The global footloose proletariat and the financial crisis: reflections on the contradictions of export-oriented industrialisation in India

(by Alessandra Mezzadri)

Over three decades of neoliberal policies had a severe effect on labour, in developed and developing regions alike. In developed regions, neoliberalism managed to crash the resistance of organised labour, significantly curtailing its institutionalised power and splintering the ‘industrial citizenship’ that characterised the Keynesian era. As increasing shares of manufacturing production migrated towards developing regions, where the new development paradigm increasingly turned towards export-oriented strategies, armies of sweated labour were recruited to be deployed in the context of transnationalised production regimes.

The logics of export-oriented industrialisation have been ferocious with labour in the so-called Global South. Simply reconceptualised as ‘comparative advantage’, here labour has been exposed to harsh patterns of commodification. As illustrated in many empirical studies focusing on global production networks, the exploitation of various informal institutions and deeply-rooted structural differences, such as gender, caste, ethnicity, mobility or geographical provenience has fuelled a ‘race to the bottom’ functional to the reproduction of labour as a flexible, disposable and ‘cheap’ commodity.

Martinez-Novo (2004) stresses the relevance of gender and ethnicity in segmenting labour engaging in export agricultural production in Mexico. Ngai (2005) highlights the relevance of gender and mobility in shaping the identity of Chinese working classes engaging in export manufacturing, and my own work on the Indian export-oriented garment industry has mapped the distinct use of multiple ‘traditional’ structures of power to reproduce and tighten control over the Indian workforce (see Mezzadri, 2008).

This process of informalisation of labour has generated a vast footloose proletariat, who lives in a ‘Global Factory’ (Chang, 2009), but whose modes of existence are increasingly complex and varied (Bernstein, 2007). By 2006, according to Mike Davies (quoted in Bernstein, 2007: 5), this proletariat was ‘one billion strong and growing, making it the fastest growing and most unprecedented social class on earth’.

After bearing the brunt of the neoliberal capitalist logic for so long, it is somehow paradoxical that labour must now also bear the brunt of the current crisis of this logic. However, that is clearly the case. On the one hand, a point that is widely discussed, in many countries in Europe and in the US the costs of the crisis of the financial elites have been socialised by the state, while working classes were loosing their homes in a context of growing unemployment and insecurity. On the other hand, a point that is less widely discussed, the southern footloose proletariat might pay an even higher price because of the crisis of the system that subjugated it so harshly. The crisis, in fact, is slowly revealing all the contradictions and the limitations of overtly ‘outward-looking’ development strategies.

In some ways, one could argue that the working poor in many developing regions are going through a crisis which is effectively centuries old. It is a perennial crisis of reproduction, strenuously fought through highly diversified livelihood and survival strategies. However, imposing export-orientation as the deus ex machina for successful development, and boosting the process of informalisation of labour, neoliberalism has effectively created new vulnerabilities and patterns of dependency for the working poor.

The present crisis of this system is now exposing these vulnerabilities in compelling ways. This is the case even in China and India; the two countries which, according to many observers, have benefited the most from export orientation, exploiting their huge reservoirs of cheap labour. In China, it is reported that floods of migrants (in the range of tens of million) have started their exodus to return to the rural hinterland, abandoning the buzzing urban industrial areas of the workshop of the world. The hukou (household registration) system, establishing a two-tiers citizenship system, welcomes Chinese rural migrant proletariat in the city only when it is employed.

By the same token, the Indian labour employed in export-industries in many urban industrial areas seems to be making its way back to the poor states of the Hindi belt, such as Bihar and Uttar Pradesh, where its largest share comes from. The exodus of the ‘disposable workers’ has started, and it is hard to predict its impact in different developing regions, and - within each region - its implications for either the urban or the rural economy.

Focusing specifically on India, the exodus of migrant workers employed by export companies looks already accompanied by other trends, negatively affecting labour. Workers facing retrenchment but deciding to stay in the city, for instance, will increase the vast pool of slum-dwellers that Indian metropolis adjust, need, hide and exploit in the urban informal or shadow economy. Decreasing opportunities in the export-based factory realm of production might lead to increasing shares of subcontracting to informal units, further fragmenting domestic supply chains which are already very complex and layered. Rough estimates indicate that by the time the crisis hit, if direct employment in export units could be set at around 6.5 million workers, there were already some 15 million workers indirectly incorporated into export production (Kumar et al, 2009).

According to Jayati Ghosh, the crisis would lead to an increase in the use of home-based workers in various light manufacturing activities, ranging from textile, garments, electronics, gems and jewellery. This is likely to have a very uneven gender impact, as generally Indian home-based labour tends to be primarily female. Prior to the crisis, estimates indicated that over half of the 15 million female informal workers in India were involved in home-based work for different types of industry (see Ghosh’s contribution in Kumar et al, 2009). Now, this estimate may skyrocket even further, signalling a deepening of gender segregation in labour markets.

Therefore, in India, not only is the crisis likely to further boost the pace of the process of informalisation, but it also seems to be significantly reshaping and recrafting its patterns. At the moment, evidence suggests a movement away from the factory realm of production, and towards, instead, an increasing use of petty commodity production and household labour. Petty commodity production is often used as a cushion against different types of economic shocks. Organised in small clusters in many parts of the subcontinent, the particular resilience of this type of production can be partially attributed to its ability to shape what have been defined by some as social and economic ‘networks of survival’.

In the context of the present crisis, a partial substitution of casual and precarious factory labour with informal petty production would effectively entail a substitution of wage-labour with disguised forms of wage-labour, determining a further fragmentation of Indian working classes, a further splintering of the informal proletariat according to multiple lines of socio-economic differentiation, and a further move away from potential attempts to organise this proletariat in meaningful ways. As, once more, the crisis of capital turns into a crisis of labour, and the ‘race to the bottom’ continues, here the bottom seems to be worryingly moving further and further down, crafting new aggressive interplays between informality and poverty.

References:

Bernstein H. (2007) ‘Capital and labour from centre to margins’ Keynote address for conference on Living on the Margins-Vulnerability, Exclusion and the State in the Informal Economy, Cape Town, 26-28 March 2007, available online at http://www.povertyfrontiers.org/ev_en.php?ID=1953_201&ID2=DO_TOPIC accessed on December 10 2009

Chang D. (2009) ‘Informalising labour in Asia’s Global Factory’, in Journal of Contemporary Asia 39(2): 161-179

Kumar R. Debroy B., Ghosh J., Mahajan V., Prabhu K. S. (2009) Global Financial Crisis: Impact on India’s Poor-Some Initial Perspectives, UNDP: India, available online at http://data.undp.org.in/FinancialCrisis/FinalFCP.pdf accessed on December 11 2009

Martinez-Novo C. (2004) ‘The Making of Vulnerabilities: Indigenous Day Labourers in Mexico’s Neoliberal Agriculture’, in Global Studies in Culture and Power, 11: 215-239

Mezzadri A. (2008) ‘The rise of neoliberal globalisation and the ‘new old’ social regulation of labour: the case of Delhi garment sector’, in the Indian Journal of labour economics, 51(4): 603-618

Ngai P. (2005) Made in China: Women Factory Workers in a Global Workplace, Durham: Duke University Press

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Alessandra Mezzadri is lecturer in Development Studies at SOAS, London, where she teaches in the MSc Development Studies and in the MSc Globalisation and Development. Her research work focuses on neoliberalism, global industrial restructuring, and their impact on labour in developing regions. Her area of expertise is India.

Unions and the Crisis: Ways Ahead?

(by Gregory Albo)

The political and economic setting facing the union movement today is, perhaps, the most difficult since the Great Depression. Unions had already confronted two decades of unrelenting assault from neoliberal policies of labour market flexibility, austerity and political conservatism. Then, the global financial crisis ripped across the entire world market.

The tally of financial losses is quite staggering. The US government alone has already committed $9 trillion to its financial sector in various forms to maintain solvency. The sheer magnitude of the debt means that depressed economic conditions are likely to be long-lasting, and the distributional struggles very intense over how the bad debt – ‘toxic assets’ is the euphemism of the day to disguise the massive market failure and incompetency of the financial sector – is destroyed, socialized or inflated away.
The financial chaos is causing untold damage to workers. The ILO has suggested that global job losses could reach as high as 51 million for 2009.

Capitalist Strategies
Competitive imperatives will compel capitalist firms (as well as state employers) to restructure workplaces and challenge union contracts. This will build on what is now a three decades old ‘employers’ offensive’.

The offensive emerged in the late 1970s as capitalists attempted to restore company profitability and control over the labour process after considerable erosion over the postwar boom. The rate of profit had fallen by about half over the postwar decades across virtually all zones of the world market. The decline in profit rates coincided with a push by unions and workers to gain an increasing share of output, to expand public services and to address inequalities facing women and racial minorities. These efforts were backed by the largest and longest strike wave in the history of the advanced capitalist countries from the mid-1960s to across the 1970s.

The capitalist classes responded with a number of strategies to the union militancy and declining profits. At the level of the state, neoliberal policies from the 1980s on deregulated markets imposed fiscal austerity, cut welfare, liberalized trade and capital flows and so on. In terms of workplaces, this meant increased ‘flexibility’ in terms of job controls, wages and employment.

Firms have re-organized their labour processes into international production networks and shifted work into low-wage, weak-union production zones. Information and communications technologies have facilitated the introduction of ‘lean production’ intensifying work processes. Employers have broken with ‘standard’ work arrangements and increasingly resort to contingent work arrangements, cheap migrant labour pools and temporary work programmes. In collective bargaining, unions increasingly trade-off wage restraint and workplace concessions against job security, agree to co-management schemes for firm competitiveness, and even enter into ‘voluntary recognition agreements’ to gain members while giving up the right to strike and other job controls. The employers’ offensive has made ‘competitive unionism’ the dominant practice, in both the public and private sectors, in North America.

In terms of wages the focus was on curbing real wage gains for workers and breaking a linkage between productivity gains and annual wage improvements. More of output increases would thus go toward profits.

The economic crisis has made employers even more militant in their demands for wage austerity and concessions. One strategy has been cuts to negotiated health benefits (insurance plans in the US) for current employees and retirees, as well as other benefits. Another emerging strategy is to redefine – or even walk away from – pension obligations, as has occurred in the steel and auto sectors and in numerous non-unionized companies. Work intensification is also occurring as workers are being pushed to give up time-off, holidays, work breaks, and so forth.

New Political Openings?

Marx argued in Capital that each phase of accumulation contained the seeds of its own destruction. The internal contradictions of neoliberalism are now readily apparent: fictitious capital and debt massively growing relative to the growth of productive capacity and the deterioration of public services; wage compression leading to increasingly indebted working classes and unstable conditions for effective demand; the undermining of extra-market regulatory capacities to constrain capitalist competition, speculative bubbles and fraud as an endemic feature of financialization; and huge international payments imbalances reinforcing dependence on the world market while spreading its potential instabilities.

Neoliberal and free market ideology is now totally discredited. But capitalist strategies and government policies are attempting to reconstruct neoliberalism as the basis for again restoring capitalist profitability. This is the political challenge the union movement now faces.

Existing union strategies are neither confrontational enough to challenge capitalist workplace strategies after years of concessions. Nor are they politically ambitious enough to form the necessary anti-capitalist strategies to form the political agendas and organizational capacities to forge an alternate approach to the crisis.

There are, however, several hopeful signs of union renewal that could begin to chart a new direction. In North America, some of this has come from ‘living wage’ struggles led by local labour councils in major cities, in alliance with community groups, to reach out to the low-waged and unorganized, who are predominantly women and people of colour. The mass immigrants’ rights May Day protests, as well as the day-to-day campaigns for the protection of non-status workers, have taken place outside the main union movements, but also led to new linkages and alliances. A number of campaigns – notably some of the anti-privatization struggles around healthcare, universities and municipal services – have had successes across several countries. These community-union alliances, often coupled with major campaigns and demonstrations, suggest enormous potential.

There also have been interesting examples of a new organizational internationalism amongst unions. The efforts to coordinate aspects of collective bargaining in the steel, auto and healthcare sectors, extending from North America to both Europe and Latin America, to confront work issues spread across international production networks, is one example. The campaign against the militantly anti-union Wal-Mart is also suggestive.

In the context of the economic crisis, it is necessary to form a set of demands that might converge across different struggles and sectors to embed an anti-market logic in bargaining that might offset the worst features of the slowdown. In terms of workplace struggles, a core set of campaigns might be: (1) the fight against concessions in wages and benefits; (2) in the preservation of negotiated pensions; (3) building in annual reductions in work-time within wage negotiations; (4) support for plant occupations and community seizure of assets, particularly in cases of bankruptcy and firms receiving state subsidies; and (5) and extension of all other forms of hours reduction in terms of parental leaves, annual holidays, over-time, and so on. A set of union demands directed at the economic crisis is also important: (6) the overhaul or unemployment insurance systems in terms of benefits, principles of eligibility and administration; (7) industrial strategies directed at ecologically responsible production; (8) massive extension of ‘green jobs’ in the culture, leisure, and sporting sectors; (9) nationalization of the banking sector; (10) building a national childcare system; (11) nationalization of the transportation sector and development of a national mass transit strategy; and (12) establishment of a national housing programme.

Ways Ahead

These types of demands, of course, have been percolating through the union and socialist movement for some time. They will depend on reversing the decline of the union movement and the wider impasse of the Left. Working class political organization has in the past achieved a great deal: leading de-colonisation struggles; campaigning for the expansion of freedoms and equality to women and racial and sexual minorities; improving wages and benefits; and agitating for the extension of universal welfare states.

The social forces that achieved these gains are now quite something else: the communist parties have all but disappeared even in places where they once held power (or they have made their peace with capitalism as in China); the social democratic parties now chart a ‘Third Way’ and no longer even pose a reform agenda to neoliberalism; unions are in retreat; and many civil society movements have evolved into professionalised NGOs navigating the grant economy. The central political coordinates for labour movements over the last century – being for or against the Russian revolution; attempting a vanguard seizure of the existing state apparatus or reforming it piecemeal; conceiving unions as primarily the industrial wing of this or that political party – no longer provide any kind of map for the struggles unions and workers now confront.

For a brief moment, it seemed as if a decentralized ‘network politics’ – a ‘movement of movements’ – would provide, if not a map for the future, a renewed political capacity for the Left. It was represented in the hopeful ‘Teamsters and Turtles’ slogan of the heady days of the anti-globalization movement. But apart from episodic demonstrations and annual social justice fairs, the networks have broken apart more often than they have provided new organizational nodes. There has been almost a complete lack of organizational grounding in the day-to-day struggles of working class communities, workplaces and unions.

This ‘anti-power’ politics is now being eclipsed by new political experiments beginning from – and not against – organizational commitments to unions and political parties. In Latin America, this has taken place under the banner of building 21st century socialism in a number of countries. A ‘new’ New Left appears to be emerging from the margins in Greece, Germany, France, Portugal and other places as well.

From their anchor in workplace struggles and in particular communities, a renewed union movement is a crucial component of such a new Left. Indeed, in representing the deep diversity of workers and their issues – in terms of gender, racial background, sexual diversity, and so forth – unions have been leading society in this area over the period of neoliberalism rather than following it. Moving on will require forming new political capacities and an organizational openness and creativity that the Left in North America has not shown for some time. That realization is always the point of a new beginning.

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Gregory Albo, is Associate Professor, Department of Political Science, York University, Toronto. He teaches courses on the foundations of political economy, Canadian political economy, alternatives to capitalism, and democratic administration.

Profits, banks, and the state: How to get investment going again

(by Engelbert Stockhammer)

The world is still experiencing the worst economic crisis since the 1930s. While the economic forecasts have brightened up recently, the overall picture is still gloomy. The collapse has been stopped, but the recovery is likely to be muted. This is for three reasons. First, US households, which have been the most dynamic source of demand in the past decade, are deeply in debt – and their houses, the biggest part of their wealth, are worth a lot less. Thus they are not likely to resume spending in the near future. Second, the banks are still in a lot of trouble. The big bank crash after Lehman Brothers has been avoided, but their balance sheets are still loaded with dubious assets and most make their money from trading, i.e. speculating, rather than from extending credit to businesses. It will be hard to get credit for a while. Thirdly, government expenditures that have prevented the meltdown are being rolled back. After the panic of late 2008, normalcy has returned to economic policy making. And in a neoliberal world it is considered normal that states have to balance their books, rather than help the economy or the poor. In short, while the worst is over, the bad is still to come. In particular, unemployment is still rising and will continue to do so.

So how could we get the economy going again? The key component of growth in a healthy economy is investment. Investment is an important source of demand, but it also provides the capital stock needed for future production. There are two types of investment: private and public. Private investment depends on business expectations about demand and profitability and on the availability of credit. Given the extent of the present crisis, it’s unsurprising that businesses are reluctant to invest. Academic research has clearly identified demand as the single most important determinant of investment. Indeed, who would invest if they think they can’t sell the output? The lesson for policymakers is clear: stabilise demand or the private sector won’t invest.

Obviously capitalism is about making money, so firms are unlikely to invest unless they expect to make a profit. However, the importance of profits for investment is often overstated. Indeed, one of the great puzzles of the past decades is why firms (at least outside China) have not invested more, given their abundant profits. Looking at the USA and the EU, in 1980 around two thirds of profits were reinvested, while in 2007 only half were reinvested. Why don’t firms invest when they are sitting on all this cash? The short answer is shareholder value orientation and globalisation. Firms now distribute a lot more money to their shareholders through dividend payments or through share buy-backs. Firms are run to the benefit of shareholders. Globalisation means that a lot of firms outsource production, reducing investment at home. This has mixed effects in the countries of the South and the East: it increases production there, but this is often in enclaves that are badly connected to the local economies and it often increases inequality.

The take-home from this is that the problem is not a lack of profits. Profits have been buoyant in the past without much investment taking place. Wage moderation will thus not help investment. Indeed, it will make matters worse. In particular, in countries with a large enough domestic market, such as Germany, wage moderation will depress domestic (consumption) demand further, creating an environment that is detrimental to investment. In a recent study (with Özlem Onaran and Stefan Ederer) we found that in Europe a redistribution of 1000 € from wages to profits will lead to about 100 € more of investment, but to 35 € less consumption. (Stockhammer et al 2009)

Access to credit is a more legitimate cause to worry about for businesses. Banks with problems on their balance sheets will be reluctant to lend. Monetary policy has so far helped to restore bank profitability, but has not been effective in ensuring that banks lend. Simply put, banks can earn a lot of money now, taking credit from the central banks and buying government bonds. There is no need to bother with old-fashioned business credit. Perversely, governments in many industrial countries now own substantial parts of the banks. But they are reluctant to interfere with their policy. Instead they have provided capital for the big banks in need and now watch how they are run in the interest of shareholders again.

All this may sound like there is little that governments can do to stimulate investment. But this is far from the truth. There is not only private, but also public investment. In the 1930s, public investment projects were used on a massive scale to revitalise the economy. However, today there is great reluctance to do so. Indeed, the IMF and the OECD are eager to push governments to turn to a more restrictive policy. Now with the shock of the imminent collapse over, business is returning to normal – and this means a small state. As if nothing had happened in the past two years! Much of this approach is a legacy of the neoliberal domination that has preached the superiority of private investment over public activity. But the near-meltdown of the financial sector in the 2008 should have made it clear that the private capitalist sector does not possess the miraculous properties of efficiency. Sure, governments often fall prey to corruption and may serve petty interests, but so does the private sector. Remember Bernard Madoff? Or Enron?

How should public investment be financed? Of course the largest demand effect will arise if government expenditures are credit financed. However this will also increase public debt. If expenditures are financed by raising taxes, ways to do so in a progressive manner include closing tax havens, establishing wealth taxes and a financial transactions tax. All of these could raise substantial amounts without negative effects on demand. Closing overseas tax havens has been estimated to have the capacity to generate global additional revenues of US$100-billion (Cavanagh et al 2009). A recent study found that a (worldwide) financial transactions tax of 0.1% would raise about 1.5% of world GDP (Schulmeister et al 2008).

Thus the pragmatic question should be whether there is a material need for investment projects in public infrastructure that the private sector is unlikely to provide. And the answer is a clear yes. From modernising (or building) public transportation to investing in energy-saving technology and from spending on education to housing projects, there are plenty of areas where the social return to public investment is large enough to justify spending. Now is the time.

Further readings and references:

Cavanagh, J, Collins, C, Goldberg, A, Pizzigati S. (2009): Reversing the Great Tax Shift: Seven Steps to Finance Our Economic Recovery Fairly  http://www.ips-dc.org/getfile.php?id=356

Jetin, B, Denys, L, 2005. Ready for implementation. Technical and legal aspects of a currency transaction tax and its implementation in the EU. Berlin: WEED http://www2.weed-online.org/uploads/CTT_Ready_for_Implementation.pdf

Pollin, Robert, Heintz, James, Garrett-Peltier, Heidi, 2009. The Economic Benefits of Investing in Clean Energy. June 2009. http://www.americanprogress.org/issues/2009/06/pdf/peri_report.pdf

Schulmeister, Stephan, Schratzenstaller, Margit, Picek, Oliver, 2008. A General Financial Transaction Tax: Source of Finance and Enhancement of Financial Stability. Presentation at the European Parliament in Brussels on April 16, 2008 http://www.greens-efa.org/cms/default/dokbin/231/231075.a_general_financial_transaction_tax_sour@en.pdf

Stockhammer, E, Onaran, Ö, Ederer, S. 2009. Functional income distribution and aggregate demand in the Euro area.   Cambridge Journal of Economics 33 (1): 139-159. The working paper version can be downloaded at http://www.wu-wien.ac.at/inst/vw1/papers/wu-wp102.pdf

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Engelbert Stockhammer is working at the Vienna University of Economics and Business. His research interests include macroeconomics, income distribution, financial systems. He recently wrote "The Rise of Unemployment in Europe" (Elgar 2004) and "Wither Mainstream Economics?" (co-editor, Metropolis 2009).

The Crisis of Social Democratic Trade Unionism in Western Europe

(by Martin Upchurch)

The end of the second world war in Western Europe ensured political settlements generally inclusive of trade unions. Britain saw a consolidation of the relationship between the Labour Party and trade unions, while in Germany the SPD entrenched its position as the social democratic ‘party of labour’. The political events that shaped the settlements varied. In France and Italy the Communist Party had gained credibility in the resistance to German occupation and many workers looked to the Communist Party rather than the reformist Socialist Party. The relationship between a social democratic party and unions was strongest in Sweden, with the SAP and LO forming a stronghold on the political trajectory of that country for many years. Exceptions were Spain and Portugal, where fascist dictatorships lingered on until the 1970s.

The relationship between social democratic parties and the unions was one of mutual interest between the trade union leaders and the party. It was glued together by a compact that assumed that the ‘party of labour’ would grant concessions on the ‘social wage’ in return for the trade union leaders’ willingness to hold rank-and-file members in check, especially in inflationary times when wage rises could be restricted. For 30 years at least, the settlement held together in various forms of neo-corporatism, whereby governments (even conservative ones) saw trade unions as legitimate agents, and would ‘do business’ with them. The state supported the institutions of collective bargaining, and the trade union leadership was bureaucratically consumed within the ‘statization of society’(Panitch, 1986: 189).

However, we can define neo-liberalism as a specific response by capital to recurrent crises of profitability. This involved a reshaping of the relationship between state, capital and labour whereby Keynesian expansionism could not be sustained in an increasingly integrated world economy. Neo-liberalism suggests that trade union wage bargaining adversely affects the ‘free’ market because trade unions raise the price of labour. In such circumstances, the social democratic settlements, based as they were on Keynesian commitment to welfare and full employment were no longer sustainable in neo-liberal vision.

From the 1980s on, the settlements appeared to fragment as social democratic parties and governments sought accommodations with neo-liberal orthodoxy through flexible working and decentralisation of pay bargaining. Early indications of this tension were already apparent in the ‘divorce’ of the LO union federation from the SAP (Swedish Social Democratic Party) in 1987.

The joint publication of the Third Way/Neue Mitte in 1998 by Britain’s Tony Blair and Germany’s Gerhard Schroeder had signalled a shift in policy direction towards supply side economic management and worker flexibility. The ‘old’ social democracy was abandoned, to be replaced in Britain by continuing privatisation and a distancing between the Labour Party and the unions; in Sweden by the ‘divorce’; and in Germany by the introduction by the SPD-Green Coalition Government of the Hartz reforms designed to relax the laws of dismissal, and cut back state support for the unemployed and pensioners.

If social democracy was in crisis, so too was the ‘social democratic’ model of trade unionism. The background to the change was a decline in trade union membership, as the effects of neo-liberalism began to bite into workers’ confidence. Trade union leaderships found it increasingly difficult to gain welfare concessions from governments in return for wage discipline. Where such ‘pacts’ to restrict wage rises have been enabled, they have been justified by the trade union leaders as a policy of the ‘dented shield’ designed to mitigate the worst effects of neo-liberal restructuring. They have rarely been accompanied with increases to the ‘social wage’. Such an approach has increased the tensions between social democratic parties in government, the trade union leaders and their rank-and-file members to such an extent that fractures and fissures have begun to appear.

In our book The Crisis of Social Democratic Trade Unionism in Western Europe (by Martin Upchurch, Graham Taylor, Andrew Mathers), we trace the origins of these fractures and examine newly emerging alternative futures for the political representation of trade unions. We do not argue that social democratic trade unionism is at an end, but rather that alternative models of reshaping have emerged. Social democracy itself has morphed into different wings, one represented by Third Way politics which accommodates to neo-liberalism and seeks to construct an ideology of partnership between employers and employees in an effort to maintain national business competitiveness (Giddens, 1998). A second wing wishes to return to the values of traditional social democracy and argues that it is possible to reconstruct Keynesian policies. Such a path denies that neo-liberal free market ideology is an inevitable product of capitalism’s ongoing crisis of profitability. Trade unions adopting this position seek to change the policy of social democratic parties from within. A third approach is cosmopolitan social democracy whereby many trade unions have also responded to globalisation by a form of ‘managed internationalism’ arguing for ‘Decent Work’ through agencies such as the International Labour Organisation and even the arch agents of neo-liberal policy such as the WTO, the World Bank and IMF.

Our alternative model of radical political unionism, however, identifies a break with social democratic trade unionism and a focus on active agendas which seek to oppose neo-liberalism, engage members in social movement activity at grass roots level, and encourage the use of more innovative and less bureaucratically-controlled trade union action. This model is also associated with alignment of unions with new political parties and movements to the left of the social democratic parties. The model reinforces class solidarity at the expense of ‘national business interest’.

The degree of fracture in each country varies. In Britain there has long been ‘formal affiliation’ between the Labour Party and the unions, with unions donating yearly up to 60% of the party’s funds. However, the Labour Party leadership has sought to downgrade formal power of the unions within the party, and has sought funding from business sources. Unions have moved from power-brokers to internal lobbyists. In the public sector tensions between party and unions have been most acute.

In Germany, the political relationship between the SPD and the unions has been informal but the new fracture is dramatic and focuses on the emergence of Die Linke as a serious party to the left of the SPD. Die Linke was formed from the mass opposition movement to the Hartz reforms of the public sector beginning in 2003. In the 2009 election it gained 76 Bundestag representatives with nearly 12% of the vote. Exit polls suggested that 780,000 former SPD voters switched votes to the new party. Die Linke is a coalition of disaffected SPD members, ex-PDS (the party reformed from the old ruling Communist Party) members in eastern Germany, and far left activists in the unions.

In France, the traditional fragmentation of political representation of the unions appears to have carried over to new formulations of political and social identity. Opposition to neo-liberalism has been highly visible ‘on the streets’ as public sector workers have taken consistent strike action. Of the three main federations the CFDT has been most visible in supporting a Third Way position, Force Ouvrière has continued to support Keynesian solutions in defence of the public sector, while the CGT has vacillated between support and opposition to neo-liberal measures. An interesting feature of contemporary French trade unionism has been the emergence of dissident breakaway unions attached to the Group of 10, such as SUD (Solidaires, Unitaires, Démocratiques). SUD is particularly active in the railways and public sector and, although small, has adopted an anti-neoliberal position and has related to social movements such as the sans papiers and the Confédération Paysanne .

In Sweden the bonds between the union federation and the SAP remain stronger. We can observe a continuing thread of a unique ‘folk tradition’ that has survived outside of other experiences. The peculiarities and specificities of Swedish social movement unionism can thus be seen as a product of a continuing hegemony of social democratic values.

In summary, the crisis of social democracy has transformed into a potential crisis of the social democratic model of trade unionism. This marks a qualitative change from previous crises in which challenges to social democratic trade unionism were always contained within the party or neutralised by the institutions of industrial relations. This is not to argue that these processes of containment and institutionalisation no longer exist or no longer work, but rather to suggest that the limits of the process have been breached to various degrees of significance. We detect new formulations of union identity, engagement beyond the workplace, and newly politicised union strategy. Of course, such new formulations remain fragile and open to division, political tension, and subsequent reformulation. Nevertheless, we suggest that the continuing adaptation to neoliberalism as a means of capital accumulation by social democratic parties in power will mean a continuation of the crisis, and a parallel ‘opening up’ of workers’ organised political dissent within wider civil society.

References:

Giddens, A. (1998) The Third Way: The Renewal of Social Democracy Cambridge: Polity.

Panitch, L. (1986) Working Class Politics in Crisis: Essays on Labour and the State London: Verso.

Upchurch, M., Taylor, G., and Mathers, A. (2009) The Crisis of Social Democratic Trade Unionism in Western Europe: and the search for alternatives, Aldershot: Ashgate

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Martin Upchurch is Professor of International Employment Relations at Middlesex University Business School, London, UK. He is co-author of The Realities of Partnership at Work (2008, Palgrave) and The Crisis of Social Democratic Trade Unionism in Western Europe: the search for alternatives (2009, Ashgate).

Don’t waste the crisis: The case for sustained public investment and wage-led recovery policies

(by Frank Hoffer)

Returning to the pre-crisis world after timely, targeted and temporary government interventions as advocated by the OECD and others is risky and a waste of public funds. Structural changes in income distribution, taxation and capital markets are needed to address the fundamental causes of the crisis and put social justice and decent work at the centre of a crisis response.

Root Causes of the Global Economic Crisis

In recent decades, wages and transfer incomes have not grown in line with productivity in most countries. In fact, institutional and legal capital and labour market changes, combined with aggressive, short-term profit-maximisation strategies enabled the owners of private enterprises and financial capital to appropriate most of society’s productivity gains. Moreover, threats of relocation or disinvestment resulted in labour market deregulation and casualisation of employment. Such global capital mobility led to the rise of tax havens, transfer pricing and tax competition, reducing the ability of governments to tax capital, thus driving down tax rates and regulation levels. Meanwhile, the high profit rate in the financial industry put pressure on the real economy to produce similar results for shareholders. Thus, the profits of the financial bubble economy became the benchmark for the real economy.

In sum, while income differentials have widened, the tax burden has shifted to employees and consumers, further reducing purchasing power of the people. Throughout the world indecent, precarious and informal employment is increasing.

In many countries, open capital markets overly constrain government’s ability to pursue expansionary fiscal policy, as any increase in inflation would trigger capital outflows and ultimately risk a currency crisis. These capital market constraints, combined with the declining ability to tax, reduced governments’ space for public expenditure, while low wages limited private consumer demand. Nevertheless, overall demand stayed high as rapidly growing private deficit spending backed by asset bubbles disguised the long-term unsustainability of growing imbalances in distribution and trade. It created the illusion that consumption can rise despite a declining wage share, and that wage increases below productivity growth are “only” a problem of social justice, not an economic policy issue.

As long as asset prices go up, a bubble seems to be a free lunch where everybody gains. However, the bubble, like any pyramid scheme, can only continue if more and more people join. The bubble itself creates a need to loosen credit criteria further: as the ratio between actual income and asset prices grows, credit conditions need to be softened to draw new entrees in the (real estate) market. Financial irresponsibility has to grow.

When the bubble burst, it did not just hit the bubble economies; countries with an export surplus-led strategy, priding themselves on their solid financial policies, also saw their “beggar thy neighbour” policies collapsing. They could no longer offset their lack of internal demand through ever-growing export surpluses. The export machines came to a standstill. The export champions realised that they had exchanged real goods against fancy but toxic pieces of paper. Instead of sharing productivity gains fairly in society, they were wasted.

Saving the financial system by bailing out the irresponsible banks is insufficient to address the underlying imbalances and to increase aggregate demand. During the economic downturn, private investment will remain sluggish. Over-indebted consumers cannot continue to spend beyond their means. There is no alternative to continued substantial counter-cyclical monetary and fiscal state intervention.

But state intervention can only be lastingly successful if accompanied by policy measures to correct the dysfunctional wage developments of the past decades, to build a genuinely fair and progressive tax base and change the dysfunctional global capital markets.

A Decent Work Response

In a global economy, coordinated global responses are the optimal solution. This requires national and international rules for capital and labour markets. The ILO’s Global Jobs Pact offers a policy framework to meet these needs.

Investing in the Future, Creating Employment and Increasing the Social Wage

Under the conditions of a slump, public investment has a higher employment intensity than tax cuts. The provision of universal quality public services and infrastructure is key to reducing inequality, building inclusive societies and increasing opportunities for the poor. Universal quality education, health service, affordable housing, and other freely accessible public services reduce the need for individual savings and increase the proportion of people’s disposable income.

Preventing Wage Deflation and Promoting Wage-led Recovery

Increased public investment must be complemented by institutional measures to avoid wage deflation, reduce wage inequality, ensure that productivity gains translate to higher wages, and thus to ensure a sustainable consumption pattern. Combining centralised or coordinated collective bargaining with minimum wage legislation is most suitable to establish a wage floor and compress wage differentials. Increasing the wage share and strengthening the wages of low-income workers in particular leads to an increase of overall consumption, as poor households spend a higher share of their income. Simultaneously, precarious employment relationships must be limited as they have been used to circumvent labour rights and collective bargaining agreements. Labour clauses in public contracts must require contractors and sub-contractors to pay the prevailing collective bargaining wage rate. Moreover, public sector employment must be increased and public sector wage levels must be maintained to serve as an additional wage anchor.

The state has to combat employer’s aggression against the desire of workers to form or join a trade union. It needs to level the playing field through legal mechanisms of extending collective bargaining coverage and worker representation at the workplace. Any bailout or state subsidies must hinge on worker participation in the restructuring through collective bargaining processes and agreements.

Maintaining and Extending Social Protection

Social security systems are the fastest and most efficient way to provide income replacement for workers in a crisis situation. Comprehensive social security systems act as automatic stabilisers and must be extended during an economic downturn to stabilise income levels and overall consumer demand.

In developing countries without comprehensive social security systems, a social floor that includes a basic pension, child benefits, access to healthcare and temporary employment guarantee schemes or cash transfers for the under- and unemployed is urgently needed to lift millions of people out of poverty. It contributes to increasing demand and is a necessary complement to any effective minimum wage legislation.

Finally, governments must protect retirement savings. Pay as you go systems are clearly less vulnerable through capital market volatility. Any pension scheme - private or public - must be legally obliged to guarantee at least a minimum rate of return equivalent to government bonds.

Making the Necessary Global Structural Changes

The suggested measures will be difficult to implement and impossible to sustain without restructuring the global financial system that has propelled the failed economic regime.

Regaining the ability to tax capital

Tax havens must be closed. To solve this issue, banks that work in tax havens, either directly or through subsidiaries, or that engage in other tax theft operations, should be barred from major US or EU financial centres. Requiring multinationals to report their global profits and pay a unitary tax; treating as a unit all the business that is done under one ownership, then estimate what proportion of its income was earned in a specific country and apply its national tax to that income. Transfer pricing and financial dislocation would become rather unattractive. Wealth and heritage taxes and marginal tax rates on high income must be increased to rebalance the tax burden in society and increase the purchasing power of ordinary citizens. Property taxes on high value real estate would be a first step that could be introduced relatively easily even at the national level.

Downsizing speculative and high risk activities of the financial industry

A small tax on stock market transactions would abolish unproductive financial market speculation based on minimal margins and high leverage. A high capital gains tax on short-term profits would reduce incentives for speculative trade in financial markets. Higher reserve requirements for banks and more conservative rules for mortgages reduce the probability of asset bubbles. Banks can only be allowed to operate as private enterprises if they bear the risks of their investment and never become too big to fail. A diverse banking system - incorporating state-guaranteed savings banks, clearly mandated public development banks and private banks - is needed to reduce the institutional lobby and blackmail power of the financial industry. Rating agencies that are fully independent from the financial industry has to ensure better risk assessment. Investor protection against toxic products must be provided through compulsory state certification of all financial products. Risk-taking by pension funds needs to be limited by insisting on a guaranteed minimum rate of return.

Conclusion

Without structural changes as proposed above, we risk wasting today’s crisis. The unconditional promise of governments for universal bailouts after the collapse of Lehman Brothers has indeed increased the moral hazard problem. Pumping money into the system without addressing the causes of global imbalances is dangerous and unsustainable, and may soon lead us into another financial crisis. However, governments will have much less financial firepower, then, because the ammunition was used for another Wall Street firework display instead of closing the casino.

Further links:
Recovering from the crisis - The ILO Global Jobs Pact
The Financial and Economic Crisis: A Decent Work Response

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Frank Hoffer is senior research officer at the Bureau for Workers' Activities of the ILO. He writes in his personally capacity.