Is Capital Morally Superior to Labor?

This article appeared on EconLog on November 29, 2018.
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Washington Post writers Chris Ingraham and James Hohmann each offered laments this week for General Motors' announcement that it will idle several North American sedan-manufacturing plants, laying off thousands of workers. GM's move is part of a shakeup in its offerings, as consumer demand shifts from sedans to more versatile SUVs, crossovers, and light trucks.

But Ingraham and Hohmann aren't simply concerned about the job losses or the specific harms that accompany generally beneficial "creative destruction." Rather, they write that the move is "another victory for capitalism over labor" (to borrow from Ingraham's title) and a demonstration of "a crisis of confidence in American capitalism" (to borrow from Hohmann's).

Writes Ingraham:

General Motors on Monday announced that it is eliminating 15 percent of its salaried workforce and halting production at five of its North American auto plants in an effort to save $6 billion by 2020. Investors reacted to the elimination of 14,000 jobs by driving the company's share price up by nearly 8 percent immediately following the announcement.

That combination of unemployed workers and happy investors underscores a key point about the modern American economy: What's good for corporate profits isn't necessarily good for workers. In fact, and perhaps now more than ever, the interests of a company's workers and shareholders are directly at odds.

Echoes Hohmann:

Monday underscored that, perhaps now more than ever, what's good for GM is not necessarily what's good for America. The company announced that it will save $6 billion by eliminating 14,000 jobs, or 15 percent of its workforce, and halting production next year at four U.S. plants, from Macomb County in Michigan to Trumbull County in Ohio, that make the Chevy Impala, Cruze and Volt, the Cadillac CT6 and the Buick LaCrosse. But as 14,000 people and their families fretted looming unemployment, with Christmas just weeks away, investors celebrated. GM stock closed up 5 percent.

This points to the growing disconnect between what's good for Wall Street and what's good for Main Street.

There are some serious problems with Ingraham and Hohmann's comments. The obvious one is that a giant multinational corporation yielding to the demands of American consumers is certainly "good for America" (including American workers, who tend to consume) vis-à-vis the days when corporations sniffed that "consumers will buy what we give ‘em." Even in the narrow context of automaking labor, it is certainly better for workers that GM is refocusing on products with growing demand rather than products with softening demand.

But there's a deeper problem with what Ingraham and Hohmann write: they seem to embrace a value judgment that labor is virtuous while capital is amoral (if not immoral). I believe this judgment is balderdash.

Think of those Socialist Realism paintings of a world without capitalists — a world of happy workers laboring in fields and factories, often with a smiling, wise Marxist leader looking on. Notice that the workers are always hale and healthy (if not outright buff); the fields lush and extensive, the factories roaring with industry. Yet, despite the artwork, attempts at real Marxism have yielded plenty of broken and impoverished workers.

That's why I think capital is more virtuous than labor.

Specifically, laborers — socialist or otherwise — typically have to be healthy and strong to be productive when capital is limited. Many of us will never be that, and none of us will be healthy and strong at some points in our lives. Also, to be productive, laborers have to live and work in economically booming areas, relocating as fortunes shift, whereas many of us find ourselves in economically struggling areas and face hardships if we leave. And productive laborers have to work for firms with talented and fair managers, operating in industries that don't experience business cycles, and have up-to-date job skills, or else they risk loss of employment.

In contrast, capitalists can prosper despite being infirm, economically isolated, and having limited or outdated job skills. They can overcome business cycles and bad managers. They don't even need to be particularly savvy investors. The elderly person with an investment in mutual funds can prosper even as her physical strength fades, industry moves away, and managers make ruthless business decisions. And she can continue to prosper despite shifts in demand for different types of labor and the expansion of automation.

So while labor only benefits those with ephemeral physical talents and skills who are fortunate enough to be situated such that they can employ them, capital can benefit everyone everywhere. If there is a "crisis" in American capitalism, it's that too many people are invested only in labor and not enough in capital.