investment in technology to rise faster than investment in labour (the source of profit)—leading to a falling rate of profit.
 
This can be offset by increasing the rate of profit (decreasing wages) or by wiping out capital itself—through economic collapse or war—to pave the way for further growth. The Depression and WWII (along with a permanent arms economy that followed) destroyed so much Capital that it returned profit margins. But only temporarily, until another profitability crisis came in the 1970’s. Neoliberalism of the last 35 years, blamed for all these effects, was little more than a symptom of the disease rather than its cause. Corporate tax cuts, financial deregulation, the war on labour, were all an attempt to restore profitability—the rate at which Capital could extract enough surplus value to sustain its accustomed returns. Debt creation and financial bubbles kept not only enough demand to sustain the economy, but allowed for higher profit margins, albeit spurious ones, maintaining the circulation of capital (value), even while profit margins in productive sectors of the economy continued their secular decline.
 
This contradiction eventually erupted in another economic crisis, which the 1% are unable to resolve. They spent trillions bailing out the biggest corporations, which has merely prolonged the crisis, while attacking the wages of workers whose consumption of goods is necessary to stimulate the economy. But the 1% are resistant to raise wages because it eats into their already low profit rates. Because social democratic governments aim to manage the capitalist economy instead of replace it, some have been led to oppose the minimum wage increase in order to restore profitability—on the backs of workers.
 
Reform and revolution
While raising the minimum wage does not end the exploitation on which wages are based, socialists campaign to raise the minimum wage because it improves the lot of workers—especially women and racialized workers, who are the majority of minimum wage workers. In addition the fight to increase the minimum wage can provide workers with confidence and experience to demand much more, by shedding light on the source of wages and profits and the ultimate solution to exploitation and capitalist crisis.
 
Capital has exclusive ownership of the “means of production.” That is to say the Capital owns the very necessities form which life and work depends. It is a mere class privilege, as entrenched the unjustifiable as was the feudal rights of lords to extract rents from peasants during feudal times. In fact more so, since it was not until capitalism that workers were completely cut off from the means of subsistence and forced into labour markets from which they depended on the capitalist class for their survival—which also subordinated the planet itself to profit accumulation.
 
Indeed only a radical redistribution of income and wealth can make the economy sustainable in either the economic or ecological sense. Only by abolishing the profit motive as the engine of economic activity—and the exploitation of labour and the environment that it requires—and replacing it with a socialized economy in which the means of production are commonly owned, investment is publically planned and made on the basis of need rather than profit, will it be possible to create a sustainable, just, and democratic world. Socialism or barbarism are still the only two options available to the human race.
 
If you like this article, register now for Rage Against the System, a weekend conference of ideas to change the world. Sessions include “Why is capitalism in crisis,” and “Precarity and the fight against austerity.”

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