The four factors shifting power away from workers and citizens

Paul Sweeney: In developed countries, there has been a decline in labour’s share of national income going to wages for many years. This has major implications not just equity, but for demand, for growth itself. In Ireland, labour’s share fell from a high 70% in 1987, to only 52% in 2002, but unusually, has risen since. However, at 63% in 2011, it is still below that of Germany (68.3 %), UK (71.3%) or even the US (64.3%).

The labour market is also becoming polarized between “cool jobs and crap jobs”. At the top, owners and top executives are paying themselves obscene and utterly undeserved sums, as shareholders are unable to govern them. They have rewritten the rules of corporate governance in their favour – and that what makes government policy on taxation and on corporate governance so important.

There has also been a steady rise in the number of top jobs and in jobs at the bottom, with the proportion of jobs in the middle declining.

At the bottom, the shift in manufacturing from the west has eliminated some of the best jobs for unskilled or semi-skilled workers. It has also hit trade unions. In the middle, even with university education, jobs are becoming increasingly precarious – more short-term contracts, poor or no pensions, poorer public services – ironically as the squeezed middle is unwilling to pay for them and corporations do not.

I believe that the future will bring greater insecurity with stagnating incomes, increasingly precarious employment and uncertainty - unless there is a radical re-think of key issues like taxation and the governance of companies worldwide.

There are four factors which have assisted the change in the balance of power away from workers and citizens. It is not just the immense burden of debt which governments and bankers have hung around our necks, which is driving this shift.

Firstly, globalisation has exacerbated major trends in labour markets and in income distribution.

Secondly, there has been a decline in trade union density. This is a key to the decline in the relative share of labour income. Whether one like unions or not, this decline in density and unions as a countervailing power to corporations means demand is ebbing in all developed economies as people become less well-off and more insecure over time. The shift of national income has been to the very wealthiest, who do not spend their money (they have too much). Nor do they invest so readily – aggregate demand is down and so investment is becoming less profitable.

The third factor is that capitalists have become more aggressive in undermining the Social Contract with labour and with society in general.

Indeed, most do not realise the Crash of 2008 may have been only the first step in their own decline.

So far these trends have by-passed many emerging economies – but not for long, since most tend to ape the worst excesses of the West.

The fourth factor is the decline in progressive taxation. For example, corporation tax rates are declining in most countries, led by Ireland, as they compete for foreign direct investment. Fifteen OECD countries had wealth taxes in 1995, only three have today. Taxes on inheritances have been scaled back too. Lower tax rates are not a problem if they are accompanied by cuts to tax avoidance schemes, but governments have failed to eliminate most of these – leaving both lower rates and avoidance mechanisms in place for the rich and corporates.

Radical reform of taxation is one key driver in reform and changing the balance of power, and that will be the subject of my next post.

Posted in: Corporate governance • Politics • Taxation • Labour market • Labour market

Tagged with: corporategovernance • trade unions • Wages • publicservices • taxation

Paul Sweeney     @paulsweeneyman

Paul Sweeney is former Chief Economist of the Irish Congress of Trade Unions. He was a President of the Statistical and Social Enquiry Society of Ireland, former member of the Economic Committee of the ETUC, a member of the National Competitiveness Council of Ireland, the National Statistics Board, the ESB, TUAC, (advisor to OECD) and several other bodies. He has written three books on the Irish economy and two on public enterprise, including The Celtic Tiger; Ireland’s Economic Miracle Explained and Selling Out: Privatisation in Ireland, chapters in other books and many articles on economics.