A capitalist economy does not, on its own, pass the gains of rising productivity to the people who produce them. Its default is concentration upward. The flow toward labour is the exception, and it appears only when two conditions coincide: structural power held by those below, and an external shock that forces the holders of capital to give ground.
The default follows from arithmetic: where the return on capital outruns the growth of the economy, owners gather an ever-larger share by default. This is Thomas Piketty’s ==r > g==:
When the rate of return on capital significantly exceeds the growth rate of the economy […], then it logically follows that inherited wealth grows faster than output and income. […] Under such conditions, it is almost inevitable that inherited wealth will dominate wealth amassed from a lifetime’s labor by a wide margin, and the concentration of capital will attain extremely high levels […].Piketty (2014), 26.
While for Piketty the value of r relative to g is contingent on policy choices, Michael Hudson traces the same divergence to a more fundamental relationship: debts and rentier claims grow exponentially through compound interest, while a physical economy bounded by real resources grows at best linearly. The financial claim eventually outruns what production can pay, and the gap is extracted as rent.Hudson (2015).
Industrialisation interrupted this for the first time. Technology that builds combinatorially on itselfArthur (2009). enabled exponential growth in the real economy, letting non-financial production match and even outrun financial claims; and the factory, by concentrating workers, handed them the leverage of withholding their labour – structural power where there had been none.
Yet translating this into actual power took time: British real wages stayed flat through the first half-century of mechanisation and rose only from the mid-nineteenth century, once labour movements, factory reform and the franchise forced wages and productivity to recouple.Allen (2007).
The clearest case of r held below g – the post-war decades of compressed inequality – followed the shocks of 1914–45 and the progressive taxation those shocks made politically possible. It was undone by neoliberalism’s re-centring of financial capital, which restored the default. The same era saw politics quietly substitute Economic Growth|growth for redistribution: a larger cake offered in place of a fairer slice.
So redistribution toward labour is not a tendency that technology or growth delivers on its own. It is the exception – won by structural power from below, forced by external shock from outside, and reversible the moment either lapses.
References
- Allen (2007), “Pessimism Preserved: Real Wages in the British Industrial Revolution”, University of Oxford Economics Working Paper 314.
- Arthur (2009), The Nature of Technology: What It Is and How It Evolves.
- Hudson (2015), Killing the Host: How Financial Parasites and Debt Destroy the Global Economy.
- Piketty (2014), Capital in the Twenty-First Century.