One issue that has been sidelined during this general election has been the scandal of low pay in Britain. For decades, pay has stagnated whilst profits have soared. Britain needs a pay rise! Britain needs a revolution!
One issue that has been sidelined during this general election has been the scandal of low pay in Britain. Yet in a recent newspaper article, the UK was described as a low wage economy. Compared to countries like India or Nigeria, for example, this might fairly be described as an exaggeration – but frankly not by much.
Now the Economist magazine (2nd May) has broken ranks and joined the discussion with a briefing article on ‘The Economics of Low Wages’. Starting with the statement that “salaries in rich countries are stagnating…” (which is true) “… even as growth returns, and politicians are paying heed” (which is not so true), the article goes on to consider the problems the pay slump has caused – from the perspective of the bosses and the Establishment that is.
First of all, the Economist article looks at the current situation worldwide:
“Despite five years of growth American real wages are still 1.2% below what they were at the beginning of 2009. In Britain, real wages fell every year between 2009 and 2014, the longest decline since the mid-1800s. In 2014 median pay was 10% below its 2008 high. Germany, a haven during the euro-crisis has done better, but wages are still 2.4% below their 2008 level.”
A reasonable summary, which goes a long way towards explaining why there have been union drives against low pay and zero-hour contracts, not only in Britain, but also in many other major countries including the US. The scandal of low pay has meant misery for millions, with many struggling to make ends meet and often going without basic needs like food and heating. However, the Economist’s first concerns are not the fate of these people, but rather the bosses and their political representatives:
“While it makes sense for an individual boss to hold down pay, low pay across the economy as a whole threatens to put a lid on the growth that one would otherwise expect after a recession.”
Competition and cuts: the DNA of capitalism
This is the dilemma that the capitalists face. Over 150 years ago, Marx explained in his magnum opus, Capital, that the working class both produces the wealth expropriated by the bosses, but is also the market (the “effective demand”) which consumes the very goods they produce. The less a worker is paid, therefore, the less they can then spend on commodities.
In a world of low wages, the individual boss sees his/her commodities produced for less, and thus expects to see more in profits. The capitalist class as a whole, however, sees less of their goods being sold, meaning these profits cannot be realised in practice. It is a contradiction at the heart of capitalism’s DNA that they cannot resolve. What is rational for the individual capitalist – to drive down wages and increase profits – is completely irrational from the perspective of the capitalist system as a whole, leading to the capitalist class sawing away at the very branch they are sitting on; cutting the very market that they are selling to.
As The Economist alludes to, the ideal solution for an individual capitalist would be to reduce production costs by cutting wages (or increasing the working day without increasing pay, whatever suits their individual circumstances best), whilst at the same time hoping that the other capitalists kindly increase the pay of their workers so that the goods produced can still be bought.
This is of course as ridiculous as it sounds, even if the capitalists abandoned the habits of a lifetime and wanted to be public-spirited for a while. The anarchy and competition of the “invisible hand” of capitalism forces the owners and bosses to attack wages. No capitalist is ever going to be willing to sacrifice their profits for their fellow competitors. Even if they did they would soon be squeezed out of business by their ruthless pals and the requirements of the banking system, which is equally unwilling to see a cut in their return on investments and loans.
Where the economy as a whole is booming, then maybe some extra crumbs can be spared to improve the conditions of the workers; but what about in a period like now, a period of capitalist crisis, when things are not so good? The capitalist are not interested in thinking about next year or about the well-being of the economy as a whole – for them it must be me first and profits now.
So we are back where we started. Reducing pay is a partial quick fix for a system facing crisis, but one which has its own consequences. One of these is a reaction of anger on the part of the masses. As The Economist notes: “… if there is good reason to be worried about wages, the political heat also has a concerning side.” It is this fear of social revolt that has forced some economists to raise their heads and recognise the scale of the situation.
The traditional line of the capitalist economists has always been that as capitalism and its massive profits grow, so too will wages. One version of this idea is the “trickle-down” theory, by which it is said that as wealth flies into the pockets of the rich, so a portion, the crumbs in reality, will drop down to the rest of us. So based on this theory and its variations, we should all have been getting better and better off during the last few decades as capitalism expanded and grew, with things only going awry in the years of the 2008 crisis and ensuing receession. Yet, as The Economist notes with concern:
“Part of the problem is that, even before the recession, wages had not being improving as straightforward economics might suggest – which is to say, in line with productivity. The two moved in tandem following the second world war… but have been drifting apart since the 1960s: since 1960 productivity in America has risen by almost 220%, but real wages by less than 100%. Many other advanced economies have seen the same sort of trend. The result is that Labour’s share of GDP has fallen.”
The article goes on to confirm that the further down on the pay ladder you are, the more your pay has slowed down compared to the economy. That is to say the rich are getting richer and the poor are getting poorer…and not just over the last ten years either.
The Economist struggles to find a solution to this mystery. It picks up on some contributory factors like a movement of production from high-wage countries to low-wage countries like India. However it cannot explain the general process.
The Golden Years are over
Marxism meanwhile has explained for many years now that the post-war boom was an exception for capitalism. This was a period when, for various reasons, the advanced capitalist countries grew at a massive rate, with record profits being produced. Unemployment was low and the working class, through organisation and struggle, were able to drive up wages. Here it should be emphasised, least we forget, that even during these favourable conditions pay rises still had to be fought for by workers through their unions – they were rarely, if ever, just given.
However with the 1960s came the first signs of a slowdown and the return of crisis to the system. There is not the space here to outline even a summary of the various means by which the capitalist class would seek to address this problem at our expense. Suffice to say that they started to resist pay rises with a vengeance – often by using the stick of mass unemployment and by restricting the power of unions to fight these attacks. As a result wages begun chasing inflation and started moving further and further behind. Capitalists did whatever they could to maintain, if not increase, their profits.
The recession of the last period – one of the deepest and longest lasting in history – only increased this process, as pay not only slowed down, but also then went into reverse. Capitalists were trying to grab every penny to shore up their profits – and they were very successful at it. Our pockets were well and truly picked!
Lies, damn lies, and statistics
This leads us to another mystery The Economist article cannot explain:
“In 2013, the OECD, a rich-country think-tank, thought wage-driven inflation would kick in in Britain if unemployment got back below 6.9%. But joblessness was well below that throughout 2014 and average real wages still declined by 0.6%…. In Japan, unemployment averaged 3.6% in 2014, well below its pre-crisis average, but real pay fell by 2.5%.”
This is all “odd” says the article. The reason is actually quite clear. Unemployment figures have not fallen because of any miraculous recovery of the world’s economies. In the UK, productivity remains very low, with many parts of the real economy (i.e. production) moving into a state of reverse. The figures are only being massaged by a rise of speculation investment over such things as housing.
Meanwhile, the truth is that many workers have accepted pay restraint or even pay cuts in order to just keep their jobs. Others have been forced by attacks on welfare payments to take low-paid and/or zero-hour contract jobs in order to survive. Others have entered the fictitious world of “self-employment”, which is nothing of the sort. Unemployment figures have further been reduced by the government tactic of “sanctioning” hundreds of thousands out of existence.
So we can see that this “fall” in unemployment has in no way aided any sudden mood of confidence that pay rises can be either won or obtained. If the unions had a more militant approach towards struggling against the bosses then something could be done. Certainly the bosses for their part do not feel confident enough in this so-called “recovery” to willingly risk a pay rise for their workers.
For a real living wage and a job for all!
So what is the solution? The Economist article has no real idea on this. Tax cuts are an option; but these, as we know tend to benefit the rich rather than the poor – and, in any case, most low paid workers no longer earn enough to pay tax anyway.
The next option mentioned is some form of tax credits to supplement low pay levels. However, even the article ruefully notes that on this “…stingy bosses are able to rely on tax credits rather than raise pay.” That is to say, the bosses simply transfer some of the wage bill to the state, enabling the capitalists to pay wages that otherwise would be so low as to be pointless workers taking the job on. For an establishment endlessly obsessed about the deficit and cutting state expenditure, this option is hardly attractive anyway. They are haunted by the ghost of sovereign debt and know not what to do.
The article does raise – before rejecting – the idea of raising the minimum wage to force bosses to pay at least something more. Unions have rightly been fighting for this for sometime now. The Tories are not interested in raising the minimum wage levels, and Labour’s proposals for an £8 minimum wage, whilst an improvement on this, are not much better in practice. For a start, such a wage pledge does not guarantee that workers will be able to find the hours and security of work needed to actually make a living.
The demands should be clear – a decent, real living wage for all workers, linked to the actual cost of living, with full-employment. There can be no playing-off of those in work against those in unemployment. Jobs and pay should not have to be the balancing act that they are under capitalism, where the only options are apparently either low(er) wages and low(er) unemployment figures, or high(er) wages and high(er) unemployment.
Britain needs a pay rise! Britain needs a revolution!
The only organisations that can fight for a better deal are the trade unions, and this they must do. However, we must recognise that any gains won in struggle will, under capitalism, be temporary. Under conditions of crisis the bosses will always seek at the first opportunity to grab these gains back. That is the reality of the capitalist system. So this struggle to end low pay must be fed into a wider struggle to change the system itself, to end capitalism and for a socialist programme.
£7 trillion – £7,000,000,000,000 (which is indeed a lot) – is just sitting in capitalist offshore banks accounts. The top 1% in the US pocket 20% of all income – the highest such figure since 1928. Figure after figure demonstrates the reality of a system whereby a rich few are doing well and the rest are not. Clearly the money is there – our class produces it yet another pockets it for their own gain.
Last year hundreds of thousands of workers, students, young and old marched through London and elsewhere in support of the TUC call “ Britain needs a pay rise!” The Marxists would wish to add to this: “Britain needs a revolution!” Such a call will be echoed by more and more people in the coming years as the low pay scandal refuses to go away.
- Fight low pay!
- Fight austerity!
- Fight for socialism!