Another financial tsunami: the massive shift from wages to profits
April 3rd, 2011Unnoticed in the austerity-driven travails following the financial crash lies another tectonic shift. According to research by the US bank Morgan Stanley, since the start of the ‘recovery’ in 2009-10 total real wages have risen by £105bn, but profits have soared by £330bn. This is the first time that profits have outperformed wages in absolute terms in 50 years. In Germany employee pay has risen by £31bn while profits have accelerated to £99bn. Things are even worse in Britain. Here profits are up £14bn, but aggregate real wages are actually down £2bn. This will get a lot worse still when low-middle income families are now officially expected to take an unprecedented 4-7% real terms cut in their living standards in this next year.
Why is this happening? The share of labour has been in decline across the OECD since 1980, largely caused by the imposition of neoliberalism and the triumphalism of the market most notably promoted by Reagan and Thatcher. The polarisation to the detriment of labour has been growing ever since in the UK, but has been even more marked in the US. There productivity ros 83% during 1973-2007, but male average real wages only rose slightly by 5%.
Even so, the decisive shift in favour of capital is breathtaking. The weakening of the trade unions by using the law to tilt the balance of power strongly towards employers plus an across-the-board programme of privatisation almost halved union membership and extensively diminished their influence, particularly when Blair continued the same Right-wing pro-market policies even when Labour regained office. But probably the biggest driver has been the systematic de-regulation of the economy, particularly of the financial sector. It is that removal of almost all constraints that has propelled the ballooning of the City and its ancillary functions and made it the most powerful force in Britain today. And where there is excessive power, there will also be the abuse of power in terms of insatiable greed, recklessness, arrogance, and self-aggrandizement in income and wealth – exactly what we have seen over the last several years.
The banks have shamelessly used their power to consolidate their profits, wealth and influence even further. Central banks have regularly cut or held down interest rates over the last quarter century in order to boost bank profits and raise asset prices. With this in-built subsidy rigging the market, it’s hardly surprising that bankers’ fancy incomes and even fancier bonuses far outpace pay in jobs of comparable technical skill.
April 3rd, 2011 at 5:48 pm
Well put Mr Meacher. How can a system that rewards bankers who shuffle money about vastly more than those who do something useful like farmers, engineers or doctors possibly be tolerated?
Its simply a terrible mis-allocation of wealth and we all suffer from it (apart from the 1% at the top of course).
April 4th, 2011 at 11:38 am
Would we have suffered under labour is the real question answer yes we would, so we might as well accept the bunch thats in now……..
April 4th, 2011 at 4:50 pm
In defence of working people
Outrage and disgust are filling the hearts of ordinary working people as they see their societies ripped apart by inhuman cuts under the fallacy that the only way to reduce the deficit is by destroying the role of the state. The propaganda of the Conservative/Liberal coalition is exposed in the following
Are the Government cuts necessary? The answer to this question may be no, as there are a number of ways of reducing the deficit. The fairest way would be to substantially raise taxes. Taxes put a higher burden on wealthy people and leave necessary services untouched.
Suggestions like this produce the response by the wealthy “why should I pay more?”. The answer is that nearly all wealth is created by ordinary working people and it is hard to imagine anyone who is self made in economic terms. All wealth appears to be dependant on ordinary working people in the following ways
A. Most company’s need workers to make a profit.
B. Share markets banks etc need company’s to speculate on (Thus Workers)
C. Retailers and wholesalers need customers to make a profit (workers)
There are many more examples where working people provide the means for wealth creation even the unemployed serve an economic purpose by keeping waged labour lower. The aforementioned would appear to suggest that ordinary working people are the bedrock of wealth generation on whom most are dependent. With this in mind, it seems fair and reasonable to make the people who have benefited from others pay more in taxes. This could be done in numerous ways some are listed below.
A. Vat/Tax on private Education.
B. Vat/Tax on private Health.
C. Substantial increase in inheritance tax by introducing a number of tires that progressively take more as the value of the estate goes up.
D. Substantial increase in council tax by introducing a number of tiers above where it is caped at the moment.
I am not an economist and tend to see economics as more of an Art than a Science and can see how easy it is to be lured into the agenda of the right and believe that low tax economies are the only successful way to go. Below are a few suggestions as to why this view may be a fallacy if they don’t satisfactorily answer your response they may at least open up the debate.
1. If you look at America before the economic collapse one can see a low tax economy producing great wealth with the belief that this will somehow trickle down and every one will prosper. This would seem to be a myth as it would appear that a significant part of the population then and now lack sufficient medical cover and welfare provision .
2. Higher taxes it may be suggested can contribute to a system of welfare and education that allow creativity and wealth creation, through that sense of security the individuals feels able to extend themselves. Investment in students brings both individual and economic rewards to society. Investing in arts and sciences fosters both creativity and innovation.. some company’s it may be suggested are only interested in the maximization of profit and not a long term legacy thus the role of the state starts to become apparent
3. I am informed that the UK after the Second World War faced huge debts but was still able to set up the NHS and bring about the Welfare State. This begs the Question how was it done? The answer in large part appears to be through higher taxation
4. After the election both the Conservatives and the Liberals suggested that the basic rate of tax would have to go up by about 6% over a number of years to close the deficit and the only way forward was cuts to welfare and the role of the state. It may be suggested that the above-mentioned figure could be significantly lowered By extending inheritance tax in line with the value of the estate ( The lager the estate the higher the percentage)and higher direct taxes upon the wealthy which seems fair as wealth creation seems in large part dependent upon labour (see above). Closing loop holes in offshore bank accounts may gain more revenue this could be done by making private companies disclose salaries (as the public sector now has to do) and profits and encouraging employees to report tax evasion and abuse by offering a reward and freedom from prosecution
April 5th, 2011 at 1:58 am
No thats not the ‘real question’ at all – that’s a very trivial question in the big scheme
February 18th, 2013 at 2:04 am
Based to my observation, after a in foreclosure procedure home is bought at an auction, it is accepted aided by the borrower to be able to even need any staying unpaid debt in the mortgage loan. There a wide range of lenders whom make an effort to have all costs and liens paid in return by the up coming buyer. Nevertheless, depending on assured products, laws, and state laws there can be numerous loans which are not conveniently settled through the exchange of lending options. Subsequently, the responsibility however lies regarding the debtor that has collected his or her real estate foreclosed on. Numerous thank you for posting your very own thinking on this web site.