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Münchau on the politics of redistribution

by Migeru Thu Aug 29th, 2013 at 05:47:27 AM EST

In his fifth and final column on the economic programme of the major German parties for the upcoming elections, Wolfgang Münchau has this to say about Die Linke: Wahlprogramm der Linken: Rot-Rot-Grün ist die beste Lösung für Europa (Spiegel, 28.08.2013)

Das Wahlprogramm der Linken in puncto Euro-Krise zeugt von Ehrlichkeit und Intelligenz. Damit ist die Partei den Großen weit voraus - und der ideale Partner für SPD und Grüne.
Election program of The Left: Red-Red-Green is the best solution for Europe (Spiegel, 28.08.2013)
The Election program of the Left shows, on the Euro crisis, honestly and intelligence. Thus the party is far ahead of the big parties, and the ideal partner of the SPD and Greens.
Going beyond the Euro crisis analysis, which is standard around here, Münchau discusses the international dimension of redistributive policies. Quote and translation below the fold.


Wie auch bei den Grünen steht die makroökonomische Analyse unter ideologischem Vorbehalt. Auch ihr Programm ist hoffnungslos überfrachtet. Die Linken instrumentalisieren die Krise für ihre Forderung nach höheren Löhnen und Umverteilung. Die Lohnquote - der Anteil der Löhne am Bruttoinlandsprodukt - ist seit den siebziger Jahren in den meisten Industriestaaten zugunsten der Gewinne gefallen. Einer der Gründe dafür ist mit Sicherheit die Globalisierung, denn sie brachte mehr Lohnwettbewerb. Insofern kann man aus der Krise nicht eine Erhöhung der Löhne an sich fordern, höchstens eine Umverteilung der Löhne zwischen Ländern und einer global koordinierten Korrektur im Verhältnis zwischen Profiten und Löhnen. Wie das in der Praxis funktionieren soll, sagen uns die Linken nicht.

Das größte Problem des Linken-Programms besteht darin, dass es davon ausgeht, dass man die internationale Finanzkrise mit Mitteln nationaler Umverteilungspolitik lösen kann. Die Partei schweigt zu Fragen der internationalen Koordinierung.

Ohne die lässt sich die Krise aber nicht lösen. Und momentan geht der Trend gerade in die andere Richtung. Direkt nach dem Zusammenbruch der Investitionsbank Lehman Brothers im Jahre 2008 gab es ein kurzes Zeitfenster für eine Neuausrichtung des internationalen Wirtschaftssystems. Von dem Willen ist nichts mehr zu spüren. Die Gruppe der größten Wirtschaftsstaaten (G20) ist zu einem Debattierclub verkommen.

As with the Green Party, the macroeconomic analysis is subordinate to ideology. The program is hopelessly overwrought. Die Linke instrumentalises the crisis for their demands for redistribution and higher wages. The wage bill - wages' share of GDP - has fallen in the majority of industrial states since the 1970s. One of the reasons for it is surely globalization, as it brought with it more wage competition. Thus one cannot demand from the crisis a wage rise in itself, at most a redistribution of wages among countries and a globally coordinated correction in the relation between profits and wages. How that should work in practice, Die Linke does not say.

The biggest problem of Die Linke's program is that it assumes that one can solve the international financial crisis by means of a national redistribution policy. The party is silent on issues of international coordination.

However, without them the crisis can not be solved. And at the moment the trend is right in the opposite direction. Immediately after the collapse of investment bank Lehman Brothers in 2008 there was a short window of opportunity for a realignment of the international economic system. There is no trace left of that willingness. The G20 group of the largest economies has degenerated into a debate club.

Much food for thought. One thing Münchau doesn't address is whether the European Union as the largest economic area in the world, or the Eurozone as the second-largest monetary union, could by itself undertake internal redistribution between wages and profits without waiting for broader international coordination. Jérôme used to point out incessantly that the EU was a standard setter in market regulation because the size of its market made it impossible to ignore by foreign (Chinese, US) producers.

Display:
Is Münchau falling afoul of his own criticism of European politicians' small-open-economy mindset?

Finance is the brain [tumour] of the economy
by Migeru (migeru at eurotrib dot com) on Thu Aug 29th, 2013 at 05:52:54 AM EST
A tale of two economic models by Jerome a Paris on April 5th, 2007
The neoliberal revolution by Jerome a Paris on May 30th, 2007
Also, das monde commenting on So what really happened in the 70s? by Metatone on August 23rd, 2012


Finance is the brain [tumour] of the economy
by Migeru (migeru at eurotrib dot com) on Thu Aug 29th, 2013 at 06:06:55 AM EST
In 1965 my father was paid (roughly) $25,000/year.  The same job is now paying $250,000 to $300,000/year.  The labor cost has risen but the (objective) living standard of that wage has not.  

Why?

The US Cost of Living has risen along with the salary.  

I presume the same for the EU.

As long as the labor/COL ratio per product price in the US and EU moved in lock step, that's no big deal.  As soon as the labor cost alone came under attack it becomes a big deal.  

Eliding a lot of blah I submit if US and EU capitalists want to pay 1975 wage rates then the COL also has to fall to 1975 levels ... IF the goal is to have a "healthy" - whatever that means - domestic economy.    

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

by ATinNM on Thu Aug 29th, 2013 at 11:19:54 AM EST
I don't know what your father did, but most professions in the US have not risen like that.  In fact most have lost ground against COL just in straight wage terms, let alone lost benefits.
by rifek on Tue Sep 17th, 2013 at 04:31:37 PM EST
[ Parent ]
Assume that the Eurozone is indeed large enough to be able to engage in internal redistribution. A plan to raise wages in the periphery would involve directing investment away from Germany and into capital formation in peripheral countries whose problem is actually low capital intensity relative to the core. But this would imply that German wages would have to stagnate. Peer Steinbrück just proposed a minimum wage of €8.50 for Germany. With a 40-hour workweek that's 340 Euros a week. Spain's minimum wage is €645, less than half of Steinbrück's proposed minimum wage.

The point being that it's extremely unlikely that Germans would accept EU-level redistribution which would entail at most stagnating real wages for them. Or would they?

Finance is the brain [tumour] of the economy

by Migeru (migeru at eurotrib dot com) on Thu Aug 29th, 2013 at 02:32:32 PM EST
Well, given that there's been a redistribution from German workers to profits, their wages could rise slowly while profits dropped to something more normal.
by Colman (colman at eurotrib.com) on Thu Aug 29th, 2013 at 02:34:49 PM EST
[ Parent ]
I'm thinking growing nominal GDP should be a constraint in designing all these scenarios...

Finance is the brain [tumour] of the economy
by Migeru (migeru at eurotrib dot com) on Thu Aug 29th, 2013 at 03:00:08 PM EST
[ Parent ]
Wages in all OECD countries could rise relative to the cost of living were we able to reduce the portion of the cost of goods and services going to the financial sector. It is the financial sector and their beneficiaries who have taken what workers have lost - and this is no accident.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Aug 29th, 2013 at 09:10:30 PM EST
[ Parent ]
IOW, "Euthanize Wall Street!"

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Aug 29th, 2013 at 09:11:27 PM EST
[ Parent ]
We need a new Broadway musical:  Rent II: Wall Street Crushes the World.
by rifek on Tue Sep 17th, 2013 at 04:27:37 PM EST
[ Parent ]
There are surely issues of capital density and industrial structure to keep in mind when thinking about the low returns to labor in much of the world.  But it's also critical to keep in mind that there is also a clear political component.  When the state is overtly hostile to labor's claims on profit, labor will not have much success in dragging profits away from the owners.  That is a political decision as much as anything else, and as bad as Western governments and politics are at the moment, they still look pretty damn socialist in comparison to the politics current in a lot of countries.
by Zwackus on Fri Aug 30th, 2013 at 02:35:50 AM EST
[ Parent ]
they still look pretty damn socialist in comparison to the politics current in a lot of countries China.
It may be 'glorious to be rich' but that is not an option for any but cadres, their families, some Taiwanese and Hong Kong residents and a lucky few other Chinese. Whether the average worker is better off as a wage slave than as a rural agricultural worker is hard to say, but there seems a dearth of good jobs all around. The vanguard has left the proletariat in the mud. China is extolled as a model because it has the relationship between capital and labor which our elites desire to create in 'The West'. Like Arkansans say 'thank God for Mississippi!' Chinese elites must say 'thank Heaven for North Korea!'.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Aug 30th, 2013 at 08:37:05 PM EST
[ Parent ]
.. No, no it is not. The answer is "yes". Or they would not keep moving into the cities the way they are. This is not so much a statement that being a Chinese factory worker is the gravy train, more that being a peasant sucks unspeakably.
by Thomas on Sun Sep 1st, 2013 at 03:57:13 PM EST
[ Parent ]
The British industrialization (and the Danish for that matter) provides a number of examples of ways in which the answer might be "no" and migration still happen.

I don't know enough about rural China to comment intelligently, but I do know that in rural India, peasants are chased off their historical holdings by goons with guns and more or less official sanction from more or less crooked officials.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Sep 1st, 2013 at 04:08:05 PM EST
[ Parent ]
The answer is "yes". Or they would not keep moving into the cities the way they are.

But when a development such as Ordos or an industry such as many of the export manufacturers goes sour, very many rural immigrants return to their families where at least they can get food. Those that have no such family and cannot find other work are out of luck.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Sep 4th, 2013 at 01:57:34 PM EST
[ Parent ]
Greater even than the uneven distribution of wage rates in the Eurozone, is surely the uneven distribution of employment per se. It should be politically much easier for Eurozone political parties to support "equal pay for equal work", than equalised social welfare systems which could only exist by direct subvention of Greek etc, government coffers from German government coffers etc.

If there is one market failure in the Eurozone at the moment, it is surely the labour market failure of jobs failing to migrate to where unemployment is highest and where wage rates are also much lower.  Indeed high unemployment correlates with low wage rates - the reverse of what classical economics would predict. The single market has failed to produce the capital flows and investment patterns from high wage to low wage economies that should have tended to equalise unemployment rates by now.

It should be easier to persuade German Capitalists to invest in low wage economies than to persuade German voters to support Greek "subsidies" at their own expense, or even to support EU wide industrial/agricultural/energy and transport policies which favour net transfers/investments in low employment/wage economies. But in stead of mass capital flows from high cost to low cost economies we have mass people migrations from low employment to high employment economies. Why is it that "people" are showing more "flexibility" and mobility than capital?

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Aug 31st, 2013 at 07:12:56 AM EST
Economics and Politics by Paul Krugman - The Conscience of a Liberal - NYTimes.com
I would say, by the way, that while our skepticism has been pretty well vindicated, the key weaknesses of Europe as a currency area have been somewhat different from what we imagined. Low labor mobility is a problem; but lack of fiscal integration and lack of banking union have been even bigger problems.


Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Sat Aug 31st, 2013 at 07:19:22 AM EST
[ Parent ]
Might it be because banking is a blind spot for Krugman and the rest of the neoclassicals?

Finance is the brain [tumour] of the economy
by Migeru (migeru at eurotrib dot com) on Sat Aug 31st, 2013 at 10:09:30 AM EST
[ Parent ]
Resolutely so. Acknowledging the reality of MMT seems tantamount to heresy.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Sep 4th, 2013 at 01:59:36 PM EST
[ Parent ]
Of course low wages are correlated with high unemployment.  Workers are paid whatever they can demand, and their ability to demand is in direct proportion to their political strength in government and their economic strength at the bargaining table.  High unemployment destroys theat bargaining power, and lets employers pay less for what work they choose to make available.
by Zwackus on Sun Sep 1st, 2013 at 12:32:09 AM EST
[ Parent ]
... Münchau thinks it means.

To say: "The wage bill - wages' share of GDP - has fallen in the majority of industrial states since the 1970s. One of the reasons for it is surely globalization, as it brought with it more wage competition."

... is to say that the policies directed to reducing wage share were successful in reducing wage share.

Why the success of a set of policies typically called "globalization" in having the wage share impact they are aimed at would imply that a set of policies aimed at a different outcome would therefore fail ...

... seems most likely from the propaganda of globalization as being something akin to a natural process as opposed to a set of policies aimed at reducing the aggregate wage share of transnational production areas.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Sep 1st, 2013 at 01:26:37 AM EST
Münchau might not yet be prepared to call bullshit on the whole program of globalization. Doing so still puts one seriously outside of 'the mainstream'. It also turns one from a critic of the existing system to an enemy of TPTB.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Sep 4th, 2013 at 02:05:48 PM EST
[ Parent ]


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