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Marx's reserve labor goes global

By Andrew Glyn
THE GUARDIAN, OXFORD
Friday, Apr 07, 2006, Page 9

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 labor-saving capital investment would limit demand for labor, while also bankrupting small-scale producers, in agriculture for example. They would swell the labor supply, creating a permanent "reserve army of labor" that would prevent real wages growing as fast as labor productivity. Workers would thus spend an increasing proportion of working time producing profits for capitalists -- a falling share for labor or a rising rate of exploitation, in Marx's terminology.

Labor's share of national income was indeed declining in Britain in the decades before the publication of Marx's Capital in the 1860s. However, labor'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 labor brought about by the growth of trade unions.

The later 1960s and 1970s saw a profit squeeze in many European economies, including the UK, reflecting a further decline in the power of private ownership. Subsequently, labor'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, is its vast labor 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 labor 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 percent 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 industrialized 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 percent to 4 percent of their investment at home each year. Could the trickle turn into a flood? Television pictures of the machinery at Rover's Longbridge car plant in England 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 UK government minister was ill-advised to suggest that the car workers could seek jobs at the local supermarket. Hardly a comforting response.

It is not too far-fetched to imagine a long period of investment stagnation in the industrialized 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 labor's share being confined to the range of 65 percent to 75 percent could disappear too, with Marx's rising rate of exploitation re-emerging, a century and a half after he first predicted it.

Could developed economies 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 favor 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.
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