Capital and labour: conflict or cooperation?

In Marxist political economy, the class of capitalists, who own the means of production, and labour, which is forced to work for the capitalists to secure the wage necessary for survival, are seen as necessarily in conflict. In the process of production, the capitalist is held to aim to maximise the surplus value and profit obtained from the workforce. This might involve increasing the rate of exploitation, or minimising the wage paid to the latter, while maximising their work effort. The class of labour, by contrast, would probably aim to earn the highest wage possible and to improve their standard of living over time, while securing favourable working conditions. The interests of the two classes are thus in conflict. But although conflict may be endemic to a variety of human activities, from the shop floor to the battlefield or perhaps to making choices in the supermarket, surely it is not the end of the story when it comes to human motivation in economic life under capitalism.

Marx claimed that all history up to the time he was writing was the history of class struggles. He hoped that socialism would provide incentives for the widespread exercise of cooperation and bring out the best in humanity to the benefit of all. But even under capitalism, cooperation takes place between management and the workforce in order to maximise productivity and firm performance. It is clear that for individual firms, it can be in the interests of all the stakeholders involved to cooperate so as to enable profits and wages to rise over time, which can potentially be mutually beneficial. Rising productivity, when it produces rising output, means that profits, wages and dividends can all rise together. In practice, this may not happen, depending on corporate governance and the balance of power between the various stakeholders. Wages could be held down by unscrupulous management, while pressure from financial markets to maintain a high share price could force dividend payouts to be higher than would otherwise be necessary, at the expense of wages. This process might also be encouraged if management receive part of their pay in share options. In the longer term, this could make for a resentful and less productive workforce as their exclusion from the benefits of improved firm performance results in less work effort. This would be detrimental over time, so in the long-term, it would clearly be in the interests of management to share the proceeds of growth more fairly. At a macroeconomic level, if this kind of behaviour became ubiquitous across the economy, stagnating wages and rising management pay and dividends could constrain the growth of consumption, since lower paid individuals tend to consume a higher proportion of their income, and this could impact on aggregate demand and therefore growth and employment.

One could also argue that the scenario above, if it eventually resulted in poor firm performance, would lead at some point to bankruptcy or takeover, so that the forces of competition would promote the survival and prosperity of firms following best practice. However, this ‘laissez-faire’ attitude ignores the fact that the institutions of corporate governance, and product and labour market regulation, all have an impact on the incentives faced by firms and their stakeholders. Inappropriate institutions could result in widespread poor performance over considerable periods. Thus it is not only the institutions of the market and competition that matter. All these kinds of institution have been created over time through human action, and may be unlikely to continue to promote strong firm performance over the long-term, even if they did so at their inception; they will need to evolve with time, probably in a discontinuous fashion, to enable the economy to continue do well, with the benefits shared as widely as possible.

It is also likely, as well as the potential for intra-firm cooperation to improve performance, that some organisations will thrive despite, or even because of, the presence of conflict, or individuals and hierarchical structures which promote dictatorial behaviour, to the detriment of workers lower down the scale. Such practices may last a long time if they fail to be challenged. This is disheartening but probably inevitable with ever-present human fallibility.

So both cooperation and conflict can be part of the capitalist story. For the economy as a whole to continue to grow and evolve, it is important for a plurality of organisational behaviours to be produced and selected for best performance as the economic, social and political environment changes. Even the way in which we measure such performance may change as society’s standards and practices themselves change. In recent times, concern for the environmental consequences of economic development have received increased attention. Often this only seems to happen in the good times when recovery and growth do not seem to be vital, so such forms of progress take place unevenly.

A final point regarding the potentially mutually beneficial actions of capital and labour in production refers back to my post on wage-led versus profit-led regimes of economic growth. If the economy is wage-led, rising wages will stimulate consumption, profits and thence investment which can generate improved productivity, further wage rises and a virtuous circle of rising prosperity across the economy. In this way, it is in the interests of capital and labour to cooperate in production and the institutions of social democracy, including strong trade unions, can work well. If growth is profit-led, then wages may need to be reduced to raise profits to provide the funds for investment. In this case, capital and labour will have conflicting interests, and cooperation between management and trade unions may be more difficult to achieve. Economies can experience either regime, so whether capital and labour are in conflict or can be encouraged to cooperate to the benefit of all is subject to change.

Thus capitalist economies are likely to give rise to a plurality of organisational forms, each potentially producing incentives for conflict or cooperation, across firms and industries and over time. This is essential to social and economic evolution, but governments and citizens, and the classes of capital or labour, should remember that human action can bring about change to those organisations which can bring widespread benefits.

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