Production, consumption and wages
This morning’s Financial Times finds Martin Wolf in reflective mood (‘This crisis is a moment, but may not be a defining one’, p. 13). Wolf argues that “the (economic) crisis is global, with a particularly severe impact on countries that specialised in exports of manufactured goods or that relied on net imports of capital.” Wolf adds that policymakers have thrown the most aggressive fiscal and monetary stimuli and financial rescues ever seen at this crisis, and that this effort has brought some success.
On the same page, Michael Pettis of Peking University (‘Asia needs to ditch its growth model’) returns to a familiar theme. Pettis says that “At the centre of the Asian development model, with China providing a steroid-fuelled example, were policies aimed at mobilising high levels of domestic savings and channelling massive investment into productive capacity. These policies boosted savings by constraining consumption even while they forced rapid growth in domestic production.”
Wolf and Pettis have both commented on the relationship between producer economies (China, German and Japan) and their consuming counterparts (particularly the US, but also, to a lesser extent, the UK) in recent weeks. China, Germany and Japan built export-led economic models that only worked while consumer nations were willing and able to buy their products. Those economic models were specifically designed so that overseas buyers, not domestic populations, did the purchasing. With little spare cash and even less confidence in recent months, consuming nations have kept their wallets in their pockets. The result is that export-oriented countries are now feeling the heat.
What does all this mean for British trade unions? For one thing, we must push for balanced economies. The UK needs to export more, because our trade deficit of the past 30 years should be addressed. That means that the new industrial activism pursued by Lord Mandelson should think about the strategic sectors that can build a healthy level of exports for UK plc. Our strengths in high value manufacturing and, especially, our potential in green manufacturing sectors spring to mind. But we don’t seek exports for exports sake and we certainly don’t seek to achieve them by holding down domestic consumption.
That, in turn, raises the issue of wages and their role in creating demand. When trade unions so much as whisper about higher pay, the doom mongers start talking about the threat of wage inflation. However, as our German trade union colleagues have frequently argued, the export-led policies of the German Government stress wage moderation in order to work. This is a conscious choice and it has consequences. Put simply, during the good years, Germany squandered the chance to boost real wages.
Here in the UK, we are in that strange place where one level of inflation, CPI, is still above its target rate, while another, RPI, is in negative territory. All trade unions are aware of the fragile state of the economy, its impact on jobs and the dangers of excessive wage demands. But anyone seeing the economic crisis as an excuse to clamp down on legitimate wage demands could damage the economic recovery more than they realise.