November 21, 2018

Oren Cass’s Labor Theory of Value



At the center of Marx’s critique of capitalism is a labor theory of value. Namely, the notion that treating labor as a commodity to buy and sell alienates workers from the act of production, causing feelings of powerlessness, isolation, and self-estrangement — feelings that ultimately lead to revolution. 

It’s through this lens that I read The Once and Future Worker, the first book from policy thinker Oren Cass. At first blush, the book is a forceful reassertion of classic conservative tropes: that work has intrinsic value; that earned success and self-sufficiency form a foundation for strong communities; and that the devaluing of work and family in favor of hedonistic, protean consumerism has undermined our moral fabric.

But beneath the surface is something much more novel, particularly coming from Mitt Romney’s 2012 domestic policy director. Indeed, far from the usual conservative manifesto, The Once and Future Worker is a scathing critique of globalization, open immigration, and the commoditization of labor — forces which Cass believes have ransacked working class fortunes across three decades of neoliberal hegemony, despite the ideological half-measures offered by bourgeois elites designed to merely absolve them of complicity.

Labor is Not a Commodity

While Cass avoids the usual Marxian jargon, his heterodox message shines through. The book centers around “the Working Hypothesis,” or the proposition that creating the conditions for productive and engaging work should be the lodestar of public policy, particularly for those whose marginal product is low or falling. The Working Hypothesis, Cass argues, stands in contrast to the economic pieties of elites on both the left and right for whom maximizing output, efficiency and consumption are considered the highest goods:

Workers have no standing, in this view of the economy; neither do their families or communities. Households that see their economic prospects plummet or their livelihoods vanish should ask for a government check and be placated when they get one … Like a medieval indulgence, a promise of redistribution cures all.

According to Cass, “maximize growth and redistribute the gains” has become the new “socially liberal but fiscally conservative” — the hollow mantra of an urban professional class for whom rural and working class decline is a statistical artifact of progress. There is undoubtedly a great deal of truth to this diagnosis. On the left, Cass points to means-tested Great Society programs as papering over the consumption deficits of poor households while doing little to build a bridge to productive self-sufficiency. On the right, Cass accuses Republicans and Chamber of Commerce-types of pursuing free markets and globalization, and the creative destruction they have wrought, with a compensating labor-market policy “that could best be described as one of benign neglect.”

The problem is not the market, per se. The market, Cass is happy to acknowledge, is an essential tool for efficiently matching supply with demand. Yet the labor market is unique in one critical respect: “People are not products.” When elites forget this, “Labor becomes one economic input among many.”

Accelerating productivity and automation aren’t to blame for working class woes, either. On the contrary, despite prophecies of robots rendering work obsolete, Cass marshals convincing data to show U.S. manufacturing productivity has essentially stagnated. More importantly, whether job destruction is from automation and globalization has very different implications. When a factory automates a process, output per worker rises and local labor demand may even increase. But when a worker is dislocated by trade, Cass notes, “the facility in which he once worked is likely gone, and the production now occurs somewhere else,” shunting less-skilled workers into lower paying service jobs or onto public assistance.

The Reserve Army of Labor

The harm is more than material. Citing work by MIT economist David Autor, Cass points out that “U.S. regions facing greater competition from China experience lower rates of marriage and higher shares of children born to single mothers and that this effect appeared only when the economic disruption affected male employment.” While cheaper Chinese imports may have grown the “economic pie,” people’s ability to produce matters more than how much they can consume, and that ability cannot be redistributed.

Rather than debate “the future of work,” Cass contends we should focus on the future for work; a future in which technological trends like additive manufacturing and e-commerce spur the creation of well-paying blue collar jobs within the country’s interior. Capitalizing on these trends will require adopting an orientation toward “productive pluralism” in which “people of diverse abilities, priorities, and geographies, pursuing varied life paths, can form self-sufficient families and become contributors to their communities.” That includes ditching the monomaniacal focus on one or two high-prestige career paths in favor of a culture (and multi-track education system) that confers equal legitimacy to a wide variety of modes of work and life, from the journeyman to the stay-at-home mother.

The U.S. labor market is not a hospitable place for those with less than a college degree or minimal technical training, a point Cass extends to our historical immigration policy: “If overall GDP growth is the goal, then all forms of immigration might make sense … But if improving labor-market outcomes for the nation’s less-skilled, lower-wage workers is the central objective, the economic case for unskilled immigration collapses.” Shifting to a skills-based immigration system and forcing undocumented immigrants to leave on a “Last In, First Out” basis, Cass contends, would send the reserve army of unskilled labor AWOL, tightening the labor market for native competitors.

Against Global Capital

Underlying Cass’s principle of productive pluralism is, in essence, a call for a diversified national development strategy. Marxian and other heterodox critics of globalization have long pointed out the way the World Bank and IMF’s “competitiveness” model of global development pushed poor countries into a static comparative advantage. While the remarkable growth of countries like Japan, Taiwan, and South Korea would have been impossible without trade liberalization, it is now widely accepted that their success depended on rejecting the laissez-faire model in favor of industrial policies that promoted investment in secondary industries and moved them up the value chain. As Cass notes, “Today, China is the primary practitioner of this mercantilism, and its gargantuan scale is producing unprecedented economic distortions.”

Yet Cass’s complaint is less with China than with our failure to fight back. While China steals our intellectual property and pushes an aggressive Made in China 2025 program, the United States suffers from having, in a sense, turned the World Bank’s neoliberal advice inward, producing a bifurcated comparative advantage in either low cost labor, or a few extremely high valued-added sectors that demand tertiary education outside the cognitive reach of most. It’s time to take the economy out of autopilot and deliberately promote industries in which ordinary people can add value. That’s less a matter of picking winners and losers, Cass maintains, than it is of enforcing a framework for balanced trade and capital flows, with smart public investments in areas like advanced manufacturing. Quoting the Indian economist Jagdish Bhagwati, Cass’s position is forthright: “It is time to shift the burden of proof from those who oppose to those who favor liberated capital.”

Policymakers should at least stop making the situation worse. In a detailed chapter on environmental policy, Cass rails against EPA regulations and the tendentious use of cost-benefit calculations for hastening the industrial sector’s decline. “Where, for instance, do deaths of despair fit into the calculus?” writes Cass, referencing research from Anne Case and Angus Deaton showing a dramatic spike in substance abuse, liver disease, and suicide among older whites—”the equivalent of nearly five hundred thousand extra deaths between 1999 and 2013.”

The New Source Review rule is particularly counterproductive, Cass argues. The rule was introduced to avoid disrupting existing facilities, while subjecting new facilities or ones undergoing major upgrades to onerous environmental reviews. As a result, if a manufacturing plant decides to expand, it risks triggering a review not just of its new facilities, but of older facilities that were previously grandfathered in. “An investment that once looked attractive might not go forward at all,” Cass notes, even if the upgrade would improve productivity and environmental impact simultaneously.

The push for environmental stringency at all cost may seem to contradict Cass’s supposition of an elite ideology based on maximizing output — “finally, something besides dollars and cents that counts.” Yet from day one, environmental policies have been enacted in order to correct supposed market failures or price negative externalities. As such, “clean air” becomes just another part of the ever expanding economic pie. This argument doesn’t quite work, however, as the flexibility of economics leaves open the question of why those externalities are the focus and not others.

It’s at this point that it becomes clear Cass’s problem is not with consumption or efficiency-based arguments per se, but with the way ostensibly neutral methods of “evidence based policy” are used to advance class interests. This classic dynamic of Marxian political economy must be painfully obvious for Cass as a senior fellow of the Manhattan Institute, where he has repeatedly witnessed the interests of New York City professionals trump the livelihood of the upstate region, despite being an economy devastated by deindustrialization. Look no further than Governor Cuomo’s statewide fracking ban.

Workers of America, Unite!

According to Cass, empowering American workers will ultimately require strengthening the relevance of labor unions, noting that “private-sector union membership has been plunging for decades, from 36 percent of the workforce in 1953 to less than 7 percent in 2017.” While the left points to right-to-work laws with some justification, the cause of the decline is much deeper. Federal labor regulations and transfer programs have supplanted much of what unions exist to negotiate in the first place. Meanwhile, the bargaining model prescribed by the National Labor Relations Act forces union bosses and management into an adversarial relationship that is both prone to abuse and ill-suited for the twenty-first century service economy.

Wholesale labor law reform could give workers space to experiment with new models of collective action, like worker co-operatives. Instead of being adversarial, a co-operative model of labor representation would strive to balance the competing interests of labor and capital. “Co-ops representing workers in negotiations with an employer could also provide a market-based alternative to the government’s employment regulation,” Cass argues, allowing much of the tax-wedge created by employer mandates to be waived.

Needless to say, adopting a worker co-op model across the board would be significantly disruptive, like Elizabeth Warren’s co-determination proposal on steroids. Nonetheless, “solidarity,” Cass notes, is a central component of Christian social teaching. It underlies John Paul II’s description of worker associations as essential “not only in negotiating contracts, but also as ‘places’ where workers can express themselves.” Germany’s worker councils, for instance, “are present at almost 90 percent of firms with more than five hundred workers and have significant authority not just to hold discussions but also to make operational decisions.” With the rise of the gig economy and fissured workplace, a smart labor reform would promote worker solidarity and input while (hopefully) preserving the benefits of flexible new forms of industrial organization.

Just Wage Theory

Taken together, the arguments in The Once and Future Worker present a coherent critique of hyper-globalization paired with a strategy for re-empowering the working class, from controls on the free flow of labor and capital, to education policies that valorize blue collar work, to laws permitting greater worker control over the means of production.

The wheels come off when Cass turns to his signature policy proposal: Wage subsidies. Given the social benefits of work, a subsidy that tops-up the wages for low-skill workers on every paycheck, paid for by defunding existing welfare programs, has a certain internal logic. But upon closer examination, wage subsidies belong to the same class of neoliberal “competitiveness” policies that Cass is otherwise consistent in decrying. At scale, they would take the U.S. comparative advantage farther down the low road of cheap, abundant labor, expand the kind of unproductive service sector jobs working class men supposedly hate, and hold back any chance of re-industrialization.

Inspiration from Germany’s Christian-Democratic model of a “social market economy” can be found throughout the book. Yet when Germany itself introduced a version of wage subsidies under Chancellor Schröder in the early 2000s, it was widely — and correctly — identified as a departure from the older inclusive-growth model. Indeed, labor productivity has largely stagnated in Germany in the years since, contributing to a sharp rise in wage inequality that culminated in the enactment of a national minimum wage in 2015, thus supplanting the model of labor-negotiated minimum wages that Cass claims to admire. Schröder was in many ways the German counterpart to Blair in Britain and Clinton in the U.S. — a center-left, “Third Way” liberal who pushed globalization — and thus an odd example for Cass to follow. However, whether Germany is actually the inspiration in this case is impossible to tell because, in a glaring omission, their experience with wage subsidies receives no discussion at all.

Instead, Cass argues that a U.S. wage subsidy would offset “subsidies given to foreign producers” and help communities “lacking the ability to export.” Granted, the German export manufacturing sector boomed after enacting wage restraint, but for reasons that America will never be able to replicate. In essence, Germany used wage subsidies and related labor market reforms to perform what economists call an internal devaluation, reducing their effective exchange rate with other Eurozone countries to artificially boost their current account surplus. This strategy won’t work for American exporters so long as the value of the U.S. dollar is free to appreciate in response to increased demand, even if it might help somewhat for dollar-pegged territories like Puerto Rico. Thus while a neutral industrial policy is surely preferable to discrete inducements for companies like Foxxconn to relocate stateside, say, Cass offers the wrong means to that end, distracted by superficially pro-work symbolism.

The same can be said about Cass’s disgust for payroll taxes. Employer-side payroll taxes superficially raise hiring costs, yet the low elasticity of labor means most of the burden really falls on workers. This makes payroll taxes more similar to broad based consumption taxes than costly labor regulation. As such, countries with stronger domestic manufacturing employment and more compressed wage distributions tend to rely heavily on payroll or value-added taxes. In Germany’s case, the payroll tax burden alone is roughly the size of payroll and income taxes in the US combined. Once again, Cass is tricked by semantic symbolism into supporting an even more progressive tax system, the kind typically found by necessity in countries without a strong middle class.

Internal Contradictions

Don’t get me wrong. Expanding and modernizing the Earned Income Tax Credit, the closest thing America has to a wage subsidy, is a great idea that may even pay for itself. Yet prioritizing something like it makes little sense from the internal point of view of Cass’s book, no less because, as a $72 billion a year cash transfer to low income households, it’s also the closest thing we have to a pure “maximize growth and redistribute the gains”-policy for the working poor.

In case after case, Cass prioritizes the pro-work semiotics of a policy over both consistency with his broader framework and the actual empirical literature. Wage subsidies beat a Universal Basic Income, for example, because it signifies a pro-work mood in contrast to the post-work vision of some UBI techno-utopians. Yet the empirical literature on income supports suggests they have a negligible effect on aggregate labor supply, and may actually prove useful in the context of globalization. Underfunded state unemployment insurance schemes are a major reason workers displaced by Chinese imports turned to disability insurance, for instance, instead of a robust (if temporary) basic income. Similarly, a child allowance — a kind of UBI for kids — would enable more single earner families on the margin, a shift Cass calls for in his vision of productive pluralism but fails to factor into his discussion of UBI’s potential cultural effects.

More generally, Cass’s rejection of economic efficiency as a guide, combined with a tendency to put terms like evidence-based policy in scare quotes, leads him to embrace disproportionate policy responses in the face of merely suggestive evidence. The mere possibility of immigration depressing native wages, for instance, justifies the steady deportation of over ten million people. Yet Cass feels no need to cite rigorous, causal research showing immigration harms the domestic working class (because there is none). Anecdotes and intuition suffice.

Rather than deport immigrants or subsidize low-skill natives, Cass’s framework implies a focus on labor demand. Yet the book contains no discussion of monetary policy, perhaps the single best tool for tightening demand for labor at the bottom end. The closest he comes is in a brief discussion of the economic recovery, before quickly dismissing the benefits of a hot labor market by noting productivity and wages remain low — a situation that would surely be worse if the automatic stabilizers baked into the existing safety-net were rationalized into a large wage subsidy.

A national development strategy that sought to raise the demand for lesser skilled workers would begin by moving US mid-sized manufactures up the global value chain. Think precision manufacturing instead of chicken pluckers. Germany, for instance, has successfully preserved 20th century levels of manufacturing employment in part by imposing aggressive renewable energy targets, shifting labor-intensive production that would have been lost to China into high-demand green jobs. With the cost of renewable energy and battery storage plummeting, Germany saw the future for work. Cass’s obsession with the costs of 1970s-era environmental regulation, in contrast, is like doing industrial policy through the rear view mirror.

Indeed, Cass is one of the nation’s leading opponents of a carbon tax, not because he denies climate change, but because he sees it as yet another case of pious elites pulling one over on workers. He thus fails to see how a revenue-neutral carbon tax would help to not only incentivize decarbonization for the climate’s sake, but support the manufacturing sectors of the 21st century. In particular, if a carbon tax were adjusted at the border, it would mean every paperclip imported from a coal-powered Chinese factory would cost a bit more, giving cleaner American manufacturers of every type a competitive edge. This is precisely the kind of rules-based export-promotion policy Cass wants out of wage subsidies, cancelling out the implicit subsidy foreign produces acquire through unpriced pollution. Nevertheless, Cass’s ideological blinders consistently prevent him from seeing environmental policy as anything but a drag on growth.

The Once and Future Republican

With the GOP increasingly a party of the white working class, a book like The Once and Future Worker is a necessary exercise. Fifty years ago, the ‘60s New Left movement fought with classical Marxists over whether to raise consciousness or reform the economic base — culture war versus class war. A similar dynamic has emerged in what remains of today’s Republican coalition, pitting the Alt-Right’s racist countercultural rebellion against reform conservatism’s traditionalist spin on economic populism. Cass, for his part, has written the most fully realized vision for a pro-worker Republican agenda to date, deftly synthesizing classical Marxist themes with conventional conservative rhetoric.

Unfortunately, while the book is fun to read and full of persuasive arguments in isolation, its broader policy vision comes up short. Like Marxism more generally, Cass falls victim to a metanarrative — an overarching story in which all of America’s deepest problems, from wage stagnation to deaths of despair, are downstream of the ruling class’s self-interested push for a more open, clean and efficient society. The naive view of globalization as an unalloyed good is in need of updating, to be sure. But liberalism is self-correcting precisely because it embraces empiricism over supposition, and modeled-based thinking over just-so stories.

The future of the conservative movement is not in rejecting the small-L liberal project, but in pragmatically adapting it to today’s challenges. That includes more robust trade adjustment and active-labor market policies, but also a recognition that the manufacturing economies of many small, depopulating towns are simply never going to come back. For them, redistribution through social security is far less of a threat than the Paul Ryans of the world who would reform it away.

Conversely, Cass’s core reform proposals range from politically impossible overhauls of labor and environmental law, to supply-side wage subsidies and regulatory reforms that are barely differentiable from the Zombie Reaganism he set out to transcend. If conservative populists are to win out over the racist culture warriors, they’ll have to do better.