This week sees yet another make or break conference for the interminable Doha Round of World Trade Organization talks, writes network member Conor Cradden. This time it’s in Bali, and on the agenda (yet again) is breaking the deadlock about multilateral trade regulation (for a quick guide to what’s going on see this piece on the Guardian website).
But, frankly, who really gives a damn? And, more to the point, is export-led development really the only way to a bright future for poorer countries, or is it mostly just a convenient way for a very small number of people in these countries and in the global north to make a lot of money? More yet to the point, is the significantly more socially and economically advantageous strategy of focusing on expanding domestic demand being kept off the agenda because it implies involving workers directly in decisions about pay and conditions?
UNCTAD’s answers
A lot of the answers to these questions are to be found in a desperately important report from the UN Conference on Trade and Development (UNCTAD) that was published a couple of months ago but got a lot less attention than it deserved. It doesn’t say that export-led development is a scam (maybe it would have got some more attention if it had), but what it does say is (a) that there are serious limitations on what it can achieve and (b) that expanding domestic demand is a much better route to stable long-term economic development. It’s a long and complicated report, but there are some important, easy-to-grasp lessons in it. First of all, there’s this, with emphasis added by me:
Labour income is the most important source of household consumption, which generally accounts for between half and three quarters of aggregate demand, even in relatively poor countries and countries with a relatively large export sector. Thus fostering the purchasing power of the population in general, and of wage earners in particular, should be the main ingredient of a domestic-demand-driven growth strategy.
While export-led strategies focus on the cost aspect of wages, a domestic-demand-oriented strategy would focus primarily on the income aspect of wages, as it is based on household spending as the largest component of effective demand. If wage growth follows the path of productivity growth, it will create a sufficient amount of domestic demand to fully employ the growing productive capacities of the economy without having to rely on continued export growth. p.VIII-IX
There are two fundamental arguments made in the report. The first is that there is a logical problem with focusing on export-led growth, particularly when demand from the developing world is low and likely to remain so for some time. The problem is simply that not everyone can do it at once: “It is not a new insight that growth strategies that rely primarily on exports must sooner or later reach their limits when many countries pursue them simultaneously: competition among economies based on low unit labour costs and taxes leads to a race to the bottom, with few development gains but potentially disastrous social consequences.” (pI). By contrast, development strategies focused on increasing domestic demand can be adopted everywhere without putting downward pressure on wages and without encouraging competition between states to offer the lowest corporate tax rates.
The second argument is that increasing domestic demand has to involve increasing wages. Household spending is overwhelmingly the most important element in aggregate demand within an economy, and since income from work is overwhelmingly the most important source of household spending, then that adds up to a pretty good reason to ensure that the share of wealth that goes to maintaining and increasing wages does not fall. UNCTAD shows (pp73-74) that when the wage share increases, private consumption consistently increases, i.e. if ordinary people have more money, they spend it, with all the positive effects on economic growth that that implies. By contrast, there is no clear relationship between a decreasing wage share – which is to say, an increasing return on capital – and investment. Contrary to what we are generally told, if the share of the cake that goes to business owners and shareholders gets bigger, there is absolutely no guarantee that they will invest this money in economically useful projects rather than squirreling it away in the Cayman Islands. Even if they did invest it at the same rate that workers’ incomes are put into the economy via everyday spending, it would still not make such a significant contribution because household spending makes up a much larger proportion of demand in the economy.
Having shown that the economic effects of domestic-demand-oriented strategy could be truly impressive, the report argues that the usual macro-economic mechanisms for demand management, including increased public spending, could very usefully be supplemented by incomes policies aiming to keep earnings in line with productivity growth. This kind of policy, which aims to prevent rapid economic growth leading to damaging levels of inflation,
could be enhanced by a strengthening of collective bargaining mechanisms (or their introduction where they do not yet exist) and by minimum wage legislation. Collective bargaining of wages, and employment conditions more generally, would also help to achieve greater social consensus about income distribution and enhance social cohesion, provided that both workers’ and employers’ associations, and possibly government recommendations or guidelines for such negotiations, broadly adhere to the wage adjustment rule. Such mechanisms may be difficult to implement in many developing countries where the institutional framework for structured negotiations for determining wages and employment conditions remains to be created. p.75
The logic of the argument is pretty simple. It’s not that encouraging exports is not important, it’s just that it’s not nearly as important as expanding domestic demand. Expanding domestic demand carries a risk of inflation though, so you need to keep a grip on wage rates, but if wage rates track productivity growth then everything is pretty much okay. What is more, there’s a basic justice to this idea that helps to increase social cohesion around the idea of waged work, and it also means that everyone has an incentive to work together to improve productivity. What you need to make this work, though, is some kind of system that helps to make sure that wages and productivity growth remain in sync over the long term, but that also allows temporary exceptions to the general rule to be agreed where there’s a case for them.
Fantastic, so what’s the problem? Well, unless you want to get into some of the desperately complicated technocratic processes for wage-setting that characterized many European economies in the 1970s, ensuring that wage growth remains at a socially and economically useful level means workers and employers sitting down together and agreeing wage rates in the context of the relevant productivity figures, investment strategies and plans for production.
Upsetting the economists
This is the sort of idea that makes neoliberal economists go puce with rage. They are so caught up in the marvellous abstract elegance of their model that they are unable to see that the alternative to rational discussion and agreement is not some magically objective market rate that appears out of nowhere, but simply unilateral decision by managers. Economists tend to forget that prices don’t just happen. Somebody has to agree them. In fact, the very idea of a market is a nonsense if the agreement of both buyer and seller to a price is not freely given. It’s very boring to have to repeat it, but repeat it we must: the agreement of individual workers to their pay and working conditions is virtually never truly free. Unless the circumstances are exceptional, they have to take what they are given. This means that the economic model that treats workers as if they had the same market power as enterprises is simply wrong. This desperate attachment to an inaccurate model in the face of decades of accumulated evidence would be funny if it were not so damaging. The self-righteous rage of economists is rather too convenient for corporate executives everywhere who are desperate to find respectable arguments to justify their ability to pay workers whatever best suits them and their shareholders, which oddly enough is usually – admittedly not always, but usually – only just enough to allow workers and their families to keep body and soul together. It is also convenient for those who want to ensure that there is no good reason to involve workers and their unions in public policy-making at any level.
Cutting workers out of decision-making about wages – deregulating the labour market and limiting workers’ ability to unionize and to take industrial action to press wage claims – has not led to increased wealth creation and the trickling down of that wealth to ordinary workers. It has simply meant productivity growth outstripping growth in real wages, which leads to excessive profits and increasing inequality. The UNCTAD report makes a very convincing case that this can change and that change would be good for everyone, but change is only possible if we let workers back into the argument. The experience of the last 30 years has shown – as if any more evidence was really needed – that employers will not voluntarily increase their employees’ real wages to match productivity. They need to be encouraged to take that economically and socially responsible step – and who better to encourage them than workers themselves?
Not collective industrial relations again? That’s sooo 1970s…
When people dismiss a policy solution as ‘outdated’ it usually means that they haven’t really got any actual arguments for why it won’t work any more. It’s just that it’s not new, so it must be rubbish. The authors of the UNCTAD report have had the courage to recognise that the evidence says that keeping labour costs down is a failed economic strategy and that the alternative, increasing incomes, demands that we construct collective bargaining systems where these have never existed and that we rebuild them where they have been demolished. The argument is made in the context of a report on trade and development, but it applies just as much to the economies of the global north as those of the south. That this argument is beginning to get some purchase is evident from the renewed stirrings of anti-union argument in right-wing think tanks and policy forums and anti-union action by corporations. It has dawned on this lot that the policy dominance they have had for the last 30 years is coming to an end and they are desperate to produce new arguments against allowing workers any increased influence over management decision-making. You can see this in the anti-union actions of corporations like Walmart and corporate front organizations like the US National Right to Work Legal Defense Foundation, but also on the international level with the attempts by employers’ representatives in the ILO to establish that ILO conventions do not protect the right to strike.1
We don’t need any more debate about whether we need collective industrial relations. Thirty years of neoliberalism has provided all the evidence we could possibly need that excluding workers from decisions about pay and conditions has seriously damaging social and economic consequences. The argument is over. What we have to start talking about again is what kind of collective industrial relations we need. What kind of workers’ organizations are most effective where employment is largely informal? Is it better to try to organize bargaining at enterprise or industry level? How do we support the growth and development of democratic trade unions? Are there models of democratic workers’ organization that are different from the euro-american standard and that are more appropriate (for example) in circumstances where workers are informally or precariously employed? What can unions in the global north learn from these organizations? What are the relative advantages and disadvantages of mandated as opposed to voluntary forms of worker representation?
The list could go on and on, but you get the point – it’s not a question of whether we do this, but how. Collective industrial relations is back.
- See this earlier blog.