Wednesday, November 30, 2016

The global market economy

Professor Kaushik Basu, professor of economics and the C. Marks Professor of International Studies at Cornell University, former chief economist of the World Bank and former chief economic advisor to the Indian government, describes globalisation of labour and the rise of automation as “a crisis in the global labour market.”

According to Basu, the big change from previous technology increases has been the “sharp rise in technology that links workers in different places”. This means that wealthy nations are now able to access “cheap labour that was earlier tucked away in faraway places”. The problem is the “bottom end of labour” in rich countries like Australia, USA and the UK is now in direct competition with “workers in poorer countries who for the reason of being in poorer countries command a much lower wage”. This competition for labour “is causing inequality to get exacerbated” in wealthy countries. The crisis in the global labour market is “feeding into a lot of economic and political problems and manifesting in different ways”.

One of the more stark ways it is manifested is the declining share of national income going to workers. This decline is something that has occurred across most developed nations since the mid-1970s, but the drop in Australia is among the most marked.

In 1975, two-thirds of Australia’s GDP was in the form of wages; in 2014, it was just 53%.

 Real wages have flatten, even while labour productivity improves. The winners from globalised labour are the “profit takers” in the wealthy ones. He argues the solution to the dilemma of outsourcing and the replacement of work by automated processes is to not think of it as a “labour versus labour problem – workers in rich countries and workers in poor countries.” Instead, he argues, “we have to face up to the fact that this is also a wage versus profit problem – with an increase in the share of profits, and a decrease in the share of wages.”

Basu explains that a protectionist trade policy to block the outsourcing of labour looks very good “at first sight” because it would seem like “you’re protecting jobs among your own workers in your own country”. But what would happen is that other nations would continue to use the cheap labour and would “out-compete” the protectionist nation.

Of course, Basu is no socialist. His solution is for “a redistributed government which takes away a slice from the rich and provides it to the workers in the form of health benefits education and also some form of profit share”. He advocates the way to respond to the declining share of wages due to globalisation and automation is to “think of some form of redistribution so that workers get their income shored up” and “to allow workers to get a share of profits”. Uh-huh, he is asking for the capitalist class to reduce their slice of pie which in the few hundred years of capitalism has rarely happened exept by the power of the unions extracting more of the surplus value they produce

We wouldn’t expect him to actually question the actual existence of the whole wages and profit system.