Cooking the Books 1 – Human capital
Announcing plans to cut nearly 8,000 jobs by using AI instead, Bill Winters, the CEO of Standard Bank, told reporters:
‘It’s not cost-cutting. It’s replacing in some cases lower-value human capital with the financial capital and the investment capital we’re putting in’.
He seemed to have forgotten that he was not addressing a board meeting but the general public. The resulting outrage at him calling his employees ‘lower-value human capital’ forced him to apologise. But he was actually accurately describing a fact.
What a capitalist firm has to set aside to pay its workers is part of its capital. You could call it ‘human’ capital as opposed to the capital invested in plant, equipment, machines, materials and power. Or, expressed another way, it is the difference between ‘living’ labour and ‘dead’ labour, useful as it brings out that the other factors that capital is invested in have been produced by people working.
The terms Marx used to make this distinction were ‘variable’ capital and ‘constant’ capital, as set out in chapter 8 of Volume I of Capital:
‘The means of production on the one hand, labour-power on the other, are merely the different modes of existence which the value of the original capital assumed when from being money it was transformed into the various factors of the labour-process. That part of capital then, which is represented by the means of production, by the raw material, auxiliary material and the instruments of labour does not, in the process of production, undergo any quantitative alteration of value. I therefore call it the constant part of capital, or, more shortly, constant capital. On the other hand, that part of capital, represented by labour-power, does, in the process of production, undergo an alteration of value. It both reproduces the equivalent of its own value, and also produces an excess, a surplus-value, which may itself vary, may be more or less according to circumstances. This part of capital is continually being transformed from a constant into a variable magnitude. I therefore call it the variable part of capital, or, shortly, variable capital’.
So the money invested in buying the ability to work of employees is indeed a part of capital. Economically speaking, that’s what workers are and that’s what they are treated as.
Winters claimed that it wasn’t about cost-cutting. Of course it was. What would be the point of investing in AI if it wasn’t cheaper than having the work done by humans? What he was probably trying to say was that the board had decided to use a larger proportion of its capital as non-human capital than as human capital and that some of the latter was of ‘lower value’ to his business because it was costing more and so reducing profits.
He would be really ignorant if he thought that human capital in general was of ‘lower value’ to a capitalist business than non-human capital. The source of profits is precisely the extra value over and above its own value that living labour produces, the amount by which such capital ‘varies’ compared to its original value. But perhaps he was misled because he is running a bank and banks don’t actually produce anything but siphon off a part of the surplus value produced in industry.
The indignation of workers at being called ‘human capital’ brings out a key difference between the two types of capital. Humans can think and act and so can get together to end their economic status as a part of a capitalist business’s capital — by ending the whole economic system where production is in the hands of money-investing, profit-seeking businesses.