Political Economy of Waste

* Paper: The Great Domain of Cost-Plus: The Waste Production Economy. Kevin A. Carson. C4SS, 2010

URL = http://c4ss.org/wp-content/uploads/2010/12/Political-Economy-of-Waste.pdf

Excellent study on how much of our economy is actually unproductive and non-contributive

Excerpt

Intellectual History of Waste Recognition

Kevin Carson:

"A recurring theme, from the Enlightenment on, has been the radically reduced work week that would be necessary to support the average person if production were organized efficiently and the producing classes didn't have to work to support the idle in addition to themselves.

Although I can't track it down I recall reading, as a child, an essay in my father's anthology of Poor Richard's Almanack in which Franklin described how the work day could be shortened to four or five hours by eliminating waste and irrationality.

In 1913 Pyotr Kropotkin estimated the labor time necessary to produce the actual food, clothing and housing that the average working family consumed at around 150 half-days' labor a year. The average worker's additional labor-time went either to waste or directly harmful production, or to supporting parasitic consumption by the privileged classes.5

Bob Black's widely reproduced 1985 essay “The Abolition of Work” covered similar ground, arguing both for the elimination of waste production and for the combination of work wherever possible with play.

Only a small and diminishing fraction of work serves any useful purpose independent of the defense and reproduction of the work-system and its political and legal appendages. Twenty years ago, Paul and Percival Goodman estimated that just five percent of the work then being done—presumably the figure, if accurate, is lower now—would satisfy our minimal needs for food, clothing, and shelter. Theirs was only an educated guess but the main point is quite clear: directly or indirectly, most work serves the unproductive purposes of commerce or social control. Right off the bat we can liberate tens of millions of salesmen, soldiers, managers, cops, stockbrokers, clergymen, bankers, lawyers, teachers, landlords, security guards, ad-men and everyone who works for them. There is a snowball effect since every time you idle some bigshot you liberate his flunkeys and underlings also. Thus the economy implodes.6

A number of scholarly writers have dealt with the scale of waste production in the economy in recent years. Edward Wolff, in Growth, Accumulation and Unproductive Activity, classifies economic activity as either productive or unproductive. Waste output includes the portion of the economic surplus which is absorbed by the unproductive “surplus class” (essentially the rents on artificial property I write about below), and unproductive activities (activities which “use labor power but produce no directly usable output....”).7 Wolff's main shortcoming is that his entire survey of waste production is sector by sector, with entire sectors being assigned either to the “productive” or “unproductive” category. It is almost completely silent on waste in the form of suboptimal allocation of resources or waste of inputs within an industry. Many production inputs are necessary, in some quantity, for production, but are used wastefully. Wolff classifies an entire industry as “productive” if its output has use value, no matter how wastefully production is organized.

The Overburdened Economy, by Lloyd Dumas, directly addresses the area in which Wolff is most deficient: waste within industries or sectors of the economy (for example administrative overhead within a business firm). He distinguishes “contributive” from “non-contributive” activity within the production process. To be contributive, an activity must be “part of a process that results in the production of a good or service that has inherent economic value,” and must also “perform a function necessary to the efficient operation of that process.” Activities which meet the first test but not the second are “neutral” (the expansion of administrative overhead is his premier example), and eliminating the waste from them is “simply a matter of an efficiency adjustment.” On the other hand activities which fail both tests are “distractive,” and require eliminating the process itself and shifting elsewhere all resources wasted in it.8

Dumas also makes a clear connection between such waste and the externalization of cost. Wasteful spending on management featherbedding occurs, he suggests, because of “a discrepancy between the value of an activity or output to the decision maker who authorizes its purchase and its value to those who actually pay the price.”9 “...[A]s long as the value of expansion exceeds its costs from their [management's] perspective, they will continue to expand the bureaucracy.10

But while Dumas is good on Wolff's weak point of waste from internal inefficiencies within the productive process, he also neglects Wolff's strong point: unproductive consumption by the privileged classes. The enormous portion of the economy made up of artificial scarcity rents on land, capital and “intellectual property” goes largely unremarked on.

Finally, Douglas Dowd, in The Waste of Nations, elaborates on Dumas' central theme of noncontributive activity. He includes entire sectors of the economy that fall under the heading of Dumas' “distractive activities,” like the military-industrial complex. But he also focuses heavily on neutral or distractive functions in the civilian economy like all those associated with push distribution: highpressure marketing, mass advertising, planned obsolescence, brand-name markups, purely cosmetic model changes and product differentiation, etc. His examples range from the ninety percent of toothpaste price made up of marketing costs to the $800 of a 1939 Chevy's $950 market price that didn't reflect actual production costs.11 Dowd also points to the waste from lower productivity of labor, as a result of the incentive problems in a hierarchical enterprise.12 Dowd's biggest shortcoming is his overly narrow definition of “production costs” and his failure to distinguish productive from unproductive distribution costs. He lumps all the costs of “marketing and distribution” into a single category of waste, without distinguishing the waste transportation resulting from subsidies to economic centralization from the necessary transportation which would be necessary to move goods to the point of consumption in even the most efficient economy.

It is not my purpose, given the time and space constraints of a quarterly research paper, to examine the waste economy on the same level of details as these writers. My intent, rather, is to provide a comprehensive overview that synthesizes all their strong points, to include areas of waste production that all of them overlook, and to supply an analytical framework based on free market principles."

Notes

• 5 Peter Kropotkin, The Conquest of Bread (New York: Vanguard Press, 1926), pp. 87-94.
• 6 Bob Black, “The Abolition of Work” (1985) <http://www.zpub.com/notes/black-work.html>.
• 7 Edward N. Wolff, Growth, Accumulation, and Unproductive Activity (Cambridge, London, New York, New Rochelle, Melbourne, Sydney: Cambridge University Press, 1987), p. 3.
• 8 Lloyd Dumas, The Overburdened Economy: Uncovering the Causes of Chronic Unemployment, Inflation, and National Decline (Berkeley, Los Angeles, London: University of California Press, 1986), pp. 53-54, 57.
• 9 Ibid., pp. 42-43.
• 10 Ibid., pp. 66-67.
• 11 Douglas Dowd, The Waste of Nations: Dysfunction in the World Economy (Boulder and London: Westview Press, 1989), pp. 64-65.

Typology

Waste from Artificial Scarcity Rents

"A major part of our labor goes to support unproductive consumption by holders of artificial property rights: "the consumption of use values by the surplus class” to which Wolff referred.

In an environment of uncoerced exchange between equals, exchanges tend to involve comparable amounts of effort or disutility on both sides. The reason is that human beings, by nature, are utility maximizers; when the effort required in exchange for someone else's product significantly exceeds the effort of producing it there will be a corresponding effect on enough “make or buy” decisions at the margin to increase the number of people competing to provide the product and thereby drive down its price. When all market transactions are free and unconstrained, there will be a shift of labor at the margins from occupations where remuneration is low relative to effort to those where it is higher.

Privilege is a way of increasing the effort or disutility required from one party in order to provide rents or unearned income to the other. When the employer of labor is a monopsonist, she can target wages to the amount needed to get workers to bring their services to market, and appropriate the surplus as a rent.

According to Wolfgang Hoeschele, scarcity generation is tied up with violence: “Throughout history, whoever controlled the means of violence could use it to create a bottleneck between people and the fruits of their own labor, making the latter scarce.” He points, as examples, to “blackmail payments collected by a mafia, and rents imposed on peasants by feudal landowners.”13 But “property as such,” he argues, “does not result of some at the expense of other” or “create scarcity.” Whether or not it does “depends vitally on the specific nature of the property rights involved.”

Where scarcity is natural and property rights reflect that state of affairs, they may be a source of mutual benefit rather than zero-sum relations. For example, an unregulated open access regime, by failing to tie the price of consumption to the cost of regenerating resources, may lead to depletion. Both regulated commons and private property tied to actual use are ways of assigning economic costs to resource extraction and equitably distributing the highest possible sustainable yield. Private property in arable land, in the form of family farms, can minimize scarcity by fully internalizing both costs and output—while ownership “by a large collective organization (a cooperative, commune, state farm, or corporation)” can result in serious inefficiencies."

Waste from Guard Labor

"Murray Bookchin argued, in the Introduction to Post-Scarcity Anarchism, that the management of scarcity, the control of access to scarce resources, was the “historic rationale” for most forms of hierarchy and authoritarianism.

That really stands to reason. Most of the authoritarian institutions in our society, and most positions of authority within their hierarchies, ultimately derive their power from the threat “Do as I say if you want to get fed and keep a roof over your head.”

In addition, the power of hierarchies results from the fact that exercising power is the primary occupation (and often avocation as well) of those running them, while those on the outside can participate in decision-making only during what little time they are able to extract from their limited leisure after working at their jobs and attending to family concerns and recreation. Comparative scarcity entails a greater amount of labor time required to procure the necessities of life, and a resulting shift in comparative advantage to those administering the hierarchies when it comes to time, energy and attention for making decisions about how things could be done.

Most of the hierarchical institutions in our world, and the people running them, exist only for the sake of rationing scarce goods. The management at your workplace, and the sense of identity they get from their jobs, all revolve around the fact of scarcity and your dependence on them to keep paying the rent and grocery bill. In a world where they no longer get status from control over other people’s livelihoods, they’d be strangers in a strange land. A world in which all the hierarchical institutions formerly required to regulate scarcity become redundant and irrelevant — in which every single person was the equal of Gates and Rockefeller in wealth and power, and could tell them to go to hell with impunity — would be intolerable for them. What fun would it to live like a king, if everyone was a king?

What's more, a major part of the resources expended by authoritarian structures goes to the costs of enforcing property rights in scarce resources. When that scarcity is natural the costs of enforcing the property system may be rational. When, for example, it takes significant effort to create material goods, and the comparative effort of producing versus stealing makes theft an attractive alternative, then the costs of protecting the producer's possession of his labor product against theft may be necessary.

But when the scarcity is artificial, the cost of enforcing it is a dead loss to society. When state intervention artificially increases the effort or capital outlay entailed in producing a given unit of consumption goods, the comparative ease of producing without artificial levels of effort might make the effort of circumventing such restrictions an attractive proposition. For example, when the marginal cost of reproducing digital information is zero, and the price of digital information obtained from the content “owner” is significant, the cost difference can only be upheld by a costly apparatus like the Digital Millennium Copyright Act and all the industry and Justice Department machinery required to enforce it.

We have experienced a major shift, in recent decades, from a situation in which most scarcity was natural to one in which most scarcity is artificial. That's not to say that property rights to scarce goods weren't artificial in most cases, but simply that they really were scarce in the sense that they required significant effort to produce. The primary effect of artificial property rights, in the old days, was to shift the necessary effort of production to someone other than the beneficiary. The primary effect of artificial property rights today, in most cases, is instead to impose effort where there is no material reason for effort on anyone's part, so that the privileged can collect rents from the artificially mandated effort. The primary focus of socialism in the nineteenth century was to ensure that the effort required to produce consumption goods was equitably allocated, and that the product was distributed commensurate with contributions to the production process. Today, in contrast, our focus should be on making sure that there are no limits on the free reproduction of non-scarce goods and that there is no effort required for consumption where it does not by nature exist. A growing share of total consumption goods consists of what Carl Menger called “non-economic goods,” whose natural market price absent artificial scarcity rents is zero. As Bookchin put it: “A century ago, scarcity had to be endured; today, it has to be enforced—hence the importance of the state in the present era.”

Samuel Bowles and Arjun Jayadev coined the term “guard labor” for economic activity whose primary purpose is “the perpetuation of social relationships of domination and subordination”—what we saw Edward Wolff describe above as economic activity meant to secure an unproductive class's control of surplus output. They argued that the higher the degree of inequality in wealth and power, the larger the share of economic activity that goes to guard labor.

...

Douglas Dowd pointed to the lower productivity of labor and higher unit costs resulting from low morale and other incentive problems in the standard capitalist enterprise.43 For example, the workerowned plywood co-ops in the Pacific Northwest typically have a quarter the supervisory personnel of a capitalist-owned plywood factory, because of the completely different structure of incentives in a worker-owned and -managed firm. Dowd compared the 10.8% of the U.S. labor force in managerial and clerical positions in 1980, compared to 3% in Germany and 4.4% in Japan." (http://c4ss.org/wp-content/uploads/2010/12/Political-Economy-of-Waste.pdf)

Radical Monopoly

The concept of radical monopoly overlaps heavily with that of privilege or artificial property rights.

More Information

1. Artificial Property Rights