People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 24

June 13, 2010

From Financial Crisis to Job Crisis & Wage Depression


Sukomal Sen


THE structural crisis of the capitalist system, which had been worsening for decades, has now reached a point where it requires urgent attention in every region of the globe.


The crisis that erupted like a volcano, particularly after the Wall Street crash on September 15, 2008, could not, by the very logic of the system, remain limited to a financial crisis. It has rather engulfed all aspects of the capitalist economy --- industry, agriculture, social and political life.




The sum total of resources involved is overwhelming --- trillions of dollars destroyed in the last few months. The crisis of capitalism, with a reduction in industrial, agricultural, and services outputs, is all too evident. Since 1929, capitalism has not seen so deep a crisis. One veteran Marxist scholar has come to the conclusion that, having no limits to its expansion, the system of capital ends up as a destructive and deeply uncontrollable process. It is made up of what Marx called second-order mediations --- when everything becomes controlled by the logic of capital's valorisation process, with no regard for vital human and social imperatives. Superfluous production and consumerism corrode labour, leading to precarious employment, structural unemployment and a level of destruction of nature never before seen on such a global scale.


Thus, unlike the alternating periods of expansion and crisis, which has shaped capitalism throughout its history, we now find ourselves immersed in continuous depression, showing the characteristics of a structural crisis.


The widening gulf between production truly dedicated to meeting human needs and production dedicated to the self-reproduction of capital intensifies the destructive side effects, which put the future of our species at risk: the structural precariousness of labour and the destruction of nature.


This underlines another fundamental contradiction in which the world has sunk more deeply since the beginning of the century. If unemployment rates continue to rise, the levels of social degradation and barbarism, intrinsic to unemployment, also spiral. If, on the other hand, the world resumes its former rate of growth, increasing production and the way of life founded on superfluity and waste, we shall see an even higher rate of nature's destruction, intensifying the now dominant destructive logic.




This systemic and structural crisis has another central component: the corrosion of labour. After the crisis worsened in the United States and other major capitalist countries, it has had deep repercussions in the sphere of labour on a global scale. Amid the hurricane now battering the heart of the capitalist system, we see the erosion of relatively regulated and contracted labour, heir to the Taylorist and Fordist eras, which was the norm in the twentieth century --- the result of a century of workers' struggles for social rights. This is now being replaced by several forms of "entrepreneurship," "cooperativism," "voluntary work" and "atypical labour." These formulae range from the super-exploitation of labour to self-exploitation, always in the direction of a structurally greater precarisation of the labour force on a global scale. Besides, there is an explosion of unemployment affecting enormous numbers of workers --- men or women, permanent or precarised, formal or informal, native-born or immigrant. The latter are the first to be harshly penalised. 


Let us look at the situation of joblessness since 2008.


In a recent report using fairly moderate data, the International Labour Organisation (ILO), forecast the loss of 50 million jobs in 2009. If only one large car maker in the US closes the doors, it would create millions of unemployed. Newspapers in Europe daily report thousands of workers losing their jobs.


The same ILO report adds that almost 1.5 billion workers will see their salaries cut and unemployment spreading in the same period. But it is a well-established fact that official statistics on employment fail to detect the disguised unemployment. If unemployment statistics in India and China were included, the numbers would grow many times over.


In China: The crisis has created unprecedented difficulties and challenges for the economy. It has brought about a marked shrinkage of overseas demand, overproduction in some industries, a sharp decrease in orders, stagnation in sales and shrinking of profits. The impact has spread from the coastal to inland regions, from small and medium to large enterprises, and from export-oriented industries to others. The number of loss-making enterprises and industries has increased and a large number of export-oriented enterprises had to shut down operations. Unemployment has worsened in urban areas; a large number of migrant workers have left the cities and returned home. The downward pressure on economic growth has increased and GDP growth has slowed sharply, down to 6.1 percent in the first quarter of 2009, the lowest in 17 years. In short, this has created the gravest situation for China so far in this century. In view of this situation, some people in China and abroad have misgivings about China’s ability to continue the steady and fast economic growth of the last three decades (Liu Yunshan, “How China is Dealing with the Global Financial Crisis”).     


In India: The situation of joblessness is serious. Labour ministry’s employment exchange figures from the live register in December 2000 show an alarming picture. Unfortunately, neither National Sample Survey Organisation nor the labour ministry has published the updated statistics of registered unemployment. We can safely assume that during the last 10 years, particularly after the shock of September 15, 2008, unemployment has continued to rise to dizzy heights. The labour ministry’s backdated figures of 2000 are given below:


No. of jobseekers in the live register in December 2000: 4 crore 34 lakh 36 thousand


No. of women jobseekers in December 2000: 10 crore 45 lakh 7 thousand 3 hundred


No. of SC jobseekers in December 1999: 59 lakh 48 thousand


No. of educated SC jobseekers in December 1999: 39 lakh 61 thousand 6 hundred


No. of physically handicapped jobseekers in December 1999: 45 lakh 5 thousand 9 hundred


No. of minority community jobseekers in December 1999: 57 lakh 26 thousand 2 hundred 


On the basis of the ministry’s 2000 figures, we can assume that unemployment now surely stands somewhere above 5 crore.


However, statistics of rural unemployment are not available except some in Dr Arjun Sengupta’s report. If we take into consideration the rural unemployment or underemployment together with urban unemployment (registered and unregistered), it will stand somewhere between 12 and 13 crore. It is a devastating figure. 


According to the government of India’s Economic Review 2007-08, the industrial sector witnessed a slowdown in the first nine months of the current financial year. The consumer durable goods sector in particular showed a distinct slowdown. This is linked to the hardening of interest rates and therefore to the conditions prevailing in the domestic credit sector. In contrast, the capital goods industry sustained strong growth performance during April-December 2007.


At the product group level, the survey states, the moderation in growth has been selective. Industries like chemicals, food products, leather, jute textiles, wood products and miscellaneous manufacturing products witnessed acceleration in growth, while basic metals, machinery and equipments, rubber, plastic and petroleum products and beverages and tobacco recorded lower but strong growth during April-December 2007. Other industries including textiles (except jute textiles), automotives, paper, non-metallic mineral products and metal products slowed down visibly during the period. The slowdown in the case of less import-intensive sectors like textiles is coincident with the decline in the growth of exports arising from the sharp appreciation in the rupee vis-à-vis the dollar. Within automobiles, while passenger cars, scooters and mopeds witnessed buoyant growth, the production of motor cycles and three wheelers slackened. In a nutshell, the industrial sector has produced mixed results in the current fiscal. The picture is somewhat clear about the downward trend of industrial production.




In the US, UK and Japan, unemployment rates in the first few months of 2009 are the highest in decades. That is why businessmen the world over are pressing for new legislation to make labour laws more flexible, falsely arguing that this is a way of saving jobs. It has been already tried in the US, UK, Spain, and Argentina in a very intense way, but unemployment has just kept on spiralling upward.


The ILO has done some study on the wage situation in the wake of the global capitalist crisis. Its updated Global Wage Database includes official wage statistics for 53 countries, consistently till 2008 end. Based on this sample, it appears that the global growth in average wages declined from 4.3 percent in 2007 to 1.4 percent in 2008. Overall, while a majority of countries could maintain declining but positive wage growth in 2008, more than a quarter of countries experienced flat or falling monthly wages in real terms. These countries include the USA (0 percent), Austria (0 percent), Costa Rica (0 percent), South Africa (-0.3 percent), Germany (-- 0.6 percent), Switzerland (-- 0.7 percent), Israel (-- 0.9 percent).


The statistics on wages used in this report, consist of the total monthly remuneration received by employees. ILO noted that international comparability of wage levels is affected by the different measurements in national surveys.


Average wages and wage shares are aggregate measures of wages and therefore do not help us to understand how wages are distributed among workers. As the wage share is declining in many countries, the issue of wage distribution gains further importance. Of course, wage inequality is a complex issue, involving multiple dimensions. Particular interest has been paid in recent years to wage inequality between different groups of workers, for instance by sex, level of education, age, ethnicity, migration status or formality. Due to the complexity of these issues and the paucity of relevant data for global analysis, ILO could not address these issues in this year's report. Instead, it examined some simple indicators that compare high- and low-wage earners, and also compare these two extreme groups with the median-wage earners.


ILO also considers trends in wage inequality in relation to both economic growth and gender. Before considering it, however, we address the more fundamental issue of why inequality matters. Debates around this issue have intensified in recent years. As a general principle, it is widely accepted that wage compensation needs to reflect workers’ contributions and performance. Since these inevitably show individual variations, it follows that wage inequality is a fair indicator of economic reality. This is important for public policy, particularly in the light of recent findings on what determines the people's levels of satisfaction. Population surveys show that subjective perceptions of happiness depend more on how an individual’s income compares with those of other people than on the absolute level of their income. There are also many economic costs associated with higher inequality, such as higher crime rates, higher expenditures on private and public security, worse public health outcomes and lower average educational achievements. A growing body of studies also highlights the importance of reducing inequality to achieve poverty reduction.


To present some trends, ILO first compares high-wage earners with low-wage earners, in particular the wage level of the bottom 10 per cent of workers (this wage threshold is commonly referred to as D1) with the wage level of the top 10 per cent of workers (referred to as D9). These data show the difference in this ratio of overall wage inequality for two periods, 1995-97 and 2004-06. ILO found that more than two thirds of the countries in the sample experienced increases in wage inequality. There are, however, some important exceptions, primarily in Latin American countries.




The underlying reasons for the increasing wage inequality vary across countries. ILO compares the years 1995-2000 with the years 2001-06. Among the countries which experienced increases in inequality, the more developed countries such as the UK and the US fall into the category of mainly "flying top" wages, with the exception of Germany which falls into the category of "collapsing bottom" wages. Australia is characterised by a degree of "polarisation.” The countries from developing regions are predominantly close to the scenario of "collapsing bottom" wages: in Argentina. Chile and Thailand, the main force behind the overall increase in wage inequality has been growing inequality between the median and lowest wages.


Similar diversity can be found in countries where wage inequality has fallen since 1995. In case of France, lower inequality was induced mainly by wage compressions between the median and lowest wages. The opposite situation was found in Brazil where the gap between median and higher wages narrowed considerably (mainly because median wages grew rapidly); in Mexico reduction in inequality has been made on both fronts.


On the issue of wage inequality in the context of economic development, one widespread perception is that inequality is part of the wider process of growth. This understanding is often expressed in the so-called "Kuznets curve," named after Nobel laureate Simon Kuznets (1901-85), which says that inequality first increases, then stabilises and eventually falls during industrialisation. Many interpret it as evidence that inequality is somehow a "natural" byproduct of early economic development and that it will decline "naturally" in the later stages. This view is often associated with recommendations against policy interventions to reduce inequality --- usually with the argument that such policies may inadvertently jeopardise economic growth. An alternative view of the decline in US income inequality after the Great Depression and Second World War was due to progressive taxation rather than compression wages. The ILO study on the wage inequality is, however, based on the inequality inherent in capitalist economy.


Another fundamental dimension of inequality is the difference between men's wages and women's wages --- the so-called "gender pay gap." While this issue deserves special attention, constraints in both data and research make it difficult to present a comprehensive analysis of gender pay gaps from a global perspective. The ILO observes that this wage gap is still wide and is closing only very slowly. Measuring the gender pay gaps by using the ratio of female average wages to male average wages, ILO finds the overall pay gap has been decreasing in recent years. In about 80 per cent of the countries for which data are available, this gap has narrowed. However, the size of change is small and in some cases negligible. Overall, this finding is in line with the existing studies that show that the gender pay gap has been rather stable or decreasing only very slowly. Hence, reduction in the gender pay gap has clearly been disappointing in the light of women's educational achievements, progressive closing of gender gap in work experience, and the favourable economic context. In a majority of countries, women's wages are between 70 and 90 percent of men's wages. In case of European countries, the ratio on an average is around 0.75, but it is not uncommon to find much higher ratios in other parts of the world, particularly in Asia.




On the basis of the above facts, we can take a different track from those who confine the crisis to the world of banking, a "crisis of the financial system," or a "credit crunch." It is an enormous speculative expansion of financial adventurism, particularly in the last three or four decades and is by its nature inseparable from a deepening of the crisis, in the productive branches of industry as well as from the ensuing troubles arising from the utterly sluggish capital accumulation (and indeed failed accumulation) in the productive field of the economy. Now the crisis is increasingly worsening in the field of industrial production. A necessary consequence of this ever deepening crisis in the productive branches of the real economy is the growth of unemployment and associated human misery on a frightening scale. To expect a very happy solution to these problems from the capitalist state's rescue operations is a great illusion.


In his The Structural Crisis of Capital, Istvan Meszaros adds: "the recent attempts to counter the intensifying crisis symptoms, by the cynically camouflaged nationalisation of astronomic magnitudes of capitalist bankruptcy, out of the yet to be invented state resources, could only highlight the deep-seated antagonistic causal determinations of the capital system's destructiveness. For what is fundamentally at stake today is not simply a massive financial crisis but humanity's potential self-destruction at this juncture of historical development, both militarily and through the ongoing destruction of nature."


If capital's answer to its structural crisis is the neo-Keynesianism of a fully privatised state, the answer from the social forces of labour must be radical. The fallacy of the neo-Keynesian "alternative," always welcomed by those on the so-called "left" acting to promote "order," is fated to fail. This type of alternative (!) visualises the line of least resistance to capital.


The deepening global crisis of capital in all aspects of economy, jobs, wages, social sector and culture necessitates a determined struggle to finally defeat the rule of capital. With correct vision and ideological conviction, trade unions and the working class party need to organise an uninterrupted and prolonged struggle for a step by step march forward to a socialist alternative so that humanity can be saved. The other alternative is to revert to barbarism, as Rosa Luxemburg warned long ago. The validity of her warning is now proving to be correct.