[OPE-L] Andrew Glyn, Marx's reserve army of labour is about to go global

From: glevy@PRATT.EDU
Date: Sun Apr 16 2006 - 17:50:06 EDT


<http://business.guardian.co.uk/comment/story/0,,1747155,00.html>

Comment

Marx's reserve army of labour is about to go global

The eruption of the Indian and Chinese economies
could shift the balance of power sharply in
favour of capital in the rich world

Andrew Glyn
Wednesday April 5, 2006
The Guardian

A piece of conventional wisdom about the world
dear to economists is that the share of national
income going to workers stays pretty stable. Karl
Marx disagreed; he argued that labour-saving
capital investment would limit demand for labour,
while also bankrupting small-scale producers, in
agriculture for example. They would swell the
labour supply, creating a permanent "reserve army
of labour" that would prevent real wages growing
as fast as labour productivity. Workers would
thus spend an increasing proportion of working
time producing profits for capitalists - a
falling share for labour or a rising rate of
exploitation, in Marx's terminology.

Labour's share of national income was indeed
declining in Britain in the decades before the
publication of Marx's Capital in the 1860s.
However, labour's share lurched up during the two
world wars, and this is often interpreted as
reflecting a more even balance of power between
capital and labour brought about by the growth of
trade unions.

The later 60s and 70s saw a profits squeeze in
many European economies, including the UK,
reflecting a further decline in the power of
private ownership. Subsequently, labour's
advances were beaten back through unemployment
and the reassertion of "shareholder value".
Workers' share of national income has fallen in
much of Europe to more "normal" levels. As yet
this is not the systematic downward trend
predicted by Marx. But could that be about to
change?

The Communist Manifesto proclaimed the inevitable
spread of capitalism across the globe. This
process was halted and even reversed during much
of the 20th century by the isolation of the
Soviet Union, eastern Europe and China from the
world economy and the very slow pace of economic
development in poor countries such as India.
However, the extraordinary transformation of
China's and India's economies promises to bring
Marx and Engels' prediction to completion. What
might be the implications for workers in rich
countries?

At first glance, the eruption of China into the
world economy seems to be just the latest example
of Asian countries catching up with the leading
industrial powers. China's export growth has been
spectacular, but so was that of Japan and Korea
in earlier decades.

What makes China (and India) fundamentally
different, however, are their vast labour
reserves. Total employment in China is estimated
at around 750 million, or about one and a half
times that of all the rich economies, and nearly
10 times the combined employment of Japan and
Korea. About one half of China's employment is
still in agriculture; together with tens of
millions of urban underemployed, they constitute
a reserve army of labour of quite unprecedented
magnitude.

The effect of this reserve army has been to hold
down wages. After nearly 25 years of rapid
economic growth, wages in China's manufacturing
sector are still only 3% of the US level; after
similar periods of rapid expansion in Japan and
Korea, wages were some 10 times as high.

Much attention has naturally been devoted to the
effects on industrialised countries of the flood
of imports. But there is another, more ominous,
possibility. What if there was a major drain of
capital spending, from the rich countries to
China and the rest of the south?

Investment in developing countries by
multinational companies has been growing, but it
is still only 3-4% of their investment at home
each year. Could the trickle turn into a flood?
Television pictures of the machinery at the
Longbridge car plant being packed up for shipment
to China may be an extreme case. However, with
such low wage costs in China and growing numbers
of skilled workers, why should northern producers
continue investing to maintain their capital
stock in the north, let alone extend it? If
investment peters out, where would northern
workers find jobs? When Longbridge closed, a
government minister was ill-advised to suggest
that the car workers could seek jobs at Tesco.
Hardly a comforting response.

It is not too far-fetched to imagine a long
period of investment stagnation in the
industrialised countries, with "emerging markets"
being so much more profitable. This could bring
intense pressure on jobs and working conditions
in Britain and elsewhere. Even sectors where
relocation was not possible, like retailing or
education, would be flooded with job seekers. The
bargaining chips would be in the hands of capital
to a degree not seen since the industrial
revolution. Fluctuations in labour's share being
confined to the range of 65-75% could disappear
too, with Marx's rising rate of exploitation
re-emerging, a century and a half after he first
predicted it.

Could the economy become ever more dependent on
the luxury consumption of the wealthy, who
receive a disproportionate share of the higher
profits? Alternatively, would taxation of profits
be increased to expand government services such
as health and education? With recent trends in
favour of the wealthy intensifying, the
fundamental issue of who gets what could no
longer be confined to hesitant debates about
minor changes in the share of taxation in
national income, or adjustments to the top rate
of income tax.

 Andrew Glyn is an economics fellow at Corpus
Christi College, Oxford, and author of Capitalism
Unleashed. Email: andrew.glyn@economics.ox.ac.uk


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