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[personal profile] quizcustodiet
A few thoughts on politics. They were prompted by some coverage of Ed Miliband's speech today but it's not particularly partisan, as I think all political parties share this idea rhetorically. How committed they are to it in practice is debatable!



Miliband's "British promise" is that every generation should do better than the one before it. In terms of pay negotiations, this implies that over an individual's working lifetime average pay should rise faster than inflation. Obviously, this has been true over the recent past - past 50 years or so - I have the impression that it's true over the period since the Industrial Revolution, but I wouldn't be terribly surprised if that wasn't actually true due to the widespread poverty of industrial workers in the 19th century.

It seems to me that it looks bleak for the next 50 years, though: in sectors where location is not part of the point (even if hospital costs are lower in China, you'll still be going to your local A&E when you break your arm!) it's becoming less obvious what a Western worker has to justify a higher wage than an East or South Asian worker.

Education is the usual answer, but clearly both China and India are making great strides in this. Even if they only manage to educate 5% of their population to degree level the sheer weight of numbers will mean that they'll be able to provide a similar number of degree-educated workers to most Western countries, and the same is true at lower education levels. This suggests to me that wages will have to find a new level somewhere between where Western wages are now and where wages are in developing countries.

I know that Germany has been quite successful at competing against the developing world by moving into very high quality manufacturing, partially through what is reputed to be a very good education system. This doesn't seem to be a long-term solution, however: as China and India continue to develop, they will increasingly be able to compete on quality as well as on quantity.

Obviously this is not a zero-sum game: the educated workers in developing countries are likely to want houses, cars and gadgets, which will increase the size of the global economy and put some upwards pressure on wages. But it doesn't seem obvious to me that this effect will win out: it seems equally possible that the upward spiral the Western world experienced was based on cheap labour to produce commodities overseas, and eventually one runs out of places to outsource to.



So the somewhat depressing conclusion is that it seems to me that we ought to be preparing for a few decades of steady or declining real wages. But I'm not an economist, so I might well be wrong - please do point out where! I also have a feeling that I ought to know more about economics than I do. Almost everything I know about economics comes from reading the newspapers and The Wealth of Nations as a teenager, so if there are any particularly good books I should read I'd welcome suggestions there too.

Date: 2011-02-28 09:43 pm (UTC)
From: [identity profile] smhwpf.livejournal.com
I'd say that the decline, or stagnation, in real wages comes from the fact that the upper classes (that is, owners of capital and the top, say, 10% of managers and especially talented employees) have been able to gain almost all of the benefits of increased productivity in recent decades. Except for the blip of the recession, western economies have been growing, and will likely continue to do so, regardless of competition from China. Indeed, as you say, as China grows wealthier it will create more demand in the west, and reduce the wage gap that gives the competitive advantage. The question is who gains from the growth, and that's about the balance of power in the economy, which has to do with things like strength of trade unions and government policies. In recent decades both factors have favoured capital over labour; if that continues, then real wages will continue to stagnate for the majority. But there's nothing inevitable about that, and indeed there are some signs of people beginning to fight back - witness Wisconsin, or over here the anti-cuts movements (though they're still rather embryonic for now).

Date: 2011-03-01 12:41 am (UTC)
From: [identity profile] thalassius.livejournal.com
it seems equally possible that the upward spiral the Western world experienced was based on cheap labour to produce commodities overseas, and eventually one runs out of places to outsource to.

Well, not before about sixty years ago - the British model, at least, was based on channelling as high a proportion as possible of the raw materials of the Empire through factories and mills in the home islands, creating jobs in Manchester and Birmingham at the expense of Madras and Bombay (remember Gandhi and his weaving?).

I'm not an industrial historian, so can't comment on specifically industrial poverty, but by analogy with earlier periods I wouldn't be surprised if wages of industrial workers were actually rather better than for their farming forbears, the difference being that living conditions in the industrial cities were worse. Farming as a way of life tends to be painted in much rosier colours than it deserves, and the obvious horrors of the cities can obscure the poverty of the life industrial migrants left behind in the countryside. Not to mention that historically (up to at least the late C19) an upside of the poorer living conditions in towns was the looser social structure - the sense of 'a place for every man, and every man in his place' was weaker there.

Question: was there a point in history at which the US stood in relation to Europe much as China and India currently do to the West?

Date: 2011-03-02 08:32 am (UTC)
From: [identity profile] quizcustodet.livejournal.com
I was thinking of that aspect of the industrial revolution - the reason that all the raw materials were funnelled through factories and mills in the home islands was that that was where the profit was at that time. The raw materials for those mills were often got cheaply through the use of imperial cheap labour.

I see what you mean about living conditions vs wages - clearly there are lots of other factors to take account of there, as some might have had higher notional wages which were then eaten up by having to buy from company stores, etc.

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