Tue, Jan 22, 2013 - Page 9 News List

Davos is an example of the worst failures of Western capitalism

By Will Hutton  /  The Guardian

I would argue there is a further twist to the story. Inequality driven by weaker unions and labor market deregulation hits investment and innovation. Executive teams do not need to invest and innovate dynamically to earn rich personal rewards. They just need to be in post, squeezing the workforces’ real wages to lift profits, now the fast and easy route to apparent better performance, and thus to increase their own remuneration. And even if they do invest and innovate, the capacity to scale up production fast is hit because there are ever fewer consumers with rising real wages to buy the new products.

Inequality is a recipe for stagnation. If Davos wants “resilient dynamism,” the delegates should be discussing how to reduce profits as a share of GDP to more normal levels, while boosting the real incomes of the mass of their workforces. Be sure this will not be on the agenda. For what it implies — better wage bargaining, new arrangements to share profits across the whole workforce, smarter labor market regulation and executive pay keyed to long-term innovation rather than annual profits growth — is the antithesis of all that Davos and the international consensus believe.

Yet reality will out. Everyone knows by now, even in Davos, that there can be no return to the world before 2008, relying as it did on abundant supplies of cheap credit. Equally, we need to grow out of recession, which needs more than continual deficit spending and ultra-cheap money or the alternative of endless austerity. The answer is the economic empowerment of ordinary men and women.

It is a wonderful opportunity for trade unions to reimagine their role in Western societies. One of the reasons it has been so easy to reduce their power in the Anglo-Saxon world is that they have been so unlovely, unimaginative and defensive — the reflex defenders of the incumbent, indefensible insiders’ privileges and the “status quo.” Those with long memories will recall the militant opposition of the British trade union movement to co-determination — that is, putting workers on company boards — in the 1970s. Stupid.

Yet the West needs a way of making labor more powerful in its relations with capital. It seems an impossible ask. We need wage bargainers with more clout, but ones who behave rationally — pushing for more when it is genuinely there, but cutting deals and giving ground when the firms they work for have their backs to the wall. One way forward is co-determination, putting workers on company boards. Another would be to revisit the ideas of Nobel Prize winner James Meade and organize compensation so that a firm’s profits are equitably shared between workers, management and shareholders. And there is more.

Davos is intellectually bankrupt. However, the ideology it champions will not fall just by itself. Capitalism’s dead end requires intellectual challengers, social movements and trade union leaders prepared to dare to reimagine their role. We need ferment and protest in civil society. Social democratic parties will move, but only when they can sense a change of popular mood. This is everyone’s problem — and the responsibility of us all to act as we can.

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