Productive and unproductive labour


Productive and unproductive labour are concepts that were used in classical political economy mainly in the 18th and 19th centuries, which survive today to some extent in modern management discussions, economic sociology and Marxist or Marxian economic analysis. The concepts strongly influenced the construction of national accounts in the Soviet Union and other Soviet-type societies.

Classical political economy

The classical political economists, such as Adam Smith and David Ricardo, raised the economic question of which kinds of labour contributed to increasing society's wealth, as against activities which do not increase wealth. In the introduction to The Wealth of Nations, Smith spoke of the "annual labour" and "the necessaries and conveniences" a nation "annually consumes" before explaining that one of the two steps to increase wealth is reducing the amount of "unproductive labour". "Annual" and "annually" refer to a cyclical reproduction process; "unproductive labour" are commodities and services which are not inputs to the next economic circle and are therefore lost to economic growth. In contrast, theories with no such time horizon tend to understand Smith's unproductive labour as referring to services, and productive labour as meaning vendible goods. Smith’s distinction between productive and unproductive labour corresponds to Sraffa’s distinction of basic and non-basic goods, as basic goods re-enter the productive process, whereas non-basic goods are destined for consumption, with no value for reproduction.
As Edwin Cannan observes, Smith’s view of annual reproduction and as a consequence the distinction of productive and unproductive labour stems from his meeting, and the influence of, the French economists known as the Physiocrats. Before his visit to France in his Theory of Moral Sentiments Adam Smith sees the gluttony of the landlords as an "invisible hand" which helps the poor to partake in the landlords wealth. In The Wealth of Nations it is seen as the consumption of unproductive labour, limiting the growth of wealth. Smith's view that human labour – but not unproductive labour – is the source of wealth reflects the classical position that all commodities can be reduced to actual labour and produced inputs which in turn resolve into labour and former inputs.
Within an enterprise, for example, there were many tasks which had to be performed, such as cleaning, record keeping and bookkeeping, and repairs, which did not directly contribute to producing and increasing wealth in the sense of making a net addition to it – in other words, such tasks represented a net cost to the enterprise which had to be minimized.
There were also whole occupations such as domestic servants, soldiers, schoolteachers, etc. which, although necessary, did not seem "productive" in the sense of increasing the material wealth of a society.
Part of the population consumed wealth but did not create it. To maximize economic growth, therefore, "unproductive costs" which consumed part of the total national income rather than adding to it should be "minimized; productive labour had to be maximized''.
Many different economic and moral arguments were made to either justify or else criticise the incomes gained from different activities, on the ground that they were "productive" or "unproductive", "earned" or "unearned", "wealth-creating" or "wealth-consuming".

A quote from Adam Smith

Neoclassical economics

In neoclassical economics, the distinction between productive and unproductive labour was however rejected as being largely arbitrary and irrelevant. All the factors of production create wealth and add value; they are all "productive".
If the value of a good is just what somebody is prepared to pay for it, then regarding some activities as value-creating and others not is a purely subjective matter; any activity which produces anything, or generates an income, could be considered production and productive, and the only question that remains is how productive it is.
This could be measured by striking a ratio between the monetary value of output produced, and the number of hours worked to produce it. This is called a "output/labour ratio". The ratio "GDP per capita" is also used by some as an indicator of how productive a population is.
However, in calculating any output value, some concept of value is nevertheless required, because we cannot relate, group and aggregate prices at all without using a valuation principle. All accounting assumes a value theory, in this sense - we always need to distinguish conceptually the definition of value equivalence, comparable value, value transfer, loss of value, conservation of value and newly created value. For this purpose, a knowledge of prices is ultimately not sufficient, since the decision to group and categorize prices in a certain way involves criteria and valuations which themselves cannot be derived from prices.
A persisting management preoccupation, particularly in large corporations, also concerns the question of which activities of a business are value adding. The reason is simply that value-adding activities boost gross income and profit margins.
If the aim is to realise maximum shareholder value, two important valuation problems occur. Firstly, productive assets being used in production have no actual market price, being withdrawn from the market and not offered for sale. They have at best an historic cost, but this cost does not apply to inventories of new output produced. The current value of productive assets can therefore be estimated only according to a probable price that they would have, if they were sold, or if they were replaced. Secondly, there is the problem of what exactly the increases or decreases in the value of productive assets being held can be attributed to.
In what has become popularly known as "value-based management", these problems are pragmatically tackled with the accounting concepts of market-value added and economic value-added. This style of management focuses very closely on how assets and activities contribute to maximum profit income.

National accounts

In national accounts and social accounting theory the concepts of productive and unproductive labour do survive to some extent.
A large amount of work done in society is not captured in national accounts, because it is unpaid voluntary labour or unpaid household labour. The monetary value of this work can be estimated only from time use surveys. Thus, national accounting definitions of "production" are strongly biased towards activities which yield a money-income.

Marx's critique

Karl Marx regarded land and labour as the source of all wealth, and distinguished between material wealth and human wealth. Human wealth was a wealth in social relations, and the expansion of market trade created ever more of those. However, wealth and economic value were not the same thing in his view; value was a purely social category, a social attribution.
Both in Das Kapital and in Theories of Surplus-Value, Marx devoted a considerable amount of attention to the concept of "productive and unproductive labour". He sought to establish what economic and commercial ideas about productive labour would mean for the lives of the working class, and he wanted to criticise apologetic ideas about the "productive" nature of particular activities. This was part of an argument about the source of surplus value in unpaid surplus labour. His view can be summarised in the following 10 points.
Marx accordingly made, explicitly or implicitly 10 distinctions relevant to defining productive labour in a capitalist mode of production:
In most cases, using these distinctions, it would be obvious whether the labour was capitalistically productive or not, but in a minority of cases it would be not altogether clear or controversial. In part, that is because the division of labour is not static but constantly evolving. The general criterion which Marx suggests is that:
"If we have a function which, although in and for itself unproductive, is nevertheless a necessary moment of reproduction, then when this is transformed, through a division of labour, from the secondary activity of many into the exclusive activity of a few, into their special business, this does not change the character of the function itself".
Obviously, functions falling outside capitalist production altogether would not be capitalistically productive.
Generally, Marx seems to have regarded labour as mainly unproductive from the point of view of capitalist society as a whole, if it involved functions which have to do purely with:
Such activities were an inevitable cost to capitalist society which had to be met from reserves and from current income. This didn't necessarily mean that unproductive functions are not socially useful or economically useful in some sense; they might well be, but they normally did not directly add net new value to the total social product, that was the point, they were a financial cost to society, paid for by a transfer of value created by the productive sector. Thus, they represented an appropriation or deduction from the surplus product, and not a net addition to it. Obviously, unproductive activities could stimulate productive activities however. Many unproductive costs are accepted by business, either because they involve activities which lower total business costs, and thereby indirectly contribute to income, or because they are unavoidable in doing business.
In the division of labour of modern advanced societies, unproductive functions in this Marxian sense occupy a very large part of the labour force; the wealthier a society is, the more "unproductive" functions it can afford. In the USA for example, one can calculate from labour force data that facilitating exchange processes and processing financial claims alone is the main activity of more than 20 million workers. Legal staff, police, security personnel and military employees number almost 5 million workers.

Productive labour as misfortune

In the first volume of Das Kapital, Marx suggests that productive labour may be a misfortune:
The idea here seems to be that being capitalistically "productive" effectively means "being exploited," or, at least, being employed to do work under the authority of someone else. Marx never finalised his concept of capitalistically productive labour, but clearly it involved both a technical relation and a social relation.

Ecological critique

The ecological critique focuses on mindless "production for production's sake", attacking both the neoclassical notion and the Marxist concept of "productiveness". It is argued neoclassical economics can understand the value of anything only if it has a price, real or imputed. However, physical and human resources may have a value which cannot be expressed in price terms, and to turn them into an object of trade via some legal specification of property rights may be harmful to human life on earth. Activities may have non-priced costs and benefits which never feature on the balance sheet, at most in propaganda and advertising.
The Marxian view is also dismissed by ecologists, because it argues only human labour-time is the substance and source of economic value in capitalist society. Again, it is argued a very restricted idea of economic value is being operated with by Marxists. In part, this misses Marx's own point, namely that it was not him, but the growth of commercial trade which made labour-exploitation the fulcrum of wealth creation. Nevertheless, the ecological argument is that for the sake of a healthy future and a sustainable biosphere, a new valuation scheme for people and resources needs to be adopted.
The core of this critique is clearly an ethical one: all the existing economic theories provide no healthy norms that would ensure correct stewardship for the environment in which all people have to live. Markets provide no moral norms of their own apart from the law of contract. To develop a better concept of "productiveness" would require a new morality, a new view of human beings and the environment in which they live, so that harmful economic activity can be outlawed, and healthy alternatives promoted.
Ecologists typically distinguish between "good" and "bad" market trade and production. Some believe capitalism can "go green", and that capitalism is "cleaner" than Soviet-type socialism. Others think that capitalism cannot "go green" because of the nature of the beast; so long as human accounting is done in terms of private costs and private profits, many "external effects" will be disregarded, and at most legal restrictions and taxation can limit the environmental damage somewhat.

Material product accounts in Soviet-type societies

In the Soviet Union and later other socialist countries in Eastern Europe, China and Cuba, a system of social accounts was created based around the notion of the "material product". This was an alternative to GDP based accounts. Behind the MPS was a modernization theory according to which the criterion of progress consisted of the physical quantity of material goods being produced.
This system was, paradoxically, strongly influenced by Marx's critique of wealth creation in capitalist society, and his distinction between capitalistically productive and unproductive labour. The "material product" represented, in price terms, the net new value created annually by the production of tangible material goods. Many service industries were excluded from the material product; a rigorous statistical attempt was made to separate out a productive sector and an unproductive sector. Enterprise managers could be punished by law if they failed to provide accurate information.
Dissident socialists objected to this approach, because they felt that in a socialist society, "productive" labour should really be defined by such things as:
Since the end of communist rule in the USSR and Eastern Europe, however, the material product system has been abandoned, and new GDP-based accounts have been implemented following international standards recommended by the International Monetary Fund, the World Bank, and the United Nations System of National Accounts. The advantage of this change is that economic activity is more comprehensively valued and visible in monetary terms; a possible disadvantage is that no national accounting is done anymore of physical product units.