Economic Democracy: An Idea whose Time has come, again?

Richard Hyman

“There can be no return to business as usual”: this was the unanimous trade union response to the global crisis. For a time in early 2009, the legitimacy of capitalism was itself questioned in unexpected quarters. In May 2009 the German union confederation, the Deutscher Gewerkschaftsbund, organised a ‘Capitalism Congress’ – using language which for decades would have been taboo – and its president warned of unrest on the streets unless jobs were more effectively safeguarded. One of its leaders, Claus Matecki, insisted that it was important to talk of capitalism rather than using the conventional but bland term soziale Marktwirtschaft (social market economy), since only thus could trade unionists make clear that the existing economic order was historically contingent and founded on a fundamental inequality between workers and employers.[1] Yet there was no follow-up.

Two familiar and intersecting contradictions of union action were evident across Europe. One was the dilemma of short-term imperatives versus long-term objectives. Was the aim to negotiate with those wielding political and economic power for damage limitation, and perhaps a tighter regulatory architecture for financialised capitalism; or to lead an oppositional movement for an alternative socio-economic order?
According to one Belgian socialist union leader, “The situation really is not simple for trade union organisations. The analysis of the crisis is not complicated: neoliberalism cannot deliver. The difficulty is that today, discourse is not enough. It is easy to say: we need to change the balance of forces. But that does not tell us how to proceed.... Our members expect us to look after their immediate interests.”

The second contradiction was between a global economic crisis and trade union action which is essentially national or indeed sub-national in character. The international trade union organisations produced powerful analyses and progressive demands, but their impact on day-to-day trade union practice on the ground was non-existent. Indeed the dominant response has been to defend and enhance competitiveness, meaning a struggle of country against country, workplace against workplace, intensifying the downwards pressure on wages and conditions.

To these two contradictions must be added the loss of a vision of an alternative socio-economic order. Actually, ‘existing socialism’ had discredited the idea of communism long before the fall of the Berlin Wall. Social democracy likewise abandoned the struggle for a new social order in the face of economic adversity, engaging in concession bargaining with multinational capital and the international financial institutions. Centre-left trade unionists came to object to the ‘new, overmighty capitalism’ of hedge funds, asset-stripping, financial speculation and astronomical bonuses. The solution, it appeared, was to seek to restore the old capitalism: the trade union movement should ‘become a champion of good business practices, of decent relations with decent employers while ruthlessly fighting the speculators’.[2]

So has the crisis indeed been wasted? Perhaps one means of connecting short-term (and probably ineffectual) defence to a struggle for another world of work could be renewed attention to the idea of economic democracy. In the past two years, there has been much discussion of the deficiencies in existing systems of corporate governance, particularly as the liberalisation of global financial transactions has made ‘shareholder value’ the overriding corporate goal even in ‘coordinated’ market economies.[3] The solution, however, cannot simply be a technocratic regulatory fix; what is required is democratic control of capital. With the shock of crisis, some union policymakers have come to recognise that the overriding challenge is to build a movement for greater democratisation of the economy and to create new links between different levels of regulation and different issues on the regulatory agenda.

Systems of ‘codetermination’ are institutionalised in much of Europe, involving rights of collective representation through works councils, and in some countries employee board-level representation. Such provisions reflect an insistence that companies are not merely the private property of the shareholders, because employees are themselves ‘stakeholders’ with a legitimate interest in shaping corporate goals and policies. Even the strongest systems of works councils, however, have primary jurisdiction over employment issues which arise only after key decisions on investment and product strategy have already been taken: as a German trade union expert noted two decades ago, the more strategic the issue for management, the weaker the powers of the councils.[4] This becomes particularly problematic in times of economic adversity, as primarily enterprise- or establishment-based mechanisms of codetermination are forced to accommodate to the externally imposed imperatives of intensified global competition, and may be unable to do more than underwrite managerial priorities. Though formally intact, the machinery of codetermination no longer provides an effective mechanism for asserting and defending workers’ interests.[5] To address this erosion of effectiveness, ‘industrial democracy’ must be extended to encompass corporate strategy as a whole: in other words, it must be enlarged into economic democracy.

Elements of such a strategy can be found in the ideas developed by Fritz Naphtali for the German trade unions in the 1920s,[6] which proved influential in the German and Austrian trade union movements in the early post-war years. Socialisation of the economy was an essential goal, but it should be achieved, not necessarily and not exclusively through state ownership but through more diverse forms of popular control. Such ideas helped inspire the demands of Swedish unions in the 1970s for ‘wage-earner funds’, drafted by Rudolf Meidner (a socialist of German origin).[7] The essence of the policy was to establish collective employee ownership of part of the profits of corporate success, in the form of shares held in a fund under trade union control. This, it was envisaged, could provide increasing control over strategic decisions in the dominant private companies. As Meidner himself later conceded, a more flexible set of proposals would have been politically prudent; certainly in countries with far lower trade union density than in Sweden, tying control of collective funds to trade unions alone is not a viable strategy (particularly given past scandals involving union-owned enterprises in Germany and Austria). Nor could the Meidner plan easily function in an era of global financial markets. Nevertheless, some of its themes are particularly apposite at a time when the banking sector has been rescued by a vast transfer of public funds; democratisation of ownership should be a logical corollary. Moreover, while the trade union movement has embraced the demand for a financial transactions tax, the question of its implementation has been little discussed. Why not use the revenue, not simply to plug the hole in national budgets, but to create investment funds under popular control, linked to a democratisation of pension funds (which are in effect, workers’ deferred wages)? These are questions with which trade unionists should surely engage.

This theme leads to a broader question: what are the possibilities for economic democratisation in the space between state and market? The labour movement has a long tradition of cooperative production and distribution, though in many countries such cooperatives mutated long ago into simple commercial ventures. But smaller-scale, cooperative economic activity has often been able to provide some counter-power to the commodification of social life, particularly in the global South. In a notable recognition of this role, the Self-Employed Women’s Association (SEWA) in India was accepted as a founding member of the ITUC.[8] Do such movements offer lessons for trade unions in the developed economies? In the French-speaking world at least, the notion of a ‘social economy’ has received growing attention on the left.[9] An imaginative response to the crisis ought to draw on such ideas.

Can economic democracy and capitalism coexist? If the central dynamic of twenty-first century capitalism involves vast concentrations of unaccountable private economic power – and this may well be the case – the answer is clearly no. You can peel an onion layer by layer, but you can't skin a tiger claw by claw... But a simple anti-capitalist response to the crisis is not on the current political agenda. To capture hearts and minds, the labour movement has to commence a campaign against global casino capitalism which is linked to a credible set of alternatives for socially accountable economic life. In the short term, perhaps, a campaign for ‘good capitalism’ may be the only politically feasible [10] For the present, what is needed, in Gramsci’s terms, is a ‘war of position’. The idea of economic democracy offers a vision of popular empowerment which could reinvigorate trade unionism as a social movement and help launch a struggle for a genuinely alternative economy - one in which, incidentally, unions themselves would be more likely to thrive.

1 Claus Matecki, ‘Warum wir vom Kapitalismus reden’, der Freitag: 26 June 2009.
2 John Monks, The Challenge of the New Capitalism, Bevan Memorial lecture, 14 November 2006.
3 See John Peters, ‘The Rise of Finance and the Decline of Organised Labour in the Advanced Capitalist Countries’, New Political Economy 16(1), 2011.
4 Ulrich Briefs, ‘Codetermination in the Federal Republic of Germany: An Appraisal of a Secular Experience’, in György Széll, Paul Blyton and Chris Cornforth (eds) The State, Trade Unions and Self-Management. Berlin: de Gruyter, 1989.
5 See Wolfgang Streeck, Re-Forming Capitalism, Oxford, OUP, 2009; Hans-Jürgen Urban, ‘Arbeitspolitik unter (Nach-)Krisenbedingungen: Gute Arbeit als Strategie’, Arbeits- und Industriesoziologische Studien 4(1), 2011.
6 Fritz Naphtali, Wirtschaftsdemokratie: Ihr Wesen, Weg und Ziel. Berlin: ADGB, 1928.
7 Rudolf Meidner, Employee Investment Funds, an Approach to Collective Capital Formation. London: Allen & Unwin, 1978.
8 SEWA defines itself as both an organisation and a movement for women workers on the margins of the formal economy. It has many of the characteristics of a trade union, an NGO and a cooperative. See http://www.sewa.org/About_Us.asp
9 Jean-François Draperi, Comprendre l'économie sociale: Fondements et enjeux. Paris: Dunod, 2007; Jean-Louis Laville, ed., L’économie solidaire: Une perspective internationale. Paris: Hachette, 2007.
10. Sebastian Dullien, Hansjörg Herr and Christian Kellermann, Der gute Kapitalismus... und was sich dafür nach der Krise ändern müsste. Bielefeld: transcript Verlag, 2009.

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Richard Hyman is Emeritus Professor of Industrial Relations at the LSE and founding editor of the European Journal of Industrial Relations. He has written extensively on the themes of industrial relations, collective bargaining, trade unionism, industrial conflict and labour market policy. He is currently working on a book comparing trade union strategies in ten European countries.

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Trade Unions and Worker Struggles in Guangdong

Chen Weiguang interviewed by Boy Lüthje[1]

Boy Lüthje

Chen Weiguang

BL: How do you assess the labour conflicts in the auto supply industry in South China in the spring and summer of 2010?

CW: The strike at Honda Nanhai and other auto components factories in the Pearl River delta in June and July 2010 triggered a strike wave that involved several tens of thousands of workers. In the city of Guangzhou alone, more than 60 factories had strikes, including Honda Dongfeng and other major auto suppliers.

The basic cause of the strikes was low wages and poor working conditions, but the low wages were the main factor. The Guangdong provincial government basically did not view these strikes negatively. We as a trade union found the workers’ demands just and reasonable. Honda and Toyota in Guangzhou are both foreign–Chinese joint ventures, and workers’ wages in these companies were between 2,500 and 3,000[2] RMB  per month. But in Honda Nanhai and many other comparable companies, the wages were much lower, around 1,200 RMB. These companies are profitable ... but their basic wages were about the legal minimum, around 900 RMB.

We therefore believe that the demands of the workers were justified. But we hope that such economic disputes do not develop into political incidents and will not disrupt social order; this is our bottom line. We have to say that our strikes were very orderly – there were no walkouts from the factories to the streets, no destruction of machinery, no playing politics. Everything remained in the framework of disputes within factories. In all of the more than 60 conflicts in Guangzhou this summer, negotiated settlements were achieved. We can therefore proudly say that in Guangzhou no striking worker was dismissed and not one worker was arrested by the police, although the strikes included tens of thousands of workers. Of course, most of the strikes were rather short, between two or three hours and three days. We also taught our Japanese employers that they cannot treat their workers in such harsh ways.

BL: In the strike at Honda Nanhai, which gained the most attention from the national and international media, the trade union behaved in very different ways from what you just described.

CW: In this case, the trade union was not well prepared in its thinking. At the time of the strike, it could not respond with clarity to the demands of the workers. The workers did not accept the trade union as their representative, and the factory trade union lost the workers' trust from the beginning. As the strike went on, the union wavered between management and the workers, and it saw itself as a mediator. Standing between the two sides is the worst position.

In addition, the workers were confronted with physical force from outside the factory. These incidents cannot be blamed on the trade union, since these individuals were not trade unionists, but outsiders. They hoped to end the strike quickly by disguising themselves as trade unionists. They pushed and dragged workers and hurt some of them slightly. Some workers said they were beaten. The workers felt threatened and left the workshops again. Originally, some had been ready to go back to work.

After the incident, the trade union issued a letter of apology in an effort to calm the situation. Writing such a letter was equivalent to admitting people were beaten. After the letter was posted on the web, the whole world criticized the trade union. The union failed to explain its position clearly. Because it did not take a clear stand from the beginning, the chain of events following the incident put the union in a bad light. The impact of such an event is very difficult to dispel within a short period of time, and writing this letter only complicated things for the union.

BL: What was the situation in the other cases, which garnered less public attention?

CW: In the labour conflicts at Honda’s suppliers of in the city of Guangzhou, especially in the Nansha district, our approach was very different and the trade union behaved proactively. Basically, since 2007 we have educated the trade union cadres that they must represent the workers and not play the middleman. In the event of a strike, even very short ones, the trade unions have to be on the side of the workers and may not act as mediators. When the strike in Nansha occurred, we asked the district-level trade union to intervene immediately and give voice to the demands of the workers. To our knowledge, the wages of workers in this company were similar to those in Honda Nanhai. According to the factory trade union, the workers were demanding an increase in wages and fringe benefits, such as free meals during night shifts and air conditioning in the dormitory. But the company only accepted free meals during night shifts. So we were supporting the workers, but at the same time we were telling them not to disrupt the public order, and not to damage equipment and obstruct vital operations.

From the beginning to the end, the company did not want to bargain. They told the workers: You can have a raise of 450 RMB, but if you do not accept within 10 minutes, you will have to leave the company. The workers did not give in. They simply continued their strike. This alarmed management, because after three days the Toyota Nansha main factory would have had to stop work. The workers knew their strength. In the end, the company had no other choice than to change its behaviour and bargaining stance. After four hours of negotiations, a wage increase of 825 RMB was agreed upon. The workers perceived this as a victory, and the employers could live with it. The workers' wage now is around 2,000 RMB, still somewhat different from the main factories of Honda and Toyota.

A very important factor concerning the outcome of this conflict was the attitude of the top political leaders in our province. They had a clear understanding that the nature of the dispute was economic and the strikes should not be treated as destabilizing incidents. Mass activities such as collective resistance, road blockages, protest marches and mass petitioning are considered as being in this category. But in this case, the workers did not leave the factory, everything remained peaceful, there was no yelling and shouting, and it was more like silent resistance. Our provincial party committee noted that these were not destabilizing incidents and that police force should not be used. The government should act as a mediator, and the trade union should bargain with the employer.

BL: Looking into the future, how do you view the prospects for democratic management of enterprises and collective bargaining?

CW: This year’s strike movements taught us many lessons. First, they educated our trade union cadres to take a very clear position when handling such conflicts. Second, they taught the employers to treat workers with dignity and not as machines. Third, they taught many of our leaders that labour relations is a very important issue. We have talked for years about the importance of wage negotiations, but this has not had a real impact on the various levels of our leadership and society. After these strikes, many people think it is a good idea to promote wage bargaining. Apart from the discussions about collective bargaining, the question of democratic elections is of the greatest concern to trade union cadres. We now have plans to introduce truly democratic elections of factory trade union representatives. Elections for trade union representatives exist, but how are candidates being selected? Often, the elections do not work very well, and most of the time a small group of leaders decides to support candidates who fit their interests, giving workers only a very limited choice. These superficial elections, in fact, are really appointments. We want to change these methods. Candidates should be recommended by the collective mass of employees: this way, we will be able to create a choice among capable candidates approved by the workers and bottom-up democracy can take shape. At the same time, top-down processes will also become more focused.

We believe that democracy must be rational and that responsible people should become leaders. Only this sort of democracy constitutes active progress, and is not a destructive force.

BL: What is your view of the prospects for coordinating wage levels between companies and establishing industry-wide wage standards?

CW: I am strongly in favour of industry-wide collective bargaining because wage standards can be much more efficiently negotiated at the level of entire industries than they can in companies of various types. We therefore have to bring into play industry trade unions and employer organizations. In the wake of the recent labour conflicts at Denso Nansha in Guangzhou, we looked into the possibility of creating an industrial trade union for the automobile sector. This seems inevitable, yet conditions are not yet ripe at the city level. But we are trying this at least at the district level. In Nansha, the conditions do exist, and the trade union at the Toyota factory in Nansha has taken the lead in developing regular contacts with the trade union at lower-tier suppliers.

I have learned about the way bargaining is conducted in Singapore. There, the workers' wage is split into three parts: the base wage, monthly premiums and yearly bonuses. The first component makes up 70 per cent of regular pay; this is negotiated by trade unions and employers’ associations at the industry level. The latter two elements are negotiated between unions and management at the factory level. The main part of the wage is subject to industry-wide negotiations, and the smaller part remains open to negotiation within the company. This leaves room for differences, but the differentiations cannot become too big. Besides, a proportion of the base wage of around 70 per cent of regular monthly income is quite healthy. In China, the base wage is very low and the freedom of employers to determine wages is too great. In comparison, I find the Singapore method very good.

BL: What can be learned from the experiences of Western trade unions in this context?

CW: As China becomes more open to the market and to the global economy, there is no reason why the trade unions should not study the wealth of international experience, particularly systems of wage negotiations. But this learning must be integrated with our country’s own conditions and experience. Our attitude should be realistic and we should learn from the facts. In this context, we should vigorously support exchange with foreign trade unions and experts.

[1] The interviewer selected and translated the text.
[2] One hundred renminbi is equivalent to 15 US dollars.

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Chen Weiguang is Chairman of the Guangzhou Federation of Trade Unions and Deputy Chairman of the People's Congress of the City of Guangzhou.

Boy Lüthje is a Senior Fellow at the Frankfurt Institute of Social Research, specializing in economic transformation and labour in China.

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The March to protect Worker Rights and the Middle Class

Cathy Feingold

Thousands are marching in the streets of Wisconsin, Ohio and Indiana. In March 2011, sparked by protestors in Madison, Wisconsin, workers and union members across the United States have rallied in front of statehouses in support of collective bargaining rights for public sector workers. Demonstrators are speaking out against attacks by their Republican governors to eliminate collective bargaining rights and blame public employees and their unions for widespread budget crises.

The protestors are the young, joining the old. Some of them remember Madison as the centre of anti-war protests in the 1960s. For others, this is their first protest. As young activists organise teach-ins and rallies across college campuses and town halls, a new generation redefines its relationship to unions. This new generation recognises that unions provide one of the few ways that regular workers, including public employees, can fight back against the increasingly powerful networks of corporate executives and the politicians who do their bidding.

Unions in the United States face one of the greatest challenges to protecting public sector workers since the 1981 Patco (Professional Air Traffic Controller Organization) strike when President Regan fired striking air traffic controllers and paved the way to allowing replacement workers. Americans understand that what is at stake is not only the wages and benefits of public sector workers but their right to bargain collectively. While Republican governors claim that the budget deficit drives their decisions, their real agenda is to attack collective bargaining rights and weaken unions.

The protestors march across state capitols that are also sites of struggling economic recovery. With US unemployment sticking around 9% and underemployment close to 16%, and with slow job growth in only either low or very high skill sectors, most unemployed workers find it a real struggle to secure a mid-level position. With the loss of higher paying union manufacturing jobs, many workers look to the public sector for a foothold in the middle class. Yet state budgets are suffering from the negative revenue consequences of high unemployment and falling home prices. The proposed elimination of collective bargaining, by making it even harder for public sector workers to maintain their standard of living (be consumers, buy houses, etc) will only serve to further damage state budgets and harm the overall economy.

Americans understand that the road to economic recovery remains fragile and that continued unemployment and rising oil and food prices continue to threaten a full recovery. However, despite continued economic insecurity, Americans oppose any attempt to use the budget deficit debates as an excuse to strip them of the collective bargaining rights they fought so hard to obtain. In the latest polling by Bloomberg, 64%[1] of Americans - both Democrats and Republicans - support the right to collective bargaining for public sector workers. Sixty-three percent, including 55% of Republicans, say states facing a deficit, and claiming that they cannot pay for all the pension benefits promised to current retirees, should not be allowed to break their commitments. Even after public sector workers have agreed to wage and benefit concessions, Republican governors have continued their targeted assaults on collective bargaining rights.

Why do these attacks continue when most Americans support the right of public employees to collective bargaining? It’s simple. The 2010 elections brought in a new group of Republican governors and legislators across the country who are putting forward legislation to eliminate or weaken unions — a key constituency and base of support for Democrats. The real goal of Republicans now is to reduce public sector unions (who now represent 36% of the public sector workforce) to the same paltry level as private sector unions, currently representing only 7% of the private workforce. In 2010, 7.6 million of the 14.7 million union members in the US worked in the public sector. By weakening the power of unions, Republican governors weaken the Democratic Party. Of course, this is not just an assault on unions, which have historically been a key support base for the Democratic Party, but on the middle class. In the US, the majority of workers receive minimum social protection from their employers. Defined pension plans have been replaced with privatised savings plans, called 401k plans, and workers pay higher premiums for health care coverage. Corporations, although currently sitting on $1.8-trillion in profits, claim that to stay competitive they cannot increase wages or provide more benefits. This model only contributes to the growing inequality in the country where the top 5% control 63.5% of the country’s wealth[2]. The US economy is now in a race to the bottom where workers are forced to compete for increasingly poorly paid, insecure jobs with no benefits.

The current debate over collective bargaining and unions relies on the false assumption that public sector workers caused the budget crises and must now pay the consequences by giving up their rights, wages and benefits. While public sector workers and unions are blamed for budget deficits, elected officials will not risk advocating for increasing taxes on the wealthy and on corporations as a sensible alternative to attacks on the middle class and regular workers. Most understand that to do so would jeopardise their access to funding for re-election campaigns.

In addition to Wisconsin, public employee unions now face attacks not only in union stronghold states such as New Jersey and Ohio but also in less-unionised Indiana and Michigan. The proposed anti-collective bargaining and anti-union legislation in these states would greatly reduce the ability of public sector unions to negotiate effectively contracts for workers and organise non-union workers. In Ohio, unions are working to defeat a bill that would limit collective bargaining for government workers and eliminate binding arbitration and the right to strike. For the moment, workers in Wisconsin have won their first victory. On March 18th, a judge issued a temporary restraining order blocking the plan by the Wisconsin governor to eliminate collective bargaining. Yet, this win is just the beginning of a longer, drawn out legal battle. These pieces of legislation are not about reducing the budget deficit but rather they were created to further weaken the middle class and the unions that represent them.

In reality, America’s budget deficits have not been caused by excessive compensation for teachers, firefighters and other public servants. The country’s budgetary woes are more related to the recent economic and financial crises in the housing market. The careless financial practices on Wall Street, not the greed of our kindergarten teachers, brought about the recession and its negative effects on employment and state budgets. The call for the elimination of collective bargaining and economic austerity will not address these root causes and but will only serve to dampen demand in the economy. The use of the current fiscal crisis by politicians to strip workers of their rights and impose severe reductions in wages and benefits will create greater hardship for workers and middle class families struggling to regain their footing.

[1] Bloomberg National Poll, March 4-7, 2011.
[2] Economic Policy Institute, available at:
http://www.epi.org/economic_snapshots/entry/top_5_holds_more_than_half_of_the_country’s_wealth/

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Cathy Feingold is the director of the AFL-CIO’s International Department. She previously directed the AFL-CIO Solidarity Center’s work in the Dominican Republic and Haiti, including worker education and advocacy training, and popular methodologies to research and document the problems of women and migrant workers. She led the organization’s humanitarian response to the January 2010 earthquake in Haiti.

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Global Wage Trends: The great Convergence?

Patrick Belser

Average wages

The financial and economic crisis has cut global wage growth by roughly half in 2008 and 2009. Based on a sample that covers a large chunk of the world’s 1.4 billion wage-earners, the Global Wage Report 2010/11(i) finds that the global growth in real monthly wages slowed from 2.7 and 2.8 per cent in the two years before the crisis (2006 and 2007) to 1.5 and 1.6 per cent in 2008 and 2009. If China – where data coverage is limited to fast growing “urban units” – is excluded from the sample, the average wage growth drops from 2.1 and 2.2 per cent before the crisis to 0.8 and 0.7 per cent in 2008 and 2009. In 2010, preliminary results suggest that wages have started to recover, but not as fast as profits and not yet to pre-crisis levels. Generally, wages have taken a bigger hit in developed than in developing countries.

This short-term cost of the crisis to workers must be understood in the context of a longer-term trend towards wage convergence across regions. Table 1, taken from the Global Wage Report 2010/11, shows that while average wages more than doubled in Asia since 1999 and more than tripled in Eastern Europe and Central Asia (which partly reflects the depth of the wage decline in the 1990s), wages stagnated in advanced countries, increasing by just about 5.2 per cent in real terms over the full decade. This is less than the rate at which Chinese wages grow in one year. The base from which Chinese wages are growing remains, of course, much lower. The average American worker still earns in about one month what a Chinese worker in the private sector earns in one year. The point, however, is that the gap is closing and that the economic and financial crisis – as well as the slow recovery of wages in the West – has accelerated this convergence.

Table 1 Cumulative wage growth, by region since 1999 (1999 = 100)

* Provisional estimate / ** Tentative estimate / … No estimate available
Source: ILO Global Wage Database.

One factor that contributes to the convergence is the faster growth in labour productivity in developing regions. Another factor is the apparent decoupling between productivity and wage growth in advanced countries. According to one calculation, while average wages in advanced countries grew by 5.2 per cent over the last decade, labour productivity increased by 10.3 per cent (see Figure 1). In other words, wages grew only half as fast as labour productivity. One simulation indicates that if wages had grown as rapidly as productivity, average wages in advanced countries could have gone up from roughly US$ 2,864 per month in 1999 to $3,158 in 2009 instead of only $3,012 (figures are expressed in 2009 PPP dollars). Distributed over all paid employees, this decoupling may thus have cost workers in advanced countries hundreds of billion dollars in forgone wages over the full decade. These resources have not exactly been lost to everyone – since they went into profits and investment. But this redistribution has certainly limited non-credit based household consumption, and at least partially explains the low interest rates that were needed in some countries before the crisis to keep consumption going.

Figure 1

Note: Since the indices refer to a weighted average, developments in the three largest advanced economies (United States, Japan and Germany) have a particular impact on this outcome.

The low pay crisis

The long-term losses to labour have not been equally distributed between all workers. Those who have suffered most from the decoupling are the workers at the middle and the bottom of the wage distribution. Those at the top have fared better, as indicated by the increasing gap between mean and median wages in many countries and epitomized by the ongoing bonus-bonanza among the world’s CEOs. While the highly educated elite has transformed into global “superstars”, workers with average skills have become the victims of the global compression in labour costs.

It is at the bottom of the wage distribution that things have deteriorated the most. This is revealed by the steady increase in the share of workers on “low pay”, defined as the proportion of workers whose hourly wages are less than two thirds of the median wage across all jobs. The latest figures show that since the second half of the 1990s, relative low pay has increased in about two thirds of countries (25 out of 37 countries). In advanced countries, low pay now afflicts about one in every five workers, or about 80 million people. At the country level, the incidence of low-wage employment still shows considerable variation. When full-time workers are considered, the incidence of low-wage employment varies from less than 10 per cent in Sweden and Finland to about 25 per cent in the United States and the Republic of Korea.

But low pay is not just a problem in developed economies. Case studies show that in recent years low-paid wage work has also increased in a number of developing countries, for example China, Indonesia or the Philippines. What differs, of course, is the context, which is much more dynamic in emerging economies. While low pay in advanced countries is often the outcome of stagnating or decreasing incomes at the bottom, low pay in rapidly growing developing countries has more to do with the rapid progress of the middle class. This, however, does not mean that low pay is not a policy issue in emerging economies. The labour unrest in Chinese factories in 2010 showed that low paid workers expect their conditions to improve in line with overall social and economic progress.

Policy options

Wage trends seem to point towards the complex process of global integration, where average wages converge towards the (stagnating) levels of advanced countries and where inequality between top and median, and median and bottom wage-earners increase almost everywhere. There are exceptions, of course. This trend nonetheless points towards the importance of international coordination on wage-related matters. The collective action problem is particularly acute in the Eurozone, where any country’s attempt to link wages more closely to productivity growth immediately leads to a decline in external competitiveness relative to Germany – the star-performer where average wages actually declined by 4.5 per cent over the last 10 years despite a (modest) increase in labour productivity. Outside of the Eurozone, wage compression in China similarly limits the room for wage increases in other emerging economies.

At the national level, countries should be encouraged to support low-paid workers through a combination of minimum wages and income transfers. Minimum wages have the potential to make a major contribution to social justice. In the United Kingdom, for example, the minimum wage was identified in 2010 as the most successful government policy of the past 30 years in a survey of British political experts. In this survey(ii) , a successful policy is defined as one which is successfully implemented, has a positive social and economic impact, and can be sustained over time. Perhaps most importantly, the much-feared negative impact on UK jobs failed to materialize. The positive effect of the minimum wage has been compounded by the working tax credit, a system of so-called “in-work benefits” that reduces taxes for the low-paid who work for a minimum of 16 hours per week. Both minimum wages and “in-work benefits” are complementary, for without the former, companies may feel that they may quite simply shift some labour costs onto tax credits.

The minimum wage can have a positive impact in developing countries too. In Brazil, a country with a large informal economy, the two policies that are most frequently credited for the sharp reduction in poverty and inequality over the last decade are the Bolsa familia – a programme of cash transfers conditional upon children attending schools – and the national minimum wage that has been revived since 1995. Even The Economist now recognizes that “by boosting domestic demand, these policies have also contributed to economic growth”.(iii) In countries such as India, minimum wages are being implemented along with employment guarantee schemes that set the floor for wages. One simulation shows that if the coverage of minimum wages were extended to all wage-earners in India instead of a select group, it could lift the incomes of 76 million low-paid salaried and casual workers.(iv)

(i) International Labour Office (ILO). 2010. Global Wage Report 2010/11. Available at:
http://www.ilo.org/travail/areasofwork/lang--en/WCMS_DOC_TRA_ARE_WAGE_EN/index.htm
(ii) See http://www.instituteforgovernment.org.uk/pdfs/PSA_survey_results.pdf
(iii) “Lula’s legacy”, 30 September 2010.
(iv) Belser, P.; Rani, U. 2010. Extending the coverage of minimum wages in India: Simulations
from household data, ILO Conditions of Work and Employment Series No. 26, 2010 (Geneva, ILO).

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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.

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The 2008 Crisis in Turkey and the Unions’ Response

Yasemin Özgün

Özgür Müftüoğlu

The insertion of the Turkish economy into global capitalism has mostly occurred during times of economic crisis. During the present crisis as in the crises of 1979, 1994 and 2001, the Turkish government took many steps according to the policy frameworks determined by global actors to integrate further into global capitalism. Such steps did yield some positive results for those sections of capital that could adjust to the rules of global competition and integrate with global capital. Nevertheless, Turkey’s survival strategy, which rested on cheap labour, has caused increased pressure on workers as well as high unemployment, poverty and job insecurity. Unfortunately, due to the prohibitions on union activities following the 1980 coup, combined with new work regulations deriving from changing production systems, the working class and unions did not have sufficient strength to resist this process.

In Turkey, the rules of the market economy, institutionalised in 1980, have attained their target thanks – to a large extent – to the policies implemented until the 2008 crisis. However, the process is not complete. The IMF and World Bank lending agreements, the reports prepared by the OECD, and the conditions imposed by the EU in the process of assessing Turkey’s membership have warned Turkey that it must complete its process of integration into the market economy.

Turkey achieved high growth rates until 2008, but workers did not benefit from a fair share of this growth. Furthermore, the policies supporting growth led to the loss of job security and social guarantees for workers, as well as to a decline in real wages and a further increase in unemployment and poverty.

Figure 1: Annual average real wage evolution in selected European countries, 2003-2008

Source: Turkish Statistical Institute

Figure 2: GDP growth in Turkey, 1982-2008

Source: Turkish Statistical Institute

The global crisis in September 2008 took place during the period when capital increased its accumulation through more intensive worker exploitation. In Turkey, the government responded to the global crisis in line with the policies determined at the global level. The policies implemented as a requirement of the market economy have been publicly raised by the rhetoric of “solving the unemployment problem”.

The unions stepped into the crisis with considerable weakness due to the oppressive legislation and their own structural problems. The different ideologies held by the unions were also reflected in the policies they adopted in the face of the crisis. DİSK and KESK, which proclaim to be relatively closer to the left and oppose the AKP government, were perhaps the most actively engaged against the crisis.

“Birleşik Metal-İş” (a union representing workers employed in the metal industries), which is affiliated with DISK, published a declaration on 3 November 2008, which emphasised that the crisis actually arose out of the capitalist system and that this was therefore a crisis of capital. The declaration also advocated that workers must not be forced to pay for this crisis, and further called for reducing working hours in order to protect employment, banning dismissals and flexible employment, and cancelling the interest on credit card debts as well as indirect taxes. The most important difference of this declaration is that it called on all pro-labour organisations as well unorganised sectors of society to collaborate in order to achieve these demands.

A report issued by Türk İş, the largest nationwide confederation of unions, highlights the importance of protection of employment and defends the idea that the state must support capital through incentives on condition that the latter would protect employment as a way out of the crisis.

Mass layoffs of unionised workers led labour unions to focus on the protection of employment. However, with the exception of a number of combative unions under the KESK and DISK confederations which managed to organise powerful struggles, it is generally understood from the initial reactions by the confederations that the crisis is perceived as a “natural” phenomenon which affected the whole world, and not as a structural consequence of the capitalist system. The government has responded to the crisis through incentives for capital in the form of taxes, loans and investment promotion, giving them the following major titles: tax exemptions and exclusions, tax amnesty for undeclared wealth, debt rescheduling and instalments. Moreover, temporary reduction was implemented via indirect taxes on consumption for a limited period in order to revive the domestic market. With this in mind, the demands of capitalists and unions overlapped on many issues, such as support for companies, partial absorption of labour costs by the state, and demands for changes in tax policies.

A one-day strike, which was staged by KESK and Türk Kamu Sen on 25 November 2009, was the most effective protest carried out by the unions against the effects of the crisis on workers. A short time after this very well-attended action, workers who used to be employed by TEKEL - the recently privatised public enterprise producing cigarettes, tobacco and alcohol - took action in Ankara to protest against the privatisation of TEKEL and their re-employment in other factories as per Article 4/C of Civil Service Law No 657. This law was introduced by the AKP government to veto the workers’ existing contracts and force them to accept part-time conditions with significant loss of pay and social rights following the closure of their workplace. The TEKEL action, which turned into one of the most important in the history of the Turkish working class, was carried out despite government disapproval and threats. The action lasted 78 days. The TEKEL workers' resistance was supported by very different sections of the working class. In addition, many unions in Turkey and across Europe made material and moral contributions to the protesting workers. Although six labour confederations operating in Turkey declared their support for the resistance, it could not be turned into a common cause. However, although the demands of the workers were not met, the wages and employment benefits of about 20000 workers under 4/C status saw nominal improvements. In addition, certain regulations regarding severance pay and private employment offices that had been on the agenda for a long time and that were to be introduced by the government could not be raised due to the influence of the working class struggles, which gained momentum following the TEKEL resistance. Unfortunately, despite the stability of workers and strong public support to sustain the resistance to abolish 4/C status completely, Tek Gıda İş Union disclosed in a statement made on August 9 2010 that all the actions scheduled to raise the demands of the TEKEL workers had been cancelled and they called on the workers to agree to the 4/C position they had been resisting for 78 days.

One could argue that, beyond the oppressive and restrictive setting in which unions have been forced to operate since the 1980 coup, the “compromising” approach of international union organisations has also influenced the union movement in Turkey. The World Bank, OECD and EU all supported this “compromising” approach of the international unions, which has finally been institutionalized in the industrial relations systems of central and peripheral countries through a number of programmes developed under the title “social dialogue”. Due to their compromising attitudes for many years, union structures throughout the world are neither so combative to challenge capital nor willing to develop political agendas and alternative approaches in the face of crisis. However, as in many other countries, labour struggles have continued despite the unions and, as a result, public protests for which the unions had to claim responsibility have been carried out.

Regardless of whether capitalism has overcome its crisis, the crisis for workers continues to deepen. Whether the workers will finally be able to overcome their crisis by getting out of the vicious cycle of unemployment and poverty depends on the power they are able to generate through class struggle. The decisive issue will be whether the unions keep seeking compromise, or head for class struggle.

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Yasemin Özgün is Assistant Professor in political science at Anadolu University - Eskisehir, where she researches politics, the media and poltical communication. She has published widely on Turkish politics, labour studies, education and feminist politics.
Özgür Müftüoğlu is Assistant Professor in the Department of Labour Economics and Industrial Relations at Istanbul’s Marmara University. He has published widely on labour studies and political economy and has produced and presented a weekly TV programme ‘Emek- Forum’ (Labour-Forum) for the last 2 years. He is also a columnist for the daily newspaper Evrensel.

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