Why the world needs a wage rise
Just before Christmas, the International Monetary Fund (IMF) issued yet another call for the global economy to be “re-balanced” – by which they mean that net borrowing/importing countries like the UK and the US need to be encouraged to save more and borrow less, and net lending/exporting countries like China need to be encouraged to spend more and save less. As usual, as my source Peter Bakvis (Washington officer of the global union family) says, “declines to put forward specific measures” among its discussion of policy implications. The real solution, which applies in both types of country, is clear – workers need a wage rise. Here’s why….
The IMF Staff Position Note, Global Imbalances: In Mid-Stream?, co-authored by Olivier Blanchard, chief economist, says is that domestic policies need to change in both type of economy. In the US and the UK, people need to make less use of the easily available credit that fuelled the latest financial crisis (so easily available that they couldn’t pay it back, hence the sub-prime crisis in the US). In China, on the other hand, people need to save less of their meagre incomes, and spend more on consumer goods.
Here’s why wage rises are the answer in both types of economy.
In the UK and the US, the reason why working people who used to avoid hire purchase and even mortgages are now drowning in loans is because they are poorer than they used to be. Overall, growth over the last generation has disproportionately ended up as profit (in addition to huge City bonuses), with wages taking up an ever smaller proportion. US workers are now, in real terms, worse off than they were in the 1970s (in the UK things aren’t that bad, but profits have still outstripped wages, differentials between people at the top of companies and the average worker have grown enormously, and the average family is now in considerable debt which makes sudden unemployment a worse experience than ever). Wages rises would mean less recourse to debt as a way to maintain standards of living.
In China, where of course real wages are far, far lower, workers save money to pay for ill-health, unemployment, old age and education, because these are, in the post-communist economy, privatised (in reality, even if not in theory). The IMF does go on the record in urging greater levels of social insurance in China, which would release more of the low wages of Chinese workers for spending on consumer products which they are currently producing, but mainly for export. If Chinese workers could save less, and earn more through higher wages, they could buy the goods they produce, boost domestic demand, and grow much faster than currently.
The world economy won’t emerge sustainably from the current recession until the workers of the world get a wage rise. As that meerkat says on the TV ads: “simples”.