Globalisation depresses western wages

Although he doesn't say so, Financial TImes columnist Samuel Brittan is effectively reclaiming the case for a 'basic income' from self-styled 'revolutionary realists' (Negri) or, to use Alex Foti's nauseating term, 'demoradicals'.  Western real wages are 'inevitably' doomed to fall by globalization, says Brittan, but the general increase in accumulation should allow some of capital's 'gains' to be transferred to 'workers who would otherwise lose out', through a tax-funded wage supplement.

 (The question of why such a transfer should be desirable from capital's point of view is bypassed so swiftly as to suggest that the urgency of pre-empting renewed class struggle goes without saying.)  As various contributors to the excellent Aufheben pamphlet  Stop the clock: critiques of the new social workhouse <http://www.geocities.com/aufheben2/stc_intro.html> showed years ago, the 'basic income' would in practice be exactly this kind of subsidy to employers who drive wages down to less than the minimum cost of labour reproduction.  (Incidentally a supplement something like this was grafted onto the remnants of parish poor relief in parts of Southern England from 1795 until the 1830s in the so-called 'Speenhamland system', the abject failure of which hastened the national imposition of workhouse-based poverty policing.  See Demetra Kotouza's 'Lies and mendicity' in the current Mute.)  Brittan has one other advantage over leftist advocates of a basic income: as he understands unequivocally that it's a strategy for capitalist reproduction, he asks and attempts to answer the question of how capital would pay for it.  His proposal that land value be taxed as such, separately from the value of whatever building depreciates on top of it, brings him curiously close to the position of Super-imperialism Wall Street heretic Michael Hudson <http://www.michael-hudson.com/articles/realestate/....

There is a long-standing debate about whether the middle-income US employee has suffered a fall in living standards or merely achieved modest gains. At best he has had a meagre share of the rise in the US national income, not merely under President George W. Bush but in the past 40 years.

On February 10, I summarised a paper by a leading US authority, Robert J. Gordon, who concluded that the pressures on the ordinary citizen came from an enormous increase in the share of the top 10 per cent of earners in the national pay bill. I would hesitate to take issue with Professor Gordon's numbers; but even the best of econometric studies is inevitably backward looking. There is surely a case for a more speculative discussion of what may lie ahead.

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The best way to regard globalisation is that a large part of the world starts to behave like a single economy. There are some legal, institutional and psychological barriers to movement even inside a large national economy such as the US. But behind these differences there is a tendency towards equalisation of pay for each kind of work and on the return on capital - a hypothesis put forward by Adam Smith 230 years ago.

There has been an excellent analysis of the prospects by the well known labour economist, Richard Freeman of Harvard*, to which my colleague, Richard Tomkins, referred in Saturday's Financial Times. Professor Freeman estimates that the entry of China, India and the former Soviet bloc into the world economy resulted, by 2000, in a doubling of the number of workers in the global economy to nearly 3bn. As a result, the ratio of capital to labour fell to 60 per cent of what it would otherwise have been. Moreover, the newcomers have rapidly rising technological skills, but much lower wages than their western counterparts. The effects can be seen in wage cuts some German workers have accepted to discourage employers from moving to east Asia or to their former communist neighbours in central and eastern Europe.

Not all is gloom and doom for western workers. Eventually the labour surpluses in the emerging countries will be used up and competition for workers will drive wages up. The question that faces the rich countries is "when?" There is a comparison to be made with England in the industrial revolution. There is still controversy about whether real wages went up or down in the first half of the 19th century. In any case, the main gains to labour arrived in the second half of that century when, in spite of occasional slumps, labour became scarcer relative to capital. Prof Freeman estimates that Chinese wages doubled in the 1990s and, at that rate, would approach western levels in about 30 years. For the emerging countries as a whole, the process might take 40 to 50 years. In between, there will be downward pressure on many kinds of wage earner in the west.

As globalisation increases wealth, there surely ought to be a way of transferring some of this gain to western workers who would otherwise lose out. A difficulty is how to do this without killing the goose that lays the golden eggs - in other words, discouraging investment or innovation in those western countries that attempt the transfer.

The above is the roughest of rough sketches, containing many unsolved problems. The response of the global political and business establishment is to urge western citizens to acquire more and more high-technology skills, so that they remain one step ahead of their Asian competitors. We will, thus, always be working and learning with very little time to enjoy the fruits.

A more realistic response among some economists is to tax what they call immobile factors of production, which cannot easily move elsewhere. But these are not easy to find. Even the most durable capital equipment wears out. The number of occupations safe from world competition is rapidly diminishing as we see from the flow of doctors, nurses and information technology workers offering their services in the west or undertaking outsourcing in their own countries.

There is only one factor of production that is genuinely immobile and can be taxed without discouraging enterprise. This is land, by which I do not mean business or residential structures, which are normally treated together as one lump of capital and land. I have in mind pure space, which is commanding higher and higher returns because there is so little of it in favoured locations. A land levy has long been a favourite of otherwise not very leftwing market economists, but has never really been understood by businessmen, politicians or lawyers. What is needed now is a shift of the discussion from funding local authorities to the gradual use of land levies to enable workers to protect their living standards and, if possible, transfer to them some of the gains from a single world economy.