On August 16, 2012, the South African police intervened in a labor conflict between workers at the Marikana platinum mine near Johannesburg and the mine’s owners: the stockholders of Lonmin, Inc., based in London. Police fired on the strikers with live ammunition. Thirty-four miners were killed. As often in such strikes, the conflict primarily concerned wages: the miners had asked for a doubling of their wage from 500 to 1,000 euros a month. After the tragic loss of life, the company finally proposed a monthly raise of 75 euros.
This episode reminds us, if we needed reminding, that the question of what share of output should go to wages and what share to profits—in other words, how should the income from production be divided between labor and capital?—has always been at the heart of distributional conflict. In traditional societies, the basis of social inequality and most common cause of rebellion was the conflict of interest between landlord and peasant, between those who owned land and those who cultivated it with their labor, those who received land rents and those who paid them. The Industrial Revolution exacerbated the conflict between capital and labor, perhaps because production became more capital intensive than in the past (making use of machinery and exploiting natural resources more than ever before) and perhaps, too, because hopes for a more equitable distribution of income and a more democratic social order were dashed. I will come back to this point.
The Marikana tragedy calls to mind earlier instances of violence. At Haymarket Square in Chicago on May 1, 1886, and then at Fourmies, in northern France, on May 1, 1891, police fired on workers striking for higher wages. Does this kind of violent clash between labor and capital belong to the past, or will it be an integral part of twenty-first-century history?
The first two parts of this book focus on the respective shares of global income going to labor and capital and on how those shares have changed since the eighteenth century. I will temporarily set aside the issue of income inequality between workers (for example, between an ordinary worker, an engineer, and a plant manager) and between capitalists (for example, between small, medium, and large stockholders or landlords) until Part Three
. Clearly, each of these two dimensions of the distribution of wealth—the “factorial” distribution in which labor and capital are treated as “factors of production,” viewed in the abstract as homogeneous entities, and the “individual” distribution, which takes account of inequalities of income from labor and capital at the individual level—is in practice fundamentally important. It is impossible to achieve a satisfactory understanding of the distributional problem without analyzing both.
In any case, the Marikana miners were striking not only against what they took to be Lonmin’s excessive profits but also against the apparently fabulous salary awarded to the mine’s manager and the difference
between his compensation and theirs.
Indeed, if capital ownership were equally distributed and each worker received an equal share of profits in addition to his or her wages, virtually no one would be interested in the division of earnings between profits and wages. If the capital-labor split gives rise to so many conflicts, it is due first and foremost to the extreme concentration of the ownership of capital. Inequality of wealth—and of the consequent income from capital—is in fact always much greater than inequality of income from labor. I will analyze this phenomenon and its causes in Part Three
. For now, I will take the inequality of income from labor and capital as given and focus on the global division of national income between capital and labor.
To be clear, my purpose here is not to plead the case of workers against owners but rather to gain as clear as possible a view of reality. Symbolically, the inequality of capital and labor is an issue that arouses strong emotions. It clashes with widely held ideas of what is and is not just, and it is hardly surprising if this sometimes leads to physical violence. For those who own nothing but their labor power and who often live in humble conditions (not to say wretched conditions in the case of eighteenth-century peasants or the Marikana miners), it is difficult to accept that the owners of capital—some of whom have inherited at least part of their wealth—are able to appropriate so much of the wealth produced by their labor. Capital’s share can be quite large: often as much as one-quarter of total output and sometimes as high as one-half in capital-intensive sectors such as mining, or even more where local monopolies allow the owners of capital to demand an even larger share.
Of course, everyone can also understand that if all the company’s earnings from its output went to paying wages and nothing to profits, it would probably be difficult to attract the capital needed to finance new investments, at least as our economies are currently organized (to be sure, one can imagine other forms of organization). Furthermore, it is not necessarily just to deny any remuneration to those who choose to save more than others—assuming, of course, that differences in saving are an important reason for the inequality of wealth. Bear in mind, too, that a portion of what is called “the income of capital” may be remuneration for “entrepreneurial” labor, and this should no doubt be treated as we treat other forms of labor. This classic argument deserves closer scrutiny. Taking all these elements into account, what is the “right” split between capital and labor? Can we be sure that an economy based on the “free market” and private property always and everywhere leads to an optimal division, as if by magic? In an ideal society, how would one arrange the division between capital and labor? How should one think about the problem?
The Capital-Labor Split in the Long Run: Not So Stable
If this study is to make even modest progress on these questions and at least clarify the terms of a debate that appears to be endless, it will be useful to begin by establishing some facts as accurately and carefully as possible. What exactly do we know about the evolution of the capital-labor split since the eighteenth century? For a long time, the idea accepted by most economists and uncritically repeated in textbooks was that the relative shares of labor and capital in national income were quite stable over the long run, with the generally accepted figure being two-thirds for labor and one-third for capital. Today, with the advantage of greater historical ...