The Invisible Handcuffs of Capitalism: How Market Tyranny Stifles the Economy by Stunting Workers (13 page)

Taylor expected to play a role comparable to a person who coaches elite athletes, except that his goal was to make the workers’ opponents—the bosses—come out winners. Unlike workers, elite athletes generally perform at peak levels for a short period of their lives and only at short intervals. The human body is not designed to continuously operate at maximum capacity. Therefore, to the extent that management was able to succeed in achieving Taylor’s recommendations, working conditions deteriorated—at least in terms of the toll work took on workers’ bodies. Management, however, has little interest in workers’ physical well-being. The objective of business is to extract as much work out of their employees as possible. In effect, Taylor’s role was to aid business in being able to treat workers as interchangeable parts.

Yet, Taylor saw himself as a progressive. He resented that workers resisted his efforts to speed up production. Their reluctance seemed irrational to Taylor, who believed workers were bound to benefit because they would receive increased wages in return for higher output.

Taylor never seemed to understand that the labor process is not just a matter of finding a better way of performing a job, that the labor process was part of a larger system of social relationships. This shortcoming helps to explain why, despite his gift of self-promotion, Taylor never really succeeded in revolutionizing his scientific management work for the companies that hired him.
⁹⁶
Others who followed him, however, were more successful in developing the means to gain more control over labor.

This effort to make workers little more than cogs in a larger system of production was bound to be self-defeating in the long run. First, as Bill Watson showed, workers can develop counter-plans. More important, stunting workers through more obtrusive management will snuff out the potential for greater productivity—presumably the objective of scientific management.

Economists’ freedom to explore such questions is limited. Since the late nineteenth century, universities regularly purged economists who were suspected of insufficient sympathy for capitalism. Fear of such reprisals was sufficient to warn most economists not to tread on unsafe territory. Recall the recriminations of Richard Lester and David Card for their work on minimum wages.

Work and working conditions are even more controversial. As might be expected, the very small number of economists with impeccable credentials who still wandered off from the mainstream expectations received equally harsh treatment.

A Brief Theoretical Intrusion of Working Conditions

William Stanley Jevons was one such exception. He showed an interest in the physical act of working and, tangentially, in the labor
process. Anticipating Taylor’s research on scientific management, Jevons experimented with repetitive movements in order to develop a scientific measure of the relationship between muscular fatigue and work. Jevons did not publish his results in an economic journal, but in the premier British science publication,
Nature.
⁹⁷
Even worse, from the standpoint of conventional economists, Jevons was theoretically willing to consider incorporating workers’ direct utility or disutility from the job itself. He went so far as to acknowledge that work need not be unpleasant and that under certain circumstances work could actually be a source of gratification. For Jevons:

Labour … is any painful exertion of mind or body undergone partly or wholly with a view to future good. It is true that labour may be both agreeable at the time and conducive to future good; but it is only agreeable in a limited amount, and most men are compelled by their wants to exert themselves longer and more severely than they would otherwise do. When a labourer is inclined to stop, he clearly feels something that is irksome, and our theory will only involve the point where the exertion has become so painful as to nearly balance all other considerations. Whatever there is that is wholesome or agreeable about labour before it reaches this point may be taken as a net profit of good to the labourer; but it does not enter into the problem.
⁹⁸

Jevons’s timing was unfortunate. He began this research on work shortly before the Paris Commune was about to intensify the ideological stakes of economic theory. Economists were trying to craft an ideological justification of the status quo based on what they considered to be “scientific” economics, which could be reduced to mathematics.

For that reason, this part of Jevons’s research might seem unexpected. Jevons, more than anybody else in the English-speaking world, was responsible for moving the focus of economic theory away from production in favor of consumption. Jevons himself was highly ideological, although I do not think he saw himself that way. But, even so, he was also very interested in practical matters of science and efficiency.

Downplaying labor while emphasizing transactions seemed to be an urgent priority for the defenders of the new economic theory. These economists realized that taking account of the labor process would fatally complicate the simple analysis that they were proposing. Besides, their ideology insisted that any efforts at improving economic performance, except through commercial transactions, would be sure to make matters worse. In this climate, considerations of working conditions would seriously muddy the theoretical elegance while threatening to weaken the ideological force of economics.

Economists treated employment as a voluntary transaction, but in the workplace voluntarism disappears. Instead, work proceeds according to the commands of the employers. Overbearing supervision might turn work that could otherwise be enjoyable into an ordeal. As a result, the social relations between labor and capital will affect how disagreeable work may be. Jevons’s work suggests that economists should take into account workplace utility, which is not the result of a transaction such as the purchase of an object at a store.

But if economists were to take the step that Jevons suggested, they would have no way to “scientifically” measure their subject. Economists might be able to finesse the measurement of consumers’ utility by presuming that they maximize their utility. Theoretically, prices offer a metric by which consumers might make their decisions. However, workplace utility would create a challenge comparable to measuring the utility of a marriage. Inside the workplace there are no monetary transactions.

Taking matters even further, close attention to working conditions threatens to create sensitivity to the lives of the most downtrodden members of the working class and the difficult and stultifying conditions on the job they face. Economists understand that because working conditions are difficult to quantify, addressing that subject could make economics appear more subjective and consequently seem less scientific.

One other factor may have made Jevons’s work objectionable. The German tradition of the science of work influenced his analysis of labor.
⁹⁹
Hermann Ludwig Ferdinand von Helmholtz, the great German scientist, was the major figure in this German effort to study
the energetics of work. Helmholtz’s concept of labor power also provided a key for the development of Karl Marx’s economic theory.
¹⁰⁰

Not surprisingly, mainstream economists were not particularly appreciative of this part of Jevons’s approach, which harkened back to his earlier discussion of a possible role for the utility of the labor process. In an 1892 letter, Alfred Marshall wrote, “I think Jevons did great harm by talking of … measuring disutility.”
¹⁰¹
Marshall mocked Jevons by suggesting that considerations of the utility of labor might be appropriate only in the case of a child snacking on berries in the wild, echoing Jevons’s earlier association between utility and labor. The youth could continue as long as the benefit would be worth the effort, but for a more modern product, such as “aneroid barometers,” Jevons’s method would not make any sense.

A group of economists from Austria launched a more influential attack, denouncing Jevons, dogmatically defending the ideological purity of their existing utility-based economics, which intentionally excluded working conditions. Economists were supposed to think in terms of consumers’ introspection, not workers’ production. The demand that considerations of the workplace were unacceptable soon won over the entire community of economists.
¹⁰²
Jevons’s “sin” was not that his analysis was imperfect, which it was. Instead, Jevons’s offense was that he opened a window on the imperfection of the emerging economic consensus about economic theory.

Jevons was duly reprimanded. Today working conditions rarely intrude into economics, except to sometimes allow past or present work experience (objectified as an accumulation of human capital) to affect workers’ productivity. In any case, direct concern with workers’ welfare on the job never enters into the picture.

In one sense, the neglect of working conditions in economic theory is ironic. As mentioned earlier, economists are generally interested in the kind of person that a particular economy creates. For example, some economists—especially very conservative economists—insist that the discipline of work will improve people’s character.

This improvement extends beyond strictly economic welfare to people’s moral and ethical qualities. This belief was a major justification
for the “reform” of the welfare system, which was intended to drive more people into the job market. The intended beneficiaries were supposed to be the workers, whose human capital and moral character would improve through workplace discipline. The proponents of this policy never hinted that the inflow of additional workers into the job market would force wages down.

Insofar as economics is concerned, the workplace remains what Karl Marx appropriately called “the hidden abode of production.”
¹⁰³
Economics can see workers entering the factory gates and the finished goods appearing on the shipping deck, but economists’ view of what happens inside the factory is limited to the accountant’s office, where profits and losses are calculated. There, only the shadow of work, workers, and working conditions exist in the form of a wage bill. Real-life people, whether workers or consumers, are reduced to objects that facilitate the accumulation of wealth and capital.

X-Efficiency and Ideology

Work, workers, and working conditions almost intruded into economic theory from a very unlikely direction in 1954, when Arnold Harberger, who would later become a stalwart of the University of Chicago economics department, produced an article that challenged the conventional thinking of economists, beginning:

One of the first things we learn when we begin to study price theory is that the main effects of monopoly are to misallocate resources, to reduce aggregate welfare, and to redistribute income in favor of monopolists. In the light of this fact, it is a little curious that our empirical efforts at studying monopoly have so largely concentrated on other things.
¹⁰⁴

Harberger intended to show that markets were so efficient in allocating resources that any distortions created by monopoly were bound to be inconsequential—at most 0.1 percent of the Gross National Product. In 1959, Harberger returned to the same idea, suggesting
that removing distortions in Chile’s economy would create a relatively insignificant improvement in economic performance.
¹⁰⁵

The original article continues to be influential, perhaps in part because Harberger used a simple graph, displaying the effect on demand of a change in price because of monopolistic power. This picture shows increasing profits for the monopolist, decreasing costs of inputs, increasing prices for consumers, and a relatively small triangle, which represented, for Harberger, the social costs of monopoly. Even today, virtually any economist will immediately understand the meaning of the expression “Harberger triangle.”

Harberger’s lesson was that nobody should worry about business becoming monopolistic, because the triangles are very small, one-tenth of 1 percent, by his estimates. Harberger casually dismissed the effect of monopoly on the distribution of income:

I have not analyzed the redistributions of income that arise when monopoly is present…. I leave [questions about income distribution] to my more metaphysically inclined colleagues to decide.
¹⁰⁶

A few years later, in 1962, the future Nobel Laureate, Robert Mundell, reflected about Harberger’s triangles. He worried that if distortions did so little damage, “someone inevitably will draw the conclusion that economics has ceased to be important!”
¹⁰⁷

A more serious challenge to Harberger’s model came from Harvey Leibenstein, a respected economics professor from Harvard University. Leibenstein argued that Harberger just looked at what would happen if a monopolist raised prices a little bit. Granted, the immediate effect of a slight price might be small; however, by restricting himself to the marginal effect of price changes, Harberger lost sight of how the reduction of competitive pressures could lead business to become sloppy, which could have major consequences. Harberger’s mistake was only looking at the transactions side—what economists refer to as allocative efficiency.

In contrast, Leibenstein directed attention to the productive side of the economy, citing numerous studies of virtually identical plants
producing dissimilar results. He postulated that economists needed to come to grips with the forces that account for the superior performance of some operations—forces that conventional economic models do not capture.
¹⁰⁸

Unpredictable outcomes should not come as a surprise. Performances in any kind of competitive activity display a degree of unpredictability. Why should firms be any different? Leibenstein took the position they were not.

Because Leibenstein could not fit his insight into a formal economic model, he called this variability of performance “X-efficiency”—an allusion to Leo Tolstoy’s
War and Peace
, which contained the observation: “Two armies may be identical in every observable respect … yet one army, in possession of an intangible ‘X-factor,’ will soundly defeat the other.”
¹⁰⁹