American Capitalism on Trial
WASHINGTON -- This election is being fought along the traditional skirmish line of capital versus labor. President Obama projects himself as the protector of workers and families who are preyed upon by greedy and wealthy capitalists. Mitt Romney counters that the president doesn't understand business and that his antagonism discourages private investment and job creation. This argument over contemporary capitalism is inevitable and legitimate, though in part misleading.
It's misleading because, in the long run, labor's and capital's interests coincide. Production and technological advances that enrich capitalists also raise mass living standards. Marxism's failure to recognize this was its undoing. But in the short run, labor's and capital's interests often diverge. Layoffs may boost profits; wage increases may do the opposite. Politics thrives on these conflicts.
What's clear is that capital has recovered from the Great Recession faster than labor. At last count, corporate profits were 20 percent higher than their pre-recession peak in 2006. Corporate managers have cut costs and streamlined operations. Although this may improve the economy's long-run efficiency, the immediate effect is higher unemployment. The number of non-farm payroll jobs, up 3.7 million from its low point, is still 5 million below its previous high.
Capital's share of national income has actually increased slowly since 1980, as the table below shows. It divides the economy's total income -- what everyone earns -- between capital and labor. Labor income consists of wages and fringe benefits. Capital income is corporate profits, income of proprietors (small businesses, partnerships), rental income and interest payments. The table doesn't show rents and interest payments separately. Also, labor and capital account for only about 90 percent of pretax national income. Government represents most of the rest and, of course, also taxes labor and capital income.
LABOR AND CAPITAL SHARE OF NATIONAL INCOME
1950 1980 2000 2011
LABOR 58.9% 67.7% 64.8% 61.7%
Wages 55.8 56.5 54.0 49.7
Fringes 3.0 11.3 10.8 12.0
CAPITAL 32.4% 24.1% 26.8% 29.7%