Globalization and the End of the Labor Aristocracy, Part 4

This is the concluding part of a four-part article by Jayati Ghosh, published in the March/April 2017 special “Costs of Empire” issue of Dollars & Sense magazine. Parts 1, 2, and 3 are available here, here, and here respectively. In this section, Prof. Ghosh focuses on the erosion of labor incomes in the high-income countries and the implications for politics there.

Jayati Ghosh

End of the Labor Aristocracy … What Comes Next?

A recent report from the McKinsey Global Institute, “Poorer than Their Parents? Flat or falling incomes in advanced economies” (July 2016) shows how the past decade has brought significantly worse economic outcomes for many people in the developed world.

Falling Incomes

In 25 advanced economies, 65-70% of households (540-580 million people) “were in segments of the income distribution whose real incomes were flat or had fallen” between 2005 and 2014. By contrast, between 1993 and 2005, “less than 2 percent, or fewer than ten million people, experienced this phenomenon.”

In Italy, a whopping 97% of the population had stagnant or declining market incomes between 2005 and 2014. The equivalent figures were 81% for the United States and 70% for the United Kingdom.

The worst affected were “young people with low educational attainment and women, single mothers in particular.” Today’s younger generation in the advanced countries is “literally at risk of ending up poorer than their parents,” and in any case already faces much more insecure working conditions.

Shifting Income Shares

The McKinsey report noted that “from 1970 to 2014, with the exception of a spike during the 1973–74 oil crisis, the average wage share fell by 5 percentage points in the six countries studied in depth” (United States, United Kingdom, France, Italy, the Netherlands and Sweden); in the “most extreme case, the United Kingdom, by 13 percentage points.”

These declines occurred “despite rising productivity, suggesting a disconnect between productivity and incomes.” Productivity gains were either grabbed by employers or passed on in the form of lower prices to maintain competitiveness.

Declining wage shares are widely seen as results of globalization and technological changes, but state policies and institutional relations in the labor market matter. According to the McKinsey report. “Swedish labor policies such as contracts that protect both wage rates and hours worked” resulted in ordinary workers receiving a larger share of income.

Countries that have encouraged the growth of part-time and temporary contracts experienced bigger declines in wage shares. According to European Union data, more than 40% of EU workers between 15 and 25 years have insecure and low-paying contracts. The proportion is more than half for the 18 countries in the Eurozone, 58% in France, and 65% in Spain.

The other side of the coin is the rising profit shares in many of these rich countries. In the United States, for example, “after-tax profits of U.S. firms measured as a share of the national income even exceeded the 10.1 percent level last reached in 1929.”

Policy Matters

Government tax and transfer policies can change the final disposable income of households. Across the 25 countries studied in the McKinsey report, only 20-25% of the population experienced flat or falling disposable incomes. In the United States, government taxes and transfers turned a “decline in market incomes for 81 percent of all income segments … into an increase in disposable income for nearly all households.”

Government policies to intervene in labor markets also make a difference. In Sweden, the government “intervened to preserve jobs, market incomes fell or were flat for only 20 percent, while disposable income advanced for almost everyone.”

In most of the countries examined in the study, government policies were not sufficient to prevent stagnant or declining incomes for a significant proportion of the population.

Effects on Attitudes

The deteriorating material reality is reflected in popular perceptions. A 2015 survey of British, French, and U.S. citizens confirmed this, as approximately 40% “felt that their economic positions had deteriorated.”

The people who felt worse-off, and those who did not expect the situation to improve for the next generation, “expressed negative opinions about trade and immigration.”

More than half of this group agreed with the statement, “The influx of foreign goods and services is leading to domestic job losses.” They were twice as likely as other respondents to agree with the statement, “Legal immigrants are ruining the culture and cohesiveness in our society.”

The survey also found that “those who were not advancing and not hopeful about the future” were, in France, more likely to support political parties such as the far-right Front National and, in Britain, to support Brexit.

Effects on Politics

Decades of neoliberal economic policies have hollowed out communities in depressed areas and eliminated any attractive employment opportunities for youth. Ironically, in the United States this favored the political rise of Donald Trump, who is himself emblematic of the plutocracy.

Similar tendencies are also clearly evident in Europe. Rising anti-EU sentiment has been wrongly attributed only to policies allowing in more migrants. The hostile response to immigration is part of a broader dissatisfaction related to the design and operation of the EU. For years now, it has been clear that the EU has failed as an economic project. This stems from the very design of the economic integration—flawed, for example, in the enforcement of monetary integration without banking union or a fiscal federation that would have helped deal with imbalances between EU countries—as well as from the particular neoliberal economic policies that it has forced its members to pursue.

This has been especially evident in the adoption of austerity policies across the member countries, remarkably even among those that do not have large current-account or fiscal deficits. As a result, growth in the EU has been sclerotic at best since 2004, and even the so-called “recovery” after 2012 has been barely noticeable. Even this lacklustre performance has been highly differentiated, with Germany emerging as the clear winner from the formation of the Eurozone. Even large economies like France, Italy, and Spain experienced deteriorating per capita incomes relative to Germany from 2009 onwards. This, combined with fears of German domination, probably added to the resentment of the EU that is now being expressed in both right-wing and left-wing movements across Europe.

The union’s misguided emphasis on neoliberal policies and fiscal austerity packages has also contributed to the persistence of high rates of unemployment, which are higher than they were more than a decade ago. The “new normal” therefore shows little improvement from the period just after the Great Recession—the capitalist world economy may no longer be teetering on the edge of a cliff, but that is because it has instead sunk into a mire.

It is sad but not entirely surprising that the globalization of the workforce has not created a greater sense of international solidarity, but rather undermined it. Quite obviously, progressive solutions cannot be found within the existing dominant economic paradigm. But reversions to past ideals of socialism may not be all that effective either. Rather, this new situation requires new and more relevant economic models of socialism to be developed, if they are to capture the popular imagination.

Such models must transcend the traditional socialist paradigm’s emphasis on centralized government control over an undifferentiated mass of workers. They must incorporate more explicit emphasis on the rights and concerns of women, ethnic minorities, tribal communities, and other marginalised groups, as well as recognition of ecological constraints and the social necessity to respect nature. The fundamental premises of the socialist project, however, remain as valid as ever: The unequal, exploitative and oppressive nature of capitalism; the capacity of human beings to change society and thereby alter their own futures; and the necessity of collective organisation to do so.

NOTE: Parts of this article appeared in “The Creation of the New Imperialism: The Institutional Architecture,” Monthly Review, July 2015.

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