Capital Is Labor’s Friend

We have grown weary of seeing major roads blocked and police facing off against demonstrators. Whenever workers wearing red headbands raised their arms in protest, the news would invariably report wage negotiations alongside astronomical losses caused by strikes. After watching that process unfold, one is bound to think that “capital and labor are fundamentally incompatible” and that theirs is “a fight that ends only when one side forcefully crushes the other.”

“Capital” refers to the tangible and intangible assets—such as money, machinery, and knowledge—that create value in the production process. In the Paleolithic Age, people dug the ground with stones; in the Iron Age, they farmed with shovels and hoes. Tools gradually became capital, and that capital increased productivity. Buying a truck to transport cargo or purchasing a building to run a rental business is also part of the process by which money is transformed into capital.

Capitalists invest capital to raise returns, while workers are tasked with making good use of capital to increase labor productivity. Capital accumulation can be measured in many ways, including the quantity of machinery, the depth of experience, and the amount of stock.

What matters is not simply bringing in more machines, but innovating those machines to raise productivity. Better technology further boosts productivity, so research is also needed into how technology can be developed creatively. Some innovations may come from extraordinary inventions, but discovering better methods on the ground and raising productivity is the truest form of invention.

In the end, capital and labor are in a relationship in which the more they fight, the more both sides lose. Workers benefit when capital is used effectively to raise productivity. Harboring hostility toward capital means obstructing the very means of enabling people to do their jobs better.

Everyone wants to join a company with abundant accumulated capital. That is because it is better to join a company with tractors than one with only shovels. As capital accumulates in a company and productivity rises, wages naturally increase as well. The extent to which a labor union can raise wages through struggle is limited. More than that, fighting to secure stable jobs and higher wages is a premodern approach.

Hostility toward capital, or making excessive demands, prevents capital from performing its proper role and blocks capital inflows. Investment becomes active only when capital is allowed to do its job—whether through direct investment, majority shareholders, or stock investors.

There is undeniable irony in demanding higher wages while obstructing a company’s development. If capital is suppressed, then naturally capital cannot accumulate, and workers’ incomes will also struggle to rise. If workers want better treatment, they should help create the conditions for capital to accumulate within the company.

Wages and bonds are paid according to contract. People are compensated for the work they do under an employment contract; it is wrong to apply the concept of residuals simply because a company has earned large profits. Residuals refer to “additional income paid to actors or producers each time a work is re-screened or rebroadcast under certain contracts.”

If a company earns 1 trillion won in profit, that belongs to the capitalist. If it suffers a loss of 1 trillion won, the responsibility also lies with the capitalist. Just as workers do not need to cover a 1 trillion won loss, it is also wrong for them to claim a right to a 1 trillion won profit. Because rates of return fluctuate widely, capital investment is in fact a highly risky activity.

Rather than blaming capital, innovation means moving toward ways of working better by making use of capital. Whether it is artificial intelligence (AI) or big data, the right choice is to use new developments to change how we work and to build capability through self-improvement and retraining. Rather than clinging to past methods, responding with hostility, and stubbornly digging in, it is desirable to study how to adapt to and make use of good capital and new methods in order to advance.

Capital and labor should face each other not as enemies, but as partners considering how to make use of one another. In countries that have entered the ranks of advanced economies, labor unions have helped workers use capital to raise productivity. I hope the day soon comes when labor unions in our country study the activities of unions in advanced countries and serve as a bridge helping companies and workers move in a desirable direction.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: 자본은 노동의 친구다

Author: Sung-no Choi

Date: 2023-08-01

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=4&idx=25923