quizcustodiet: (Default)
[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.
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November 2013

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