Although ‘competitiveness’ is often code for lower wages, they don’t deliver it!
Across Europe, so-called ‘experts’ argue that the main way out of the recession caused by the Global Financial Crisis is to increase ‘competitiveness’, by which they generally mean lower export prices leading to a surplus of exports over imports. While it’s certainly true that high trade deficits marked out the European countries that were to be the worst affected by the crisis, there is mounting evidence that the policy prescription favoured by those ‘experts’ doesn’t work.
‘Increasing competitiveness’ is all too often code for slashing real wages, and sometimes cutting nominal wages too. But Greece, Spain and others are demonstrating that cutting wages is not a sustainable route to economic recovery. Instead, as in Britain, workers across the world – not just in the crisis countries of Southern Europe – need a pay rise, if we are to recreate the growth needed for decent jobs and affordable welfare states.
In fact this should have been obvious when the crisis began. Since the 1970s in the USA, and more recently in Europe, real wages have been stagnant or declining, and that’s precisely what caused the trade imbalances between north and south in the last decade (real unit labour costs in Spain have been falling since 1986, and fell dramatically in Germany in the first few years of the 21st century.)
But it has become even clearer since the crisis began. Ronald Janssen explains here how even the IMF has accepted that wage cuts in Greece are not restoring international competitiveness enough to overcome the damage they are doing to domestic demand (exports and imports being a relatively small part of the economy as a whole) and Manuel de la Rocha explains here how wage depression isn’t working for Spain, either. He makes the additional point that increasing exports often requires increased imports to contribute to finished products, thus further depressing the impact of export growth on GDP.
A more effective way of increasing competitiveness, in a way that would stimulate domestic demand, would be to increase ordinary workers’ wages, provide more skills training and invest in infrastructure and capital. But that would require a change in the current expert consensus. Of course, it can’t be ruled out that the expert consensus is just providing a justification for the greed of the top 1% who are the main beneficiaries of the reduction in wages.