What started out as a debate between macroeocnomic bloggers on the imapct of technology (and specifically robots) has taken a very interesting turn.
So the story has totally shifted; if you want to understand what’s happening to income distribution in the 21st century economy, you need to stop talking so much about skills, and start talking much more about profits and who owns the capital. Mea culpa: I myself didn’t grasp this until recently. But it’s really crucial.
I couldn’t agree more.
Earlier this week I blogged about an important new report by Howard Reed & Jacob Mohun Himmelweit for the TUC on the wage and profit shares over the last 30 years in the UK.
As I wrote then:
the fall in the wage share is not being driven by a generalised rise in the profit rate (or fall in the wage share) across all industries but by the relative growth of sectors with a higher profit share and a relative decline of lower profit share sectors.
the finance sector’s operating surplus was negligible throughout the 1940s, the 1950s, the 1960s and the 1970s. It began to rise in the 1980s and reached almost 5% of GDP on the eve of the crisis. Over this period a rising profits in the financial sector explain the entire increase in the UK profit share.
I think we can go one step further than Paul Krugman, it’s not only crucial to look at profits and who owns the capital but equally crucial to look at exactly where those profits are being made.