Wednesday 17 July 2019

Racing To The Bottom, Or Chasing Our Tails?

Always Playing Catch-Up: Throughout the 1970s, the purchasing power of the ordinary worker’s pay packet – the only meaningful measure of his or her wealth – was being eaten away every passing year by seemingly inexorable rises in the cost-of-living. Small wonder that New Zealand (and the rest of the Western world) was plagued by strike after strike, as the unions made increasingly desperate – and ultimately futile – efforts to catch-up. Neoliberalism has many faults, but encouraging inflation isn't one of them.

A NEW FRONT has opened up in an old battle. The New Zealand Initiative (NZI) a think tank funded by this country’s largest corporations, has come out swinging against this government’s proposed “Fair Pay Agreements” (FPA).

As the linear descendent of the Business Roundtable, of unhappy memory, this is hardly surprising. For the NZI’s principal funders, preserving the gains of the dramatic changes in employment law which rounded-off New Zealand’s neoliberal revolution remains a high priority.

In the ears of New Zealand’s biggest bosses, the FPAs sound too much like the old “Industrial Awards”, which, for nearly 100 years, underpinned the industrial relations system swept away by the Employment Contracts Act 1991 (ECA).

It has been an article of faith among trade unionists (and the Left generally) that the passage of the ECA led directly to a decisive shift in the balance-of-power in the workplace. Not only between the boss and the union, but also – and more generally – between wage and salary earners and shareholders. The ECA has caused the share of national wealth claimed by the workers to shrink, the Left insists, while growing the share claimed by the capitalists.

All the other arguments advanced by the labour movement: that the employment relationship, as modified by the ECA and its successors, has grown increasingly one-sided and unfair; is based upon this crucial statistic. If the size of the Capitalists’ slice of the national pie has, indeed, grown relative to the workers’ slice, then change is justified. If, however, the slices have remained more-or-less the same, or, if the workers’ slice is growing (albeit very slowly) then the Left’s case for change is weakened – perhaps fatally.

Hence the NZI’s latest offensive: a statistical dagger-thrust at the unions’ key argument that unjust employment laws are keeping the workers poor, weak and exploited. Here’s the point of the dagger:

“[I]t is claimed current labour market settings have seen a decline in the share of New Zealand’s gross domestic product (or “share of the pie”) going to workers. This concern is a myth. The share of GDP going to workers did decline in the late 20th century, but this fall largely occurred in the 1970s and 1980s (at a time when New Zealand had a system of industrial awards similar to the FPA arrangements proposed by the FPA[Working Group]). Since the 1991 reforms, the decline in workers’ share of GDP has been arrested and is now trending upwards.”

Could this possibly be true? Actually, the NZI just might be right.

A week or so ago, while researching another topic entirely, I had cause to refer to my late mother’s amazing collection of Encyclopaedia Britannica yearbooks. In the entry devoted to New Zealand in the year 1977, I read with astonishment that the rate of inflation recorded for 1976 was 15.6 percent. In March of 1977, however, the Wage Hearing Tribunal had awarded wage workers an across-the-board increase of just 6 percent. The unions had asked for 12.8 percent. In other words, the purchasing power of the ordinary worker’s real wage had shrunk by at least 6.8 percent – probably more.

No matter that union membership was compulsory in 1977. No matter that industrial awards mandated a minimum set of wages and conditions across entire occupational groupings. The purchasing power of the ordinary worker’s pay packet – the only meaningful measure of his or her wealth – was being eaten away every passing year by these seemingly inexorable rises in the cost-of-living. Small wonder that New Zealand (and the rest of the Western world) was plagued by strike after strike, as the unions made increasingly desperate – and ultimately futile – efforts to catch-up.

Clearly, there were more ways of killing the poor old worker’s cat than by hitting it over the head with the ECA.

The Council of Trade Unions may be right about the ECA and its workplace bargaining setting off a “race to the bottom”, whereby wages are constantly being suppressed by employers competing aggressively to reduce the size of their wage bill. But, the very same rigors of competitive neoliberal microeconomics are also preventing employers from simply passing on the wage rises secured through collective bargaining into the price of their goods and services.

While neoliberalism holds inflation in check – allowing workers’ real wages to rise – the trade unions will struggle for members – and relevance.

This essay was originally published in The Otago Daily Times and The Greymouth Star of Friday, 12 July 2019.


greywarbler said...

While housinhg, an essential piece of the workers wage, has been mined for its rich and sure return on capital, workers will not benefit from rises in the minimum wage.

Guerilla Surgeon said...

I'd like to see the stats. Some sections of the workforce have done very, very well under neoliberal governments. Some not so much. Average figures might not be worth very much, because they don't account for those at the very bottom. And of course in the seventies and early eighties, we didn't have to have two jobs to make ends meet. Still, I'm open to persuasion.

Jens Meder said...

Another advantage of keeping the inflation rate low might be in making it worth while and encouraging people again to save more before taking up debt for more investment -

and thus creating a less vulnerable and more progressive economy in a more stable way -

especially if it results in widening capital ownership by wage earners ?

peteswriteplace said...

The coalition govt must be successful this time around. I was one of those kiwi workers who were basically destroyed bt the ECA. I never recovered from redundancies one after the other.

David George said...

The insidious effects of inflation didn't just compromise returns to labour, it severely impacted business net profitability and profoundly altered our attitudes to savings and investment.
Back in the 70's business, in order to maintain their physical stock levels, had to pour more and more of gross profits into maintaining it. They were then heavily taxed on the increase in it's dollar value and faced high interest rates to fund it. There was nothing left to fund improvements in productive plant, worker remuneration or conditions and (understandably) a culture of speculative "investment" developed. The value of savings and the culture and utility of saving per se were destroyed. Productivity growth per employee stalled as a consequence and remains one of, if not the, worst in the developed world.
We had one of the highest rates of inflation in the developed world and are still affected by it's shadow; high levels of speculation, weak capital markets and savings and the consequent need to fund it all from the savings of others. Our appalling current accounts reflect that; coming up for fifty years of continuous deficits. We are forced to fund that deficit (and it's consequent interest payments and profits to the offshore owners of "our" businesses) by even more borrowing and the selling of assets.
We've been fooling ourselves that high levels of immigration represent genuine growth, that the next big breakthrough is just around the corner (anyone remember Knowledge Wave), that we can export our way out of it, that more expensive houses are wealth, that wages for our army of struggling working poor are unaffected by immigration of the poor and desperate or that we can compete with the same folk in their home countries. None of our political parties are willing to face reality nor have the wit or courage to deal with it.
New Zealand has some very fundamental problems that are not being faced up to, this FPA is just a continuation of the illusion, a sop, by a government bereft.

greywarbler said...

You have such a good grasp of everything relating to the NZ economy you should be working for The NZ Initiative.

Jays said...

The more capitalist a society is, the wealthier the society as a whole but the bigger the gap between rich and poor.
However socialism taken to the point of communism (or near enough) results in a poor society with even bigger gaps between rich and poor.
The trick is to find a good balance between capitalism and socialism.
When people can have unlimited children and receive state funding to support them, the balance is wrong.

David George said...

Thank you greywarbler.
I'm sure NZ initiative are aware of the issues but tend to present arguments that support the interests of their members, as you would expect. As Jays alludes, it's important to find a balance; that comes about as a result of free dialogue, not, God forbid, as a consequence of power. Is there genuine discussion on the balance between, say, individual and collective responsibility or the interests of employer and employee; discussion that isn't corrupted by power, resentment (often disguised as compassion) and greed.
We need that but it's a fat lot of good obsessing over the branches when the roots are rotting.

Unknown said...

People on the economic left don't like the notion of limits to resources; personal responsibilities (or the notion of a human nature). The world is represented by Uncle Scrooge diving into the coins in his vault and the have-nots at the door. That is my impression. I have found considerable kick back to this:

A conventional economic analysis of large -scale immigration impacts
The distinctive feature of the New Zealand economy is that land is an important input into the productive process. This is obvious with the agricultural, fishing and forestry sectors but it also applies to international tourism. In a simple model of the New Zealand economy where the supply of land is fixed, and New Zealand’s isolation means it is not a ‘natural’ location for the production of a broad range of internationally traded goods and services, then an increase in the labour supply through large scale immigration will reduce the marginal product of labour. As a result:

 Real wages will fall
 Owners of land will benefit
 There will be an outflow of ‘native’ labour in search of higher wages in Australia
 The economy will be bigger, but average incomes will fall
 Resources will flow into low value service production.

Perhaps it is wrong but it certainly seems to be the case in the "low value service production" - "our magnificent tourist industry" sector (props up banks and property investors, architects, lawyers, advertising industry, engineers). How many of our unions would agree with the above - Zero, zero, zero!?

Jens Meder said...

Jays - without capitalism there is no economy beyond a pre-stone-age hand-to-mouth existence.

A sort of balance between liberally feudalistic private capitalism and totalitarian state monopoly capitalism (Socialism and/or Communism) has been achieved by the mixed (private and public) capitalist social democratic welfare economy.

But the latter has partly failed, because instead of widening real (not subsidized) prosperity, it has achieved only widening (and increasing?)welfare dependency so far.

Therefore the most promising "balance" ahead for Social Democracy is in the systematic, legislated 100% participation of all citizens (from birth?!) in personal (retirement) capital ownership creation, towards a mixed capitalist social democratic welfare state economy, containing - or based on - 100% of citizen participation in personal wealth ownership

aberfoyle said...

1972,tradesman painter hourly reward,$12 per hour,sat overtime morning four hours,$15 per hour,traveling time one hour per day at the hourly rate.rounded off around $340 PER WEEK.Two bed fully furnished flat Tasman st Welly,$30 per week,power cost memory no more that $30 odd per month,fill the cuboards $35.Buy a home,minimum $16 thousand depost four thousand.Ten years on wage tradesman $18 per hour rental and other sundaries neglagble in cost afford rise.1990,tradesman wage under union negotiation $28 per hour,sundries shifted rapidly that $28 per hour could manage yet not like 1972.Today tradesman painter hourly wage,have a guess its a lottery,if most if not all would be surprised if $20 per hour was on the cards,as for the sundries,well pie in the sky.

britbunkley said...

An intriguing article! However, in every study that I have read on this subject, it was the edicts of the ECA (and similar laws overseas) that were responsible for the destruction of unions and subsequent flattening of wages in a growing economy. Inequality did in fact rise rapidly. The ECA borrowed significantly from the US Orwellian titled “Right to Work” laws which allowed contracts to be written and given equally non-union supporters. So why join the union if one can get the same rights for free and without the hassle of striking? So then bada bing bada boom membership tailspins…and unions are dead. Additionally, unions like many people never understood the concept of inflation. No one was willing to tie wages to the CPI -cost of living index as happens in other nations. he economic crises of the 1970s, ranging from the collapse of the Bretton Woods agreement, to the OPEC oil shocks. It was in fact a product of early neoliberalism. (It is the same problem with tax backed creep…just attach it to inflation, for crisakes, and the right wing loses that argument.) ..a good graph in the link on inequality that contradicts the right win think tank, NZI!prettyPhoto

This resulted in stagnating wages in light of growing economies, not Stagflation was universal in the developed world in the late 70’s.
The other factor in stagnating and declining union membership and resulting stagnating wages in rick star economies is the endless propaganda on the benefits of neoliberalism... perhaps so much so that even you are espousing its benefits? ...on the big Business tremendous propaganda offensive in the USA...with a striking (pun intended) relationship to anti union blather here:

Jays said...

I don't disagree.
However there needs to be a change where the useless are not subsidized to breed.
The socialists think it is kind to "help" these people but of course it is not because theyou are breeding and ever increasing population of people who are incapable of taking care of themselves and are.far more likely to beat their children.
This form of welfare is nothing short of systematic abuse.
The kindest thing you can do is allow these people's bloodlines to come to an end. Not by any intervention but rather the opposite. Not intervening to enable the propagation of their faulty bloodline.

Guerilla Surgeon said...

"However there needs to be a change where the useless are not subsidized to breed."

You'll be having the snip then? Because I have decided to classify you as useless. God help us all, this is the most ridiculous bullshit I've heard for some time. And I did my thesis about you people, so I've heard some ridiculous Bullshit.