The Labour Theory of (De)Value
In classical economics and Marxian economics literature, the labour theory of value provides a methodology of valuation of goods as sold in the market. But with the evolution of neo-classical economics, capitalism and technology, labour has lost its real value amidst this exploitative regime of profit-maximisation.
The Labour Theory of Value, as proposed by the political economist Karl Marx, states that the value of economic goods derives from the amount socially necessary labour time required to produce them. In market-efficient terms, the price of a commodity is proportional to the number of hours it takes to build the product. The above is a simplistic calculation for archaic times of mercantilism. Labour was a commodity in the process of production.
All commodities had a use-value, the modern-day utility, and an exchange-value, or price. But if the exchange takes place between goods of equal value, how does profit arise in this system?
According to Marx, capitalism was the most efficient, and the most profit-generating system of all. The Labour Theory of Surplus Value, an extension to his prior work, explained this anomaly. Labour power, like any other commodity, had an intrinsic value attached to it. The more one spends on building this power, through education and skill-enhancement training, the more value it attains. It explains why scientists get paid more than a daily-wage worker.
But in that era, capitalism was at its rise. The proletariat (or the working class) exploited by the bourgeoisie (or the capitalists). The motive of profit-maximisation led to a reduction in costs, longer working hours for the exact wages. And, that is when labour started to lose its monetary value.
The classical economist, Adam Smith, supports this proposition, as given by Marx. His writings on the market and the invisible hand are extensions to this line of thought. But with neo-classical economics, this pre-conceived mechanism reverses. The notion of marginal utility comes into play. The more the people are willing to purchase a good, the more the labour-time should be allocated to the production of the good. The demand now drives its supply.
Yet capitalism comes with its internal contradictions, and labour realises its power as a class for itself. Industrialisation, the advent of technology, made humans obsolete but necessary at the same time. The limited capabilities of large machines made ensuring smooth functioning a laborious task. Long shifts and harsh conditions of heat and dust blown by these machines became a new normal. The state of labour was at its worst, and the rate of exploitation increased. Since then, until now, the labour dynamics have undergone a massive transformation.
A class consciousness arose in Britain on the eve of broad-based industrialisation, leading to the formation of labour unions. A demand for political representation directed a back-door entry into politics through the Labour Party. Japan, on the other hand, bound by its paternalistic nature, evoked a Lifetime Employment System. The wages were strongly correlated to the years of service and not compulsorily to the skill. Employment for a ‘lifetime’ shows the loyalty of employees to the enterprise. It further signified the commitment of employers to workers welfare. An inherent social structure prevailed even at the workplace.
It was the struggle of these labour unions that the eight-hour workday and worker holidays got introduced. Today, these societies, shaped by their past, have better labour protection laws. However, in some industries, the conditions have deteriorated, if not become better. At its core lie the developing economies. A dualist structure has led to rapid urbanisation and migration of labour in search of better opportunities. But, they end up in an unorganised, informal sector with no social security or decent pay. Moreover, child labour is persistent to plague this unsystematic system.
Labour regulations rigidity has said to affect India due to its narrow approach to policymaking. The government’s role in the hire-and-fire policy, if the factory employs more than 300 workers, encourage businesses to either have a smaller workforce or outsource their work to cut costs. But, there lies an immense textile and garment industry, operating with less than ten employees. If labour regulations posed the problem, they could have expanded and still be outside the ambit of these ordinances. It brings to light the disregarded issues of credit availability, missing markets and institutions, lack of infrastructure, education and skill development among workers.
Above all, the process of structural transformation has taken a unique path in the development story of India. With the agricultural sector employing the largest workforce, contributes the least to the GDP. On the other hand, services provide the largest share in the GDP, with the smallest fraction of the workforce. Hence, we have a service-led growth as the potential of the manufacturing sector remains untapped. Majority of the workers in agriculture and industry are daily-wage earners, without a formal contract, and are deeply affected by the economic instabilities.
The Coronavirus pandemic is one of the worst periods in the history of economic depression. The irony remains that even when the factories are operational, the workers are unwilling to join. It not only is due to the health concerns but, due to the long distances, they have travelled to go back to where they belonged. General sentiments believe that many would rather stay to practice farming or start a local business to support their families. If so, the numbers, post the pandemic, might add up to be one of the largest return-migration. It will harm the industrial sector, primarily the small and medium enterprises, beyond repair.
There is a need to understand the value labour holds and provide them with better wages, skills and security of job and welfare. Mechanisation and regulations should not hinder the labour-power but make it invaluable. A knowledge-based skill set needs to emerge among the labour as the IT industry is on an uprise. Further, the word ‘Labour’ should not be merely a class of workers but a powerful and knowledgeable set of people.
This article was originally published on What-if Economics. View and subscribe to my newsletter to get insights right in your mailbox.