Unions need a reinvention

workersThe Observer’s Will Hutton calls for the reinvention of trade unions in the UK (article link below). The labour market continues to change, and workers need effective representation. The balance of power between capital and labour is a key relationship in a capitalist economy, and the dramatic rise of self-employment and the gig economy demand that unions respond.

If unions are to stay relevant in the new workplace, they must change

On immigration – The Economist’s surprising structuralist turn

immigration airportHere is a useful extract from a recent piece in The Economist magazine on the economics of immigration. Surprisingly for this free market-oriented publication, which often emphasizes individual freedom in its analysis, they highlight the importance of structural factors in boosting the earning power of immigrants:

“Workers who migrate from poor countries to rich ones typically earn vastly more than they could have in their country of origin. In a paper published in 2009, economists estimated the “place premium” a foreign worker could earn in America relative to the income of an identical worker in his native country. The figures are eye-popping. A Mexican worker can expect to earn more than 2.5 times her Mexican wage, in PPP-adjusted dollars, in America. The multiple for Haitian workers is over 10; for Yemenis it is 15.

No matter how hard a Haitian worker labours, he cannot create around him the institutions, infrastructure and skilled population within which American workers do their jobs. By moving, he gains access to all that at a stroke, which massively boosts the value of his work, whether he is a software engineer or a plumber. ”

‘The best policy’, The Economist, March 18th 2017, p.74

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Beware the zombies

An interesting post (link below) from Marxist economist Michael Roberts on the ‘zombie’ companies holding back economic growth across the rich world since the financial crisis. In short, many that would otherwise go bust are struggling on, just able to meet interest payments on their debt, since rates are so low, but unwilling to invest due to a low prospective return on their capital.

Roberts argues that for the average rate of profit for the whole economy to recover, the weakest and least productive firms need to fail, and resources (capital and labour) need to be reallocated to firms with brighter growth prospects.

If this happens, there is likely be some considerable short term pain in the form of rising unemployment in the midst of bankruptcy as economic restructuring takes place to restore average profitability across the economy.

Where I disagree with Roberts is in his solution to these kinds of problems under capitalism: socialist revolution and widespread central planning.

There are alternatives to this, which can mitigate some of the social pain of economic restructuring without necessitating socialism. Continue reading

Immigration, the brain drain and development

DSC00236aMass immigration across the capitalist world is arguably one of the factors that has been fueling nationalist and populist politics. From Brexit in the UK to Trump in the US, anti-immigration rhetoric has proved appealing to many. Despite promises made by former Prime Minister David Cameron here in the UK, net immigration from the EU and beyond has been substantial since the Conservatives came to power in 2010.

It is clear that huge numbers of immigrants come to the UK to find higher paying jobs than they would get in their home countries, and the EU’s policy of free movement has been part of this story. A number of Eastern European countries joined the EU in 2004, when Tony Blair’s Labour Party was in power, and immigration soared. Nevertheless, until the Great Recession of 2008, unemployment stayed relatively low. It rose during the recession but has since fallen back to fairly low levels, with record numbers now in work.

If those immigrants who have taken low paying work in the UK have had any impact on the labour market, it is argued that this has been through them depressing wages at the bottom of the distribution rather than affecting overall employment levels. This has been the subject of debate, and I will not go into that here. What I want to argue is that part of the response to those who are concerned about immigrants should be to encourage the creation of better-paid jobs in their home countries. Continue reading

Restoring shared prosperity: the structural Keynesian solution

keynes

Keynes argued that government policy could restore full employment under capitalism

What should be the direction of economic policy in the US and more widely following the damage wrought by the Great Recession and its aftermath? Sluggish growth across many advanced countries continues to be a problem. Where jobs have been created, there has been wage stagnation. In the US, this stagnation, which has recently shown signs of abating, has afflicted the average worker for several decades. These economic trends have surely contributed to disaffection with the established elite and the rise of populism and a more radical politics. Continue reading

Time to work smarter: the UK’s continuing productivity problem

workersHere is an interesting take on the UK’s poor recent productivity record, and possible solutions to it. According to the article, low wages, inflexible work practices and job insecurity are to blame. If this is right, then there are some win-win policies which could reverse the trend and also improve working conditions across the country.

Productivity growth is essential to the prosperity of the economy. If it does not grow, then there is no room for wages and profits, as the two main categories of income, to grow together, so as to improve the material conditions of the majority. Of course, growth needs to create jobs as well, since those without employment cannot share in rising incomes, other than through out-of-work benefits which represent incomes redistributed from those in work. Employment in the UK has grown strongly since the recession, but wages have not, so that the economic ‘pain’ due to sluggish growth has been shared more fairly, with more people in work alongside stagnant wages. Continue reading

Anwar Shaikh’s Classical theory of inflation

9780199390632Economic theory needs to account for the phenomenon of inflation. This post draws on Chapter 15 in Professor Anwar Shaikh’s recently published book Capitalism in which he outlines his theory of inflation under modern fiat money (state-backed money not fixed in value to gold or another commodity). He contrasts it with neoclassical and Keynesian theories, and provides empirical evidence to support his ideas.

The essence of Shaikh’s model is quite simple. Inflation, a rise in the overall price level in an economy, is determined by aggregate demand and supply, and these are influenced by three factors having either a positive or a negative effect on it: new purchasing power (PP), net profitability (the rate of profit minus the interest rate, rr) and the so-called ‘growth utilization rate’ (u).

PP is a demand-side factor, and the other two factors operate on the supply-side. PP is influenced by private and public sector credit, or a rise in borrowing to fuel greater spending in an economy. Note that this can be generated domestically or from abroad, for example through a rise in net exports. In theory, under modern fiat money, the amount of PP generated by the government ‘printing money’ has no limit, and history shows that in wartime, governments have often financed the extra demands on their activities through the creation of new money, which has given rise to inflation. This source of inflation, generated from the demand-side, seems similar to monetarist theory, in which the state is to blame via its intervention in the economy and its creation of an excessive growth of the money supply, and trying to keep unemployment below its ‘natural rate’. Continue reading