The Bernie Sanders class-war story on capitalism is wrong

This is a golden age for “Theyism.” This is the belief that there is some malevolent, elite “they” out there and “they” are destroying life for the rest of us.

There is Donald Trump’s culture-war Theyism: The coastal cultural elites hate genuine Americans, undermining our values and opening our borders. And there is Bernie Sanders’ class-war Theyism: The billionaires have rigged the economy to benefit themselves and impoverish everyone else.

Each of these stories takes a genuine tension in society and blows it up into an all-explaining cartoon in which one part of America is trying to destroy the other part.

The Republican Party has been swallowed by Trump’s culture war, and many Democrats seem to be rushing to join Sanders’ class war.

These Democrats are doing this even though it is political suicide. Class-war progressivism always loses to culture-war conservatism because swing voters in the Midwest care more about their values — guns, patriotism, ending abortion, masculinity, whatever — than they do about proletarian class consciousness.

Democrats are doing this even though the Sanders class-war story is wrong.

Sanders starts with a truth: Workers need more bargaining power as they negotiate wages with their employers. But then he blows this up into an all-explaining ideology: Capitalism is a system of exploitation in which capitalist power completely dominates worker power. This ideology crashes against the facts.

In the first place, over the past few years wages for workers toward the bottom of the income stream have been rising faster than wages for those toward the top. If the bosses have the workers by the throat, how can this be happening?

Second, wages are still generally determined by skills and productivity. For example, Edward Lazear of Stanford University finds that between 1989 and 2017, productivity in mostly high-skill industries rose by roughly 34% and wages in those industries rose by 26%. Productivity in industries with mostly less-skilled workers rose by 20% while wages grew by 24%.

As Michael Strain of the American Enterprise Institute puts it, capitalism is doing what it’s supposed to do. It is rewarding productivity with pay, and some people and companies are more productive. If you improve worker bargaining power, that may help a bit, but over the long run people can’t earn what they don’t produce.

Third, and most important, most of the increase in earnings inequality has happened between companies, not within them. As John Van Reenen of MIT has found, all over the world superstar businesses are racing ahead of their competitors. As those companies grow more productive, they earn more profit per employee and pay their workers more. Companies that can’t match that productivity don’t, and their workers lag behind.

A recent Brookings Institution/Chumir Foundation report also notes that there is a growing productivity gap between superstar companies and everybody else. Whether it is in tech, retail, manufacturing, utilities or services, productivity growth at the leading companies in each industry has remained very strong. Those productive businesses are capturing larger and larger market shares. But productivity is not growing fast among the lagging companies. Workers in those businesses suffer.

Today’s successful bosses are doing what they should be doing: increasing productivity, growing their businesses and offering great service. A side effect of their efficiency is they spend a smaller share of their revenue on labor even while raising their workers’ wages. In a global information-age economy, the rewards for being best are huge.

Thus, the core problem is not capitalists exploiting their workers; it’s the rise of productivity inequality.