Socialism’s Rent-Seeking Middleman

The problem with socialism is it distracts from the underlying problem. A lot would be solved if we internalized more precisely the difference between Marxism, a philosophy of society, and Communism, a political system of government that seeks to solve the issues Marxist philosophy uncovers. The underlying problem is not going away, and the fact that we believe socialism and communism are poorly constructed, unimaginative and short-term options, potential solutions rather than expressions of the problem, is merely distracting us from that underlying problem.

Here’s the simplest form of that problem, getting progressively more complex: Let’s say all men are islands, never meeting another. I spend all my days working. I forage for food, or cultivate it. I hunt. I build shelter. I don’t lead an indolent life, and I am the sole beneficiary of my labor. Now we introduce another human being on my island. First we’re at opposite ends of the island, each reaping 100% of our respective labors, until we realize we could specialize and pool resources. I hunt, he cooks. We each reap 100% of our collective labor and I am better off than I was alone.

Some issues creep in, I work harder than he does, he eats more than I do. There is freeloading, cheating, and intrigue, but as long as we each get more than we would have alone, we’re better off coexisting and cooperating. Most importantly, we are deeply connected with the fruits of our labor. As economic societies evolve though, many things change the relationship I have with my labor. Mass specialization makes the return on my labor much much more efficient, but I am alienated from the fruits of that labor. I never even see them. Instead I am paid with fiat currency, a notional abstract medium of exchange and store of value that feels nothing like a bushel of wheat or a bar of gold even though it is even more powerful than either of those.

The more people there are with nothing to sell but their labor in exchange for wages, no private property and no capital, the more collective alienation builds up in my society. The fact that I am fairly paid for my labor, with wages equilibrating at the marginal product of labor, is irrelevant to the alienation I feel when I work for 9 hours and in return receive a little piece of paper that can be exchanged for goods and services at my convenience, and I have nothing direct to show for those 9 hours of labor. That’s why we turn to art, because at the end of 9 hours labor, I have a painting or sculpture or book that is a faithful capture of the time I spent working. What do I have for the 9 hours I spent writing a little piece of code or making phone calls to suppliers checking where the inventory is?

If we agree that this alienation is a bad thing, both for individuals as well as for society if it builds up to a head, then we sketch out potential solutions. One way, of course, is to reconnect us to the fruits of our labor. In organizations with the misfortune of hiring MBAs, this is called ownership, meaningful work, strength-based-tasking etc. But this comes at the cost of efficiency, and a drop in output (GDP) is far more devastating to our lives than alienation of the spirit. Unfortunately we still live in a world where too many people must choose between daily survival and fulfillment and always choose survival.

This is where socialism comes in and asks why wages must be set at the marginal product of labor. This is not a trivial question. It is against neoclassical logic (or dogma, depending on your alignment), but not trivial. As a non-trivial question, it is better suited to be answered by neoclassical logic than by socialist dogma. Consider alienation of labor as an externality like pollution. The advantages of specialization and rote work, it seems to us, outweigh the cost incurred by an individual’s alienation in doing meaningless work. The cost of alienation is borne 100% by the worker, whereas the benefit of specialization accrues to the firm, which then distributes the surplus as wages.

In our current model, the benefit of specialization is already considered in the marginal product of labor. In a specialized, efficient factory, the addition of an employee, me, might add value of $100 per day, whereas in an inefficient factory, it might only add $80. So if wages = MPL, then I am $20 better off. But if I have incurred a cost of $30 in the efficient factory because of my conversion to a mindless drone, then this is not currently a variable in the equilibrium of labor markets. I make individual choices, mentally calculating the choice of becoming a drone. But if I have no choice, I don’t bother calculating.

Worse, I don’t even know I am incurring a cost. The industrial age is a tiny blip on our evolutionary calendar, and the fact that Marx saw its deep-seated long-term damaging impacts on human psychology is what makes him a visionary genius. The Coasean solution is to price in this alienation into the model. Wages must therefore equal MPL + Alienation Cost, where each firm understands the long term toxicity of an alienated workforce and costs this in, like it costs in other intangibles like amortization, goodwill, and the HR department.

Unfortunately, our proposed solution for this is not to revise a Coasean approach to the equilibrium of labor markets. Socialism, instead, introduces a middleman, a clunky, corruptible, all-powerful state. The state will add up all the alienation, with all its competence, imagination and accuracy, and then supplement workers’ wages with this redistributive wealth such that their overall wages now equal MPL + Alienation Cost. Of course to do this it needs an army of bureaucratic and political middlemen, gloriously unabashed rent-seekers with the power to tweak this number here, that number there, dole out this favor here, that punishment there, in ways that are, best case, insidiously arbitrary or, more likely, shamelessly self-serving.

The tragedy is that this is pragmatically the most feasible solution, the same way coercive government labor regulation is the only feasible solution to ensuring unethical firms aren’t taking advantage of developing-nation poverty to profit from slave-labor conditions, thumbing noses at some egghead professor’s theory of MPL Wage equilibrium.

The most anarcho-capitalist firm, as long as it is law-abiding, responsible, and intelligent, is not against redistribution. If the nature of work imposes a cost on its workers, then the smart firm understands that the eventual equilibrium will cost this into their wage equation, and then strives to get there earlier than the market in order to gain a competitive advantage in the labor markets.

We see glimpses of this at the highest levels of skilled workers, like Silicon Valley’s attempts to make work meaningful, fun, and enriching, or legacy firms paying wages not by MPL but seeking loyalty, community and harmony. In an ideal world, a truly efficient market will reward such farsighted firms. That is not the world we live in today, and it is disappointing that our arguments about political and economic systems seek not to reach such a world, instead harping on the pragmatics or regression of potential solutions that are just incomplete outgrowths and inconclusive symptoms of underlying issues.

A novel insightful exercise to determine the pragmatic difference in intellectual payoff between a novel insight and an obvious fact mistaken for novel insight.