Why we should care about wages

(by Patrick Belser)
A labour market view of the crisis

The past two years have witnessed the worst global economic recession since 1929. The financial crisis, which started in the US and was triggered by a speculative bubble in the housing market, sent a shock wave through the real economy and labour markets around the world. The most immediate impact on labour markets has been the explosion of unemployment rates. In the US, unemployment figures have exceeded the 10% threshold in October 2009. The Euro area is not far behind, with an average unemployment rate of 9.7% in September 2009. In some European countries, the proportion of people looking for a job has reached dramatic proportions, with figures close to 20% in both Spain and Latvia.

But that is not all there is. Focusing on unemployment rates alone understates the true extent of the deterioration of employment and conditions of work in labour markets. Everywhere, the crisis has led to cuts in working time, which has damaged the living standards of workers and their families. In the 27 member states of the European Union, full-time employees work about three-quarters of an hour less every week than they did before the crisis. In the US, weekly working time for production and nonsupervisory workers has fallen by about half an hour. These average changes may seem relatively small because not everyone was affected, however, for those who were hit, the cuts in hours have often been severe. Similar trends have been observed elsewhere and, globally, the number of involuntary part-time workers appears to have increased.

The result, in most cases, has been a fall in take-home pay for workers at the end of the month. Figures collected at the ILO for 53 countries show that in 2008 real monthly wages (i.e. wages adjusted for inflation) fell in one quarter of all countries. In most other countries, particularly developing countries, wages continued to grow but at a much slower pace than before the crisis. The situation is likely to have been even worse in 2009, given the quarterly figures already available and the increase in the supply of unemployed people looking for jobs. Another worrying problem is the increase in the late-payment or non-payment of wages, particularly in transition economies such as Russia and Ukraine.

Wages and the recovery

Why should we care about wages, and not just unemployment? There are at least three reasons. The first has to do with social justice and the hardships that lower wages inflict on workers and their families, particularly at the lower end of the income distribution. In the US, 7.5 million people work for earnings that fall below the poverty level and in Europe 8% of workers can be called “working poor”. For these workers even small changes in wages can represent large differences in living standards. Furthermore, the crisis comes after years of wage moderation and increasing inequality. Before the crisis, the wages of median and low-paid workers have remained largely flat despite considerable increases in economy-wide productivity. So one question is: where has the money gone? Research shows that high earners have benefited most, and that a large share of the rest has gone into corporate profits and investment.

The second reason why we should care is that a continued deterioration in wages is bad news for the economic recovery. The pace of the recovery depends largely on the extent to which people are able to consume whatever the global economy produces. And consumption, in turn, depends on the level of wages. In fact, in some advanced economies, almost 80% of household income comes from wages and salaries. Although GDP figures in the course of 2009 provided indications of a possible economic rebound, the trends in real wages observed during the past few quarters raise serious questions about the true extent of a global economic recovery and also highlight the risks of phasing out government rescue packages too early. As the experience of Japan during the past decade has cruelly shown, wage deflation deprives national economies of much needed demand and can result in lengthy periods of economic stagnation.

Finally, we should already be thinking about the post-crisis world. Before the crisis, in the period from 1995-2007, the share of wages in GDP had declined in a majority of countries for which data is available. This may have been due to a combination of weaker trade unions, labour-saving technology, openness to trade and the pressures arising from the financial of markets. Whatever the cause, the imbalance between increasing profits and stagnating wages has contributed to the crisis by creating an explosive mixture of high liquidity on financial markets, low rates of interest, and huge household debts. A system of bonuses which distorted incentives towards short-term risk provided the additional dynamite. For a more stable future, we should identify policies which ensure that productivity growth - when it is back - translates into adequate increases in wages for a majority, and not just higher bonuses for a few. Only this way can advanced economies achieve more sustainable patterns of consumption and investment.

Where to start?

The first immediate priority for governments in advanced economies has been to provide support to economic activity through large fiscal stimulus packages. Through this channel governments have provided some much needed demand for goods and services, which in turn has prevented a further decline in labour demand, employment and wages. Thanks to these measures, a social catastrophe has been avoided. For a sample of 19 OECD countries, the ILO estimates that fiscal stimulus packages have prevented between 3.2 million and 5.5 million additional jobs losses.

A majority of governments in OECD countries have taken additional measures to limit the damage inflicted by the crisis on employment and wages. One effective method has been the use of work-sharing arrangements, which have often combined shorter working times (to avoid layoffs) with wage subsidies. The latter have been provided through partial unemployment compensation or from general government revenues. According to the OECD, 22 out of 29 countries surveyed have put in place such a system. The most publicized example has been the case of Germany’s “Kurzarbeit” (short work) which has benefitted up to one and a half million workers. Companies have also benefitted from being able to keep their skilled workers on the payroll. Given the severity of the employment crisis, these temporary measures should not be phased out to early.

Worldwide, a considerable number of countries have also increased the purchasing power of low paid workers through minimum wages. Figures collected by the ILO show that in 2008 half of 86 countries sampled have increased the minimum wage in real terms. A number of countries, including major economies such as Brazil, the US, Japan and Russia have pursued this policy in 2009. Minimum wages can have negative impacts on employment if they are set too high. However, the more recent literature shows that when set at a level which takes into account the situation of workers and their families as well as productivity and other economic factors (as recommended in ILO Convention 131), minimum wages can increase the living standards of low-paid workers at little or no cost to aggregate employment. And for individual companies that are in such severe economic difficulties that they cannot even afford to pay minimum wages, there is always to possibility to provide smart exemptions or tax incentives, as is done in Indonesia for example.

But the deeper, more challenging need is to strengthen collective bargaining over wages. The ILO’s Global Wage Report in 2008/09 showed that when a large share of workers is covered by collective bargaining agreements the transmission mechanism between productivity and wages works pretty well: over the period 1995-2007 a 1% increase in GDP per capita (an indicator of productivity growth) translated into an almost equal increase in wages. But where the coverage of collective bargaining is weak, the report calculated that each additional 1% growth in GDP per capita only led to a 0.65% increase in average wages. Thus, governments and social partners would be well advised to start consultations on how to strengthen constructive collective bargaining as part of a wider set of economic and industrial policies that can contribute to a fairer and more sustainable global economic recovery.

References:
ILO, Global Wage Report 2008-09
ILO, Global Wage Report, Update 2009
http://www.ilo.org/public/english/protection/condtrav/index.htm

Download this article as pdf

---

Patrick Belser is the principal editor of the ILO Global Wage Report. Before working on wages, he spent 5 years with the ILO programme on fundamental principles and rights at work and co-edited a book called “Forced Labor: Coercion and Exploitation in the Private Economy” published in 2009 by Lynne Rienner. He holds a Ph.D. from the Institute of Development Studies (IDS) in Sussex. Before joining the ILO he worked at the World Bank in Vietnam and at the Swiss Secretariat for Economic Affairs in Berne.

Financial Crises, the Informal Economy and Workers Unions

(by Renana Jhabvala)

Workers all over the world have been hit by the financial crisis and the unemployment rates, particularly in developed countries, have risen to high levels. Little is known, however, about the effects on the informal workers in developing countries who have no social security net or unemployment insurance, and no personal savings cushion to tide them over the crisis. Even worse, as the crisis deepened and the world began looking for solutions, these workers’ voices and concerns were not heard, as their ‘unemployment rates’ were rarely measured. Unemployment in the informal economy cannot be measured by “jobs lost”, but rather by income decline, decrease of days of work available and disappearing livelihoods.

The importance of understanding the impact of the global recession on the informal economy cannot be underesti¬mated. The informal economy includes all economic units that are not regulated by the state and all economically ac¬tive persons who do not receive social protection through their work.  The size and significance of the informal economy is tremendous, and in develop¬ing regions, the informal economy makes up anywhere from 60-90 per cent of the total workforce.  Moreover, the formal and informal economies are not entirely distinct. In global value chains, produc¬tion, distribution and employment can fall at different points on a continuum between pure ‘formal’ relations (i.e. regulated and protected) at one pole and pure ‘informal’ relations (i.e. unregulated and unprotected) at the other, with many intermediate categories in between. Workers and units can also move across the formal-informal continuum and/or operate simultaneously at different points along it. These dynamic linkages of the formal and informal economies highlight the importance of understanding the ‘informal¬ity’ of the global economy and recession.

Before the financial crisis the GDP growth rates in the Asian economies were among the highest in the world, with the 2008 growth rate in India being over 9 percent. Banks in India had been well regulated and so did not undergo the same crises as the Western banks, but because of the uncertainty in the economy they were wary of lending and the credit slow-down added further to the reduction in investments. However, the financial system has become internationally connected and  in January 2008, the Bombay stock exchange Index which had grown 21,000 points began to fall rapidly.  It had fallen to 15,000 points in June 2008 and to 10,500 points in Oct  2008. This caused a severe shortage of liquidity and a major reduction of investments as the capital of traders and industrialists eroded. At the same time, industries dependent on export began a slow down with spiral effects into the rest of the economy. The worst-hit industries were diamonds and other gems and jewellery as well as textiles, garments and metalware. 

Studies were undertaken by SEWA  in early 2009 and later by WIEGO  found crises in sectors where the informal economy was concentrated. It is estimated that 1-2 per cent of the urban population of the world lives off collecting and recycling paper, cardboard, plastic, glass, and metal waste. The earnings of these poorest workers declined considerably world wide—by more than 50% according to the SEWA survey-- as the drop in demand for manufactured goods from developed countries led to a decline in exports of manufactured goods from developing countries which, in turn, led to a decline in demand for recycled waste materials and a drop in the selling price of waste. The net result was that tons of waste materials accumulated on streets or in warehouses, containers loads of waste are stockpiling at harbours or was going directly to landfills and incinerators without being sorted for what can be recycled. 

SEWA’s waste collector members in Ahmedabad said they compensate for lower prices by spending more hours to collect the waste. They used to go in the morning at 5:00 am but now they start their work at 3:00 am with the mentality that ‘someone else will come early and pick it up, instead I will take it first.’ Earlier, the woman of the family would go to pick up the waste, now they prefer to take more members especially children of the family so that more waste is collected. As they are now unable to pay the fees and other expenses for education they have taken them out of school and started to involve the children in waste collection as well as sending them for other income earning activities.

Construction was another industry hit worldwide and the main sufferers were the construction workers, who are paid by the day and whose days of work as well as earnings reduced considerably. The Indian survey showed whereas normally 85% of women full time work of more than 20 days a month, after the crisis only 11% had full time work. Most of them worked less than 15 days a month and 10% had no work at all. There was also a 30% decline in their daily wages.

One of the first ill-effects of the crisis seemed to be psychological, with increasing conflicts and growing drunkenness, especially among men. Families responded also by reducing their food intake—three meals instead of two, reducing ‘expensive’ foods like milk or eggs. Some families went into debt to pay for illnesses or other major expenses; others pulled their children out of school or moved them to cheaper education. 

In India, we seem to be coming out of the crisis as the stock market rose 70% from its low of last year. Industrial production is up, as is employment in many industries such as construction with the daily wage increasing almost to pre-crisis levels. Although some export-linked industries such as diamonds are still in difficulties, it seems that on the whole Indian informal workers are recovering their employment.  However, this does not mean all is well. As the economy recovers, inflation rises too and the prices of staple food have gone up by 17% in 2009.

From the point of view of the workers, their work lives are full of insecurity. During the crises, they lost their earnings and had no social safety net or cushion to fall back on. As the economy pulls out of the crisis, they face price rises, and without a social protection cover they have to pay for health care and insure themselves against personal crises from their own earnings and savings.

The world has focussed intensively on the financial crisis brought about the unregulated greed in the financial systems, and will perhaps bring reform within those systems. But for the informal workers, the financial crisis was just one more hurdle in a work-life of continuous insecurity. The solutions lie in more complete systems of social security and voice for informal workers, who constitute the majority of the work-force today.

Given that informal workers constitute such a large section of the work force, and that most countries are democratic, with being Governments being elected on the will of the majority, the real question is why is a system of social protection not already in place? Such a system would act as a cushion during crises and help the worker secure the volatilities present in the system. The answer to this lies in the balance of power. Today much of the policies and regulations favour those with capital and especially the larger corporate structures. Those groups which are able to organize and make their voice heard are able to access the countervailing power either through the political system or directly in the market. Unfortunately, informal workers are barely organized today and as a result have neither voice nor representation nor any countervailing power. In fact they, the most vulnerable of people, become a cushion for the economic system. They are the ones who absorb the maximum shocks in the system.

The voice of the informal workers needs to be heard, and its effect felt in the political system, in order to start the process of a social safety net for informal workers, which can only happen by organizing. On the ground many trade unions, especially in developing countries have organized informal workers and brought their voice to the bargaining table. These include agricultural workers and transport workers through Ghana Trade Union Congress and street vendors in CROC Mexico . SEWA is an example of a national trade union which has reached a membership of 1.2 million informal workers. At the international level networks of organizations of informal workers such as the alliance of Street Vendors (Street Net), the alliance of homeworkers (HomeNet), and the newly developing alliances of domestic workers through the IUF and waste collectors alliances are identifying their issues and bringing the voice of informal workers to the international arena. Equally important is the role of WIEGO which highlights these issues and takes them into the policy arena. However, the scale at which the voice of the informal workers is still far too small.  A fairer international economic system requires a representation into policy making of the informal workers. This will only happen if workers organize on a large scale.

Download this article as pdf

---

Renana Jhabvala is one of the early founders of Self Employed Women’s Association (SEWA). She has been a Secretary of SEWA and the Chair of SEWA Bank. Presently she is the Chair of SEWA Bharat, which is the all India federation of SEWA. She has written extensively on the informal economy.

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

Download this article as pdf

---

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.

Download this article as pdf

---

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

Download this article as pdf

---

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).