[I am presenting my contributions to theory, philosophical or otherwise, under
the label ‘my contributions’. I would like to get these articles appreciated as
well as critically reviewed by lay-persons & experts too. If convinced I am
ready to modify my positions acknowledging the critics.]
One extreme position about this is, any exchange is fair as long as it
is truly a voluntary one; regardless of the proportions of the values
exchanged. Another extreme position is that an exchange can not be fair if the
things that are exchanged are not exactly equivalent i.e. of exactly same
‘exchange value’.
The condition of being voluntary is necessary but does not seem to be
sufficient one. It is necessary because forced exchange is already an injustice
irrespective of the degree of non-equivalence in the exchanged goods. It does
not seem reasonable however that no heed ought to be paid to the values and the
difference between the values.
Before formulating reasonable conditions of fair exchange we must also observe that,
the condition that is posed by the other extreme position namely that of exact
equivalence seems to be an unnecessary one. Divisions of Labor and Exchange (in
some form or the other) are phenomena that are essential to human civilization
as such. We have always been exchanging things and progressing through
exchange. It would have been impossible if everyone had waited until she finds
an exactly equivalent offer.
So what are the conditions under which we can say that an exchange is
fair? I am suggesting the following answer that the conditions that can be
reasonably expected by the parties that are entering into actual transaction and
anyone having the ‘sense of fairness’ would also feel convinced that
transaction could be called a ‘fair’ one.
1) Both partners enter into it voluntarily
i.e. without being threatened by a threat that is other than, “what if the
offers in the transaction are withdrawn.” i.e. “what if transaction does not
materialize.”
2) Both partners feel that it is better to take
in return than to make their demanded things all by themselves
singularly or in other words exchange is better than self-reliance.
3) As an explicated paraphrase of point no.2,
both partners should feel that the algebraic sum of negative utilities incurred
in producing the thing to be given and positive utilizes gained from the thing
that they are going to get in return, is positive (benefit>cost) to
both sides.
4) Both partners should feel that they are
entering into the transaction with the best offer within the available
offers at the time of the transaction and that multiple possibilities are
actually available to make such comparison.
5) Both partners should feel that whatever
that was promised by the other vide her offer, would actually be delivered
as promised.
The point is that it is not a necessary condition that the exchanged
goods have to be of exactly or even nearly of same value, for a transaction to
be fair. If I am getting benefited sufficiently I have no reason to be
spiteful about the case that the other got more benefited. What we actually
need is a mutual super-valence and not equivalence.
It should also be noted that even if we insist upon equivalence that
does not at all ensure Equality. Suppose by some political system only such
exchanges are allowed which are exactly, or at least nearly, equivalent and therefore
will be equivalent within itself. But we do not know as to how many and how big
transactions are made by each citizen.
The pairs who enter into more transactions and bigger transactions will
become much richer than the pairs making less number of transactions and
smaller ones. If we want to make the citizens equal we (here this is the royal
‘we’ namely the State) will have to distort the equivalences of the
transactions in such a way that benefits incurred by each citizen are equal. We
simply can not have Equality and Equivalence at the same time.
Thus the Equivalence is neither useful in bringing about Equality nor
necessary for transactions to be Fair. If the authenticity of consent is doubtful
or any of the five conditions are not fulfilled then the exchange might be
exploitative.
However there are some egalitarians who believe that only equal
(equivalent) exchanges would ensure equality.
Now the question arises as to how are we going to
determine the degrees of contributions, before we judge whether they turn out
to be ‘over’ or ‘under’ with respect to the receipts of value? Is there any
method of merit-rating by third-party and dispassionate observer who has, at
her service, a standard conversion table, agreed by all concerned?
We can intuitively make some statements for
example, the Music-composer’s contribution is more than that of a mere
performer who, of course very skillfully plays or sings the notation given by
the composer. Even the negative utilities borne while working can be so judged.
One can confidently say that a heavy vehicle driver’s job is more strenuous
when she drives on two lanes high-way without any road divider, as compared to
the driver on a six-lane highway with a wide, tall and sturdy road divider.
First, such ‘uncontroversial’ statements can not
be made, about all jobs. Second, such statements are ordinal and not cardinal,
that is to say that when we say ‘certainly more strenuous’ we can not say
‘exactly, say 3.7 times strenuous’. It can not be conceived that a consensus
algorithm of merit rating can ever exist. For one thing is sure that labor
required in evaluating labor should not be more than the labor to be evaluated
because all contributors will lose their entire wage in paying for the
evaluators’ wages and further, who is going to evaluate the evaluator’s wages?!
There is another problem too. Let us assume that
we have somehow worked out relative merit rating of all the employees within a
firm and also somehow determined how
much share in value-added should go to labor. The question remains as to
whether the value appropriated at the firm (which is empirically available) was
entirely generated in the firm or partly or fully generated in an ‘exploited
firm’ or had been partly or fully sucked out by some ‘exploiter-firm’? This
bring us to the question of whether the output-prices got by the firm and
input-prices it had to pay to other firms, were ‘Fair’ or otherwise? So let us
turn to the curiosum called ‘Fair Prices’.
Can We Objectively Derive a Configuration of Non-Exploitative
Prices?
The Statist socialism assumes that ‘Just
distribution’ can be calculated objectively and then it remains an issue of
political will to implement it. Why State would have such political will is
rather mysterious. However assuming that such ‘will’ can exist and also can
retain the power to execute itself, we must ask, whether it is at all possible,
without referring to the subjective preferences of economic actors, to
arrive at justice-rendering prices by using objective data which is available,
pertaining to technical ratios of various inputs and outputs, in physical
terms?
In an attempt to
derive price on the basis of production cost, along with the set of quantities
of various inputs, we have to use set of prices/unit (rates) of each input. Now
the question is, should all these datum-prices of inputs should be deemed as
‘fair’ or not? If we claim that they are ‘fair’ we have to prove that
separately. This gets us back to square one. If we do not claim so then the
computed cost itself could not be assumed as fair.
Now let us turn
our attention to the list of quantities of inputs. The question is that whether
these quantities were those which actually got expended in a particular case or
these quantities are those which should be reasonably required and
hence allowable? Due to ignorance or laxity (or indifference if she was
getting it for free) the producer could have wastefully consumed the inputs. It
would then be unfair to the customer if she gets taxed on account of the
unnecessary overages allowed by the producer. Thus the question again becomes a
normative one. What is the ‘fair’ efficiency at which the producer ought to
perform? Suppose we agree (amongst whom?) upon standard technical ratios of
physical inputs. Still the problem remains far from being solved.
Whatever standard
technical ratios are assumed for all the physical inputs (miles per gallon,
bytes/millisecond, plants/liter, etc), their conversion depends on the ‘factor-inputs’
namely labor and capital. We now have to normatively agree upon a ‘fair’
capital cost and a ‘fair’ labor cost. Let us analyze labor cost in detail as it
is more relevant to the main theme i.e. Exploitation.
Per unit
labor-cost of a product is a function of four variables.
1. How much units
of ‘employment-time’ is required for producing one unit
of
the product?
2. What is the
wage rate/unit-time?
3. What is the
work intensity at which the worker is made to work in terms
of ‘exertion’/ unit time (of employment)?
4. Productivity of
the process used by the worker in terms of physical unit
output/workload required. For example
surface area to be painted/ per
standard-exertion-time units, is the
productivity of the process of painting.
For this we have
to have a huge standard-table which converts drudgery and other negative
utilities involved in every work element into allowable deployment time to
perform each element which gives, in ‘weighted’ time units for the ‘fair’-exertion
Say spray painting will be more productive than painting by a brush. Now the
formula for per unit labor cost is
Employment-Time x Wage-Rate
Labor cost per unit = -----------------------------------------
Work-Intensity x
Process-Productivity
The interesting
part is that the same labor-cost/unit can be achieved by many combinations of
the four variables. For example a combination of high Wage-Rate and high
Process-Productivity with low Employment-Time and low Work-Intensity is most
favorable to the worker in the employment.
To the contrary,
low productivity, high work-intensity and low wage-rate will be the most
adverse condition for the worker. Thus even if we agree upon a
fair-labor-cost/unit, the degree of exploitation of labor (or reverse
exploitation in some cases) remains fully open, in other words, indeterminate.
Further, even if
we somehow ensure that all firms are getting ‘fair-prices’ and eliminate the
issue of firm to firm exploitation from the argument, the question arises as to
how much the workers in the firm can claim their share in the
process-productivity of the firm. In fact one cause of higher
process-productivity is the capital-intensity of the firm.
If all the credit
of higher value-added is attributed to the capital intensity, then in fact
workers in the firm lose their contributory claim over the value added. But
even this can not be made into a general rule because many a process-improving
innovations do not require augmentation in capital intensity. The credit of
innovation can not be claimed by all workers in the firm or even perhaps none
of them as it might have come from an outside consultant as well.
Let us assume, for
the sake of argument that we somehow politically achieve the goal of labor to
labor equality so that wage rates and work-intensities are identical for all
products. Process-productivities, however, are in heterogeneous physical units.
How to compare them with each other? For the same pair of output/input we can
compare process productivities before and after an innovation. But how can we
quantitatively compare input/output ratios of heterogeneous pairs?
Kilometers/liter, megabytes/second, irrigation water/acre, electrical
transmission/kg of copper, Pesticides required/unit crop (before and after ‘GE
seeds’) and so on.
Comparing
physically heterogeneous ratios has to be in terms of utility to humans and
that is precisely the curious thing called ‘price’. Although
the price-tag is attached to commodities the price is not, really speaking an
attribute of commodities but of people. Price represents a set of proportions,
of other goods that buyers are ready to forgo against the thing they buy. So we are again back to square-one.
The other
significant factor namely capital is no less complicated. Rates of interest or
profit are in terms of money/capital duration. The capital that is recycled
fast can go through many turnovers in one year. Long term capital has different
rate of its recovery. A very doubtful and controversial component of
capital-cost is depreciation. Normatively allowed (by tax authorities) rates of
depreciation and rates of actual wearing out of capital goods are too much
divergent.
In case of capital
there are speculative investors or steady investors. From all this, computing
capital-cost/unit of a commodity, is really challenging. Again the question
remains as to whether the capital was diligently utilized or otherwise. Even in
a doctrinaire socialist calculation, where capital is taken as
non-contributive, the question of effective utilization of resources can not be
disregarded all together. At rate of profit as zero all degrees of utilization
get multiplied by zero. Thus the question of diligent utilization gets
eliminated from calculation but remains very much affecting in practice.
There is a dilemma
involved in the very idea of computing ‘fair’
prices based on cost of production. If stipulated prices are
proportional to cost incurred, what incentive is left to producers to minimize
cost? How the so inflated prices will remain affordable to the customers? On
the other hand, if we stipulate incentives for cost saving, what are we
doing something radically different than market?
Let us now ponder
over the possibility of need-based conception of ‘fair’ prices. This involves
political decisions or policies, which sets a preference order of various needs
as per the idea of ‘good of all’. Obvious choice, in context of Equality would
be that, the basic needs should get highest weightage. If higher weightage
corresponds to higher price then the goods that satiate basic needs will become
highly priced. This is obviously harmful to the lower income strata. This means
that higher weightage should imply lower prices. If prices of basic-need-goods
are kept as low as possible, this will de-motivate the producers of the basic-need-goods.
This will cause lowering of the production of basic-need-goods. If prices
remain low but goods are actually not available, it harms the lower strata more
intensely. (This typically happened in Soviet Union.) Therefore State can not
go on protecting the consumers’ interests at the cost of producers’ interests.
It is an act of balancing the interests of both parties that is required.
Price affects the
income of some party in one way but it, at the same time, can not but affect
the expenditure of the other party in exactly reverse way. Every income is
composed of some expenditure by some others and by same logic; any expenditure
goes into the income of some others.
There have been
very tedious efforts made by economists to solve this problem. Suppose N
numbers of commodities are being produced, each requires other commodities as
inputs in some quantities. (the non required ones can be assigned their
quantities as zero) A huge matrix is constructed by assigning all physical
ratios. To find out N unknown variables you require N simultaneous equations.
But we have at least N+2 unknowns including labor-cost and capital cost. As we
saw earlier that one variable of labor cost contains four more unknown factors.
Similarly capital too will have its internal unknowns. Thus as there are far
too many variables than the number of simultaneous equations that can be
conceivably constructed, let alone being actually constructed, Problem of
Deriving Fair-Prices is unsolvable.
[note: The
impossibility of deriving predetermined fair-prices is a daunting problem faced
by egalitarianism. But it must be noted that if anyone is professing any sort
of artificial Meritocracy will also face the same problem. Thus it is not
possible to impose either equality or Meritocracy from above.]
We failed in our
effort of constructing price determining tool because we avoided the very
domain in which prices actually get determined, namely the Subjectivities of
the Economic Actors.
But then another
question arises. If the subjectivities are brought in, will it not be
succumbing to relativism and hence lose hope of coming to some objective
criteria of fairness?
No. We can and we
shall spell out objective criteria by defining the sorts of
‘inter-subjectivities’ involved by shifting our focus from fairness of the
outcomes to fairness of the Process.
