Tuesday, Jan 05, 2010
A more productive Britain
Telegraph: Freeze minimum wage to help Britain's youth stay employed, says CIPD
The seeds are being sown to move Britain towards a more balanced economy. The first step was devaluing the Pound. The next step is to lower the average wages of our workers. It is quite easy to do this. First you lay off a few high earners. Then you replace retiring high paid workers with young low paid workers. Then you freeze everyone else wages and let inflation do the work.
A reduced Pound and lower wages will make us competitive enough to actually produce goods. Many of us have campaigned for a shift like this but perhaps we forgot the ugly side of the coin?
Posted by flashman @ 10:12 AM (1349 views) Add Comment
41 Comments
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1. flashman said...
It is logical to assume that reduced incomes will lead to lower house prices. The trouble is that in days gone bye, mortgage companies didn’t want to lend to low-income workers. My bet is that corporations, rich individuals and employers will buy up the reduced price, freshly repossessed housing stock. They will then rent it out to their workers. I’t would be amazing if Thatcher got to see all this happening before she dies.
2. dill said...
The ultimate aim of socialism - subjugate all but the chosen.
Labour - The Party of the few and not the many.
3. cat and canary said...
IMO, there's a lot more required than just socially engineering pay/inflation to kick start manufacturing in the UK.
a few years ago my old boss was director of teaching at a key UK engineering university. He reliably informed me then of the trend for less and less of the graduates being UK citizens. By the time I left that job, only 50% of graduates were UK citizens.
at the same time, throughout the recession, there has never been a shortage of hi-tech engineering jobs, and all of my ex-colleagues (with sufficient experience) who lost their job found a new one within 4 weeks.
this kind of skills-migration back into manufacturing jobs takes years. And given the level of student debt a graduate must bear these days, I can't blame them thinking twice about going to uni anymore. Before the explosion in student numbers, government grants were provided, which worked back then. But now that ~40% of school leavers study, then there has to be incentives to keep graduates wanting to study in key areas to the economy.
I also believe that a large number of our science graduates opt in favour of careers in finance, because of pay and conditions, fair enough. The science and engineering societies do not lobby hard enough for the pay and conditions of their members. IMHO they are pretty useless.
4. icarus said...
One way to get lower wages and weaker unions is to de-industrialise. All you do is complain about the Chinese 'artificially' keeping down the value of the Yuan (as if exchange rates could be determined by one party) and providing subsidies to locate in China, while doing little about it. Then western multinationals transfer production there and make good profits while getting rid of wage pressure at home, and western financial institutions reap the benefit of cheap money from the re-cycling of dollars etc. earned by those Chinese exports. Meanwhile the latter are eyeing China as a potential recipient of their expertise in developing "deep, liquid" markets and providing health insurance and a social safety net
5. p. doff said...
1. flashman said... ''A reduced Pound and lower wages will make us competitive enough to actually produce goods''
Surely you jest Flashy. Do you honestly think our manufacturing industries could ever compete against the likes of China et al (specialist stuff aside)? Their export goods are produced in a climate of subsistence wages, long hours, poor working conditions, a lack of health & safety regs, a high handed government and a submissive culture.
Labour are well on the way to achieving the last two - and from what you are saying it appears they would like us to accept the rest.
6. matt_the_hat said...
2. dill - I thought the ulimate aim of capitalism was that
capaitalism works like the lottery - "it won't be you but keep striving"
7. rumble said...
Flash,
"It is quite easy to do this. First you lay off a few high earners. Then you replace retiring high paid workers with young low paid workers."
Don't like that - sounds like a company getting dumbed down. Been there, abandoned ship.
"let inflation do the work."
If the pound has been devalued, and wages are being reduced and frozen, and less credit, where is the inflation coming from? Delayed effects of pound devaluation, or more?
"My bet is that corporations, rich individuals and employers will buy up the reduced price, freshly repossessed housing stock. They will then rent it out to their workers"
Now that sounds like corporatism; there's been chat about the state buying up housing - interesting alternative.
@Matt
"capaitalism works like the lottery - "it won't be you but keep striving""
Yeah, the London lure. Lyrics
8. tenant super said...
Cat and Canary @ 3
"I also believe that a large number of our science graduates opt in favour of careers in finance, because of pay and conditions, fair enough. The science and engineering societies do not lobby hard enough for the pay and conditions of their members. IMHO they are pretty useless."
I couldn't agree more. As a young science graduate, I went into biomedical publishing and for a while, marketing for the pharmaceutical industry and many of my colleagues and uni friends grumbled that a lot of the actual science jobs which required PhDs paid less than my job. It didn't seem worth the time, money and effort to do their doctorates. Most have them have now emmigrated (US and Sweden being the top 2 destinations) to countries that reward scientists appropriately for their high skill. I didn't have a PhD and I opted for a non-science role because a graduate lab job (requiring a biomedical or biotech degree) paid less than the bar work I did as a student.
I am undertaking a doctorate now (part time) as we have decided that we will certainly emmigrate at some point and this will help visa applications as well as job opportunities is another country that actually values these skills.
One of the real joys for me about the financial mess is that it has put my youngest brother (Theoretical Physics undergraduate at Imperial) off working in the financial industry. The bad news is, he is considering a career at the Home Office because he doesn't fancy moving to Continental Europe, which to him is the only viable option if he wants to work in his field.
9. dill said...
6. matt_the_hat
Eventually Sisyphus would say "Shove your boulder and your carrots, I've had enough"
10. fallingbuzzard said...
@rumble,
Inflation is definitely coming, my guess is that it could reach the earth-shattering level of 4% inside 6 months before teetering back to its long run 2% target as interest rate tightening begins.
11. flashman said...
cat and canary: We are talking about a mild rebalancing. I don't think we'll ever become the new South Korea. Income reductions are already a reality.
12. flashman said...
p.doff "Surely you jest Flashy. Do you honestly think our manufacturing industries could ever compete against the likes of China"
No we couldn't ever compete with China but I am only talking about a mild rebalancing. China will eventually have to let its currency appreciate a bit and shipping costs could also increase enough to open the door for us to do a bit of manufacturing. The Germans, French and Italians have managed to keep their manufacturing sectors going even with high wages and social costs
13. bellwether said...
Out in the real world things remain a mess. A hugely over debted population with incomes shriking in real terms. The inital surge of the brics countries brought cheap goods and the liquidty to buy them but that cycle has gone now. Households are unable to expand their wealth much by borrowing and house prices have reached a limit that even zero interest rates and an incredibly benight government can barely sustain.
It is the ultimate in a pyramid/ponzi scheme, there is not enough new wealth to support the asset prrices either in the form of income or rents, first time buyers are priced out and the buy to rent is a huge bubble/boil attached to the lumbering carcass.
What is astonshing is how long this is taking to play out, and how the myths of undersupply will rise again to keep things going a while longer. It is not less fcked for all that.
We benefitted from cheap imports with huge and long term downward pressure on wages.
14. rumble said...
@fallingbuzzard, ta. I've just bothered to look at this for the first time in a long while. http://www.statistics.gov.uk/cci/nugget.asp?ID=19
15. flashman said...
rumble: "If the pound has been devalued, and wages are being reduced and frozen, and less credit, where is the inflation coming from? Delayed effects of pound devaluation, or more?"
I think you have answered your own question. It is easy to imagine inflation affecting a Britain with wage deflation and a reduced pound. Commodities are not priced in Pounds so there would inflationary tendencies on imported energy and other raw materials that cannot be sourced locally. Inflation and deflation can actually exist side by side in that some things go up while other things go down. We have already had a situation where the government say they are fighting deflationary tendencies while people with less disposable income are experiencing effective inflation
16. bellwether said...
Happy new year flash. We threw away the mantle as one of the worlds greatest manfacturing nations, as our working classes became increasinlgy unionised and lazy. The subsequnet 40 years of sofas and social benefits will not provide any sort of route back. We don't have the appetite or the will and only a lenghty period of real poverty will reassert it.
Of the 3 nations you mention I would agree on the germans but they are a different breed, an inate work ethic and ingenuity that is breathtaking, also wages have been screwed to the floor helped by the suppy of labour from east gernany
17. cat and canary said...
@ Tenant Super, "I didn't have a PhD and I opted for a non-science role because a graduate lab job (requiring a biomedical or biotech degree) paid less than the bar work I did as a student." OMG! shocking!
Your brother's smart though. We're told that the financial sector has grown too large, yet were also told the manufacturing sector is too small. One must now decrease, one must increase, surely. Perhaps there is hope?
One thing Brits are good at is inventing stuff (and also writing software and writing music!). The list of British inventions is endless, yet where is our world-leading high tech, super-dooper manufacturing industry???
Or was your british invented TV made in China or Korea?
...Just like the financiers, business consultants and management consultants appear to be believe that kick-starting UK manufacturing is as simple as devaluing the pound!.. so they also thought the UK could remain a competitive design haven whilst manufacturing could be shipped off to China to exploit cheap wages. Yet another beautiful financial/business theory being ruined by real facts. Who said manufacturing was not profitable, because funny, its the manufacturing countries who are holding all the cash nowadays!
When the manufacturers were screaming out about the value of the pound, we ignored them. Now we want what's left of them to save us?!
18. mark wadsworth said...
There are a lot of reasons why UK manufacturing has declined slightly over the years (the fall in output is relatively small - it was the fall in employment that is huge because they are automating, mechanising etc), including the lure of media and financial services nonsense. But the tax system (which adds a supertax on employment) and all the regulations exacerbate this. Further, manufacturing needs things like factories roads, railways, ports, power stations etc, all things which the NIMBYs virulently oppose.
As to the minimum wage, it should be scrapped forthwith - what is far better is having flat rate universal cash benefits and/or reducing means testing to help lower earners. The tax credit system actually achieves much the opposite of what it is supposed to achieve.
19. flashman said...
Happy New Year to you too bellwether.
"Happy new year flash. We threw away the mantle as one of the worlds greatest manufacturing nations, as our working classes became increasingly unionised and lazy".
The unions are effectively gone now and I'm not sure that we are inherently lazy. We were recently at the centre of the world’s greatest empire and I think that we still have (or had) the arrogance and insouciance that goes with that. Most people will improve their work ethic when they need to put food on the table. Up until recently there was no real penalty for sloth
20. letthemfall said...
The idea of pushing down the incomes of the low paid for the benefit of the economy has been under way for some years now. But of course this is for the benefit of capital, not the economy in general. Hence top earners have received excessive pay increases, while low earners have watched their incomes decline steadily, which is why, incredibly, the adjusted US median wage is now lower than in the 70s. I don't call that a healthy economy.
As for the value the UK places on scientists, their pay and conditions have similarly declined over the last few decades.
21. rumble said...
@mark "flat rate universal cash benefits"... citizens' wage?
@flash, ta. Premature typing.
22. flashman said...
C&C: "We're told that the financial sector has grown too large, yet were also told the manufacturing sector is too small. One must now decrease, one must increase, surely".
No, we need to maintain our service sector and grow our manufacturing sector. The manufacturing industry good/service industry bad notion (or vice versa) is flawed and simplistic. We need diversity.
23. Janet0990 said...
Flashman - It's good to see you posting again, i'm sure I speak for many latent readers when I say this board has really missed your contributions over the last month or two: no one can keep smuggy in line quite like yourself - Happy New Year!
24. flashman said...
letthemfall @20: I don't necessarily disagree with what you say but do you have any data to back up your comment: “ while low earners have watched their incomes decline steadily”.
You’re probably right by some measures but a pub quiz survey would probably reveal that most people think that low earners have steadily increased their income over the last 10 or 20 years?
25. cat and canary said...
flashman,
i'm sort of agreeing with you, on the benefits of devaluing the pound somewhat from its high.
But as for the article's idea of a minimum wage freeze...i question how much that will really benefit manufacturing the UK. If you're making plastic widgets, fine, price sensitivity is key, and thus so are wages. But what about innovation?
If tomorrow I invent the next ipod, i get rich, but does my country? Or do I ship it off to China, live comfortably off the royalities and then move to somewhere hot and sunny!
Whatever our faults, Brits are a creative people, so whereas I agree that we will never compete against Korea in the forseeable future, but I wouldn't want to misunderstimate the potential of Brits for invention. The big IF is if the govenment can get its **** together and support its science community. That is the only way this will work
Gordon Brown saying "devaluing the pound will help manufacturing" is like filling a plant pot with soil and hoping a seed will somehow spring into life!
26. Hyrax said...
I am a scientist. I have been underemployed, economically inactive for four years, but have not claimed a bean in benefits. My six patents underpin 200 million turnover for 2 US fortune 200 companies. UK has no useable science base. We squander our research money on chasing fundamental particles on the french-swiss border. Its all too late. I worked hard for a very long time... anhd needless to say have never owned property.
27. cat and canary said...
flashman,
"No, we need to maintain our service sector and grow our manufacturing sector. The manufacturing industry good/service industry bad notion (or vice versa) is flawed and simplistic. We need diversity."
....yeah, you're right, i'll rephrase my argument:
there's only so many "innovative" types out there to go around, and too many of them have been inventing things like CDOs as of late!! ;-)
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29. rumble said...
@Flash, "maintain our service sector and grow our manufacturing sector"
Given finite resources, eg people, the manufacturing would have to take from elsewhere, yes? Therefore encourage skilled immigration?
@CnC, "Brits are good at is inventing stuff" - not disagreeing, reason for this? Some historical advantage?
30. tenant super said...
"If tomorrow I invent the next ipod, i get rich, but does my country? Or do I ship it off to China, live comfortably off the royalities and then move to somewhere hot and sunny!"
If I invented something highly desireable, I wouldn't want the money to benefit the UK - to trickle into the pockets of whom? Home textile designers, lifestyle coaches, diversity officers, and the other people who should have been shipped out on the Golgafrincham B Ark. I don't believe I owe this country anything.
31. flashman said...
C&C: "Gordon Brown saying "devaluing the pound will help manufacturing" is like filling a plant pot with soil and hoping a seed will somehow spring into life!"
LOL. He's perhaps not the best salesman for ANY product. You could make a healthy living by betting against everything he says and does.
I am not necessarily for or against lower wages and a lower pound. I am really trying to explore peoples attitudes to the possibility that we might all earn less.
I think we share similar ideas on the latent ingenuity of British people.
Your ipod versus plastic widget comment is interesting. Even with lower wages and a lower pound you may choose to manufacture the ipod abroad but it has been proven that when an expensive item is made overseas, most of the value returns to the mother country (the lion’s share of the profit always returns to the holder of the intellectual property and/or the country where the head office resides). Another way of putting it is that the intellectual property of the ipod would still be effectively “manufactured” in the UK. With lower wages, even the intellectual property would cost less to create.
32. mark wadsworth said...
@ Rumble comment 21
You can call it Citizens Income, Citizens Dividend, Income Support, Universal Benefit, that makes no difference.
@ Rumble comment 26
Of course labour supply is ultimately limited, but at present we are only using a half of our workforce in productive stuff, the rest is either in a make work job (Mainly public sector but also some private sector) or unemployed, early retired, studying mickey mouse degree etc etc.
Don't forget that the UK used to be a major manufacturing power at a time when kids left school at age 12 or didn;t even go to school. However bad education standards are now, they have been far worse in the past.
33. flashman said...
rumble: @Flash, "maintain our service sector and grow our manufacturing sector"
Given finite resources, eg people, the manufacturing would have to take from elsewhere, yes? Therefore encourage skilled immigration?
The answer lies in increasing mechanisation and productivity. Improved productivity and mechanisation will free up some labour and of course we’ve also got 3 million unemployed to mop up. I can't see any argument for increasing immigration.
34. stillthinking said...
Those who argue for freezing or even abolishing the minimum wage are not necessarily arguing for lower wages costs, just that a mandatory minimum wage isn't ultimately supportive of low paid wages i.e. no minimum wage, more economic activity, more competition for labour, then higher wages.
35. rumble said...
@mark, thanks. I wasn't suggesting the name made a difference, just confirming they are the same. A new concept to me, courtesy Shipbuilder.
36. cat and canary said...
@rumble "Brits are good at is inventing stuff" - not disagreeing, reason for this? Some historical advantage? ... killer question, dont have the answer. Perhaps living in a architecturally poor, stinking overprice hovel, with neighbours from hell literally, and x-factor on the TV makes us all escape to our study and write beautiful music or invent witty things!!
---
@tenant "If I invented something highly desireable, I wouldn't want the money to benefit the UK - to trickle into the pockets of whom? Home textile designers, lifestyle coaches, diversity officers, and the other people who should have been shipped out on the Golgafrincham B Ark. I don't believe I owe this country anything."
Haha, well maybe! Still I often find myself reminding myself, that for every ***** I meet, there are still 9 decent folk living here! Well maybe 8!
----
@ flash,
it has been proven that when an expensive item is made overseas, most of the value returns to the mother country (the lion’s share of the profit always returns to the holder of the intellectual property and/or the country where the head office resides). Another way of putting it is that the intellectual property of the ipod would still be effectively “manufactured” in the UK. With lower wages, even the intellectual property would cost less to create
yeah, very true in the case of James Dyson, for example, the "lone inventor." I guess, there's also the case of corporate innovations, which tend to exploit the inventors. (in which case the IP-value stays with the company).
Which sort of suggests that we either
(a) rebuild our manufacturing base (i.e. the lower wages argument) as well as support the "lone innovators" or
(b) we educate our inventors to not get ripped off by their employer and teach them how to go out and start up a company!
37. icarus said...
mark w @18 - the decline in manufacturing is slight. True, but that's if we compare the UK with itself over time. If we compare the UK with other major industrialised countries over time the picture looks a bit worse than that. OECD figures show UK gross value added (GVA) in manufacturing as a % of total GVA has been falling relative to Germany and Japan and has been falling, though to a lesser extent, relative to the US and France. Same with UK manufacturing employment as a % of total employment, relative to said countries (e.g. the % may be falling everywhere but it's falling faster in the UK). Also increasingly anemic is UK R&D spending relative to GDP, and number of patents relative to population, compared with these countries over time.
38. letthemfall said...
flashman
Well, the IFS and ONS sites have some stuff on this though it might take a bit of digging to find it. Anyway, it is certainly clear that income dispersion has risen since the 70s, so maybe it's safer to say that low income groups have become relatively poorer, though I suspect a close look at the figures would show that real incomes have fallen too. It is also true that public sector scientists, who were once fairly high earners, have had real income falls. I don't know where to find figures on the US, but they have been quoted so often I imagine they can be tracked down.
39. flashman said...
letthemfall: Letthemfall: Thanks for the answer. It’s a complicated subject that does not lend itself to easy answers. Overall I would have to say that I agree with you. I did some poking around and found this on the ONS site:
http://www.statistics.gov.uk/cci/nugget.asp?id=1005
“The extent of inequality in the income distribution has changed considerably over the last three decades. However, between 1994/95 and 2002/03 the income distribution was broadly stable. Disposable income (adjusted for inflation) grew by over a fifth for both those on incomes at the top of the distribution (90th percentile) and those at the lower end (10th percentile). Between 1979 and 1983 inequality gradually decreased, but this was more than reversed in the 1980s. Between 1981 and 1989 disposable income in real terms grew by 38 per cent for those at the 90th percentile. This was more than five times the rate of growth of 7 per cent for those at the 10th percentile. During the economic downturn of the first half of the 1990s there was little real growth anywhere in the income distribution. The distribution of wealth is even more unequal than that of income. Half the population of the UK owned just 5 per cent of the wealth in 2001. This compares with 8 per cent in 1976. However, wealth became more evenly distributed over the 20th century as a whole. It is estimated that the richest 1 per cent held around 70 per cent of the UK's wealth in 1911, compared with 23 per cent in 2001.”
I also found a very comprehensive paper on the subject “The United Kingdom’s Wealthy Elite”, which deserves a read. There is enough material in it to fuel a thousand HPC debates and it backs up some of what you say
http://www.foresightfirst.co.uk/attachments/File/the_united_kingdoms_wealthy_elite-chart_list-foresight_first_ltd.pdf
40. flashman said...
Sorry scratch that last paper. I didn't realise that it’s subscribers only
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