THE WAGE SYSTEM AND THE DISTRIBUTION OF POWER

Warren J. Samuels

Is there a viable alternative to the wage system as the mode

of organizing and controlling the economic activity of the masses?

The answer seems to be no. The critical issues involved in this

question will be examined including what we know about them, and

what is involved in any effort to work them out. 1

If one were to ask the question, what is the principal problem

disclosed by the social sciences concerning labor?, it is likely

there would be several different answers from economists and other

social scientists of various persuasions and schools: l) the need

for efficiency in its use, 2) population pressure, 3) unstable

employment, 4) its alienation (in Smithian or Marxian terms), 5)

the unequal distribution of power and wealth, and so on. These

answers are important and must not be considered wrong; certainly

they are the most common answers to the question. There is,

however, another answer as well: the importance of the

opportunity to earn an income.

THE OPPORTUNITY TO EARN AN INCOME

Granted the relevance of private and governmental charitable

arrangements, it nonetheless remains true that for most people the

opportunity to enjoy life, to participate in organized life,

perhaps to live, is conditioned on their opportunity to earn an

The author is a professor of economics at Michigan State University. He acknowledges the helpful comments and suggestions made on an earlier draft of this paper by Daniel Hamermesh, Allan Schmid, James D. Shaffer, Robert A. Solo and Stephen A. Woodbury.

1. This paper is something of a sequel to Warren J. Samuels, A. Allan Schmid, James D. Shaffer, Robert A. Solo, and Stephen A. Woodbury, "Technology, Labor Interests, and the Law: Some Fundamental Points and Problems," Nova Law Journal, vol. 8 (Spring 1984), pp. 487-513.

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income. Fundamentally, for most people this means the opportunity

to work. 2 From the social point of view, work, or the supply of

labor, constitutes a resource, perhaps a commodity, in the process

of production. From the individual point of view, work

constitutes a mode of participating in social-economic processes

and a principal means by which individuals define their identities

and their circumstances. In each respect, work is the principal

means by which people earn their incomes, which enables them to

live as they choose. The wage system is the premier institutional

arrangement for the social control of work and the opportunity to

earn an income. This is true of both capitalist and socialist

systems. Apropos of the latter, although nineteenth-century

socialism was very much a response to and critique of the wage

system, twentieth-century socialist systems rely on the wage

system to organize and control labor and the earning of incomes by

the masses. In modern economies, there seems to be no substitute

for the wage system as the principal mode of opportunity for

earning income. The problems of the wage system, then, are not

peculiar to capitalism. The fundamental institutional reality is

the existence in all modern economies of the wage system in which

some people work for other people. Both the opportunity to earn

income and the wage system under which it exists are problems

because, first, each is a truly fundamental aspect of modern

economies; and second, both manifest the phenomenon of certain

people under the control if not domination of others.

2. On various aspects of the question, and perception, of work in society, see Stavros Voutyras, "The Classical and Romantic Approach to Work," International Social Science Journal, vol. 32 (1980), pp. 405-415~ and Erik Sch~er, "'The Limits of the Economic Ideology: A Comparative Anthropological Study of Work Concepts," idem, pp. 517-531.

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By saying that there seems to be no substitute for the wage

system as the principal mode of organizing the opportunity for

earning income, the emphasis is on the modifer "principal." There

are of course alternative arrangements in our own and in other

societies. In our own modern industrial society the alternatives

include the family farm and other family enterprises; voluntary

labor; household labor; producer cooperatives (except in respect

for nonmember hired workers); independent contractors; and

conscription (mandatory work assignments). In pre-modern, third

world societies traditional ascribed roles predominate, along with

some combination of the arrangements just listed. Some

arrangements are, of course, difficult to classify, for example,

those in Amana-like communities and in churches. Each of these is

a real alternative to the wage system, both in practice and

conceptually. However, in modern industrial societies these

alternatives tend to represent or constitute (1) only adjuncts to

the wage system, and/or (2) substantial changes in the

distribution of wealth (especially the ownership of capital), (5)

only a facade of form over substance (for example, in the

independent contractor), and (4) serious transactions-cost

barriers or limits.

THE WAGE SYSTEM DEFINED

What is the meaning of the wage system itself? It is a multi-

faceted system in which some people work for other people. First,

certain people own the means of production and others do not.

Second, there is a structure of decision making in which the

principal characteristic is that some -- the employers -- are

decision makers and others -- the employees -- are decision

takers. Third, there is fundamental asymmetry to the nature of

the relationship: capital hires labor (the employer employs

employees), labor does not hire capital. The wage system both

comprises and is derivative of a system of power. This system of

power is both characterized and structured by the distribution of

wealth, competition versus noncompetition, and relative

abundance/scarcity of jobs, all of which govern the array,

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substance and importance of the alternative opportunities open to

particular people, including differential withholding capacity.

As long as these facets and characteristics apply, the wage system

exists and will continue to exist, notwithstanding relatively

superficial institutional forms.

LIMITS ON INDIVIDUAL EARNING POWER

What are the principal limits on individual opportunities to

earn an income? One group centers on the three factors of

poverty, unequal distribution of wealth, and social

stratification. Poverty is both cause and consequence of limited

opportunity. Unequal distribution of wealth addresses the

distribution of opportunity in the population; poverty is closely

intertwined with it. As many writers, not the least of whom was

Karl Marx, have pointed out, one critical dimension is the

division of the population into those who do and those who do not

own the means of production. Nonownership is the most proximate

condition governing individuals' necessity to enter the wage

system as worker or employee. For those with access to and/or

control of the means of production, for example, through

ownership, the wage system and the need to have a job to earn

income are very different things than they are for those without

such access and control. Social stratification signifies that

upward mobility, generally with regard to wealth and particularly

with regard to the ownership of means of production, is limited.

A second group of limits centers on the supply of jobs: the

general level of economic activity, its instability, and the

consequent level of unemployment. Individual opportunity to earn

income under the wage system is profoundly influenced by the

supply of jobs generated by the macroeconomic consequences of

entrepreneurial activity (whether that activity is in the hands of

private owners, corporate bureaucrats or public bureaucrats). The

complex subleties of macroeconomics, such as the relations between

aggregate output and employment or the role of flexible wage

rates, are not important here.

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A third group of factors consists of the private and public

law foundations of the actual wage-system and other market (or

plan) institutions existing in particular economies. Both the law

of property Cand its functional equivalents, for example, subsidy,

regulatory and welfare legislation) and macroeconomic policy

profoundly affect the incidence of poverty, the distribution of

wealth, the supply of jobs, and the opportunity to earn income.

The principal, and controversial, point here is this: government

has been used in many and varied ways to control the economy for

the advantage of other interests. The opportunity-set structure

of society, that is, the distribution of opportunity among people,

is both cause and consequence of the use of government to

manipulate opportunities by, for and against certain groups. This

was true under feudalism; it has been true under capitalism and

under socialism. Although it runs counter to the ideological

imageries of western civilization, government has in fact been a

critical factor in the formation of both the wage system and the

institutions which apportion economic, political and social

opportunity. This should, among other things, place in perspective

the use of government to change the structure of opportunity sets

vis-a-vis identifying government with the status quo structure

(which is in part a function of past use of government) and its

defense.

The fact of the matter is that no economic system is

specifically directed at the opportunity to earn an income as an

operative end in itself. Economic ideologies are not silent, by

any means, on the respective benefits alleged to accrue to workers

from particular economic systems. But in every extant modern

economy the individual's opportunity to earn income is derivative

rather than fundamental. At the very most, the individual is a

means of the wage system simultaneously with the wage system being

a means for the individual.

Economic systems are distinctive games in which the principal

roles are played by a select few, although the game inexorably

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affects everyone. Feudalism was a system, a game, run or played

through the interaction of those with landed property~ what

happened to the propertyless was derivative of the actions and the

plays, of the propertied. So also with capitalism: it is a game

played by those with control of the means of production and

thereby jobs; the opportunity to earn income for the mass of

propertyless persons is derivative of how the game is played. And

so also with socialism: its leadership cadre, its principal

players, are not called businessmen or capitalists but they, too,

are engaged in an economic game from which the opportunity of the

masses to earn income is derivative. No one of these systems is

directly geared to the question of the opportunity to earn income.

Income is earned by individuals within each system but only

incidentally and derivatively. If for no other reason one can

appreciate the dismay generated by having the opportunities for

earning income be a function of a game played largely by the upper

hierarchical levels of society.

THE WAGE SYSTEM IN SOCIETY

It should be clear that most economic, and other social

science, analysis take as given both the wage system and its

actual substantive institutionalization in any society. There are

two points in the statement just made. First, we assume the wage

system as such, in some form. We assume the inexorability of a

system in which some people work for other people, where decisions

important for some or all other people are made by a few people in

superordinate positions. The key question with which this

discussion is concerned, whether there is an alternative to the

wage system as a mode of opportunity for earning income, is thus

averted. Second, we tend to assume some particular

institutionalization of the wage system and of the labor market.

But it is often, if not typically, precisely the institutions of

the labor market which form the wage system that are at issue.

These institutions include labor unions, grievance procedures,

protective labor legislation, social insurance, co-determination,

and so on. The wage system is an abstraction which in the real

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world takes the form and produces the results it does because

institutions and power are structured in a certain manner. The

same is true of the labor market which exists within the wage

system.

REFORMING THE WAGE SYSTEM

There are, arguably, two incontrovertible facts which any

effort to either reform or depart from the wage system must

confront. One is the need to organize for production. Production,

especially in a large society, does not organize itself;

leadership, by a group with an interest in and the power to

organize production, must exist. The other is the need for and

the administration of a reward and incentive, or disciplinary,

system. This system is due to two things: first, although

individuals do tend to define their identity in terms of their

work, incentives are necessary to induce some people to work; and

second, an incentive system is necessary to allocate labor

resources to the production of desired output.

But these facts are not conclusively dispositive of the

critical issues. Apropos of reforming the wage system, both it

and the labor market may be structured quite differently, and the

group in control of the organization for production may vary

considerably~ Different wage systems, different labor markets, and

different leadership groups will result in different definitions

and configurations of output, no one of which is necessarily

optimal (except on the basis of some antecedent normative

premise). To recognize a need to organize for production is not

ipso facto to determine what that organization and that production

is to be. There is no one system of organization, or of

leadership, and there is no one configuration of output; output is

pro tanto a function of the organization/leadership system.

The same analysis applies to the reward and incentive system.

To argue that some such system is necessary does not say what that

system is to be, how it is to be structured and toward what ends

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its incentives are to be functional. There is no one system of

incentives and there is no one set of ends; the ends are pro tanto

a function of the incentive system. Moreover, it should be clear

first, that "freedom" in an economic system is, in part, another

name for the system of compulsion present in the extant wage

system/labor market and for whatever lattitude for individual

discretion is built into that system; and second, that

productivity in an economic system is relative to the total

structure of power, including the distribution of wealth, legal

entitlements, legal rules and rights, and so on, that is, there is

no unique marginal productivity.

Combining the two points and changing the system of

organization for production likely involves changing the reward

and incentive system and thereby the output and the ends produced.

Arguments over reform policies typically tend to take as given

either some leadership/organization system, some reward and

incentive system, some configuration or notion of output, or some

ends.

It is when we come to the question of departing from the wage

system rather than reforming it, that the necessity for an

organization to be productive and to have a reward and incentive

system become obstacles. The hard truth of the matter seems to be

that no modern alternative to the wage system has been developed

because there is a need to provide some leadership for production

and some reward and incentive system which also serves as a

leadership selection system. The proper question is not whether

to retain the wage system but which institutionalized form it is

to be given. Certainly substantial reform of the existing wage

system is possible.

Several of the reforms, perhaps all of them, represent the

continuation of past developments. Effective labor unions and

collective bargaining, for the direct, if adversarial,

confrontation of differing industrial and employment interests;

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the welfare state, including legislation which includes worker, as

well as consumer, interests in rights defining inputs, outputs,

and the conditions of production~ and political democracy itself,

which enables the state to be responsive to worker interests as

perceived by workers themselves are examples. It must be

recognized that these institutional arrangements have already

substantially modified the wage system and its historic onus of

those dependent on others for their opportunity to earn an income.

WORKER PARTICIPATION IN DECISION MAKING

Substantial further reform must be

recognition of the principle on which

arrangements just noted were themselves based.

predicated upon a

the institutional

This is the belief

that individuals should participate in the making of decisions

which directly, and indirectly, affect them. There must be a

continued extension of economic democracy as a concommitant of

political democracy, for without this political democracy may be,

for the great masses, a sham.

Further reform, beyond further extension of past developments,

may take two forms. One is worker participation in decision

making going far beyond the domain of traditional collective

bargaining to include greater control of the job situation. Not

every worker need participate in decision making, as long as there

is a system of worker participation, in part so that the

distinction between managerial and working class be gradually but

effectively eliminated. 5

3. This may well signify the eventual obsolescence of labor unions as we now know them, although there is every reason to expect that in any system of organization and control there will be need to institutionalize opportunity for disagreement and the resolution of conflict, functions which trade unions have performed.

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The second reform involves the institutionalization of some

form(s) of worker and consumer ownership interests. Workers and

consumers contribute to the broader capital and opportunity-set

foundations of firms in ways parallel to, if different from,

conventional stockholders, including risk taking. There is no

reason why equity ownership should not be extended to all with an

interest in the decisional consequences of firms.

Consider for a moment the significance of a belief that firms

ought to be organized and controlled as if capital were hired by

labor rather than the other way around on these reforms. For

example, the right to borrow, ultimately based on the overall

productivity of the firm, is now lodged in the owners or, more

realistically, the managers. Consider the possibilities of labor,

rather than capital or the employing management, having lodged

with it some of the opportunity to borrow that is ultimately based

on the overall productivity of the firm to which they, no less

than management, contribute. Consider further the significance

for these reforms of a pluralistic answer to the question, whose

economy is it?

These considerations seem strange because we are habituated to

a view of the re la t ions between labor and cap i ta l , of capi ta l

h i r ing labor, of the leadership and leadership-select ion process,

and of the reward and incentive system that has been dominant

given the exist ing form of the wage system, labor market and

organization of industry. Our conventional wisdom here has been

that of the t r ad i t i ona l owner of business property and more

recent ly of the managerial class. Ours has been a managerial

point of view and i t s speci f ic form has been given by the exist ing

i ns t i t u t i ons of organization and contro l . Effect ive modif icat ion

of the wage system requires that our exist ing be l ie f system be

changed with regard to what is possible in the re la t ion between

cap i ta l and labor and in the answer to the question as to whose

economy i t i s , not the fanc i fu l be l i e f that we can do without

administrat ive decision making, leadership, and a reward and

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incentive system. The distinction between capital and labor itself

is problematic if one recognizes that what is involved are not

abstract factors of production but considerations of organization

and control. Reform of the wage system, in favor of worker

participation in decision making and worker and consumer ownership

interests, would change both economic reality and our perception

of what that reality requires.

CONCLUSION

The be l i e f that the wage system, the opportuni ty to earn an

income, and the re lated problem of d i s t r i bu t i on of power

( inc luding wealth) comprise the crux of what in the nineteenth

century was cal led the Social Question, impl ies that while cer ta in

aspects thereof represent in t rans ig ien t bar r ie rs to cer ta in

reforms, other aspects permit qui te substant ia l reform. As we

have seen, the leadership and incent ive systems of society are

var iab le; the fact that some leadership and incent ive systems are

necessary does not d ic ta te e i ther the i r substance or the ends to

which they are funct iona l . There may be no a l te rna t ive to the

wage system but there are a l ternate forms of the wage system.