On the Indetermination of Wages and its Consequences

Date: 2023-09-06T13:39:47+00:00

Location: cosmonautmag.com

Salmin Biao makes an intervention into the ongoing debate over unequal exchange.


Following the article by Rob Ashlar in defense of Emmanuel’s concept of Unequal Exchange, and the responses it generated by Renato Flores and Dr Paul Cockshott it seems to me like the issue of the determination of wages, and its economic and political consequences (mentioned like this for clarity, despite my rejection of the separation of both spheres) is being mentioned and I would like to contribute my thought on this matter.

It seems like Ashlar’s disagreement can be divided into two parts. First, on the determination of wages where Cockshott’s objections remain. And second, on the consequences (or the validity of these consequences) which Flores emphasizes. In response, I will address each of these aspects separately.

On Cockshott´s Comments and the Indetermination of Wages

In the video critiquing Ashlar and Emmanuel’s argument about wages being exogenous, Cockshott presents a theory about wage determination that draws heavily from neoclassical economics. He starts by introducing the Dual Sector Economy (DSE) model, which presupposes that in developing countries the urban wages in the capitalist sector are set by the agricultural productivity in a non-capitalist agricultural sector. In Cockshott’s video these are represented by the Indian peasant and the American self employed farmer. The key point made is that “If in Indian agriculture, a self employed peasant produced 440 tons of grain worth over $100,000 (like the American self employed farmer does) then the general wages would be higher.” While I am sure that wages would be higher, whether the effect would make Indian metallurgical salaries as high as the American one, as the video suggests, is in doubt. 

This argument also encounters issues upon closer examination of the DSE model’s underlying assumptions. DSE relies heavily on assuming that land is freely accessible for Indian urban workers or peasants and also that the surplus generated within the capitalist economy remains within the country. These two premises do not stand empirical tests. Urbanization in places like India often resulted from involuntary migrations, and moreover, in many third-world countries, the most fertile land is allocated to cash crops. Furthermore, the surplus generated does not usually stay in the country as shown by real-world statistics.

The comparison between sectors is problematic too, as it contrasts an American small farmer with an average of 446 acres to an Indian small farmer with just 1-2 acres. To be fair one should consider similar sectors in different countries, like American and Argentinian self-employed farmers and steelworkers, and here the model falls apart. An Argentinian small-scale grain farmer with a farm of the same size as an American counterpart can generate $90k of yearly profit yet basic Argentinian metallurgical salaries stand at only $5.5k per year.1 I would also add that this whole explanation seems to be born from lack of familiarity with agricultural capitalist production in general, especially after the Green Revolution and the war against subsistence and tenant farming in poor countries that has been going on since 1945.2

In other instances, Cockshott seems to construct a theory of wages based on rent. For instance, when discussing wage discrepancies between workers in the same sector in the USSR, Cuba, and the US, he highlights how restricted access to education based on wealth could be a factor. Imposing barriers on education or other factors that hinder open competition among workers, such as racial segregation and gender-specific labor roles, can result in a limited labor pool for certain jobs. This scarcity of available workers can lead to inflated wages,3 which is often regarded as an additional “rent” or a rent-based theory of wages.

The same argument could be made regarding the limited access of Indian peasants and workers to American technology, factories, land, and, more importantly, the lack of access to American subsidies for farmers which significantly alleviate costs. Indeed, American grain producers are the biggest agricultural subsidies receivers as grain production serves a dual role: strategically, for ensuring food sovereignty, and as a tool in foreign policy, particularly concerning poor countries’ agricultural sectors. This includes the practice of grain dumping, where the competition from cheap imported food is used to reshape the agricultural landscape of these nations by encouraging the cultivation of cash crops intended for consumption in wealthier countries.

Furthermore, what raises even greater concern about Cockshott’s stance is his vigorous critique of neoclassical economics alongside his staunch defense of the Marxist Labor Theory of Value (LTV) as correct. Notably, Marx’s perspective dictates that wages, or more aptly, the price of labor power, function much like any other commodity, gradually aligning over the long term with its value of reproduction. Given this, it strikes me as peculiar that Cockshott appears to transgress a fundamental tenet of Marx’s insights. Specifically, Cockshott seems to overlook one of Marx’s core findings—namely, that labor power is a commodity subject to the laws of motion of capitalism, typically converging around its value. Like commodities, labor power should ideally be traded on the market freely (or at the very least, that is how it ought to operate). Oddly, throughout the entire video where wages are discussed, there’s an evident absence of any reference to the Labor Theory of Value or its expression through labor content. This is particularly puzzling given Cockshott’s unwavering defense of this concept. Instead, the video appears to pivot around the rejection of Unequal Exchange as a form of exploitation, which is quite perplexing given that a video uploaded to Cockshott’s channel by David Zachariah  endorses a very similar viewpoint. This perspective centers on the expansion of labor content versus consumption (albeit using the previously mentioned wage rent concept) and secondary exploitation within the US economy through wage disparities. It is as if the principles of the Labor Theory of Value, the commodification of labor power, and secondary forms of exploitation stop at the boundaries of each individual capitalist nation.

This perspective held by Cockshott is not unique to him. When confronted with the issue of wage disparities and the explanation offered by proponents of the Emmanuelian approach (i.e. how wage disparities lead to price discrepancies that deviate from the “ideal” conditions of a capitalist system described by Marx in Capital), there are typically two prevalent responses. One is Cockshott’s original productivity-based explanation, which can be explored more extensively in the exchange between Emmanuel and Bettelhaim found in the appendices of Unequal Exchange. The other response, championed most famously by Marini in his influential work The Dialectics Of Dependency,4 posits that workers in poor nations consistently sell their labor power below its value. While I find this argument compelling (as it is difficult to argue that workers living in dire conditions and earning less than $10 per day are truly compensated for the value of their labor power), it appears to falter when subjected to empirical scrutiny. According to this theory, the working class in these poor countries should struggle to reproduce itself. However, many of these nations have exhibited such disparities since the 1880s, if not earlier, yet no substantial segments of the working class have demonstrably failed to reproduce themselves during these prolonged periods of underselling – a situation that would force any other commodity vendor out of the market. Therefore, one cannot claim that labor power is being permanently sold cheaper than its value, and the explanation for wage differentials must lie elsewhere.

To address the other two articles, I must express my disagreement with Ashlar’s assertion that wages are purely driven by political factors, as he himself acknowledges with settler colonies, or his claim about pre-capitalist wages being consistently equal in the long term (although it is worth noting that they likely remained relatively stable until the industrial revolution, unlike the significant fluctuations observed today – although this detail is somewhat peripheral to the current discussion). Furthermore, I find Flores to have a misconception about Emmanuel’s assertion that wages are exogenous. For Emmanuel, this implies that wages cannot be determined solely by the technical realities of production and circulation, but rather by a multitude of causal factors, often encompassing political and social trends that are somewhat detached from the specifics of production methods, exempting what can be called skilled labor.

Flores’ reference to China is intriguing. In many respects, China can be viewed as a nation that followed an Emmanuelian trajectory toward development, characterized by protectionism, strategic technology transfers, measured planning, rigorous capital flow controls, and the promotion of joint ventures. It is worth highlighting that this approach seems feasible primarily following a capital-centralizing revolution, deviating from conventional theories of development. It is also crucial to acknowledge that despite the remarkable advancements in Chinese wages since the Deng reforms, which traded workers’ short to medium term consumption with the destruction of the peasant communes  for the capital investment and access to the western market needed for this leap (as well as trading international solidarity with the Third World by siding with the US in the Cold War), wages are still on the same levels of the poorest countries in Europe.

The Causes of Indetermination

“The country that is more developed industrially only shows, to the less developed, the image of its own future.“ – Karl Marx, Capital

Despite Karl Marx’s optimistic outlook on the eventual equalization of development productive forces among countries, after over 250 years of living under the capitalist mode of production, it is evident that the prevailing prospect is not one of equal development. Rather, the greatest concern shared among workers, economists, and social scientists is the transformation of rich societies into poor ones, often referred to as “Brazilification.” This raises the question: What has led to this divergence from Marx’s expectations?

To comprehend Marx’s rationale, let us provide a simplified overview of his theory on the evolution of capitalist society in layman’s terms. Due to competition between capitalists and workers, capitalists invest in sectors with higher profitability, while workers migrate to occupations with better wages. This dynamic eventually leads to the establishment of certain values: a general rate of profit around which returns on new investments cluster, and a value of labor power around which wages gravitate. It is understood that while these exact values might not be reached, there should be a degree of approximation.

Of course, this theory relies on certain assumptions, including the mobility of both labor and capital. These assumptions were not implausible for Marx’s time, given that workers had relatively free movement across countries, particularly those in dire economic circumstances (even if it is important to remember that this was true only for the poor workers of Europe). This mobility often exerted pressure on wages which played a crucial role in Marx’s analysis of the capitalist mode of production.5

However, what Marx did not account for was the eventual end of the era of open borders (or at least to my knowledge; for the purposes of this discussion, let us assume he did not). The onset of anti-immigration legislation is exemplified by the Chinese Exclusion Act of 1882, marking the commencement of the development of Emmanuelian Unequal Exchange.

Owing to the immobility of labor, the ability of workers in the long term to equalize the rate of exploitation and with it taking the price of labor power closer to gravitate around its value is impeded. This is what makes the determination of wages impossible, and makes them “exogenous” to the model. 

The 1882 law excluding Chinese labor was the first of many aimed to exclude impoverished workers from immigrating to the US, thereby exerting downward pressure on the price of labor power within the country. Similar laws were enacted in Australia and New Zealand, underscoring the historical reactionary force that workers and farmers in these nations represented in that period, often in the center of agitation for these discriminatory restrictions on mobility, which seem to be contrary to the interests of capitalists. The repercussions of restricted mobility are particularly evident in the wages of specialized and skilled workers: due to less stringent immigration regulations for this group, these workers can often migrate, which forces their wages, at least in real terms, to be relatively close to those in wealthier countries or leads to significant emigration. This situation presents an additional challenge for economically poor countries, as wage differentials prompt skilled workers to either abandon their home nations, leaving universities and hospitals understaffed as they contribute to the medical systems of rich countries, or result in a concentration of much wealthier professionals whose interests may not align with the majority of the working class in their country. An illustrative instance of the clash of interests stemming from skilled worker mobility is evident in the aftermath of the Cuban revolution. The skilled workers and “middle classes,” whose interests were compelled to take a backseat to the needs of the majority, exemplify the complexities that arise when skilled workers’ mobility gives rise to competing priorities.

Another unsettling revelation emerges when observing the divergent paths of development and considering the likelihood of worsening trends in first-world nations, accentuates the realization that the dichotomy between Developed and Underdeveloped countries is fallacious and often sustained precisely through mechanisms that perpetuate low wages in poorer nations and higher wages in rich ones. This lends further credence to Emmanuel’s perspective, wherein the ideal state of a capitalist society is characterized by high unemployment and poverty, while the aberration is the excessively developed minority in wealthy countries. It is worth noting that Marx’s exploration of the impact of productive force development and the integration of labor-saving technology on wages and employment yields a similar long-term prognosis for the future of capitalism. Understanding the propagandistic potency of labeling rich nations as embodying “normal” capitalism, while deeming poorer nations as “abnormal” usually due to a combination of racist tropes about corruption, laziness, and inaptitude, is of paramount importance. In the end, the differences in living standards between socialist, or even third world progressive experiences which are explained by Unequal Exchange have been at the center in the criticism of all these projects, as well the subject of desire of the masses in the poor countries in the era of the end of history.

Consider Cockshott’s comparison between the Indian and American steel sectors. If we assume the validity of the reserve army of labor’s size and the agricultural productivity of Indian peasants, relocating the entire American steel sector, which employs fewer than 150,000 workers, would scarcely make a dent in these figures. One might ponder whether American steel capitalists are either lacking in acumen or charity for not shifting (even gradually and over time, given the sluggish pace of investments in factories and infrastructure necessary for sustaining this capacity) towards India. This move could significantly slash their costs, thereby enhancing profitability. Similarly, Indian steel manufacturers could be perceived as lacking in strategic foresight for not utilizing their investments to outcompete American rivals, particularly given that the owner of the primary steel company in India ranks among the world’s wealthiest individuals. Unfortunately (or fortunately, if you are an American steel worker) this scenario does not materialize – largely because sectors like steel and grain production, where “strategic” motives (i.e keeping what is necessary for military production, maintaining food sovereignty and high salary jobs locally for political motives etc.) take precedent to the so-called free market and thus end up with enormous subsidies and protections.

The Consequences

Irrespective of the causes behind wage disparities, the ensuing economic and political implications remain a challenge that cannot be ignored. Their profound importance often steers critiques of Emmanuel’s writings, with many responses seemingly more focused on refuting his conclusions than addressing the underlying theoretical framework. This inclination becomes evident through the sometimes perplexing assertions made about the content of his work.

Emmanuel termed this outcome the “bitter fruit” of his labor, where wage disparities culminate in the overdevelopment of certain nations at the expense of others. Interestingly, even the alternative explanations presented by critics like Cockshott and others do not appear to invalidate this assertion. The notion that wage differentials foster overdevelopment in some countries while relying on others’ disadvantages seems to persist, despite the challenges posed by alternative viewpoints.

When delving into the productivity argument, an important question emerges: Should enhanced productivity, often stemming from advanced machinery and technology, exclusively benefit the laborers operating them? Should it also extend to the workers whose surplus labor made the machinery investment possible- and with most companies being publicly traded, who even knows where they are? Or perhaps should they benefit only the capitalists- in a similar manner to how differential land productivity frequently leads to rent for landlords or land owning capitalists/farmers, rather than increased wages for agricultural laborers. After all, agricultural workers in Argentina, working on the most fertile land in the world, and therefore the most productive ones, still make $5,664 a year while American farm labor has a mean income of $39,180 a year (or one might remember the Engels quote mentioned by Ashlar in his article). However, if we grant that productivity increases should benefit workers, this would imply that workers fortunate enough to be born in countries like the US would share the same incentives as their capitalists, namely to enhance productivity (leading to higher wages), expand market reach in other nations, and critically, bolster the capitalist imperialist agenda. This approach attracts more investment to the home country, eliminates competition, and offers an outlet for production that might otherwise remain unsold, resulting in cutbacks and unemployment.

Regardless of the rationale for wage differentials, they seem to imply that in rich countries, achieving a degree of peace between capital and labor (at least in relative comparison to conditions in poorer nations) might be the best strategic political choice. This dynamic shifts the violence inherent to capitalist reproduction to different national spheres or even different national minorities. It also dismantles competition while redirecting the gains from imperialism back home to fuel further technological advancement and productivity. Ultimately it is doubtful that the industrial revolution (and numerous other investments that elevated the living standards of Europe and white settler colonies) would have materialized in England or Europe without the spoils accrued through colonialism in Asia, Africa, and the Americas. Sustaining this living standard, particularly given the current state of productive forces and the substantial investment required in the third world just to approach half that level, seems achievable only by obstructing other countries and consequently other workers, from competing in the same sectors.6

Why Doesn’t Brazilification happen?7

An even more disconcerting consequence of wage disparities is the second aspect that Emmanuel elucidates in his book Profit and Crisis, which delves into the very core functioning of the capitalist mode of production. Emmanuel’s depiction of capitalism underscores that production is driven by the pursuit of profit, with the act of selling (for profit) serving as the driving force behind production. This dynamic underscores the significance of purchasing power in attracting investments towards maintaining the high-income earner’s lifestyle. Investment is directed towards producing what is essential for this demographic, rather than focusing on what might be more urgently needed by others. This tendency is often exemplified in wealthy nations, where the construction of luxury housing takes precedence over the more pressing demand for working-class housing. 

However, this tendency takes on a far more disturbing aspect when examining the disparities between workers in rich and poor countries. A compelling illustration of this phenomenon is observed in the realm of medical production. This issue is epitomized by the term “Neglected Tropical Diseases,” a name that encapsulates the plight of individuals afflicted by diseases that predominantly affect the poorest workers. The medical industry has historically neglected these ailments for countless years. In stark contrast, the same industry, while far from perfect for workers in rich countries, has been considerably more responsive in providing medical solutions for the maladies that afflict those societies even for things that are trivial like baldness. This scenario represents just one particularly glaring example of how wage differentials perpetuate analogous disparities in the standard of living.

These theoretical economic consequences have invariably manifested in concrete political expressions. A plethora of instances exist wherein workers’ organizations and representatives, whether liberal or Marxist, in rich countries have lent their support to imperialism, ethnic cleansing, the enforcement of discriminatory border policies, and the promotion of racial and ethnic segregation within workplaces. This support has extended to endorsing sanctions and blockades on poorer countries as well. The historical record offers no shortage of examples, such as the Parisian Communards’ stances in Kanak and Algeria, the Rand Rebellion, the Knights of Labor’s anti-Chinese activism, the Israeli Histadrut and Kibbutz movements, Cesar Chavez’s backing of measures against poor migrants, Michael Harrington’s advocacy for American militarism and Tom Brass’s equation of migration with colonialism. While these positions aren’t exclusive to rich countries, they do appear to be more prevalent there.

It becomes difficult to overlook the way the objective necessity for international solidarity clashes with the well-known Communist Manifesto slogan, “The working men have no country. We cannot take from them what they have not got.” Reality seems to be contradicting this principle – workers do indeed have a home country, as evidenced by how it determines their wages. This highlights what the main counter pull to Brazilification is: unequal exchange and wage differentials, enforced mainly by borders. High wage earners can either be concentrated in few countries in large numbers, or be a small minority homogeneously distributed across all countries. Capitalism does not really care for which solution is chosen, but workers in high income countries do. 

I am not proposing a definitive solution to these complex issues. Instead, I urge further exploration into the dynamics of wages and worker differentiation. More than anything, I am appealing for honesty when discussing these subjects, which are often marginalized for political convenience (frequently under the guise that the reality might be too disheartening for workers in rich countries). Alternatively, these subjects might be treated with theoretical abstractions that emphasize impersonal domination or capitalist exploitation. In response to both of these assumptions, I would argue that if the issue truly is impersonal domination or the mere fact of exploitation, then communist propaganda should be directed just as intensely toward the head of the CIA and the CEO of Amazon –. both individuals personify labor and sell their labor power for reproduction as much as the least paid worker in the world, yet possess significantly more power and influence to address the problems of socialist transformation.

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  1. Another intriguing observation is that the originator of the DSE model, Sir W. A. Lewis, attributed this situation to discriminatory union actions and their advocacy for restrictive immigration legislation. Over time, his confidence in the model’s ability to account for wage disparities fluctuated as he delved into the examination of historical instances. For those interested in delving further into the DSE model and its connection to Emmanuel’s concept of Unequal Exchange, I suggest reading chapter 11 of “The Bias Of The World” authored by John Brolin. This chapter is dedicated entirely to the exploration of the DSE model.
  2. To understand the disparities in how the land question was resolved in rich and poor  nations, it’s essential to examine the diverse land reform initiatives and their outcomes. One illustrative instance, as highlighted by Emmanuel, pertains to the Japanese land reform forcefully implemented by the US military occupation post-World War II. Another compelling comparison lies in the disparities between land laws in Canada and Argentina, along with their impacts on migration patterns and technological adoption. Additionally, exploring the ramifications of land conversion for cash crop cultivation and fishing activities unveils significant implications for class struggle, wages, and local food production in the book on nutritional unequal exchange Where Shrimp Eat Better Than People; Regarding the insufficient explanatory value of classical, neoclassical, and dependency school theories concerning the migration of rural peasants to urban areas, and the significance of the peasant sector in the class struggle within developing nations, I recommend Ali Kadri’s A Theory of Forced Labour Migration: The Proletarianisation of the West Bank Under Occupation. This study offers a more realistic view of the migration process in the third world in the Cold War and national liberation era.
  3. For a more detailed explanation about rent based wage theory, I recommended the work of Nathan W. Hill, although it is still missing the international character of capitalist production.
  4. Although not the only one, more sophisticated explanation to this can be seen in studies of the new international division of labor by CICP where the place occupied by the poor countries is in production of prime resources, appendix to machinerie, or as reserve army of labor.
  5. On the importance of free movement and the equalized rate of exploitation for Marx’s analysis of the capitalist MoP here.
  6. For an interesting theoretical analysis for the impacts of this history of imperialism I recommend the essay Historical Surplus Value by Egyptian Marxist & Third Worldist Anouar Abdel Malek.
  7. The use of Brazil as the example for capitalist reality is conjunctural and more indicative of the racial element of the fear of poverty in rich societies, in his work about overdevelopment and development Emmanuel used the example of Greece in the 60s and 70s as what the world without unequal exchange will look like.