Thursday, March 22, 2012

Machinery of Freedom: Tedious Work

The Socialist claims that Capitalism produces monotonous, mind destroying work. To this David Friedman replies as follows:
You object that capitalism works too well, that more efficient means of production drive out less efficient, leaving everyone with sterile and repetitive jobs in a soul-killing environment.

More efficient means of production do drive out less efficient means, but your definition of efficiency is too narrow. If under one arrangement a worker produces a dollar an hour more than under another, but the conditions are so much worse that he will gladly accept a wage of two dollars an hour less to work under the other, which is more efficient? For both the employer, who saves more on wages than he loses on production, and for the worker, the 'less productive' arrangement is the more efficient. The efficiency of capitalism takes account of nonmonetary as well as monetary costs and products.

Let's suppose that I build radios on an assembly line. Rather than having a single task on an assembly line, say driving 6 screws to secure a cover, I'd prefer to install the circuit boards, the display, the heat sink, the covers. Everything. Because it's less boring and improves my skills.

That will reduce output. But you can have that in Capitalism, says David Friedman, because if you are willing to accept lower wages profits can be sustained even with the reduced output.

But there's an important question Friedman hasn't asked. How much less in wages are required? Maybe I'd be willing to take a 20% reduction in wages for a 20% reduction in output. What if I had to take a 90% pay cut for a 20% reduction in output? What if the former is the case on Socialism and the later is the case on Capitalism? Then guess what? The Socialist criticism is spot on and Friedman has not rebutted it.

Take a look at Foxconn, which makes your ipad and iphone. Workers make about $17/day working 12 hour shifts. When wages are already a tiny portion of overall expenses it may not matter how much less you are willing to earn with wage labor. You could go from $17 to $0 and still see profits reduce.

Below I offer a hypothetical example under Capitalism. Investors want profits. They'll be happy to alter the work environment as long profits are sustained. So let's suppose we have 100 empolyees and they produce $500 in value each day. Let's assume their total compensation is $90/day. I have an assumed capital expense as well. Under those conditions you see $31K in profit per day. Click to enlarge.

To the right I have the same conditions except the work environment has been altered so the work is more interesting and total output decreases 20%. I assume a 10% reduction in capital expense because fewer material is used. Based on this I calculate the required wage rate in order to sustaine the $31K in profits. The wages must fall to zero. Also if the initial wage was lower than $90 paying $0 would not be low enough wages to sustain the $31K in profit. Capitalism does not permit a less monotonous reduced output work environment under these conditions.

Contrast with Socialism. I have the same initial conditions, but on Socialism there are no investors that are paid. The workers only are paid. Worker wages start much higher since the bulk of the money is not going to the investors. But to permit a 20% reduction in output in order to improve working conditions workers must be prepared to accept 22.5% less in income. Much more than they make even under monotonous Capitalist conditions, but still a sacrifice.

What you find if you increase the initial wage rate on Capitalism is that you don't necessarily have to go all the way down to $0 to sustain the payments to investors. But you still must accept a greater % reduction in wages on Capitalism than you would on Socialism.


Chad said...

Looks like you've done the leg work now it is time to put your theory to the test. If your idea is sound, if it really can work then get it done - what are you waiting for?

Problem is that there is absolutely no chance of it working which means it is not sound thinking.

Socialism is like weeds in your yard, ignore them and they grow out of control killing everything they touch. They are ugly, useless and are only important to other weeds. Once destroyed/killed the grass is allowed to grow and be healthy again.

Like I said, stop talking this jazz and get out in the real world - start a company using your brilliant ideas if they are that much better! As an owner you stand to make less that your worst employee with your thinking - good luck.

Jon said...

Actually it already does work. Check out Mondragon or other employee owned companies who follow Socialist principles to varying degrees. Works quite well.

But that doesn't change my point here. Capitalism should be expected to produce tedious work and Socialism should have a lesser drive in that direction.

HispanicPundit said...

Compare the employees of Foxconn to "the employees" prior to capitalism in China. Quite a difference.

Oh and, again, as Chad mentions above, your theory is that...a theory. There exists no large scale socialism experiment. Never in history, not now. And every attempt at it has resulted in total disaster.

It would be like me arguing: we should operate all governments like we operate in a family. With no such thing as profits, everything done with kindness and love, and the world would operate wonderfully!

When I ask you to justify your claim, your response is: "look how great it works in families!". "Look at these couple small, no one heard of companies that are able to do it!".

It's not proof man. It's not like socialism lacked enthusiasts. It's been a goal for generations. Yet every attempt at it has resulted in mass poverty (but hey, atleast everybody is equally poor???).

Chad said...

Again, if it is working in Mondragon and is such a great idea start your company.

You see that is what makes America great, if you think your ideas are better then you have the freedom to give it a go and prove it. With that said, there is no business model matching yours in the entire US that I know of - if there was money in it then it would have already been done, but this is just a pipe dream theory. You want the assembly worker putting nut A on Bolt B to make the same money as the Engineer or Salesperson with no upper management to speak of and no investors - no wonder it doesn't and won't work.

In order for nearly all of your ideas - strike that - all of your ideas to work you need to either steal money from someone else or you need 100% mandatory participation where at that point a handful of Elites get to choose how and who gets that money. In your world every Engineer gets paid all the same, every sales person the same - no winners, no losers. So the guy selling $8 million dollars in goods gets paid no more than the guy selling $500,000? Then your going to try and tell the $3 mill sales guy that it is for the bigger and better good - your fellow man, your duty. That will work for about a month is my guess - once that guy realizes that if he can sell $500,000 and get paid the same as when he sold $3 Mil it won't be long until you have an unmotivated sales force.

Your ideas just will never ever in a million years work - anywhere. I know it is hard to admit, but it is absolutely 100% true.

For just giggles, let's pretend that your company survives past 6 months and because your widget is so popular that you experience growth. Now - we also have to pretend that your widget is so unique that no one else can make. So you take in all this new revenue and distribute it evenly to all employees - no one gets more than another - that's your theory here, no profits squandered, no one above another - also no investors to hold the company to profit margins, no CEO to navigate troubled waters so year 2 brings on 2 competitors and sales drop 50% and so your company takes away from emloyees salaries equally just as it had given on the way up. Your competitors reach out to your best and brightest and offer them a salary comparable to their efforts and ability (what a crazy idea) leaving you with all the lazy workers being held up by the best - your company has a shrinking market share, sub standard employees and no incentive package to replace those leaving with new quality - your doors close in 3 months. Even I gave you - for free - all the start up money for any company. My scenario would eventually find it's way true. You would have to fire incompetent workers, you would have to incetivise excellence and your model would break apart in months. The only potential employees you would attract is those with little to no motivation and at the bottom of the food chain - it's a loser theory from jump and will always be as long as Capitalism lives and Capitalism will never ever die.

Jon said...

Instead of telling me what my view requires what you should really be doing is asking me what my view is.

Because you have no idea what I'm advocating.

A long time back a friend of mine, who was involved in religious matters, had someone approach him and say "I disagree with your position on predestination and free will." My friend replied as follows. "Really? What is my view?" The challenger was completely stumped.

That question stumps you just the same. You think my beliefs are totally wrong and would never work. And yet you have no idea what they are.

Seriously, first understand the position you claim to reject. After you've come to understand it you are in a much better position to reject it. Why would you say I require that everyone in a company is paid the same? Why would you say I have no CEO and can't fire people? That has nothing to do with my position.

It's not surprising that you think what I advocate is so terrible when you have so many mistaken caricatures of my position. The position you reject is the position that exists in your own mind and nowhere else. Deal with my position as I hold it. If you don't know what my view is, ask.

Jon said...

Same question for you, HP. "No such thing as profits" you say. Who thinks there should be no such thing as profits? Not me. First understand my view, then refute it.

BTW, I never claimed that highly interventionist and government involved forms of Capitalism, such as what exists in China an has existed in S Korea over the last 50 years, can't lead to enormous progress. In fact I think Marx himself said that Capitalism was really good and maybe even better than Socialism at rapidly altering a completely impoverished country, like S Korea. I think he thought Socialism was more appropriate after Capitalism had worked some initial magic. I could be wrong on this, but it seems I heard that somewhere. In any case S Korea has seen a total transformation and that was due to their form of Capitalism.

HispanicPundit said...

Same question for you, HP. "No such thing as profits" you say. Who thinks there should be no such thing as profits? Not me. First understand my view, then refute it.

Jon, re-read my post. I NEVER claimed that the "run government like a family" was YOUR argument. I was making an analogy. A comparison to your argument.

Which is why I started the paragraph with: It would be like me arguing...

I'm trying to find a similar, separate argument that also has no record of ever being implemented.

Jon said...

I see. Sorry, I missed your point.

It's a fair point. We can't be sure what would happen if tried on a large scale. It's speculative.

But that's true of a lot of things that have resulted in progress. The illegality of slavery. Civil rights legislation. Women's rights. Democracy. At a point in the past they'd never been tried on a large scale. So you could have argued against them saying we're not sure what will happen. There aren't a lot of things you can be sure of.

What we can see is the effects of free market Capitalism. We see the incentive structure is there to produce tedious work and we see how Socialism institutionally is different. This issue piled on top of others (global warming, starvation, homelessness, unemployment, whatever else) means an alternative structure which at least on a small scale seems to mitigate these things should cause us to consider changes.

Certainty isn't possible this side of the grave. If we never changed without certainty we'd never make any progress.

HispanicPundit said...

I'm curious Jon: Lets say I was arguing that we should operate an economy like we do a family - without profits and instead with love and altruism.

How would you prove me wrong?

Jon said...

I would say that we definitely can look to the Soviet Union and draw lessons. One thing they did was they eliminated markets. You just were required to make what the central planning committee demanded. It didn't work well. The slogan was "We pretend to work, they pretend to pay us." Managers had a huge incentive to lie and say "I can only max 100 units per year" when they really could make 200. The planning committee knew capacity was understated, so they'd demand more than a manager said was possible. The manager knew that, so he'd try and compensate. It bred deception and punished honesty. The profit motive is important for innovation. If I can devise a machine that allows our whole company to make 100 widgets in half the time they effects my income immediately. Or my leisure time. We can work half the hours and do the same amount of work. What if we lived in a society where we worked 4 hours a day 5 days a week? On Socialism that's feasible, but the incentives all nudge us towards longer hours on Capitalism.

Chad said...

I don't want anything to do with that Jon and that is the big point here. In order for any of your ideas to work you have to take away my freedom.

You know how to work less and yet be comfortable Jon? Work your ass off when you can, earn, earn, earn then you can invest or become a business owner then you can retire or if you hire the right people to run your company you can cruise through the second half of your career - that is how you do it.

If a person decides that their goal in life is to work on a non skilled assembly line all of their life then they may have to work 70 hours a week to live the high life or they may struggle - that is their choice not to grow and it is not my responsibility to carry them along.

Jon said...

Chad, can you tell me why you would think that what I'm advocating takes away your freedom? I really believe you don't know what I'm advocating, but maybe you do and I'm missing something. Why would I want to take your freedom?

Did you see my recent post on Chile and Milton Friedman? Talk about taking freedom. They couldn't win at the ballot box, so they used violence. And nobody there wanted to follow Friedman's policies, so the military had to expand. It doubled in size. Concentration camps, torture. The whole gamut.

Friedman's influence proceeded to Brazil, Argentina, and Uruguay. You familiar with Boris Yeltsin? His economic team was likewise called the "Chicago Boys" in Russia because they were Friedman devotees. They ousted Gorbachev, privatized the major state run industries, removed all price controls. Suffering was off the charts, with death tolls on the order of Stalin's purges. The people tried to regain control. Yeltsin saw he couldn't win at the ballot box, so he just burned down the Parliament building and installed himself as the supreme dictator, disbanding the Supreme Court and legislature.

The list here is endless. Here you can watch mourners at a funeral getting gunned down in El Salvador. Oscar Romero, a Jesuit priest, opposed the US backed military dictatorship and spoke out against it. He was assassinated while performing mass by people trained at the infamous US training camp the School of the Americas. Those that grieved were also killed as you can see.

All this is quite natural on Laissez-Faire Capitalism. Capitalism seeks profits. Wherever labor is the cheapest is of course targeted. What prevents that? The people in those countries and their governments, who want to control their own resources and not have profits exported. So naturally your investors have a strong incentive to attack those governments. You've got ready excuses. White man's burden in the colonial days. Anti-communism. Today it's terrorism. Tomorrow it will be something else.

So of course I believe, and I can defend the idea that what I'm advocating is much more compatible with freedom. In our own country as well, not just outside our borders. But I'll stop there because I'm too long winded.