The distinction between production and nonproduction activities

Marxist national accounts depend crucially on the distinction between labor which is productive of capital and that which is not. Because this distinction is so often presented in a confused and contradictory manner, we will not begin from it. Instead, this section will focus on the prior and more general distinction between production and nonproduction activities. The next section will then develop this into more concrete distinctions between labors which are and are not productive of capital. As we shall see, our derivation will enable us to arrive at a definition that corresponds exactly to the one Marx uses. Deriving the definition from first principles, rather than simply beginning with it, allows us to endow it with considerably greater depth.

Mistaken conceptions of the distinction

It is useful to begin by emphasizing what the distinction between production and nonproduction labor does not refer to. In the first place, it is not a distinction between necessary and unnecessary activities. We intend no connotation that production activities are either more (or less) necessary than nonproduction activities. The dividing line does not rest on either technical or social standards of efficiency, though of course such standards may well be applied to either set of activities. Baran and Sweezy's argument that some labor under capitalism would be unnecessary in a “rationally ordered” (i.e. socialist) economy (Baran 1957, p. 32) is one such efficiency approach.

Our empirical analysis of the U.S. economy will be set out in several sections. Sections 5.1 and 5.2 will utilize suitably modified input–output tables to develop benchmark year estimates of Marxian measures of the total, intermediate, and final product, and then use NIPA data to interpolate between benchmark estimates to create an annual series for each of these measures. Sections 5.3 and 5.4 develop the estimates of annual employment, wages, variable capital V*, surplus value S*, surplus product SP*, and the rate of surplus value S*/V*, and compare them to the more conventional measures such as profit-type income and the profit/wage ratio. Section 5.5 measures the Marxian rate of profit, and compares it with the average observed rate (net of those parts of surplus value which are absorbed into nonproduction expenses) and the observed corporate rate. Section 5.6 measures the rate of exploitation of unproductive workers, and compares it to that of productive labor; Section 5.7 compares Marxian and conventional measures of productivity. Sections 5.8 and 5.9 examine the impact of the state on accumulation, through its absorption of surplus value and through the effects of taxes and social expenditures on the rate of surplus value. Section 5.10 examines the effects of price–value deviations on aggregate Marxian measures, and Section 5.11 develops a technique that allows us to approximate the rate of surplus value in a relatively simple manner.

Our primary database for wages comes from NIPA. We use employee compensation (EC) because it includes wages and salaries of employees as well as employer contributions to social security. This is the appropriate base for estimates of variable capital, since it represents the total cost of labor power to the capitalist.

A combination of BLS and NIPA data is used to estimate the wage per production worker. This is then applied to the estimate of the number of productive workers from Appendix F to derive the total wage bill of productive labor (variable capital). The wage bill of unproductive workers is derived as the difference between total NIPA wages and total variable capital. The basic steps involved will now be outlined.

Starting with the NIPA measure of employee compensation EC, we make two adjustments. First, because EC covers only employees whereas our measure of total employment L includes both employees and self-employed persons, we need to make some estimate of the wage equivalent of self-employed persons. Second, we must split the resulting measure of total wages into wages of productive and unproductive workers.

In a passage that an Irish audience might regard as a wickedly inaccurate jest, Karl Marx wrote that the “country that is more developed industrially only shows to the less developed the image of its future.” To be fair, Marx later in Das Kapital acerbically analyzed the plight of Ireland: “only an agricultural district of England, marked off by a wide channel from the country to which it yields corn, wool, cattle, industrial and military recruits.” But at that time colonies did not offer evidence of the fabled industrial tendencies “working with iron necessity toward inevitable results.” As deterministic as that phrase sounds, Marx was driven on occasion to admonish disciples who “absolutely must metamorphose my historical sketch of the genesis of capitalism into an historicophilosophic theory of the general path every people is fated to tread, whatever the historical circumstances in which it finds itself…”

Ironically, a host of twentieth-century scholars hostile to Marxism identified progress with an image of lockstcp industrial development. In his Non-Communist Manifesto, W. W. Rostow, for example, championed the Saint-Simonian notion of “stages of growth” leading mankind linearly from the squalid pre-Newtonian world to one enjoying “the blessings and choices opened up by the march of compound interest.”

In 1962 Premier Georges Pompidou confided in the National Assembly that planning was “a little like the Kantian ethic: a text without obligation or penalty.” The role of the state was not to bully but to coax, guide, and enlighten investors and producer groups. French-style planning was manned by a congenial commissariat, not stern commissars. So in the 1960s Irish administrators squeamishly made way – minimal way – for a planning system designed to operate “only to the degree that it is compatible with the market.”

The French were exemplars but British behavior again dominated Irish actions. British entry to the European Economic Community seemed imminent, and the Republic could not afford to exist outside a common external tariff. “We are too small to influence others,” Lemass said, regarding EEC entry, “our link with England is first [priority].” This threat of market loss furnished the government with a decisive degree of leverage over the protected private industries.

Like Chile and Uruguay in the 1960s the Irish aimed to improve a small-scale industrial base, expand and diversify exports, and thereby diffuse dependence.

In January 1991 a Guardian editorial lauded “the continuing Irish economic miracle.” Because of prudent economic management and an incomes bargain with trade unions (which the Irish government, unlike British Tories, acknowledges) Ireland in 1989 and 1990 boasted the fastest growing economy in the European Community. Exports were booming, borrowing was down, and inflation was low. All seemed civil and sane. Across the frontiers, however, Irish citizens were experiencing events differently than British editors imagined. If rapid economic growth without prosperity is miraculous then that was indeed what was happening. As one scans the economic situation an intense sensation of déjà vu grows.

A noteworthy volume taking a cultural inventory on the Irish miracle has as its theme for the 1990s a “state of aimlessness” stemming from a widespread and, for many citizens, realistic sense that Ireland “does not have a future.” The editor cited the persistent problems: unemployment, emigration, poverty, indebtedness, right-wing triumphalism, and the deceptively distant sounds of fury in the North of the island (and, lately, on the British mainland).

Unemployment broke the 20 percent mark in 1991 (official statistics a little later were juggled to lower the rate several points) and was twice the EC average.

Although Irish scholars are correcting a traditional inclination to blame all woes on perfidious Albion, the impact of colonial domination – for better and for worse – was powerful. As England's first colony Ireland in the seventeenth century was coercively integrated into the core economy. The rebellious natives were dispossessed by post-Reformation (Protestant) English authorities so that by 1703 only 14 percent of the land was in native (Catholic) hands. In this period of colonial consolidation “a grim pattern was established, lasting into the twentieth century, whereby the density of the Irish rural population was in inverse proportion to the quality of the land on which it was settled.”

English rule was no unalloyed boon for the subject economy. The Cattle Acts of 1666 prohibited export of cattle to England, and were repealed when English interests changed. The Navigation Acts of 1679 forbade Irish trade with other colonies except via English merchant ships – which helps explain their otherwise odd lack of a maritime tradition. The English parliament banned Irish woollens exports in 1699. Irish breweries were forbidden in 1710 to import hops except from England, and glass manufacturing was crippled by legislation in 1746. Linen manufacture did not compete directly with English goods, and was encouraged in the Northeast. It was Ireland's misfortune to rival England in many economic areas.

In the context of a neo-colonial dependency this chapter examines governmental “bargaining” with producer groups and “bidding” for consumer group support at the polls from 1969 through 1984. We concentrate on the period from 1978, when industrial policy hit its highwater mark, to 1984 when the Telesis Report signaled the end of the strategy. Samuel Beer argues – or says he is tempted to argue – that just “as great retailing organizations manipulate the opinion of their markets, creating the demand of which in economic theory they are supposed to be the servants, so also the massive party organizations of Collectivist politics create the opinion which in democratic theory they are supposed merely to reflect.” Parties shape and condition the voters' sense of possibilities and alternatives. Anderson describes “paradigms of public choice” which specify the grounds appropriate for making claims within a given political order, defining the boundaries of admissible argument, and which are themselves at stake in political struggle.

In the 1980s Irish governments imposed austerity with remarkable political case and in a uniform fashion that culminated in 1987 with Fine Gael's endorsement of the economic aims of the minority Fianna Fail government – virtually a declaration of “a national unity regime.” The debt crisis was understandably the first priority; it also obscured, if not eclipsed, debate over the shortcomings of development policy. This chapter explains how consent was gained for a particular diagnosis of crisis and for an extenuation of an ebbing developmental orthodoxy.

The next section surveys the economic difficulties and political liabilities of the industrial policy path which in effect was declared void but not nullified. For want of an authoritative successor this policy continued with minor modifications. Next I examine emergent alternatives within and outside the state's formal boundaries, which all met political and conceptual barriers during the administrations of a Fine Gael-Labour coalition, a minority Fianna Fail government, and since July 1989 a Fianna Fail–Progressive Democrat coalition. Fianna Fail would revive corporatist-style bargaining via a program for national recovery signed, sealed, and delivered in October 1987 despite the severe deflationary Budgets enacted at the time.

In a radio broadcast on Easter day 1943, Eamon DeValera, patriarchal Prime Minister of the Irish Free State, described his vision of a self-sufficient Gaelic nation replete with comely maidens, cosy homesteads and, presumably, a reunited Ulster. “The Ireland we dreamed of would be the home of a people who valued material wealth only as a basis of a right living,” the Fianna Fail party leader intoned, “of a people who were satisfied with a frugal comfort and devoted their leisure to things of the spirit. It would, in a word, be the home of a people living the life that God desired men to live.” In 1958 the autarkic policies Fianna Fail had promoted since it first assumed political power a quarter century earlier were abandoned without fanfare or remorse. A “post-revolutionary” generation of self-proclaimed pragmatists steered their fraction of the island into Europe – by which they meant the common market – and the era of push button technology. God evidently desired that the Irish enjoy more prosperity.

Banishing the donkey-and-cart age to Tourist Board posters the Irish Republic industrialized by introducing economic planning – cuphemized in the accurately timid term “programming” – and, more importantly, by converting itself into a haven for footloose capital. These two tactical strands interwove in a frayed way in the export-led development strategy by which policy-makers commenced “chasing progress.”