If you start from the wrong facts you'll never reason yourself to a useful conclusion
Will Hutton tells us that:
The US and Britain in particular have created an economic system of organised plunder, resulting in widespread precarious livelihoods. Over the last generation we have witnessed the rise of rentier capitalism, supercharged by new technologies, to establish economic structures in which having and owning has been vastly privileged over doing, creating and risk-taking. The share of profits in national income has risen, the share of wages fallen while work has become organised around short-term contracts. The decline in the incentive to make and innovate has been accompanied by a weakening in the rate of productivity growth.
That doesn’t make logical sense. If the profit rate, or profit share, has risen then there will be ever more fighting among the capitalists to expropriate a greater share of that rising amount. Investment and thus productivity will soar that is.
Last week there were the first signs that change was afoot. As a last hurrah for the old order, the share price in Airbnb, a company founded on creating a digital platform on which a multitude of mini-landlords can offer stays in their home for VAT-free rents, doubled in the first day of trading.
To use Airbnb as an example of the claim is mindgarglingly stupid. Those apartments, before they were being rented out for short stays, were being either not used or used for lower valued uses. Thus the system either brings into use previously unused capital assets or moves them from lower to higher valued uses. This is a pure addition to the Solow Residual. This is unadorned economic growth and increased productivity. We have more output without having to add either more labour or more capital to the system. This is, by definition, productivity growth.
But what’s really wrong here is Hutton’s insistence that the profit share is rising. At least as far as the UK economy is concerned this isn’t true.
We've labour and capital shares. And then mixed income. This is essentially the earnings of the self-employed. We don't really know how much of this is labour income and how much capital. That self-employed roofer gets some of his income simply from his labour, but also some of it from his truck, his tools, the capital of his little business. Rather than trying to work it out we just count it as that mixed income. The final part is subsidies to production plus taxes on consumption. They're not things that either capital nor labour get so again we count them separately.
When I did look (given my technical skills, with a certain amount of help) at the UK figures the labour share had fallen, sure enough. But the capital share hadn't risen. What had risen was the mixed income share of the economy. And what had also risen was subsidies and taxes. Quite obviously, too, the VAT rate has doubled since its introduction and it now collects a considerable portion of GDP through taxation of consumption. Not quite 10% of GDP, but getting there. And subsidies have rather risen--all those feed in tariffs for renewable energy come in here.
What we found therefore was that yes, the labour share had fallen but not because the capital share had risen.
So, the facts are wrong, the observation is wrong and the logic fails anyway. This isn’t a good starting point from which to try to reach a useful conclusion. But then it is a Will Hutton column.