The Nature of Labor Exchange and the Theory of Capitalist Production* HERBERT GINTIS

ABSTRACT: This article compares the neoclassical and Marxian theories of the firm. The neoclassical, interpreting the social relations in the production process, in particular the relations of authority and inequality, as flowing from the nature of technology and atomistic preferences, is shown to be incorrect. The Marxian theory which interprets the social relations of the production process as the outcome of class struggle, is supported theoretically and empirically. The Marxian analysis presented herein starts with the labor/ labor-power distinction, and derives the relations of authority, control, al forms of inequality in the capitalist firm from the dynamic of extraction of surplus value. *****

Introduction tions and preference structures) are determined outside economic theory by the state of science and the psychology of the individual. Thus the neoclas- This paper contrasts two perspectives on the sical analysis of capitalism reduces to the examina- organization and structure of the production pro- tion of market relations among technologically and cess, neoclassical and Marxist, defending the latter psychologically determinate actors. Were this as a more accurate portrayal of capitalist produc- valid, the neoclassical of tion. Neoclassical theory, in capsule form, views the methodology theory production would follow as a matter of course. organization of the capitalist enterprise as the In Marxist theory, however, the social rela- solution to the problem of finding a least-cost tions of capitalism cannot be reduced to technique of production given an array of factor exchange relations. The essence of prices. Marxist theory views this capitalism is the exploi- organization, tation of labor the and rather, as the outcome of a struggle (albeit an through private ownership control of capital on the one hand, and the system unequal struggle) between capital and labor over of on the other. The in the rate of exploitation of labor. wage-labor key concept Marxist the essential non- For neoclassical economics, the essence of theory delineating capitalism is its sphere of exchange relations. exchange relations of the capitalist economy is the Capitalism reduces all essential economic relations labor/labor-power distinction. This concept is the basis of Volume One of to independent exchanges among freely acting and methodological Capital mutually benefitting firms and households. These and was developed by Marx in Theories of Surplus Value as the in the of clas- firms and households are in turn treated as &dquo;black prime weapon critique boxes&dquo; whose internal structures (production func- sical political economy. According to this conception, there is no * I would like to thank Samuel Bowles, Richard Ed- quarrel with treating goods, services, raw materials wards and Stephen Marglin for their help in preparing and capital goods as commodities. But labor this paper. cannot be so treated: the commodity which is

36 Downloaded from rrp.sagepub.com by guest on July 16, 2012 exchanged on the market (labor-power) is not the The Marxist theory of work organization, entity which enters into the production process which in modern corporate capitalism shades into a (labor). Labor-power is a commodity whose mate- theory of bureaucracy, is by no means adequately rial attributes include the capacity to perform developed. In addition to Chapters 13-15 of Marx’s certain types and intensities of productive activity. Capital, there have been several important contri- Labor itself, however, is the active, concrete, living butions, historical, heuristic, or speculative in na- process carried on by the worker; its expression is ture [12, 21, 28, 29, 32, 33, 45, 51, 64]. What is determined not only by labor-power but also by the needed as well is a structural theory which explicit- ability of the capitalist to exploit it. Surplus value ly links the development of worker consciousness at appears when the capitalist is able to extract more the point of production to the organizational means labor from the worker than that embodied in the of reproducing capitalist hegemony. I shall here value of labor-power (the wage). offer such a theory by introducing two conceptual If labor cannot be analysed as an exchange elements: the structure of influence in work rela- relation, neither can it be subsumed under the tionships and the dynamics of legitimation. category of technological data. The labor forth- The Marxist approach begins by affirming coming from a worker depends, in addition to that we cannot abstract from labor as a social his/her biology and skills, on states of conscious- process. From this critical perspective, the neoclas- ness, degrees of solidarity with other workers, labor sical theory is a failure indeed. The order it imposes market conditions and the social organization of on reality is a reification of human relationships the work process. Thus labor can be reduced which reduces the rich variety of social relations in neither to commodity relations nor technology production to triviality and assigns to residual alone; rather it must be accorded a separate status categories fundamental aspects of modern society as a social relationship. Thus there is a funda- whose understanding is crucial to the prospects for mental gap in any economic theory which attempts human liberation. The reification imposed in neo- to abstract from productive relations in an effort to classical theory is not simply arbitrary and short- comprehend capitalist development. Nor can the sighted, but rather follows the actual process of dynamics of class struggle be relegated to the reification imposed by the capitalist mode of political sphere, however extensive the impact of production - the reduction of all social relation- state activity or the cohesiveness of the workers ships to exchange relations. In the words of Marx movement. [47, p. 120]: Indeed, Marx argues, the basic categories of The value of the worker as rises ac- profit and wages cannot be understood outside the capital social relations between capitalist and worker in cording to demand and supply, and even phys- his existence, his life, ... is looked the production process itself. The sphere of ex- ically as the of a like change, which appears to condition all economic upon supply commodity any activity, actually masks the underlying structural other. relations embodied in the social relations of pro- Marxist theory recognizes at the same time, duction. however, that the worker is not a commodity, and From the labor/labor-power distinction, it that the contradiction between worker as commodi- follows that the organization of production in the tized object and conscious, human subject is the capitalist firm must reflect essential elements of driving force of class struggle in capitalist society. class struggle. Work organization is the historical Thus the capitalist economy both is and is not product of a dynamic interaction between tech- reduced to exchange relations, in a dialectic we nology and class relations. Not only must such must capture. The principal contradiction in capi- traditional issues as the length of the workday and talist production is between capital and labor, the division of revenue between capitalist and between labor as the object of profit and domina- workers be understood in terms of the extraction of tion and labor as self-actualizing subject. The firm surplus value, but also the structure of hierarchical as an organization can only be understood as an authority, job fragmentation, wage differentials, institution mediating this contradiction in the racism and sexism as basic characteristics of the interests of profit, and reproducing when possible capitalist firm. In this paper I shall sketch such an the forms of consciousness and social relations analysis. upon which the integrity of capital is based.

37 Downloaded from rrp.sagepub.com by guest on July 16, 2012 The Neoclassical Description of Production: comes across ascriptively distinct groups are due to Empirlcal Anomalies differences in tastes, abilities, or opportunities of skill-acquisition. The third implies that the histori- The neoclassical theory of capitalist produc- cal development of work corresponds, within the tion views each worker both as endowed with a limits imposed by science and technology, to the preference ordering over all jobs in the economy preferences of workers. If work is less than satis- and as capable of performing at higher or lower fying, it is because most workers prefer higher levels of productivity in each. These preferences are incomes to more satisfying jobs. aggregated into supply curves for each possible job, Is the capitalist firm technically efficient? A in terms of which the entrepreneur chooses a cost- fundamental characteristic of modern capitalist minimizing job structure using one of the available production is the hierarchical division of labor, techniques of production. Labor is thus treated as a according to which ultimate power is vested in the commodity like any other factor of production. apex of the organizational pyramid and radiates Through the consequent blurring of the labor/ downward. Associated with this is the specializa- labor-power distinction, three implications are tion, fragmentation, and routinization of tasks, and derived of basic socio-political importance. First, the development of a finely articulated pattern of the resulting job structure will be efficient. That pay, prerogatives, and status. This organizational is, any alternative to the observed job structure pattern is usually explained in terms of efficient which increases both output and worker satisfac- technology, which in turn dictates strongly cen- tion must also increase costs. Second, wage dif- tralized control mechanisms for purposes of coordi- ferentials reflect relative job desirability and nation. The experimental literature in industrial unequal skill requirements. In particular, wage social psychology and sociology is, however, con- differences between two workers (say a black and a siderably more circumspect, and indicates a mu- white) reflect differences in either their level of tual interdependence of control mechanisms and skills or their individual job preferences. the division of tasks. Thus Vroom reviews an Third, worker sovereignty will obtain in the extensive body of literature, concluding: same and under the same conditions, as the sense, [the evidence indicates that] decentralized more traditional consumer sovereignity.[28] That structures have an advantage for tasks which is, the overall constellation of jobs will reflect the are difficult, complex, or unusual, while cen- trade-off of workers between wages and satis- job tralized structures are more effective for those faction. For instance, if a group of workers desired which are simple and routinized. [65, p. 243] more satisfying work, they would offer their ser- vices at a lower wage. A profit-maximizing capital- Hence task-fragmentation and routinization can- ist would search for a job structure embodying this not be taken as the cause of the hierarchical control type of work which would become profitable at the structures of the enterprise. However the hierar- lower wage rates. Thus the supply would increase to chical structure of power fits into the logic of profit- meet the demand at the lower equilibrium wage. 2 maximization, task fragmentation will follow as a These three propositions illuminate some of result. All that we can derive from this experimen- the most fundamental perspectives of neoclassical tal literature is that if centralized control is theory on capitalist society. The first implies that posited, then the &dquo;minute division of labor&dquo; will be the sphere of production is socially neutral in the relatively productive.[63] sense that it is independent of property relations, Indeed it appears that in the course of class structure, and the mode of social control of development of capitalist enterprise, the hierarchi- economic life. The second implies that wage cal division of labor preceded technical innova- inequality results from the difference in techni- tion, and accounted for the early success of the cally-relevant attributes of individuals. In parti- factory system over its traditional rivals [45] in the cular, capitalism exhibits a strong tendency toward course of the British Industrial Revolution. Early &dquo;meritocracy,&dquo; whereby individuals attain econom- factories employed the same techniques of produc- ic positions based on their &dquo;achievements&dquo; alone, tion as putting-out and craft organization, and and independent of such ascriptive characteristics there were no technological barriers to applying as race, sex, social class background, ethnic origin, them to these more traditional forms. The superior etc. Thus persistent differences in economic out- position of the capitalist factory system in this

38 Downloaded from rrp.sagepub.com by guest on July 16, 2012 period seems to derive not from its efficiency sense, drivers, baseball players), they do not capture the but its ability to control the work-force: costs were effect of the individual or the productivity of other reduced by drawing on child and female labor, members of the group. Moreover, individuals with minimizing theft, increasing the pace of work, and widely varying &dquo;productivities&dquo; in this sense will lengthening the work-week.[45] Of course, given often occupy the same positions at the same the hierarchical structure of control as a temporal wage.[8; 12; 66] In this situation, evidence bearing antecedent, the minute division of labor follows, on the adequacy of the marginal productivity as- and as new technologies are developed, they may be sertion must be critically interpreted. Nevertheless, tailored to this division of labor. Thus prima facie evidence does seem to contradict the theory where observation cannot determine that the organization the two intersect. of the enterprise is an adaptation to superior To begin, as we have noted, the marginal technology. productivity doctrine implies that over time dif- Finally, there have been numerous attempts to ferences in the economic attainment of workers replace the hierarchical division of labor by systems with distinct ascriptive traits should decline, unless of worker control, team production, and job attributable to differences in acquired skills. Yet expansion. Fairly intensive attempts in China, available evidence indicates that differences in Yugoslavia, Italy, Cuba, and Chile demonstrate economic success based on race, sex, and social higher productivity and work satisfaction.[11; 33] class background have not significantly declined More moderate experiments have taken place in over time.[3; 5; 12; 31, 36; 39; 69] and cannot be capitalist countries themselves.3 [11; 66; 67] As explained by differences in innate ability [13] or the Blumberg concludes: acquisition of marketable skills.[10;34;36;56;59]. This suggests that skills may not adequately There is scarcely a study in the entire literature the value of a worker to the This which fails to demonstrate that satisfaction in capture employer. seems to be the case. Neither IQ, nor measured work is enhanced or ... productivity increases cognitive skills, have much independent explana- accrue from a genuine increase in worker’s tory value in income determination [12; 29; 36; 59] decision-making power. Findings of such con- and only a small portion of the association of sistency, I submit, are rare in social research education with economic position can be accounted ... the participative worker is an involved for by the contribution of schooling to cognitive worker, for his job becomes an extension of skills.[29] Within occupational categories, more- himself and by his decisions he is creating his over, these attributes do not go far in explaining work, modifying and regulating it. either supervisor ratings or observed promo- Yet a shift toward participatory relationships tions.[8 ; 21] is scarcely apparent in capitalist production [67] Indeed, hiring and promotion involve far more and small moves in this direction are generally in- than the assessment of skills.[12, 51]. Capitalists terpreted as attempting to avoid severe labor antag- assess in addition to possession of adequate skills, onisms, rather than to increase profit under (a) ascriptive characteristics, (b) work-relevant per- normal conditions of operation. [33; 60] These sonality traits, (c) modes of &dquo;self-presentation,&dquo; observations are not compatible with the neo- including manner of dress, speech, and personal classical assertion as to the efficiency of the internal interaction, self-concept and social class identifica- organization of capitalist production. tions, and (d) credentials, of which formal educa- If profit-maximization does not entail effi- tion is the most salient. How these factors relate ciency, clearly the wage may represent the worker’s either to profits or productivity is complex, and will &dquo;marginal contribution to profit&dquo; without repre- be discussed in the sequel. As a whole, however, senting his or her &dquo;productivity.&dquo; Indeed, the very their prominence tends to contradict a simplistic concept of marginal productivity is theoretically marginal productivity theory and indicates massive dubious, as it cannot be easily disengaged from the deviations from &dquo;meritocratic principle.&dquo; total neoclassical framework. Empirically, we may Additional evidence can be gleaned from obtain various indices of skills and abilities, super- investigations of the wage and hiring policies within visor ratings and behavior records. But these are individual firms.[For instance, 20] First, marginal distressingly indirect. Even when precise output productivity theory suggests that wage rates should measures are available (e.g., salespeople, taxicab adjust flexibly to changing market conditions. This

39 Downloaded from rrp.sagepub.com by guest on July 16, 2012 is not the case. Within a firm the wage structure is Theory of Value [18], labor services and goods quite rigid and ordinarily well-buffered from mar- differ only in the algebraic sign of the variables ket forces.[20, Part I, pp. 13-90] Clear preference is quantifying them. Other mathematical formula- ordinarily given to existing workers for filling job tions (e.g., [2]) are only slightly more complicated. openings, as opposed to reliance on the market. A The standard micro-economic textbook presenta- well-articulated &dquo;internal labor allocation process&dquo; tion differs but in degree of sophistication. arises in which worker productivity is but one This assumption is prima facie incorrect. In factor. In particular there is a tendency for the fact, the hallmark of the capitalist firm is its number of individuals qualified for a position to reliance on the authoritative rather than the As noted in exceed the number of jobs available, in which case market allocation of activity. Coase his seniority and other administrative rules are used to classic article &dquo;The Nature of the Firm&dquo; [15, p. determine promotion. Hardly do workers compete 333]: for the job by bidding down its wage. Finally, job ladders artificially isolate individuals from skill If a workman moves from department Y to learning opportunities which might lead them to department X, he does not go because of a challenge their existing positions in the organiza- change in relative prices, but because he is tion[32]. ordered to do so ... Outside of the firm, price Of course, if profit maximization does not movements direct production, which is coordi- entail technical efficiency, and if the doctrine of the nated through a series of exchange trans- equality between wages and marginal productivity actions on the market... Within the firm ... is false, then worker sovereignty will not obtain. is substituted the entrepreneur-coordinator, That is, the historical development of work will not who directs production. conform to the manifest preferences of workers, even when weighted by skill differentials among Indeed, Coase proceeds to argue that the ef- workers. If the hierarchical division of labor is ficiency of the profit-maximizing firm rests securely necessary to the extraction of surplus value, then on the distinction between the market and authori- worker preferences for jobs threatening capitalist tative allocations. Certain allocations are more ef- control will not be implemented. In addition, there ficiently executed via authoritative decree than via is to my knowledge no evidence that the historical market transactions. The profit-maximizing entre- evolution of work is brought into conformity with preneur will determine exactly which ones these individual preferences via the wage structure mech- are. The efficiency of market exchanges is owed to anism. Rather, this evolution seems due to the agglomeration of certain allocations within the changes emanating from the demand side of the productive unit, where they can be handled effi- labor market (shift from entrepreneurial and craft ciently through the mechanism of entrepreneurial organization to corporate enterprise, the expansion authority. Economic theory, dealing with exchange of the state sector), to which supply is brought into relations, can then treat the firm as a &dquo;black box&dquo; conformity. of authoritative allocations. In sum, the neoclassical theory of production Coase’s argument provides a sophisticated generates fundamental propositions which seem validation of the market character of the labor controverted in fact. This, I shall argue, is due to its exchange as embodied in formal mathematical faulty handling of the labor exchange. treatments. Thus in the Debreau model we need only note that the profit-maximizer chooses a production point which includes not only the The Nature of the Labor Exchange market exchanges he makes, but the allocations of inputs (raw material and labor) as well. The latter The neoclassical theory of production is based are clearly authoritative allocations. But the ques- on the crucial assumption that the labor exchange tion of the nature of the labor exchange then arises (the social process whereby the worker exchanges in a different guise. Can the profit maximizer’s his or her labor for a wage) can be treated solely as &dquo;choice&dquo; concerning the disposition of non-human an exchanges of commodities. This treatment factors of production be treated symmetrically with appears most clearly in mathematical formulations that concerning human labor? If so, the labor/ of general equilibrium theory. Thus in Debreu’s labor-power distinction is clearly invalid.

40 Downloaded from rrp.sagepub.com by guest on July 16, 2012 Neoclassical economics has generally over- assumes that once the contract between capitalist looked this critical question. But Coase attempts to and worker is completed, the question of who has repair the gap.[15] power over whom is solved. The capitalist simply He begins by stressing the difference between tells the worker what to do and the worker either an employee and an independent supplier of a does it, or finds another job. Yet in the fact the service (an ’agent’). Suppose an entrepreneur re- power relations within the enterprise are not solved quires electrical repairs in the factory. He or she through these market exchanges at all. may either engage an independent electrician to We may note that taking power relations as perform a specific task (e.g., repair an outlet), or exogeneous data in economic analysis is basic to employ a worker skilled in electrical work. The the methodology of neo-classical theory. The theory entrepreneur will choose the most efficient solu- of the firm is merely a case in point. Indeed, Abba tion. From employing, he or she secures the flexi- Lerner has astutely noted that neo-classical econo- bility of obtaining a series of &dquo;electrical services&dquo; mics is predicated on the prior solution of political when needed, without having continually to recon- problems: tract with an independent agent. The worker ex- An economic transaction is a solved changes a wage for the disposition over work acti- political Economics has the title of vities. Paraphrasing Batt (quoted in Coase, p. 350): problem. gained queen of the social sciences by choosing solved political problems as its domain [43, p. 259] The employer must have the right to control the work, either or employee’s personally by The most conspicuous examples are the treatment another or It is this of employee agent. right of property rights and contractual obligations, on control or interference, of entitled to tell being which market transactions are predicated as &dquo;solv- the when to work (within the hours employee ed political problems.&dquo; And with some validity. of and when to and what service) not work, The security of property in factors of production, work to do and how to do it the terms (within goods, and capital is based on the legal rights of of such service) which is the dominant charac- ownership, guaranteed ultimately by the coercive teristic in this relation ... power of the state. Exchanges of property, like all legal contractual obligations, are simple extensions That is, the essence of the employer-employee re- of property rights, and are similarly secured by the lationship lies in the latter’s relinquishing complete state. Exchange relations involve ’solved political disposition over his or her activities, subject to problems’ in that the coercive (i.e., political) instru- agreed-upon limitations and restrictions. The ments guaranteeing the binding character of the worker is then a passive agent who can be treated, social relationship lie predominantly outside the from the employer’s perspective, no differently jurisdiction of the exchanging parties. Thus it is from other commodities. often permissible to take these power configura- This conception of the labor exchange has tions as exogenous for the purpose of economic been vigorously formalized by Herbert A. Simon. analysis. [61, ch. 11] Simon postulates a set A of activities the Clearly the neo-classical assumption can be worker is capable of performing. He will supply extended to hiring the services of an independent each at a price p(a) for a ~A. This describes his agent. If hired, the agent contracts to supply a position as an independent agent. But he may particular service for a price. Failure to provide the contract a fixed wage w, in return for which the service entitles the user to withhold payment, and employer can choose any a A’

41 Downloaded from rrp.sagepub.com by guest on July 16, 2012 quo is in the form of labor services, the individual is Consciousness and Capitalist Production an independent agent, not a wage laborer. What the worker must do in order that profits accrue The first implication of our analysis is that the goes far beyond the terms of legal contract. The profitability of production will depend intimately legal contract will in general specify the hours of on the consciousness of workers. In this sense the work, the meeting of certain health and safety labor exchange differs radically from a true market conditions, limitations on what the worker can be exchange, in which parties are concerned with only asked to do, the wage rate, pensions, etc. While the the attributes of the things exchanged, and not with state may in dire situations interfere in favor of the the personal attributes of the other parties them- capitalist, he cannot in general be satisfied with the selves. The labor/labor-power distinction, however, fulfillment of the legally enforceable conditions of implies that capitalist production will be organized the labor exchange. For instance, in the case of not only to produce a marketable commodity but hiring an electrical worker, the exchange relations also to reproduce, from period to period, forms of do not guarantee that a particular range of services worker consciousness compatible with future pro- will be offered (e.g., that x number of outlets will be fits. repaired per day, or y number of panels installed, This assertion can be demonstrated in the fol- or z number of switches replaced). The latter can be lowing manner. By the very nature of the labor guaranteed only by the particular way the employer exchange, a broad range of behaviors are available exerts control over the worker. to the worker at any time, all of which are In terms of the Simon model, the fault is compatible with the legally enforceable aspects of simply this: the worker receives a wage, and can the employment contract. Within this range we perform any act in set A, but what determines that may view the worker as acting to pursue his or her the capitalist can choose any a 4 A’? The worker own goals, subject only to the constraints the may allow the capitalist to do this, or the capitalist capitalist can place on the worker’s choices. De- may somehow induce the worker to perform (a), but pending then on the consciousness of the worker, this is certainly not guaranteed by the contract. the imposition of these constraints will be more or Power enters into the organization of the firm in a less costly to the capitalist and the worker will be sense far beyond the &dquo;authoritative allocation of more or less &dquo;valuable,&dquo; quite independent of his value&dquo; in the Coase-Simon sense. Power must be or her skills or the legal contract between the two. used to evince worker behavior not guaranteed by Suppose, for instance, the extreme case of the the labor exchange (the contractual obligations). worker whose only goal is furthering the profits of Indeed, a common form of worker insubordination the organization. Then the capitalist need only ap- is &dquo;working to rules,&dquo; whereby workers undermine praise this worker of the &dquo;needs of the organiza- the production process merely by doing exactly and tion&dquo; to elicit optimum behavior. Coercing or precisely as they are required, not by contract, but convincing each worker to contribute maximally to by regulation. the enterprise is unnecessary. 5 At another extreme, This basic neoclassical fallacy is precisely the we have the worker whose only goal is to maximize blurring of the distinction between labor and labor- job satisfaction. Here the only constraints open to power. The labor exchange involves the exchange the capitalist involve the direct tailoring of job of one commodity (labor-power) for another (the contents to the needs of the worker - presumably wage). But the concrete substance of labor which a costly endeavor. actually enters into the production process is con- In general, how might capitalists place con- ceptually distinct from labor-power and must be straints on workers? As we have seen, turning to analyzed in fundamentally different terms. Actual the coercive power of the state for compliance is labor is not exchanged for a wage according to altogether too crude. Nor do they have the power to market principles. Thus power relations between whip the worker, mutilate the worker’s children or capitalist and worker are resultants of economic burn down the worker’s house. The historical organization, and cannot be taken as given prior to development of political rights in capitalism has economic analysis. On this point the neo-classical curbed these options. What powers do capitalists theory of the firm founders. This fact bears several have? First, they may increase the worker’s ac- implications which we proceed to investigate. countability by imposing a suitable number of

42 Downloaded from rrp.sagepub.com by guest on July 16, 2012 supervisory and mechanical checks on perfor- and the desirability of the job is enhanced. [20, pp. mance. They may use the information gained to 66-68] alter the conditions of the worker over which the In this same situation, neo-classical theory capitalists possess legal control. These include pay, implies that job openings will be filled partially working conditions and position in the organiza- either by promoting existing workers or by bringing tion. They may also apply moral pressure. new employees into the firm. However abjuring This simple argument provides several im- &dquo;special privilege&dquo; for existing workers eliminates mediate conclusions. First, the value of a worker to the second major instrument of the employer for the capitalist depends integrally on the former’s extracting labor from labor power - the control personal characteristics, in addition to his or. her over advancement in the organization. Our model, productive capacities. This is in direct contra- on the contrary, predicts a strong preference for diction with the Coase-Simon model. Second, the promotion within the ranks, a formalized series of actual quid pro quo in the labor exchange depends &dquo;job ladders,&dquo; and an articulated internal labor on several organizational variables at least partially market. This of course agrees with the facts.[38; 20, under the capitalist’s control: (a) extent and char- Part I] acter of accountability; (b) manipulation of worker In the general case, where worker replacement consciousness; (c) pay scales and criteria of promo- and job transfer costs are not zero, the analysis is tion and dismissal. These organizational factors somewhat more complicated, but can easily be replace the external political authority of the state supplied by the reader. We should note that there in enforcing the labor exchange and constitute the are clearly specifiable conditions under which the power configuration of the capital-labor relation. employer-employee relationship shades off into the Important implications of these observations &dquo;independent agent&dquo; relationship, where the will be systematically developed in the course of our Coase-Simon argument applies. These include (a) argument. First let us consider a firm where the low costs of accountability of worker performance; cost of replacement of workers to the firm, and the (b) low worker replacement costs to the firm; (c) cost of job transfer at the market wage to the high job transfer costs to the worker; (d) low firm employee, are both zero. The neo-classical theory of costs associated with inadequate job performance the firm here implies that the wage rate associated (e.g., little responsibility); and (e) standardized and with each job will be the going market rate for measurable worker services. An example combin- labor possessing the appropriate skills. The model ing (a), (b), (d) and (e) might be the supply of female we have presented indicates, on the contrary, that labor to a company typist pool, and more generally the market wage represents a minimum which will jobs with secondary labor market characteris- normally be exceeded. For in this situation, at the tics.[56] market wage, a major instrument of the employer From this example we may draw several in evincing appropriate worker behavior - the general conclusions. First, wage scales will in gen- threat of dismissal - is absent. Raising the wage eral deviate from the supply and demand analysis above the market rate, however, restores the threat of neo-classical theory, because the manipulation of dismissal, and hence is part of a profit-maximiz- of wage scales is an instrument insuring the in- ing strategy. Thus the &dquo;market rate&dquo; which equates tegrity of the labor exchange. For similar reasons a supply and demand will not actually be observed on well-articulated &dquo;internal labor market&dquo; will de- the market! This implication of our model, seem- velop alongside the traditional labor market, dif- ingly paradoxical, actually corresponds to real fering qualitatively from a market exchange. Thus social conditions: capitalists have always acted to wage differentials are in no way captured by tech- create reserve armies of labor on all levels, and yet nical capacities of workers: workers at different continue to pay wages in excess of those which wage rates may be equally capable of executing the would allow all markets to clear. Moreover, the same tasks; and worker productivity at a given job individual capitalist is more likely to use this stra- will in general be a function of the wage rate and tegy when the cost to the firm of inadequate worker consciousness of the worker, which may depend on performance is high. Indeed, it has often been the overall organization of the firm and the overall noted that an increase in the &dquo;responsibility&dquo; of an wage structure. Thus a reorganization of wage dif- employee is normally accompanied by an increased ferentials which lowers profits may increase effi- wage, even when no additional skills are required ciency.

43 Downloaded from rrp.sagepub.com by guest on July 16, 2012 The Hierarchical Second, the phenomenon of job tenure ap- Division of Labor, Influence, and of the pears even where the firm faces perfect labor Fragmentation Working Class markets. In the traditional theory of the firm the work force can be &dquo;turned over&dquo; in each produc- The need to extract a surplus through proper tion period, subject only to replacement costs (re- enforcement of the labor exchange will have exten- cruitment and specific training). Our analysis indi- sive impact on the capitalist’s choice of a job cates an additional and quite basic source of en- structure, a wage structure and a policy toward durance in the capitalist-worker relationship: staffing and promotion within the enterprise. threat of dismissal and possibilities of promotion Whence the origins of the hierarchical division of are basic instruments insuring the integrity of the labor as an historical phenomenon. Such an organ- labor exchange. ization faces the task of insuring the undistorted Third, the labor exchange normally embodies transmission of directives downward and of infor- another property not shared by pure market ex- mation upward. To this end the capitalist will changes, which are &dquo;impersonal&dquo; in a sense ac- bureaucratize the social relations of production ’ curately described by Arrow and Hahn [2, p. 23]: within the firm. A job will be a position in the organization defined by rules which are merely The decision to supply a good in a perfectly modified and interpreted by the directives of a competitive economy is not a decision to sup- If all are we have a ply so-and-so much to such-and-such single superior. obeyed, para- agents, of the rational Weberian each but simply to exchange so-and-so much of the digm bureaucracy: worker chooses the rules for his or her subordin- good for other goods. ates by adhering to the rules set for this worker by For the profit-maximizer must take into account in his or her superiors. There is a perfect transmission his choice of work organization, job staffing, and of directives from above to below. wage differentials, the effect of his or her actions on But there are two problems with this perspec- the consciousness of the workers. Since the labor tive. The first is that whether or not rules are exchange depends on the preferences of workers in obeyed depends not only on the substance of the addition to their capacities, since the employer- rules but on the power, consciousness and solidari- employee relationship tends to endure over many ty of the workers as well - the latter factors in turn production periods and since the experience of being in part a product of work organization. Thus workers in the production process will affect their the structure of bureaucratic authority must itself consciousness, the simple one-product firm faces a be analyzed through a problematic which includes joint-product production function: the inputs are the potential of systematic violation of rules. [4, p. raw materials and workers with a certain con- 168] Indeed, a superior will normally choose rules sciousness and the outputs include both the good taking into account the possibility that particularly produced and &dquo;new&dquo; workers with transformed onerous regulations will be subverted, thus syste- consciousness. Many of these &dquo;new&dquo; workers will matically undermining authority in the organiza- be inputs at the next stage of production. This ob- tion. In this sense the structure of bureaucratic servation alone invalidates the neoclassical asser- authority must itself be treated as the product of an tion as to the Pareto-efficiency of profit maximiza- historical dynamic which, in its broadest outlines tion. Moreover, in a general equilibrium system in can be explicated only in terms of the class which all of the usual conditions for efficiency hold, struggle. Second, rules, no matter how finely the economic configuration will not in general be articulated, are never sufficient to provide for the Pareto-satisfactory. For there will be a substantive contingencies that arise in the production process. interdependence of the production-possibilities set This observation is the basis of Herbert Simon’s and the preference functions of individuals. [2, insightful analysis of organizational structure. As Chapter 6, Section 2] In particular, forms of work he notes in Administrative Behavior [62, p. 227]: organization which tend not to reproduce worker / consciousness appropriate to further profits will Authority, unless buttressed by other forms of not be introduced, however strongly desired by influence, is relatively impotent to control de- workers and however materially productive. In this cisions in any but a negative way... Unless the sense the Pareto-inefficiency of capitalist produc- subordinate is himself able to control most of tion is rooted in class struggle. the premises of the decision, and to synthesize

44 Downloaded from rrp.sagepub.com by guest on July 16, 2012 them adequately, the task of supervision be- types of influence to which the worker is subject comes hopelessly burdensone. and how heavily they affect his or her behavior is of critical importance to the capitalist. Thus Simon takes a which his step distinguishes Some of the most &dquo;ideal of from the &dquo;role of the important types&dquo; analysis markedly analysis&dquo; influence be described. We the Weberian theory of bureaucracy. Role analysis may easily say worker is superior when his or her be- considers the behavior of the individual in the influenced havior is significantly affected through internal- organization as determined by the norms, values, izing the premises and goals of the worker’s super- duties, and obligations of his or her office. As we visor, subordinate influenced when behavior is af- have noted, this leaves a vast area of in- approach fected the desires and of the worker’s sub- determination in organizational behavior - in- by goals ordinates, and horizontally-influenced when his or deed, it once again becomes equivalent to the abo- her actions are affected by the work- lition of the labor/labor power distinction. Simon significantly er’s hierarchical equals and co-workers. goes part of the way in repairing this fault by intro- ducing the concept of decision premises [52, p. The structure of influence, some of whose xxx]: &dquo;ideal types&dquo; are described in the preceding para- will have a considerable on the social influence is influence decision graph, impact profit upon potential of the firm. In general, structures empha- A role is a of but premises. specification some, sizing superior influence and minimizing hori- not all, of the premises that enter into an indi- zontal and subordinate influence are more conduc- vidual’s decision. ive to profits. For a major objective of profit- Of course the capitalist will buttress the bur- maximization is extracting labor from labor-power. eaucracy with an &dquo;accountability structure&dquo; in- To this end, an authority structure which correctly cluding mechanical and human monitors, person- amplifies and accurately transmits directives from nel review boards, spot checks, time-motion men, the apex of the organization to its base is of prime security guards and the like. But these measures importance. As the number of levels in the hier- will be more or less costly and more or less effective archy increases, the opportunity for the distortion depending on the consciousness of the work force. of directives increases rapidly. Most dangerous is Moreover, whatever the structure of accountability, the situation in which a superior defines rules and transmits incom- the worker will have a sphere of discretionary con- premises according to criteria trol over personal behavior and over information patible with profitability. Such may occur if his or passed on to supervisors. her decisions are based on the values of co- Thus the Weberian model must be rejected. workers, or are independently influenced by the The power vested in the capitalist to structure the values and goals of subordinates. These distortions rules of the enterprise and to manipulate wage are amplified as directives pass down the hierarchy differentials and criteria of promotion and dismis- of authority. sal are insufficient to explain the enforcement of Superior influence, where workers are affected the labor exchange. Consequently they are insuf- only by the premisses and goals of their direct ficient to explain the process of extracting surplus supervisors, is most conducive to enforcing the value. In addition to these formal aspects of the labor exchange. Workers are then only sensitive to production process, the capitalist will, in the inter- the incentives of the capitalist and the disposition ests of profits, attempt to structure the conscious- of their superiors. In this situation, superiors are ness and limit the power of workers. In this section not oblivious to the consciousness of their sub- we treat the former: the structuring of conscious- ordinates. Rather, they take this as a means toward ness through the organization of work experience. furthering their own ends. Co-workers will also According to our model of the labor exchange, take into account each other’s orientations, but the worker will pursue self-defined goals, subject only as instruments in furthering their personal only to the constraints imposed by the wage, pro- objectives. All social relations are then objectified motion and dismissal policies of the capitalist. But except for that of the worker toward his or her su- the self-construction of goals is not an individual perior. enterprise; consciousness acquires a class element Among the &dquo;ideal type&dquo; structures of influ- because workers will normally be influenced by the ence outlined above, horizontal influence without desires and goals of others in the organization. The superior influence clearly is the most threatening to

45 Downloaded from rrp.sagepub.com by guest on July 16, 2012 profits. For this structure imposes over-whelming What determines patterns of influence? Gen- burdens on the capitalist in terms of material in- erally a group partitions itself into subgroups with- centives and accountability. Indeed, a high degree in which forms of consciousness tend toward in- of horizontal solidarity, by pitting the capitalist or ternal coherence, and across which differentiation superior against the combined action of a stratum is the rule. [37; 49, Chapter X] Each may be called of workers, renders wages, promotion and dis- a normative reference group, which &dquo;sets and missal incentives essentially inoperative. Thus the maintains standards for the individual.&dquo; [49, p. fragmentation of horizontal influence and the 337] The relative homogeneity and internal co- fostering of upward influence are basic capitalist hesion of a normative reference group are often objectives. based on (a) relatively frequent and intense person- Nor is this strategy totally outside the control al contact among members; (b) a similarity of con- of the capitalist, who will staff positions and struc- ditions of participation (status, power, task, pay, ture jobs to strengthen and reproduce desirable etc.); (c) communality of interests, in the sense that worker orientations.[25] Thus the capitalist will re- all members tend to be similarly affected by the ac- strict the tasks available to the worker to a set over tions of other parts of the larger group; (d) exten- which he or she is indifferent (task fragmentation), sive cooperative activity among the members; and and simplify tasks to increase accountability. 6 He (e) low &dquo;social distance&dquo; among the members in will choose superiors whose attributes help legiti- terms of the social differentiations of the larger so- mate their authority through their interpersonal ciety (e.g., race, sex, ethnic or religious affiliation, skills, their credentials, their race, sex, age, manner social background). 7 of speech and self-presentation, and their commit- The question as to when an individual will ment to the preservation of their hierarchical pre- orient toward one or another of these groups is rogatives. [69] He or she may also reinforce the complex [49, pp. 338-361], but in many cases the prestige of the superiors by increasing their pay, cooperative work team will be treated directly as a discretionary privileges and the symbolic accoutre- normative reference group, and hence the indi- ments of their office.[30] Finally, the capitalist may vidual will take the values of its members as a basis choose an individual who may be expected to show for personal action. Some common exceptions may little solidarity and identification with co-workers be noted. First, an individual socially distant from and subordinates, [51] while organizing tasks to other members (e.g., an individual of foreign ex- minimize the solidarity of co-workers and create traction among natives, or an individual with col- conditions of work on different hierarchical levels lege education among generally high-school edu- which minimize the common experiences and cated workers) may withstand group pressure. 8 hence the possibilities of identification of interest of Second, a &dquo;deviant&dquo; individual who is upwardly workers.[11] mobile may take a group of superiors as a norma- In short, major aspects of capitalist produc- tive reference group, in anticipation of a desired tion which neoclassical economics treats in terms of future position. [49, pp. 319-325] Third, formal neutral efficiency are in fact, through the need to organizations, say trade union locals, can signifi- structure patterns of influence, conditioned by the cantly widen the reference group of rank-and-file class nature of the production process. Indeed, I workers when their political structures are not too think it is reasonable to assert that the capitalist’s diffuse and the organization relates to the daily ex- need to structure patterns of influence to reproduce perience of workers in the productive process. the conditions under which surplus value can be Our understanding of the structure of refer- . extracted comes directly into conflict with the ence groups is sufficient to sustain a few general norms of social efficiency in production. Unfor- propositions concerning the contradictions between tunately a Marxist theory of the formation of con- efficiency and control in capitalist production. sciousness through personal interaction is not suf- First, insofar as a production process involves the ficiently developed to handle this assertion. For our close interaction, frequent contact, and similarity limited purposes, however, we may rely on the ex- of condition of groups of workers, the formation of tensive research among American sociologists into normative reference groups within hierarchical the nature of reference groups within an organiza- levels cannot be avoided. Horizontal solidarity will tion.[49] then be a matter of course, only the extent and pre-

46 Downloaded from rrp.sagepub.com by guest on July 16, 2012 cise characteristics of which can be affected by the in general decrease, while the maximum degree of actions of the capitalist. Thus he may choose a job social distance between superior and subordinates structure at some cost to efficiency, which limits the declines, thus increasing subordinate influence. frequency of contact of workers, their similarity of The two offset one another, a situation increasing condition, and their degree of cooperation, while the capitalist’s flexibility as to choice of work- attempting to staff positions with individuals of organization. Contrariwise, some technical innova- maximal mutual social distance. This may result in tions may increase the solidarity of the work- a &dquo;team-centered&dquo; structure of influence, where team, while rendering effective supervision from the work team is the unit beyond which further outside the group infeasible.[63] The capitalist will horizontal fragmentation is more costly than the then refuse to introduce the new technology, or in- prevention of horizontal solidarity. [17, p. 123] cur significantly increased labor costs. Within a work team, moreover, members may have Many of the considerations affecting the sufficient leverage to force the capitalist to staff downward flow of directives apply as well to the positions with minimal social distance. Team upward flow of information. The importance of ac- centered solidarity can then be neutralized only curate transmission of information among partici- through increased material incentives and greater pants in production is important whatever the class costs of supervision and accountability. [66, Ch. 3] structure of the production process. But informa- Team centered influence can be reduced by tion relevant to enforcing the labor exchange is es- inducing members of a work group to relate to their pecially problematic in capitalist organization. In- supervisor rather than to each other. This pro- deed, it must be seen as an object of class struggle. cedure is feasible when the possibility of promoting All of the major decisions of capitalists are based individuals to superior hierarchical levels is exten- on information over which they have only indirect sive.[25] Studies show, however, that when the ob- control. The information they receive reflects both jective probability of such advancement for any the consciousness of workers and the structure of member of the group is low, most will abjure this accountability they impose on the organization. &dquo;anticipatory socialization&dquo; and the team-centered The optimal situation of profits is a full and undis- reference group reference group will remain strong. torted transmission of information from the base of [17, p. 123, 171-176] &dquo;Deviant&dquo; individuals will be the firm to its apex. The actual upward trans- ostracized, minimizing their influence on the work- mission of information will then reflect organiza- team, and their access to information communally tional characterisics and personal attributes in guarded by the team will be severely limited. much the same way as the downward transmission Second, we have seen that subordinate influ- of directives. The capitalists will then be fully ap- ence is deleterious to profits. This form of influence praised of the performance of all workers, the ex- are will is more easily dealt with, since it involves the be- tent to which worker speed-ups feasible and havior of a single individual (the supervisor) whose possess all knowledge workers may have relevant to conditions of work and pay may be rendered improving the efficiency of the production process superior to those of his or her subordinates, whose and the efficacy of accountability structures. If all position of power sets him or her apart, and whose workers identify with the &dquo;goals of the organiza- personal characteristics can frequently be chosen to tion&dquo; then no accountability structure will be nec- maximize his or her social distance from those con- essary and voluntary disclosure will provide opti- trolled. [12; 51] There are costs involved in this mum information. In general, structures of su- strategy, however, which may include the resources perior influence will increase the supply of infor- devoted to elevating the pay, prestige, and preroga- mation to the capitalist, while horizontal solidarity tives of the supervisor, as well as efficiency losses and subordinate influence will render information resulting from not rotating supervisory tasks unreliable. Co-workers then tend to cover up for among team members more closely acquainted one another, mask the limits of productivity of with the task at hand and possessing more intrinsic which they are capable and keep to themselves im- influence over their peers. provements in the production process. They employ Third, horizontal and superior influence may such improvements to reduce their work load. [66, be inter-related, either to the benefit or loss of the Chapter 7] Superiors will also be under severe pres- capitalist. For instance, as the chance of promotion sure from their subordinates not to report rule- increases the degree of team-centered solidarity will violations and worker lapses, and to accept the

47 Downloaded from rrp.sagepub.com by guest on July 16, 2012 tacit withholding of information in which sub- Collusion, Legitimacy and &dquo;Divide and Conquer&dquo; ordinate teams engage. [66, Chapter 6] In these situations, the importance of accountability is Extraction of surplus value is thwarted when paramount. In addition, subordinate influence worker solidarity is sufficiently high. But solidarity poses another threat which the accountability involves not only common interests and mutual in- structure cannot handle. Namely, there are norm- fluence, but joint action as well. Thus the capitalist ally important pieces of information which super- must organize the production process to minimize visors possess that, if passed on to their subordi- the formation of worker coalitions. nates, would severely curtail productivity and &dquo;mo- The threat of worker collusion represents a rale.&dquo; These &dquo;secrets of the office&dquo; are part and major reason why the labor exchange cannot be con- parcel of nearly all concrete hierarchical positions ceived as an exchange of commodities and lends and, with the assumption of office, the superior is additional substance to the labor/labor power dis- pledged to systematic deception and dissimulation tinction. The labor exchange differs from pure irrespective of his or her personal morality and market exchange in the way the capitalist may af- good intentions. The effective supervisor is con- fect the extent of collusion among the individuals sciously aware of the theatrical or instrumental (workers) with whom he exchanges. In the case of nature of the performance: he or she is an actor with market exchange as codified in neoclassical theory, a role, setting up a facade or front of realism.[30] collusion among the trades is handled by an ex- Under conditions of strong subordinate influence, ternal authority - the state. In the case of the where a supervisor takes subordinates as a norma- labor exchange, however, recourse to the legal tive reference group, this information will be system covers only the most manifest and overt passed downward to the detriment of &dquo;organiza- forms of worker collusion (e.g., wildcat strikes). In tional harmony.&dquo; Thus subordinate influence must general mechanisms minimizing collusion must be be avoided at all costs by the profit-maximizer: built into the organizational structure itself. sufficient social distance between supervisor and Collusion between superiors and subordinates, subordinates becomes a sine non. To this qua end, and among co-workers, can swiftly render inef- existing social fragmentations of the working class fective the structure of accountability, destroy the will be drawn upon and reinforced in the interests downward transmission of directives, and render of profits. inoperative the upward transmission of informa- The ramifications of the need for accounta- tion. Sanctions that can effectively control the be- bility in the theory of the firm are significant. It havior of individual workers may be useless when a cannot be assumed that accountability increases group of workers is acting in concert. The mechan- resources devoted to record-keeping, time-punch isms the firm employs to avoid collusion will in- clocks, and additional supervisory personnel alone. clude the repertoire of devices analysed in pre- In general, accountability will affect the total job ceding sections. The solidarity of a worker coali- structure of the organization. Production processes tion depends on the degree of commonality of must be standardized to render performance easily interests, the benefits accruing to an individual measurable, decision-making must be fragmented from withdrawing from the coalition, and the se- and compartmentalized to create a clear sphere of verity of the (usually informal) sanctions the coali- responsibility for each person in authority, and tion can impose on deviant members. The employer production tasks must be fragmented to attach can then prevent coalition-formation by fragment- clear performance measures to each worker. The ing work-groups, increasing the &dquo;social distance&dquo; extent to which the considerable fragmentation of between superiors and subordinates, and routing the working class visible in. modern capitalism is decision-making power through superior hierarch- due to the need for accountability, as opposed to ical levels to minimize the degree of control a group the curtailment of horizontal solidarity and the in- of workers may exercise over a co-worker. creased efficiency of the &dquo;minute division of labor,&dquo; But we must add another dimension to our is of course a matter for empirical investigation. analysis of capitalist production to capture the role [45] The general assertion that class fragmentation of ideology and custom in the reproduction of the is a normal part of the extraction of surplus value social relations through which labor is exploited. through enforcing the labor exchange, however, We must introduce the additional concept of legiti- rests secure. mation, characterizing an aspect of the production

48 Downloaded from rrp.sagepub.com by guest on July 16, 2012 process as legitimate when it conforms to the norms the enterprise and its economic environment. Thus and expectations of participants. Thus legitimacy is newly-hired workers may come to evaluate an as- an aspect of social consciousness which changes pect of the organization not covered by their and develops through the substantive experiences general values, according to expectations derived and social relations of workers. from their newly-acquired experience in the organ- ization. Thus the &dquo;rules of the The failure of legitimacy within a group in- [9; 20] game&dquo; may differ from firm to but be creases the possibility of collusion. Commonly per- significantly firm, may ceived injustice increases solidarity, and increased self-legitimating simply through their corres- with &dquo;standard Often these solidarity leads to increased effective power. Such pondence practice&dquo;. collusion thwarting the objectives of the employer can be understood in terms of the formation of which stable may call forth extraordinary measures in the form comparison reference groups, provide of increased accountability and punishment. These frames of reference facilitating the worker’s judge- ments as to the of his/her and that measures may in turn be viewed as illegitimate, equity position thus increasing the solidarity of the coalition, and of others in the organization, and changes therein. 37; reference will calling forth an additional set of extraordinary [23; 51] Comparison groups conform to the measures on the part of the employer. A downward normally closely groups naturally defined by the structure, thus spiral of legitimacy occurs. [26; 66] It follows that job providing legit- to the of manifest in the the capitalist will normally go to great lengths to imacy pattern inequality Ch. 8; avoid the appearance of illegitimate situations, and organization. [66, 53] We these considerations to some con- to provide regularized channels for their correction. apply [66, Ch. 9, 11] This objective is reflected in the crete processes within the capitalist enterprise. These include (a) the of the actions of organization of production as a whole. legitimacy superiors, co-workers and subordinates; (b) the We begin by offering certain generalities con- legitimacy of the processes whereby workers are as- cerning the structure of legitimacy. First, the signed to positions in the organization; (c) the cultural norms of the larger society may supply an legitimacy of the global distribution of overarching pattern of legitimacy orientations preroga- tives, benefits and duties among organizational which are held more or less firmly by all members positions; (d) the legitimacy of the concrete process of the enterprise. These may include principles the worker’s own those of his or guiding the interaction of superiors and sub- whereby position, her immediate superiors, co-workers or subordin- ordinates, the equal treatment of equals, access to ates have been attained, as well as the particular organizational positions on the basis of objective criteria on which their performance and merit, and the admissibility of prerogatives, duties and chances for advancement and dismissal are based. types of authority relations between individuals of different status in the larger society. [52] [12] We begin by investigating the global processes Second, general legitimacy orientations in the whereby individuals are assigned to positions in the larger society may vary systematically across differ- enterprise. Most advanced capitalist societies pos- ent segments of the work force. [6; 17, p. 170] Thus sess a political system based on and reinforcing individuals of a particular race, sex, ethnic or re- values of formal equality and representative democ- ligious origin, age, or class background may con- racy. The hierarchically ordered capitalist enter- sider certain of reward and authority per- patterns prise, however, represents the antithesis of those fectly acceptable which a member of a different values, as ultimate decision-making power is held group would find intolerable, demeaning, or offen- by the few and compliance expected by the many. sive. [40; will staff posi- 65] Capitalists generally [54] Thus hierarchical organization in the enter- tions keeping in mind the general legitimacy prise requires special legitimating mechanisms. orientations of the Also, un- larger society. [51] Among these are hierarchically organized educa- less it is quite costly to do so, they will choose an tional insitutions which inure youth to the social organizational form and an allocation of rewards relations of capitalist production [12; 27] and the and in with these authority compliance legitimacy- promulgation of a &dquo;technocratic ideology,&dquo; where- orientations. [58] by hierarchical organization and unequal reward Third, specific legitimacy-orientations will are deemed necessary by the nature of advanced tend to coalesce around the immediate context of technology. [12] Given that the hierarchical struc-

49 Downloaded from rrp.sagepub.com by guest on July 16, 2012 hire is legitimated, the legitimacy of the assignment speech and demeanor) is generally unstable. Rela- of positions remains problematic. In a situation tionships of this type will therefore be discouraged where a great deal of upward organizational mo- in the capitalist’s staffing of jobs. bility is feasible, this problem is minimal. Such a These mechanisms account for a portion of situation will obtain only when the ratio of the sexual, racial and social class discriminations. The number of workers on successive hierarchical levels neoclassical theory of the firm treats the staffing of 9 is large, a condition normally not obtaining. At positions in terms of purely &dquo;technical&dquo; attributes this point, the strategy of divide and conquer ap- of individuals (e.g., skills and knowledge). When plies in full force. The profit-maximizer will at- applied across the economy as a whole, this implies tempt to limit mobility by erecting barriers at fixed the gradual elimination of economic discrimination intervals in the vertical hierarchy, thus giving rise based on non-technical characteristics (race, sex, to stable comparative reference groups. Within social class background, etc.) [7] This prediction these segmentations he will create meritocratic dis- has not been born out. According to our model, tinctions of pay and prerogatives while maximizing however, the decisions of the firm may indeed tend the lines of vertical mobility. Thus, &dquo;job ladders&dquo; to stabilize these differences over time, as the appear for reasons of legitimacy. capitalist draws on the segmentations of the larger Job ladders and segmented mobility patterns society in staffing positions in the enterprise. are also explained by the neo-classical theory of the In addition to global and local procedures for firm in terms of on-the-job training. [20] This assigning individuals to positions, the benefits, theory predicts, however, that the pattern of in- prerogatives, and duties associated with these posi- ternal mobility will follow cost-minimizing skill- tions may be subjects of legitimacy-orientations. acquisition opportunities. This need not be the Let us consider the most straightforward of these case. Thus, in capitalist societies, entry into a par- considerations: the wage structure of the firm. The ticular segment [at so-called &dquo;points of entry&dquo; see general orientations legitimating the overall degree 20, pp. 43-49] is based on the possession of edu- of inequality in the enterprise will normally flow cational credentials even when these credentials fail from the ideologies legitimating the hierarchical to increase worker productivity [8; 32] or when the division of labor. These general orientations will, concrete skills involved could be feasibly obtained however, be far too crude to handle the minute on the job. details of wage scales within the enterprise, partic- Much of the above analysis applies to the local ularly the wage scales associated with jobs adjacent situation of the legitimacy of the assignment of a to the individual’s own position, and the wage worker and his or her superior to their respective scales of individuals with whom he has frequent positions. New elements also enter in, however, organizational contact. [48] In addition individuals which bear some treatment. First, the supervisor’s may be affected both by the prevailing rates in the effective authority depends on the legitimacy of his industry as a whole for the particular job they hold, or her incumbency in the eyes of subordinates. [14, as well as by the expectations generated and repro- 22, 62] Without this buttress, subordinates will fre- duced within the enterprise itself. Whatever the quently collude to render ineffective the super- mechanism, a particular prevailing pattern of wage visor’s power. Second, the ideologies of &dquo;techno- differentials may, in certain circumstances, be ac- cracy&dquo; and &dquo;meritocracy&dquo; which guide the percep- cepted as legitimate. [20; 53] Hence the employer tion of global legitimacy have much less sway in the will be loathe to alter the structure of wage differ- local and concrete experience of a worker inter- entials, whatever the wage rates obtaining in the acting with a supervisor. Thus particularistic ori- labor market. One obvious retaliatory mechanism entations are likely to be involved in the legiti- on the part of workers to the change in wage- mation of the incumbency of a superior. For in- status of a particular group operates as follows. stance, norms derived from class segmentations in Members of an adjacent reference group each con- the larger society may be brought to bear on the siders the change illegitimate, thus laying the basis legitimate forms of supervisor-subordinate incum- for a coalition, resulting in the break-down of bency. In American society the authority of women authority and accountability. This process forces over men, blacks over whites, younger over older, the employer to alter the group’s wage position, less educated over more educated, and lower status and the mechanism is in turn repeated on another over higher status (in terms of modes of dress, level. In short, when wage differentials are &dquo;legiti-

50 Downloaded from rrp.sagepub.com by guest on July 16, 2012 of one have a influence on such de- mate,&dquo; no group of workers (ceteris paribus) has period strong in the the of the bill the power to increase its wages; the joint perception cisions next, endogeneity wage of illegitimacy, however, increases the solidarity, is a real and concrete contingency of profit- maximization. hence the power, and finally the wages of the group. In our model the enforcement of the labor ex- change lies within the enterprise. Hence it is not surprising that the most manifest inefficiencies deal with the interaction between productive tech- Conclusion niques and control techniques. In the neoclassical perspective the &dquo;minute division of labor&dquo; is in it- Throughout this essay - in the critique of self more productive and admits the more flexible neoclassical axioms, in the presentation of an al- introduction of new technologies. The hierarchical ternative model, in the drawing out of its implica- structure of control is then necessary to coordinate tions, and in exhibiting their concordance with em- the atomistic and decentralized activity of a num- pirical research - we have focussed on the treat- ber of fragmented workers. While not denying the ment of the various anomalies presented in the need for coordination and control in production, introduction. the Marxist model dramatizes the converse: given Our fundamental observation is that in a cor- that profits depend on the integrity of the labor ex- rect formulation of the theory of the firm, profit change, a strongly centralized structure of control maximization entails divergences from Pareto- not only serves the interests of the employer, but efficiency which can be understood only in terms of dictates a minute division of labor irrespective of class analysis. Without looking at the inner work- considerations of productivity. For this reason, the ings of the firm, we may attribute this to the fact evidence for the superior productivity of &dquo;worker that the real wage and the intensity of labor are ef- control&dquo; represents the most dramatic of anomalies fectively endogenous in the capitalists’ decisions, to the neo-classical theory of the firm: worker con- the market being only one determinant. That is, the trol increases the effective amount of work elicited total wage bill is affected not only by the market, from each worker and improves the coordination of but the employer’s choice of work-organization. work activities, while increasing the solidarity and The employer can increase the piece of the pie ac- delegitimizing the hierarchical structure of ulti- cruing to capital and management by reducing the mate authority at its roots; hence it threatens to in- size of the pie to less than its maximum. Workers crease the power of workers in the struggle over the would gain by reorganizing production to increase share of total value. output, work satisfaction and wages. Indeed, they In addition, our model, based on the labor/ could compensate the capitalist for his or her losses labor power distinction, is capable of explaining and still be better off - but of course once they had racism, sexism, and the intergenerational trans- power there would be no reason for them to do so. mission of status. While considerations of technical This endogeneity of the real wage has several efficiency dictate the staffing of positions on the roots. First, assuming the money wage as given, the basis of technical attributes, legitimation dictates intensity of labor is not determined by market the reflection in the enterprise of culturally domi- conditions. This is the failure of the neoclassical nant sexual, racial, and social class ascriptions. model of the labor exchange. The intensity of labor There is no prima facie reason for the aggregated is the outcome of the capitalists’ choice of work actions of individual employers to alter those over organization: alongside the problems of allocating time. Nor is it to be expected that differences in given amounts of work is that of eliciting those mean economic position among various ascriptively amounts. Second, even the money wage is not de- identifiable groups will be based on productivity- termined by market conditions. Not only will the related attributes. Indeed, our model of the firm employer voluntarily raise wages selectively above places such attributes as one among a number of their &dquo;market minimum,&dquo; but he or she may be sets of profit-relevant personal characteristics, forced to increase the wage bill should workers ac- others of which include modes of self-presentation quire sufficient power and solidarity. Since the and interpersonal behavior, class identification, work force cannot be turned over in each pro- ascriptive traits, and credentials. Hence it is less duction period, and since wage structure decisions than surprising to find the relatively small inde-

51 Downloaded from rrp.sagepub.com by guest on July 16, 2012 pendent value of IQ and cognitive test scores in future periods, where worker solidarity and control predicting economic success, the inability of cog- is deeply embedded in the organizational struc- nitive differences to explain the association of edu- ture. 10 cation with economic success, and the wide variety I conclude that a Marxist theory of production of criteria actually operative in hiring and promo- in which class relations in general, and the labor/ tion. labor-power distinction in particular, plays a funda- Finally, our model sheds light on the failure of mental role, provides an excellent basis for under- &dquo;worker sovereignty&dquo; to describe the historical de- standing the social relations of the production velopment of work. The symmetry of the labor ex- process. This paper, of course, provides only a few change with commodity exchanges in neo-classical of the insights necessary to turn such a theory into a theory implies that the wage structure will reflect potent tool of socialist strategy. The general organ- the job-preferences of workers, just as the price izational issues we have discussed must in the structure reflects the commodity preferences of future be supplemented by extensive historical and consumers. Our model predicts, however, that no comparative studies. [14; 45; 57; 64] set of worker preferences will be reflected in pro- duction which threatens the secure capitalist con- trol of the organization, however cheaply labor Herbert Gintis could be acquired. A group of workers may agree to Dept. of Economics work under satisfying conditions (e.g., where they Thompson 908 control their activities) for diminished wages, but University of Mass. there is no guarantee these wages would prevail in Amherst, Mass. 01002

NOTES

1. By the term ’efficient’ in this paper I shall mean 5. This is the case of the so-called Economic Theory of Pareto-efficient; i.e., no reorganization of the work proc- Teams — cf. [46]. ess or allocation of economic activity within that process 6. The explanation of the high degree of task-frag- can increase output without in the long run increasing mentation in modern corporate enterprise is normally objective or subjective costs of production. Thus the ef- given in terms of the dictates of "efficient technology" ficiency criterion is judged within the framework of ex- alone. Our analysis shows that task-fragmentation is a isting technologies and worker preferences. While there- logical outcome of the need to minimize worker discretion by limited and ahistorical in nature, the concept will be and maximize accountability in a situation where workers sufficient for our purposes. have no intrinsic identification with the goals of the 2. This standard neoclassical theory of job structures organization. That is, task-fragmentation is a means of may not be familiar to some readers, as it is not normally ensuring the integrity of the labor exchange. presented in standard microeconomic texts. For a full 7. These characteristics and others are discussed at treatment, see [2, 18]. length in [35; 49]. 3. For an extensive bibliography, see [67]. 8. For an analysis of this occurrence, see [66, Chapters 4 4. Of course if either the supply curve facing the user, or & 7]. the demand curve facing the supplier, is not perfectly 9. This condition may hold for certain sectors of the elastic the exchange may involve elements going beyond enterprise, such as middle and upper management, and the legally enforceable contract. For instance, in a within a hierarchical level, such as apprentice II mechanic "buyer’s market" the supplier may offer increased service →apprentice I mechanic→master mechanic. Hence in the hope of gaining further contracts with the user, and they present problems of legitimacy. conversely in a "seller’s market." The reader can easily 10. It may be asked why, if observed organizational show that this represents a case of limited monopoly or forms are not efficient, they are not competed out of oligopoly and "power relations" enter into the economic existence. Our argument shows clearly why capitalists do analysis even in neo-classical theory. For this reason (ac- not seek alternatives in competition with one another. cording to Lerner’s reasoning) the assumption of exten- But why, for instance, do not workers hire capital and in- sive competition becomes integral to traditional economic stitute their own organization? I take this to be an open analysis. question. It may be that workers simply do not have the

Downloaded from rrp.sagepub.com52 by guest on July 16, 2012 collateral to borrow large amounts of capital, or that if production, while maintaining exactly the same internal several workers did decide to "go it on their own" they organization of the firm. Yet workers do not do this. If the would hire labor as well as the other factors and in effect conditions of "optimality" in the competitive model held, cease being workers. It must be stressed, however, that we would observe a large number of ownership patterns the answer is to be found in the nature of the capitalist of firms. While there is a large number, scarcely any in- economy, rather than an error in the model presented volve hiring capital. If there were no "barriers of entry" herein. For the same problem arises independent of the into firm control, we would see some firms in which efficiency of the capitalist enterprise and its responsive- capital hires managers and labor, some in which man- ness to worker preferences. For suppose profit-maxi- agers hire capital and workers, and some in which work- mization entails efficiency and workers act to maximize ers hire managers and capital. The market would bid up their incomes. Let us also accept that profits of efficient- the price of "managerial talent" so that net profits would ly-managed firms are significantly positive, after making be eliminated. Yet this does not occur. Thus some of the all factor payments (including interest on capital bor- competitive conditions must be violated. [1] Whatever rowed). Then any group of workers has an incentive to restricts workers from hiring capital and managers opt out of a firm, hire capital, raw materials, and appoint simply to capture profits, also will operate to restrict a manager — thereby capturing the surplus generated in them from improving their job characteristics.

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