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Recovery up – living standards down

Written By: - Date published: 2:29 pm, April 1st, 2011 - 11 comments
Categories: Economy - Tags:

“Workers lose in two-speed recovery” is the headline of an interesting article in today’s Business Herald print edition, sourced from “The Economist.” Living standards are declining in recovery because the share of income going to profits has far outstripped wages. Most people are not feeling better off.

Some instances quoted: in the US,

this is the first time profits have out-performed wages in absolute terms in 50 years

in the UK

the median British household has suffered the biggest three-year fall in real living standards since the early 1980’s

in the US again

productivity rose by 83% between 1973 and 2007 but male median wages rose by just 5%

Various reasons for the disparity are discussed, including union decline. One commentator

reckons privatisation has also led to a decline in labour’s share of the cake. Managers of newly-privatised entities tend to lay off workers as their focus shifts from empire-building to profit maximisation

The article concludes:

One factor that should perhaps get more emphasis is the role of the financial sector. Central banks have repeatedly cut or held down interest rates over the past 25 years in an attempt to boost bank profits and prop up asset prices. With this subsidy in place, is it surprising that earnings in finance have outpaced wages for other technologically skilled jobs?

Attempts to remove that subsidy are met by threats from international banks to move elsewhere. This is a little reminiscent of the protection rackets run by the gangsters in Mario Puzo’s The Godfather. It is as if the finance sector is saying: “Nice economy you’ve got there. Shame if anything should happen to it.”

Massive state aid to the financial sector has been combined with Government resistance to any enquiry into bank behaviour. No perhaps about it, the role of the financial sector should definitely get more emphasis.


11 comments on “Recovery up – living standards down ”

  1. prism 1

    What about making it mandatory for workers to share in profits? If they have to agitate for better wages, at least they would get recompense for hard work.

    • uke 1.1

      I think Ken Douglas once made a similar comment. His argument was that most workers “invest” a company more than they ever recompensed via wages: committing to the job long-term, settiling nearby, buying a house, raising a family etc. He contrasted this with investors and shareholders who “only” commit their funds and are also covered by limited liability, such that they are legally shielded from any adverse consequences their investment might have enabled to happen.

      Good ‘Economist’ article, too, and interesting to read some of the comments by readers.

    • chris73 1.2

      If a company doesn’t make any profit and has to borrow to remain afloat will workers pay for some of the loan?

      • Colonial Viper 1.2.1

        That’s a bullshit deal, instead sell ownership over to the workers to raise the needed capital, mate.

        That would be a step in the direction of a democratic socialist economy.

        • chris73

          Assuming the workers have the capital and assuming the owners want to sell

          But whys it bullshit? Prism wants workers to share in the profits so they should also share in the losses as well, cant have it both ways

          • Colonial Viper

            It’s a bullshit idea because providing a loan is not where the real money is. Ownership is where the real money and the real power is.

            If a company needs capital, workers can source that capital.

            Once the workers own part of the company, or say all of the company, they will also own all future profits. Good eh. That’s proper profit sharing. The workers who do the work get the profits. Not some faraway group of major shareholders and Board of Directors who don’t even know how to turn the lathes on.

            And what if the owners do not want to sell? Hey if they are strapped for capital they merely need to consider it an option.

            • chris73

              No the people who set up the business get the profits, if the workers want the profits then they can set up their own business

              • RobC

                Chris, leaving sole-traders and perhaps very small business aside, companies cannot exist without workers. In society both are needed and are interdependent on each other. Taking your argument to an illogical extreme, if all workers decided to “set up business” then there would be no workers to sustain business.

                I ask you to reflect on a quote from A. Lincoln in 1861 – 150 years ago …

                Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration

  2. Jum 2

    Which one do I choose? Rob’s The New American Dream or Mike’s Recovery up, Living Standards Down? I know – I’ll copy it to both. It affects both threads only not in America or Britain but in New Zealand.

    Just when I thought the property investors federation were about to attack the vulnerable, I read this:


    • RedLogix 2.1

      Andrew King is no fool.

      “Is lack of capital really the key problem with New Zealand’s productivity? Perhaps there are other more serious factors, such as selling our most profitable businesses, like banks, to overseas owners; selling low value primary products rather than hi tech and high value products; poor management of our existing companies; ineffective use of new technology or low economies of scale through focus on the domestic market.”

      While the guy may be a bastard capitalist landlord/investor… like me he’s never been a fan of the insane expansion of bank credit that pumped up the property market last decade. Any real investor KNEW that in the long run that could only hurt the market.

      The end result was that we have hundreds of billions of dollars tied up in mortgages that will take 15-30 yrs to pay down at a monstrous expense. Never, ever, forget that a typical 25yr table mortgage will repay 3-5 times the original principle in interest costs alone over the lifetime of the debt. And that each time you re-finance with a new mortgage, the table gets reset back to zero.. ie your back to paying 100% interest, 0% capital… every time.

      And we keep repeating this insanity on the same old stock of rubbish houses that we keep trading each other generation after generation. Still if you think this is a bad deal… try having it all blatantly stolen off you by the insider trading, sharp-suited den of thieves that is our stock market/investment industry

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