Sunday, 20 October 2013

UK Wages, Jobs, Productivity and Prices

Wages in the UK have fallen more than in much of the rest of the EU. The BBC report that real wages have fallen by 5.6% since 2010. The latest data shows that although there was an unusual spike in wages in April of this year, wages have been falling again since then, and even in nominal terms, weekly wages are back to where they were in April 2012.

In the meantime, inflation continues to rise. The latest CPI figure remained at 2.7% which was above expectations that it would fall. Of course, the Bank of England have been forecasting that it would fall for the last 5 years, but their money printing policy, along with Government policies to promote debt, such as the Help to Buy scam, have pushed up prices, and reduced the value of the pound, thereby increasing import prices. At 2.7% the CPI is nearly 50% above the Bank of England target, and with energy companies pushing through 10% price rises, with train companies pushing through fare increases way above inflation, and with food prices rising, the inflation rate is likely to rise rather than fall from here. The Retail prices Index is already at 3.2%, and anybody who goes shopping knows that these statistics significantly understate the real squeeze on living standards that is going on.

A look at the trend of the inflation rate shows that it is up not down for the period since 2000. 

Falling real wages and rising prices are the other side to the fact that the number of people in employment has been rising, whilst GDP has been stagnant until the recent debt fuelled sugar rush the government has pumped into the economy via Help to Buy in the last few months. The concomitant of that is falling productivity and capacity utilisation.

Capacity utilisation has fallen to just 50%. In other words, existing plant and equipment is being used to only half its potential capacity to generate additional wealth. The less efficiently plant and equipment is used, the more it increases unit costs, and, therefore prices. The manifestation of that is in the figure for productivity. As the following chart shows, productivity is declining.

But, the following chart shows the extent of that. From 2000 until the financial crisis of 2008, productivity was rising. Having fallen in 2008-9, it began to rise again, as the recovery started in 2009, and into 2010. But, as the Liberal-Tories have cratered the economy, and focussed again on cutting wages, productivity has once more started to fall.

These trends confirm some of the points I have made recently. In part, these trends are a result of the policies pursued by the Liberal-Tories, but, in part they are also symptomatic of the shift in the long wave conjuncture. That latter means that the productivity gains enjoyed in the first phase of the boom (1999-2012) begin to falter. The consequence of that is a slow down in the rate of profit, higher interest rates, and if money printing continues, higher inflation.

But, part of the explanation for the specific features in Britain comes down to the policy of building a low-wage/high debt economy in the 1980's/90's,, and the resumption of that model by the present government. As I explained some time ago - Making The Workers Pay – Capital cannot simply resolve its problems by attacking workers wages and conditions. Capital is a social relation between Capital and wage labour, each is inextricably linked in a contradictory unity with the other. The expansion of Capital involves the expansion of this relation, i.e. more labour-power being employed, and in order for capital to expand, labour must be capable of producing value. Its ability to do that depends upon not just its quantity but also its quality.

It was a recognition of that fact that led Capital to create Welfare States to ensure not only that it had adequate supplies of labour-power, but that the quality of the labour-power supplied met its increasing requirements. A very obvious requirement for that was shown for Britain towards the end of the 19th century, when it came to send its workers to fight in wars. It found that they had become so depleted that they had to be provided with food and physical instruction just to raise them to a standard where they were capable of fighting! Engels in his writings on the Prussian Military Policy makes similar comments in respect of Germany, which is no doubt why Prussia and then Germany introduced National Insurance and a Welfare State before Britain.

Marx describes how wages are simply a phenomenal form, the superficial appearance, of the Value of Labour Power. The latter is determined over the average lifetime of a worker, in terms of what is required to reproduce their labour-power, i.e. to produce new generations of workers. Wages may be pushed below this level at times of high unemployment, or rise above it in times of boom, but overall wages must average out at this Value. If wages are reduced below this level for prolonged periods, then this will have an effect on the quantity of labour-power supplied. That will arise in various ways.

At the time Marx was writing, and this applies still in various parts of the world, it results in workers simply dying, from hunger, or new workers not being born; unhealthy workers will not only be off work, but their sporadic availability will be disruptive to the labour process itself; workers may emigrate to other countries where wages are higher; where they can workers may leave the labour market and return to the land to be self-sufficient; where they can't they may leave the labour market and enter the black economy making a living from crime and other peripheral activities; they may be physically incapable of intensive work, and so although the amount of work hours performed may even rise, the actual amount of labour provided may fall, i.e. productivity declines.

But, besides a fall in the quantity of labour supplied, the quality of labour also declines, and this can be even more significant. The quality of the labour-power supplied depends upon the education and skill of the workers themselves, and that is a function of the education and training they receive. An economy like Britain, that focusses on building a low wage/high debt economy will as a result increasingly denude the quality of the labour-power provided by its workers. As a result the value produced by those workers will fall, or at the very least rise less than the value produced by workers elsewhere. A look at Germany or the development path taken by many Asian Tigers demonstrates this point.

As far back as the 1980's, I pointed out that economies like Singapore were deliberately trying to increase wages, and to discourage further investment by companies that relied on low wages. As the supply of labour-power in China has begun to dry up, the Chinese Government has adopted a similar strategy - Chinese Workers and the State . The reason is that by encouraging capital to engage in higher value production, it meant that higher wages could be paid, whilst the rate and volume of surplus value and of profit rose. But, for capital to engage in such production, it requires adequate supplies of educated and trained workers.

Of course, its not just educated or trained workers that produce high value products. As Marx points out, in the end the determinant of that value is what consumers are prepared to pay for the quantity that is supplied.

“The same value can be embodied in very different quantities [of commodities]. But the use-value—consumption—depends not on value, but on the quantity. It is quite unintelligible why I should buy six knives because I can get them for the same price that I previously paid for one.” 

(Theories of Surplus Value 3)

If the supply of some particular commodity, such as knives in Marx's example above, is greater than consumers require to meet their needs, then the market price for that commodity will fall possibly way below its market value. The labour used in its production was not socially necessary, and so the value of the product of that labour is retrospectively devalued. By the same token, the market value of some other commodity might be £10, and yet the demand for it be continually unfulfilled, so that consumers are continually prepared to pay much more for it, and so the value of the product of labour is much higher, i.e. it is complex labour. We see that in many commodities from designer label clothes, to music by particular singers, films by particular actors and so on.

The current policies of once again attempting to create a low-wage/high debt economy are self-defeating. They are leading to a diminished quality of workforce, falling productivity, falling capacity utilisation, and consequently to lower levels of profits and competitiveness.

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