Bill Mitchell takes dead aim:
...I have noted that a defining characteristic of the neo-liberal period has been the fall in the wage share in national income in most nations. This has come about because real wages growth has dragged behind productivity growth. The gap between the two represents profits and shows that during the neo-liberal years there was a dramatic redistribution of national income towards capital.
This has been aided and abetted by governments in a number of ways: privatisation; outsourcing; pernicious welfare-to-work and industrial relations legislation (designed to reduce the capacity of trade unions); etc to name just a few of the ways. These ways vary by country.
The problem that arises is if the output per unit of labour input (labour productivity) is rising so strongly yet the capacity to purchase (the real wage) is lagging badly behind – how does economic growth which relies on growth in spending sustain itself?This is especially significant in the context of the increasing fiscal drag coming from the public surpluses or stifled deficits which squeezed purchasing power in the private sector since the late 1990s.
In the past, the dilemma of capitalism was that the firms had to keep real wages growing in line with productivity to ensure that the consumption goods produced were sold. But in the lead up to the crisis, capital found a new way to accomplish this which allowed them to suppress real wages growth and pocket increasing shares of the national income produced as profits. Along the way, this munificence also manifested as the ridiculous executive pay deals and Wall Street gambling that we read about constantly over the last decade or so and ultimately blew up in our faces.
The trick was found in the rise of “financial engineering” which pushed ever increasing debt onto the household sector. The capitalists found that they could sustain purchasing power and receive a bonus along the way in the form of interest payments. This seemed to be a much better strategy than paying higher real wages.
The household sector, already squeezed for liquidity by the move to build increasing federal surpluses were enticed by the lower interest rates and the vehement marketing strategies of the financial engineers.
He’s very partisan – I can’t in all conscience endorse his views fully – but I think there’s some truth to his viewpoint (for those who are counting, Mitchell’s a proponent of Modern Monetary Theory). It will certainly confirm the opinions of many workers who feel pressured trying to maintain their standard of living.
I certainly agree that the philosophical pendulum has swung too far towards the free market, and ignored the growing imbalance in bargaining power between capital and labour. In a truly competitive market, all agents are price takers (i.e. they have no pricing power), but that’s not the case in the market for labour. There are far fewer companies than there are individuals and neither are all jobs equal, giving companies near monopsony power.
There’s thus a good argument for strengthening labour’s weak position, and improve the share of wages in national income. There’s some ambiguity involved, because for some segments of the working population labour and capital are inextricably linked, such as in owner-operated enterprises and partnerships. But the main point remains – the question is what to do about it.