Karl Marx Warned Us Against The Apple/Google No-Poaching Agreements
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It might sound a little strange to be using a 19th century economic
philosopher like Karl Marx to explain just what was wrong with the
various no-poaching agreements between Silicon Valley firms like Apple AAPL +0.18% and Google GOOG -0.35%.
However, despite the truth that much of what Marx said was quite wrong,
in this particular case he was spot on and correct. Capitalism has a
lot of good things going for it but we should all fear monopoly
capitalism.
The allegations are that some of the Silicon Valley firms agreed not to compete with each other in the hiring of engineers. More specifically that they would not try to poach engineers out of one company and into another. As the New York Times reports:
Marx agreed that capitalism was extremely productive. He also agreed that, over time, it tended to improve the condition of the workers. But he was quite explicit about how this process actually happened. Imagine that employers are employing labour: it goes without saying in the Marxist universe that as the workers don’t get the full value of their labour (ie, there is profit) then they’re being exploited. However, it’s only when there are unemployed people around that the capitalists can really gouge the value out of that labour. Imagine that the currently employed started to agitate for higher pay: the capitalist could simply fire them and bring in new workers from the reserve army of the unemployed. Thus can the workers be oppressed.
But what happens if there are no unemployed? If the workforce cannot be fired and thus the threat to withdraw labour, or change employer, is actually credible? The capitalists are making their profit by employing labour. If the labour leaves then they can’t continue to make a profit. Thus, in a condition of the scarcity of labour the capitalists have to increase the wages of the workforce in order to continue to make, albeit smaller, profits. It’s in this manner that the conditions of labour improve.
Which brings us to what Marx really worried about. What if, instead of having to compete for access to that limited amount of labour, the capitalists got together and agreed not to compete? Then we’d have lost that incentive for labour conditions to improve and the faces of the workers would get ground ever further into the dust.
Marx called this monopoly capitalism which isn’t quite right, it’s actually monopsonist capitalism but monopsony hadn’t been invented as a word when he was writing. It refers to a single buyer (through cartels, collusion or naturally, whatever) rather than a single seller or producer. But this is exactly what the tech firms were trying to set up. A market for engineering labour in which they were not going to compete with each other. A form of monopoly capitalism, exactly what Marx warned us against.
Now we might think that this sort of thing among 64,000 programmers isn’t all that much of a deal. After all, they’re already one of the best paid labour groups in the country. However, this would be too dismissive of the problem for two reasons.
The first is that all wage levels across the economy are connected. What actually determines the wage on offer is not the productivity of the worker, nor some estimation of the just value created, rather, it’s what can that same worker earn elsewhere? And if we’ve got one group of workers having their wages artificially depressed then that ripples out across the economy. No, the guy flipping burgers is not an immediate substitute for that software engineer. But higher wages for engineers might tempt a few more people into pursuing that career, meaning that there’s a few more spaces to move into the gaps they’ve left and this will indeed cascade down right through the economy. Limiting the wages of any one group limits, perhaps to a trivial extent but still to some, the wages of all in the economy.
The second is that if we allow this sort of behaviour in any one sector of the economy then others, facing the same competitive challenges, are likely to try to adopt the same solution. Meaning that we have more groups of workers with their wages artificially limited and thus the general wage level in the economy will be ever lower than where it should be.
As I say at the top it’s a little odd to be using Marx, who was wrong on so many points, to explain the 21 st century. But on this one particular point he was correct. Capitalism is indeed highly productive and one of the things we need to make sure that we don’t end up with is the monopoly form of capitalism. That means continually breaking down the various attempts to form cartels. Or, if you prefer, we need to make absolutely certain, as Marx himself agreed, that free markets are allowed to do their job of tempering, correcting, the potential excesses of the capitalist system.
The allegations are that some of the Silicon Valley firms agreed not to compete with each other in the hiring of engineers. More specifically that they would not try to poach engineers out of one company and into another. As the New York Times reports:
Just how far Silicon Valley will go to remove such risks is at the heart of a class-action lawsuit that accuses industry executives of agreeing between 2005 and 2009 not to poach one another’s employees. Headed to trial in San Jose this spring, the case involves 64,000 programmers and seeks billions of dollars in damages. Its mastermind, court papers say, was the executive who was the most successful, most innovative and most concerned about competition of all — Steve Jobs.So what actually is wrong with such a practice? Agreeing not to try and tempt away your competitors’ employees? To explain this a little Karl Marx.
Marx agreed that capitalism was extremely productive. He also agreed that, over time, it tended to improve the condition of the workers. But he was quite explicit about how this process actually happened. Imagine that employers are employing labour: it goes without saying in the Marxist universe that as the workers don’t get the full value of their labour (ie, there is profit) then they’re being exploited. However, it’s only when there are unemployed people around that the capitalists can really gouge the value out of that labour. Imagine that the currently employed started to agitate for higher pay: the capitalist could simply fire them and bring in new workers from the reserve army of the unemployed. Thus can the workers be oppressed.
But what happens if there are no unemployed? If the workforce cannot be fired and thus the threat to withdraw labour, or change employer, is actually credible? The capitalists are making their profit by employing labour. If the labour leaves then they can’t continue to make a profit. Thus, in a condition of the scarcity of labour the capitalists have to increase the wages of the workforce in order to continue to make, albeit smaller, profits. It’s in this manner that the conditions of labour improve.
Which brings us to what Marx really worried about. What if, instead of having to compete for access to that limited amount of labour, the capitalists got together and agreed not to compete? Then we’d have lost that incentive for labour conditions to improve and the faces of the workers would get ground ever further into the dust.
Marx called this monopoly capitalism which isn’t quite right, it’s actually monopsonist capitalism but monopsony hadn’t been invented as a word when he was writing. It refers to a single buyer (through cartels, collusion or naturally, whatever) rather than a single seller or producer. But this is exactly what the tech firms were trying to set up. A market for engineering labour in which they were not going to compete with each other. A form of monopoly capitalism, exactly what Marx warned us against.
Now we might think that this sort of thing among 64,000 programmers isn’t all that much of a deal. After all, they’re already one of the best paid labour groups in the country. However, this would be too dismissive of the problem for two reasons.
The first is that all wage levels across the economy are connected. What actually determines the wage on offer is not the productivity of the worker, nor some estimation of the just value created, rather, it’s what can that same worker earn elsewhere? And if we’ve got one group of workers having their wages artificially depressed then that ripples out across the economy. No, the guy flipping burgers is not an immediate substitute for that software engineer. But higher wages for engineers might tempt a few more people into pursuing that career, meaning that there’s a few more spaces to move into the gaps they’ve left and this will indeed cascade down right through the economy. Limiting the wages of any one group limits, perhaps to a trivial extent but still to some, the wages of all in the economy.
The second is that if we allow this sort of behaviour in any one sector of the economy then others, facing the same competitive challenges, are likely to try to adopt the same solution. Meaning that we have more groups of workers with their wages artificially limited and thus the general wage level in the economy will be ever lower than where it should be.
As I say at the top it’s a little odd to be using Marx, who was wrong on so many points, to explain the 21 st century. But on this one particular point he was correct. Capitalism is indeed highly productive and one of the things we need to make sure that we don’t end up with is the monopoly form of capitalism. That means continually breaking down the various attempts to form cartels. Or, if you prefer, we need to make absolutely certain, as Marx himself agreed, that free markets are allowed to do their job of tempering, correcting, the potential excesses of the capitalist system.
