Ryan Avent makes what I think is the boldest, and most honest, defense of where neoliberals see themselves on the justice towards working people sense:
And I think that current neoliberals think of themselves as more honestly egalitarian than traditional leftists, based on their international view of developments in human welfare. The past few decades have witnessed an unprecedented reduction in global poverty thanks to liberal reforms in China and India. Countries containing twice the population of the currently developed world are now hurtling toward middle-income status, thanks to trade, thanks to deregulation, and thanks to the introduction of market reforms. The neoliberals I enjoy reading pride themselves on fighting for access to opportunity for the disadvantaged, through reduced barriers to trade with America, increased opportunities for immigration to America, and (in Matt’s case) reduced obstacles to living, working, and starting businesses in America’s most dynamic urban centers. The neoliberal platform strikes me as much easier to understand, from a progressive viewpoint, when considered at an international level. And the traditional labor left, to the extent that it has supported trade and immigration barriers, is in fact a defender of an unforgivably regressive balance of global income.
Of course, traditional lefty are very concerned about international views of development in human welfare – very much so. This reminds me of the “trade” that one of the CEO’s in Chrystia Freeland’s Atlantic Monthly article The Rise of the New Global Elite brings up: “His point was that if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade.” Here a weaker American labor force is acceptable collateral damage towards the workings of globalization. I don’t know if Avent believes that, or if he considers that a good trade (or a false choice), but I think that dynamic is what generates a lot of elite opinions on the declining American middle class and our mass unemployment.
But there is an argument that neoliberals have a claim on really being concerned about labor, because they care about labor on a global scale, that the nation-state where you happen to be born isn’t a suitable location to determine boundaries for justice.
That reminds me of something I’ve been meaning to blog. Last week the Financial Times ran an editorial from
someone behind a veil of ignorance a practicing financial neoliberal, Peter Tasker, who warns that the Chinese government needs to sledgehammer the growing power of Chinese labor immediately while it is still in the crib. As China urbanizes that labor force it is getting dangerously close to getting to a point where it can demand too much, which will hurt returns on Western capital. Take it away Tasker:
True, China has continued to register turbo-charged growth while many of the debt-laden economies of the west have struggled….The financial markets, however, have taken a rather different view. The Shanghai market is at less than half its all-time high, significantly underperforming the other three members of the Bric group. More surprising, since the start of the US subprime crisis in August 2007, Shanghai’s total return in dollars has been beaten by the American S&P500, the UK’s FTSE 100, and even the Japanese Topix….
We’ve seen this movie before – 40 years ago, to be exact. In the 1960s Japan…In the mid-1950s, Japanese labour had taken 60 per cent of total value added. In the miracle years this ratio fell to 50 per cent, then started a V-shaped recovery in 1970 as the labour market tightened. Ten years later it had soared to a plateau of 68 per cent. These gains had to be fought for. In the 1970s, Japan’s now dormant union movement was in its heyday. Profit margins were squeezed, and in real terms the stock market went nowhere for a decade.
Can [Chinese] workers grab a bigger share of the economic pie before the urbanisation process is complete? In Japan they did…If China were to follow Japan, the next stage would be labour strife and inflation. The best way to avoid that outcome would be a radical tightening of the current super-easy monetary policy. But that would risk a serious slowdown and probably necessitate a large revaluation of the renminbi – both anathema to Beijing…There is no good way out of the corner into which China has painted itself. Rebalancing the economy is absolutely necessary. It is also a long-term project fraught with risks for China’s rulers – and for investors who have bought the story of inevitable western decline and unstoppable Chinese ascent.
I love reading financial editorials about the developing world because they can just say what they really mean, because when they talk about America they have to do a lot of cartwheels to hide their arguments. What they say there is what they really think about you.
(I’m just kidding. If you are in the United States this group spends no time worrying that you are going to be able to demand a higher wage in the next decade.)
I’m going to pass this off to JW Mason’s post on the editorial:
Western Capital to China: Please Keep Wages Down
In today’s issue of the Financial Times, there’s a remarkably blunt warning that “Rising wages will burst China’s bubble.” True, China has enjoyed strong growth while most of the rest of the world has endured deep depressions. But don’t be fooled by such superficial measures. On the question that really counts, China is in trouble: “The Shanghai market is at less than half its all-time high, significantly underperforming the other three members of the Bric group.”
Like Japan in the immediate postwar period, the piece argues, China has so far seen “workers flooding into the cities from the countryside, depressing wages and setting off a virtuous cycle of rising profitability and rising investment. In the mid-1950s, Japanese labour had taken 60 percent of total value added. in the miracle years, this ratio fell to 50 percent.” Miraculous indeed — but alas, it couldn’t last. By 1980, the labor share “had soared to a plateau of 68 percent. These gains had to be fought for. In the 1970s, Japan’s now dormant union movement was in its heyday. Profit margins were squeezed, and in real terms the stock market went nowhere for a decade.” Oh noes! And despite seemingly abundant reserves of cheap labor, the same disaster could befall China. “Can workers grab a larger share of the economic pie before the urbanization process is complete? In Japan they did. … If China were to follow Japan, the next stage would be labour strife and inflation. The best way to avoid that outcome would be a radical tightening of the current super-easy monetary policy. But that would risk a serious slowdown and probably necessitate a large revaluation of the renminbi.”
So there it is. The important question about China’s future is the value of financial assets. And the great threat to asset-owners is the likelihood of rising wages, which will come about through increasing organizing among Chinese workers. The only way to prevent that is pre-emptive tightening, even at the cost of slower growth. The case for austerity is seldom made that bluntly, certainly not for the rich countries, but I don’t think the underlying motivation is much different. It’s also noteworthy that big revaluation of the renminbi is presented here explicitly as part of a program to hold down Chinese wages. In other words, China faces a choice between higher wages and a higher currency. To China-competing firms and workers in the rest of the world, either would be just as welcome. But for masters of the universe with Chinese stocks in their portfolio, they look very different indeed.
(Incidentally, these questions — the relationship between profitability, investment, demand, inflation and the politically-determined division of output between labor and capital — are largely ignored by mainstream macro, saltwater as well as fresh, but are right at the center of structuralist, Marxist, post-Keynesian and other heterodox approaches to macroeconomics. If only there were some economics department interested in supporting those approaches.)
[Comment]Because I agree with the author of the article, that if China’s growth continues on its current trajectory, we’ll see Chinese workers become increasingly assertive, and a rising wage share. The difference is I think that’s a good thing.
Contra Freddie, If you want left economics writing great stuff that is relevant to the current discussion there’s plenty to choose from; I’d recommend adding his blog to your rss feeder.