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.