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Mind the Gap

A recent ILO publications looks at wage trends globally.

It is important to note several things about the ongoing crisis of capitalism we are experiencing. Firstly, that a crisis is a normal part of the ordinary functioning of capitalism. It isn’t down to accident, or policy failures, but is almost a necessary part of the trial and error method of investment. The goldfish-like memory of politicians forgets that for every period of growth, there is a slow-down and a crisis to which we all have to react in panic. They proclaim a new age of prosperity with every year of economic growth and try to take the credit for it, and then blame someone else whenever crisis resumes.

Secondly, crises are not natural phenomena, but are a form of class struggle, as the owners of property try and protect themselves from losing their investments, and re-impose scarcity on the markets where they have over-invested (thus destroying their profitability). The inevitable result of any crisis is a rise of unemployment, and an attack on the wages and living standards of the working class as an attempt to restore profitability for the owners. Here Marx’s observations are pertinent. Average socially-necessary labour-time determines the exchange value of the produce of capital thus the profits of that capital depend on the difference between the exchange value of the workers’ skills and the amount of labour time they add to the product. There is a direct correlation between lowering wages and improved profitability of capital (in general).

Thirdly, aside from the specific crisis for the capitalists that we hear about at the top of the news headlines, there is the ongoing crisis of the workers, of the millions trapped in a life-time of poverty and servitude. Millions more will spend a life on low wages that will never substantially rise. They have to struggle daily for food and a place to live, with no security, let alone dignity.

Double dip in wages

Some of these themes are made clear by the Global Wage Report 20121/13 report from the International Labour Organization (ILO) (www.ilo.org/global/research/global-reports/global-wage-report/2012/lang--en/index.htm):

‘In developed economies, the crisis led to a ‘double dip’ in wages: real average wages fell in 2008 and again in 2011, and the current outlook suggests that in many of these countries wages are growing marginally, if at all, in 2012’  (p.5).

Of course, such trends are never even, and even within the ‘developed economies’ some people will have seen their wages rise at a rate faster than the trend. This is even truer on a worldwide scale:

‘Real average wage growth has remained far below pre-crisis levels globally, going into the red in developed economies, although it has remained significant in emerging economies. Monthly average wages adjusted for inflation – known as real average wages – grew globally by 1.2 percent in 2011, down from 2.1 percent in 2010 and 3 percent in 2007. Because of its size and strong economic performance, China weighs heavily in this global calculation. Omitting China, global real average wages grew at only 0.2 percent in 2011, down from 1.3 percent in 2010 and 2.3 percent in 2007’ (p. 13).

Longer term trends

Interestingly, one of the areas of wage growth, Latin America, has been where the massive protests of Brazil have recently been witnessed, with the workers demanding a share in the proceeds of growth. Indeed, Latin America is undergoing a period of social democratic governments building welfare states, and perhaps it is unlikely that this doesn’t correlate with the overall economic growth.

Of course, wages do grow, over time, but not necessarily in a continuous and linear fashion, as the report notes:

‘Taking a longer view, the report estimates that real monthly average wages almost doubled in Asia between 2000 and 2011, and increased by 18 percent in Africa, 15 percent in Latin America and the Caribbean, and 5 percent in developed economies. In Eastern Europe and Central Asia wages nearly tripled, but from a very low base following the economic collapse of the 1990s’ (p. 5).

That period, though, is the period of growth between crises, but it remains somewhat heartening that conditions for workers are improving in some of the most destitute parts of the world.

Declining share

According to figures collated by the House of Commons library, ‘average hourly wages have fallen 5.5 percent since mid-2010, adjusted for inflation’ (www.bbc.co.uk/news/business-23655605) in the UK, which compares with a 0.7 percent across the European Union as a whole. In Germany, by way of contrast, wages rose by 2.7 percent.

The problem is that even a growing real wage might not match the increases in wealth produced by labour:

‘Between 1999 and 2011 average labour productivity in developed economies increased more than twice as much as average wages […] In the United States, real hourly labour productivity in the non-farm business sector increased by about 85 percent since 1980, while real hourly compensation increased by only around 35 percent. In Germany, labour productivity surged by almost a quarter over the past two decades while real monthly wages remained flat’ (p. 14).

This is the rawest form of class struggle, and the hardest part to grasp, since it is somewhat like the end of the old British TV quiz show Bullseye, with Jim Bowen saying ‘let’s take a look at what you could have won’. The wealth created by increased growth has increased faster than the real take-home pay of the workers, but the workers have never had the wealth they’ve lost, and although it affects their lives in so many ways, they don’t feel the loss as directly as they would, say, an increase in taxes. Likewise, some of that erosion will have been through inflation, so the difference between nominal wages and real wages becomes complex to calculate at a personal level.

Setting worker against worker

An illustration of the centrality of this process is the furore over pensions. It’s true that the ‘dependency ratio’ (the number of pensioners compared to those in work) is due to rise from about 350 per thousand to about 450 by 2050. So our political masters tell us that we must all accept smaller pensions (that is, lower deferred wages), yet the rate of increase in the dependency ratio is less than the trend rate in the growth of productivity, fewer workers will be needed to do the same amount of work. The question is, therefore, who benefits from that growth?

As the ILO notes:

‘In terms of functional income distribution, which concerns how national income has been distributed between labour and capital, there is a long run trend towards a falling share of wages and a rising share of profits in many countries. The personal distribution of wages has also become more unequal, with a growing gap between the top 10 percent and the bottom 10 percent of wage earners. These internal imbalances’ have tended to create or exacerbate external imbalances, even before the Great Recession, with countries trying to compensate the adverse effects of lower wage shares on consumption demands through easy credit or export surpluses.’ (p. 15).

Such variation harms the capacity to unite the working class, as the few on high wages struggle to defend their relative advantage, and the owners try to stir up tension between countries as part of their currency and export competition.

The report notes the underlying cause of the declining labour share:

‘The drop in the labour share is due to technological progress, trade globalization, the expansion of financial markets, and decreasing union density, which have eroded the bargaining power of labour. Financial globalization, in particular, may have played a bigger role than previously thought’ (p. 14).

Globalization and expansion of financial markets are another way of saying that more people have been drawn into the global labour market (in part thanks to and also causing the wage growth in developing countries). The ILO, obviously, only recommends reforms to capitalism, calling for a rebalancing of investment, ignoring the pure class war being waged by the capitalists themselves. The long term balance is on the side of the owning class, and even when their crisis ends, ours will continue, until we organise to abolish its cause: the wages system itself.