Income Inequality: An Organic Part of Capitalism

Brad Forrest

On Wednesday, December 4th, President Obama made a speech to the American people castigating the growth of social inequality. Obama called the fight against inequality the “defining challenge of our time.” Brave and heroic words. Even Pope Francis has railed against the dehumanization of the current economic system. In his first “exhortation” the pope said that, “… today we have to say ‘thou shalt not’ to an economy of exclusion and inequality.”  Courageous words from a Catholic who managed to rub elbows with the Argentine dictatorship of Jorge Rafael Videla.It appears that the ruling classes of the whole world have finally woken up to the fact that income inequality has passed all bounds of decency since the collapse of the Soviet Union over twenty years ago. If they are now muttering about inequality, which has increased drastically — especially under the Obama administration — it is not out of empathy for the poor and dispossessed but out of naked fear that the capitalist system could blow up in their faces. The ruling classes of the whole world are well aware that if they don’t do something they could lose everything through social revolution.

The fight against inequality has found its most recent expression in the magnificent movement of low-wage restaurant workers for the $15 pay raise and a union. Fast food workers all over the country have gone out on strike to achieve their goals in an extremely militant fashion, without waiting for any of the two big business parties to benevolently take their side. Even President Barack Obama has made a call for raising the federal minimum wage to at least $10 an hour. The ruling class is well aware of the anger produced by low-wage earners, although the rich care more about how low wages lead to diminished demand for their products — 70 percent of the economy is based on consumer spending.

Inequality in pay between the average worker and a CEO has exploded in recent years. According to the Economic Policy Institute, a liberal think tank, the pay of top restaurant CEO’s has grown to 788 times the minimum wage. In other words the minimum wage amounts to $15,080 while CEO pay hovers around $11,884,000!

According to a study by University of California Berkeley, throughout the entire time that Obama has been in power, 95 percent of income gains went to the top 1%. This figure is one of the main motor forces behind the Occupy Movement. Obama noted in his speech on Wednesday that children born into the bottom 20 percent have less than a 5 percent chance of climbing their way to the top 1%. The days of Horatio Alger pulling himself up by the bootstraps are long gone, if they ever were!

Take another related phenomenon of the Obama era, the Detroit Auto Bailout. Under the restructuring conditions new union members will make about $14 an hour while those members with some seniority will make double that per hour, according to The New York Times. This is taking place in times when the productivity of labor is such that it only takes 900 employees 48 seconds to assemble a new Jeep Grand Cherokee!

This race to the bottom is becoming the new norm for U.S. capitalism, as it seeks for ways to compete with cheap labor sources from China and India. Also of note is the fact that union density in the U.S. fell from 13.4 percent in 1999 to 11.1 percent in 2012. Across the OECD countries (advanced industrialized nations) union density fell from 20.8 percent in 1999 to 17 percent (!) in 2012. Unions are being targeted by the ruling class all across the line in order to weaken the labor movement and raise profits!

It is precisely the Obama administration — as well as Democrats and Republicans in general — that is pushing historic attacks on social welfare programs (so called entitlements) that were originally intended to mitigate the negative effects of capitalism. Social Security, Medicare and Medicaid are being targeted by the U.S. ruling class under the false notion that there is “no money.” Why is there no money for these bedrock reforms won by workers in the 1930’s and 1960’s? Answer: the Bank Bailout of 2008 and ensuing recession throughout the rest of the global economy. Under the auspices of the Emergency Economic Stabilization Act of 2008, the U.S. Treasury purchased about $700 billion in “distressed assets” (worthless stocks) the banks were holding due to the subprime mortgage crisis. The banks get bailed out, ordinary people paid the price. This is how capitalism works, and it is this system that is creating massive and unconscionable levels of social inequality all throughout society.

If Obama were serious about championing the interests of the working class, he would create a federal jobs program to put the unemployed back to work, paid for by implementing a steep progressive income tax on the rich. Of course, Obama has no intention of going down that road because he is a staunch defender of the capitalist system with its inequality and exploitation. He really wants to use the unemployment crisis to drive down wages to make U.S. capitalism more competitive on the world arena, precisely the opposite of his stated goal of fighting inequality.

Why is inequality rooted in capitalism? Well, capitalists and workers engage in two different operations within the economic system. Workers sell their labor power to capitalists for a wage so they can buy the necessities for survival.

Capitalists operate according to a very different logic. They hire workers (in Marxist terms they purchase the “labor power” of the worker) and require that these workers then work long enough to create more value than is needed to pay their wages. For Marx, this surplus value is the source of all profit. Through this dynamic, capitalists accumulate more and more profit while workers stay at the same level. In this way inequality is an organic part of the system.

There are three main factors under capitalism that determine a rise in wages.

  1. There needs to be a high demand for labor (mass unemployment means there is little demand for workers).
  2. Workers must be skilled in order to perform the work. Hence they need to be trained, and this training increases the value of the ability to work (i.e., it increases the value of their labor power).
  3. There needs to be a strong trade union movement or general social movement dedicated to workers demands.

It is clear from the above analysis of trade union density in the United States that the last condition is absent, making it that much harder for a growth in wages. It is also the case that the demand for labor is low in relation to its supply. And currently workers in the tech industry are highly skilled and are receiving high wages, but they are the rare exception. Most new jobs are now opening up in the restaurant or retail industries for rock-bottom wages. Thus, building a powerful social movement around the demand for $15 an hour and a union is a necessary first step before there can be any hope of a higher minimum wage capable of improving the lives of most working people.

To fight mass unemployment — and thus create more demand for labor — we must demand a national jobs program, as existed under Franklin Delano Roosevelt, paid for by taxing the rich.

Finally, to fight against inequality and low wages all workers must fight to maintain and expand Social Security, TANF (welfare), and other safety net programs that help prevent working people from working for peanuts and thus driving down the wages for everyone else.

The fight for a living wage cannot be waged with an alliance with the Democratic Party, which has overseen — along with the Republicans — the demise of the living wage and the rise of increased income inequality.  Labor unions and community groups must fight for political independence and run pro-labor candidates that will fight for the specific demands of working people, at the expense of Wall Street and the rich in general.

In the final analysis it is the capitalist system itself that must be abolished in favor of socialism. Transforming labor from an exploited commodity to a social priority requires a transformation in economic systems.