Pity on capital for it stands on same pauperization axis as labourers do – and evicts them too

Bhaskar Majumder

On the condition of anonymity, one of my friends in the corporate informed me that the companies were geared to rationalize labour by size – labour cut to size, given the Corona 2019/2020 windfall. The national disaster, though not probably declared by the Government of India as a natural calamity, has engaged the Government to apply Disaster clauses mandatory in nature.

In spite of its efforts to keep labour away, capital is dependent on labour for production of more capital and capital goods, and uninterrupted accumulation, with Laissez Faire or with Keynes or post-Keynes. Capital faced crises, 1929-1933, 2008 and 2020 and in between many cycles but it succeeded not to take labour on intra-capital fraternity axis unlike what the film of Satyajit Ray (where Raja and Praja jointly sang the chorus, Dari Dhore Maro Taan, Raja Habe Khan Khan) showed. The reasons of separation of labour and capital are rooted in Classical Political Economy that I am not going into now. What perhaps was not visualized a century back was the blatant support for capital as opposed to labour. Let me rectify myself a little bit. Capital likes labour but not the labourer just as in Kolkata I had to opine that the non-Muslims do not like the Muslims in India/West Bengal but like their products like Gur produced from palm/debt trees, Rezala of Sabir (restaurant in central Kolkata), suit tailored by Akbar Ali, Habib mason to plaster walls of house, mosquito nets and all that.

Of course, the labourer is separated from his labour. All the calculations in theoretical Economics and applied firms were based on labour though labour hour came from the number of labourers engaged. The alienation of the labourer from technology and the final product needs no repetitive explanation. What needs to be repeated, at least for the undergraduate students in social sciences, is the following:

The apprehension of the small and medium size capital owners that unless labour by number is not reduced, if necessary by enhancing labour hour per labourer per day, the firm will face shut down, needs to be corrected for reasons more than one. The first correction is, reduced size of the workforce at the firm level will have chain effect on market size that will shrink for technology-weighted higher output may not readily find a market. The second is, inter-labourer inequality will increase that of course is not an argument against capital. The bigger question is, firms were set up not to function for 50 days but at least for 5000 days. Then, how could 50+ days of lockdown create the Shut Down crises for the firms? Any UG student of economics knows the Revenue-Cost curves that show Break Even and Shut Down points and the distancing of these two points explaining adequately the profit zone of the firm. I have strong reasons to believe that the economy-hijacking economists already advised the Government of India all these before it took U-turn while first asking firms to pay wages and then withdraw the Order for lockdown period of 50+ days. Hopefully, the honourable Apex Court also knew it – the latent truth in Break Even and Shut Down – before being pro-firms.

Simple Theory on U-turn:
I take a simple Neoclassical production function, Q = f (L, K), where L is labour and K is capital, with standard restrictions. This I do for UG students, though others interested may have a look.
Y = P+W, is the Income Distribution equation that shows: P/Y + W/Y = 1.
W = wL, is the labour equation where w is wage rate and W is wage share.
L*/L = K*/K – k*/k, is differentiation of technique of production (k=K/L) with respect to time (t).

Hypothetical Example:  Impact of Wage Bill on Market Size

Assumptions: 1. High labour hour (say, per day) implies large number of labourers employed.
2. Large number of labourers employed comes from large number of households.
Suppose w is enhanced in Path II: what happens to market size?

Implications: Given need for W-goods of labourers, total (or a little less or more) wage share goes to buy W-goods.
W= C (All wages are spent on C-goods)   ----Path I.
Market for W-goods is formed.

How market gets formed?

1. Market is a social formation at its budding stage.
2. Market gets formed through state.

Path  I: W1 = w1L1    --------(1)
Path II: W2  = w2 L2   ----------(2), L1 > > L2, w2 >> w1.
W1 = W2 -----(3)
Path I is L-using: L*/L> 0.
Path II is K-using: k*/k >0.
(For the present analysis, I take the assumption that all the components of the product are produced in either or technique).
Suppose Path II is chosen by the capital controller. Less labourers go to buy goods plus need shifts to non-wage goods.

Implication: Wage goods market gets restricted.
Suppose:
C1 = Demand for W-goods
C2 = Demand for non-W-goods.
Now on Path II, reduced demand (C1) may not be compensated by increased demand (C2).
One implication is crises in W-goods sector. This is often interpreted in conventional economic literature as shift of consumption to price-elastic goods. 

Market on Time span and the Question of Growth
By growth I mean expanding production possibility frontier through production more of wage-goods or non-wage goods or both. The assumption is unconstrained labour supply (I avoid the concept of surplus labour, as in conventional Economics).

While market is a reflection of free flow of goods, market may get truncated on time-span for specific division of labour.

Path I: Expanding demand for W-goods.
Path II: Restricted demand for W-goods (or increasing demand for non-W-goods).

Why or How?
W-goods are low priced, life-saving and fulfil basic needs.

Non-W-goods are high priced, comfort-enhancing and fulfil needs more than basic.

At low income per household of the labourers, if all the members of the household are to survive, the household will decide to buy W-goods first.

In parallel, if technology moves to support capital-intensity (or, conversely go against labour-absorption), the output/income distribution goes against labour.

Capital (K, say, machine) is also output not finally consumed by the labourers (households). While I talk about C, it comes from W (Rs. 500/-) distributed by the capital controller. This K is an offshoot of historical dispossession.

It will be rational for the capital controller to choose path II. He maximises surplus (Q – W) or (Q – C). The capital controller distributed output produced as wages and the rest (Q – W) he took as profit. It is assumed that (Q – W) is invested on the same product.

First outcome: Inequality sharpened (Lorenz curve, as a tool of analysis, away from the line of equality).
Second Outcome: Reduced wage share-led shrinking market for wage goods.

Suppose, the state favours the tertiary sector by producing money to do charity reflected in additional income (urban-bias in India). Does it remove the crises in W-goods sector? The straight answer is, no. It may lead to more production of small car like Maruti to maintain post-Corona social distancing.

Overproduction is a natural consequence of capitalism – output that is not absorbed by home market.
Vent-for-surplus could be thought of – but world market is competitive.

If the above analysis holds good, then the Government-saved firms and Apex Court backed firms will need support once again for not-much-distanced market crisis for it dislodged the labourers the beginning of the drama starting with Bangaluru-based unicorn Swiggy laying off 1,100 labourers post-Corona, Gurugram-based Zomato deciding to lay off 13 per cent of its staff, and the Ola car services company deciding to downsize and "let go" a large chunk of its employees. The question is not ethics – it is Economics.

End Notes
Market = Home market + Rest of World market.
Home market = rural market + urban market.
Rural market = market formed by wage-labourers + market formed by the big landowners.
Market formed by Rural Wage labourers = Money inflow through MNREGA spent on wage goods + agricultural wages spent on wage goods.
Urban market = Slum market + non-slum market.
Non-slum market = market formed by the middle section + market formed by the super rich.
Slum market shows part of W-goods market.
Non-slum market shows more of non-W-goods market.

Bhaskar Majumder, Professor of Economics, G. B. Pant Social Science Institute, Allahabad - 211019

Back to Home Page

May 25, 2020