Big tech firms holding wages down? Marx was right all along, I tell ya!

Opinion We should have more Marxist analysis of the tech business. So here is some, looking at the manner in which the major firms of Silicon Valley are being accused of perpetrating monopoly capitalism upon the rest of us.

The full story in all its tedious detail is over at Pando Daily^*, but the basic allegation (and yes, it is all allegations so far) is that the various large tech companies - Google, Apple, Intel and the like - but not Microsoft, who aren't named in the allegations - all had an agreement not to poach engineers from each other.

This therefore kept the wages of the 100,000 odd tech engineers in the field nice and low. This sort of behaviour (recall, it's only alleged at present!) is clearly illegal, should be illegal and here's Karl Marx to explain why to us all.

Capitalists employ labour because they can exploit that labour: they can make more money out of employing people than it costs to employ them. When there are unemployed people about (that “reserve army of the unemployed”) then the capitalists can, if the workers get too bolshie, simply fire a few and bring in some of those starving and destitute in that reserve army. Thus the boot is very much on the boss' foot and the faces of the workers are ground into the dust.

Everyone who's ever met a teenage Trot knows that much: but Marx, for all his faults, was more perceptive than that. His analysis goes on to point out that when that reserve army is exhausted then the capitalists face a conundrum. They can still profit from employing labour but now they need to compete with the other capitalists for the labour they can profit from.

There's no virgin workforce that can have their surplus extracted: it's necessary to tempt some people working for other capitalists away. Thus our capitalists end up, when there's a shortage of the relevant type of labour, raising wages in order to attract skilled labour. Sure, raising wages lowers their profits: but better to have some profit rather than none, given the complete absence of a labour force.

Capitalism is GOOD FOR YOU

It is in this manner that capitalism raises the living standards of the workers: that is, only when capitalism is allied with free labour markets and something approaching full employment do the capitalists have to compete for access to the labour to make a profit from. And Marx himself called the absence of such competition for labour “monopoly capitalism”.

It's actually monopsonist capitalism (single purchaser, not single producer) but that word hadn't actually been invented back then. The great horror would be if the capitalists combined to make sure that they never did compete with each other for access to that labour; for example, if they created a cartel that agreed not to poach each others' staff. If they did that then the conditions of the workers would not improve and the gains in productivity would accrue solely to the capitalist class.

Which is of course exactly the accusation being levied at the big tech firms right now. They allegedly agreed not to poach each others' engineers. This meant that engineers' wages were not bid up and thus the capitalists continued to make out like bandits.

I have had one communication, not for attribution, which tries to explain it all rather differently. There was, apparently, a time when one or other of the large firms would identify a senior engineer or two who were running a special project. They would then make a specific offer to these one or two as a way of breaking up the project. Offer a few millions in stock options to pull them out of company A and into company B where they could be employed doing nothing very much: the disruption of the project in company A being the purpose of the action.

This could even be true: but it doesn't change the basic point here. The allegation is that the big tech firms were running an employers' cartel to the detriment of the wages of the workers. That explanation doesn't change the main allegation that they were doing so, only the reason why they were doing so.

It could be that we don't care very much about squabbles between very highly paid engineers and even richer tech company managements and shareholders. But we still should: the lesson of Marx's analysis is that capitalism is a pretty productive system but it needs to be tempered by the competition of the marketplace.

And as a rabid (I have been known to froth at the mouth when explaining the glories of the market system) free marketeer I'm perfectly happy to sign on to this Marxist analysis. Indeed, I would take it further: it's not just a fight between the engineers and their employers. For the prices of things are information to us, information from the only calculating engine we have that can crunch through a modern society.

If Valley engineers' wages are rising, this is a signal to the entire society that there's a shortage of capable engineers. There will thus be some movement of the suitably bright and trained from other fields into this one: this is what we want, prices to be used as the allocation signals for the available resources. Some quants might, for example, be dissuaded from heading for Wall Street and working on CDOs and be tempted into writing games for smartphones.

If that's where more profit is to be made then that is where we want that scarce resource to be employed and relative wages of quants and Valley engineers are the price signal that shows this. And yes, I do know a hedge fund manager who was looking for a certain skillset. He was rather put out to find that the Valley would pay, over the years, about ten times what he would for that very skillset over the years.

I know. Not many people take Marx seriously these days and those who do have drunk the entire pitcher of Kool Aid and thus fail to make much contact with reality. But there are still valid insights in there, and this is one of them. It is the absence of monopoly capitalism – monopsonist purchasers of labour – that leads to two things. First: the general increase in the wages of the workers as capitalists compete for access to the profits to be made from employing them; and secondly, the relative prices of labour across the economy, which tell us where labour should be moving from and where it should be moving to.

An employers' cartel stops both those processes. As such it should be severely punished – if it is proven that it has happened. I'm afraid that I don't know what the US' potential remedies are but if it had been happening here in the EU then fines could be up to 10% of annual global turnover for each company.

For such an heinous violation of the basic principles that make this strange capitalist/free market economic system of ours work properly, I would put that punishment a little on the light side myself. ®

Bootnote

^*That the piece in question is by Mark Ames does mean it is a little overwrought. He calls it the “Techtopus” which is clearly an attempt to coin a phrase as his former colleague at The eXile, Matt Taibbi, did with the “Giant Vampire Squid” jibe about Goldman Sachs. But never let it be said that Ames' failure to hire me all those years ago has left a mark.