The right should stop pretending. Collective industrial relations is back


More than 12 years after the launch of the Doha Development Round trade talks, the member states of the World Trade Organization (WTO) have finally managed to agree at least something.

The ‘Bali Package’, signed on 7December, 2013, contains some modest measures to make access to global north markets easier for developing countries and to resolve a couple of long-standing inequities that should have been dealt with years ago.

None of this is likely to have much of an effect on the volume of international trade.

But is export-led development really the only way to a bright future for poorer countries?

More to the point, is the significantly more socially and economically advantageous strategy of focusing on expanding domestic demand being kept off the agenda because it implies involving workers directly in decisions about pay and conditions?

A lot of the answers to these questions can be found in an important report from the United Nations Conference on Trade and Development (UNCTAD) that was published a couple of months ago but got far less attention than it deserved.

The report makes three main arguments.

The first is that there is a logical problem with focusing exclusively on export-led growth, particularly when demand from the developing world is low and likely to remain so for some time.

“It is not a new insight that growth strategies that rely primarily on exports must sooner or later reach their limits when many countries pursue them simultaneously: competition among economies based on low unit labour costs and taxes leads to a race to the bottom, with few development gains but potentially disastrous social consequences,” it states.

By contrast, development strategies focused on increasing domestic demand can be adopted everywhere without thereby putting downward pressure on wages and without encouraging competition between states to offer the lowest corporate tax rates.

The second argument is that the single most effective means of increasing domestic demand is to increase income from work.

Household spending is the most important element in aggregate demand within an economy, and income from work is the most important source of household spending.

That in itself adds up to a pretty good reason to ensure that the share of wealth that goes into wages does not fall but UNCTAD also shows (p73-74) that when the wage share increases, private consumption increases.

So if ordinary people have more money, they spend it, with all the positive effects on economic growth that that implies.

By contrast, there is no clear relationship between a decreasing wage share – which is to say, an increasing return on capital – and investment.

Contrary to what we are generally told, if the share of the cake that goes to business owners gets bigger, there is absolutely no guarantee that they will invest this money in economically useful projects.


Collective bargaining

The third argument made in the report is that the usual macro-economic mechanisms for demand management, including increased public spending, need to be supplemented with collective bargaining.

There are two reasons for this. The first is that individual workers don’t have the labour market weight needed to balance the power of employers and prevent the wage share from falling.

Even in the most abstract economic theory prices don’t just happen. Somebody has to agree them.

In fact, the very idea of a market is a nonsense if the agreement of both buyer and seller to a price is not freely given.

It’s very boring to have to repeat it, but the agreement of individual workers to their pay and working conditions is virtually never truly free.

Unless the circumstances are exceptional, they have to take what they are given.

Closing down the possibility of workers punching their collective weight in the labour market by limiting their ability to unionise and to take industrial action simply means that wages are set unilaterally by managers.

Thirty years’ worth of evidence shows that the idea that employers will somehow spontaneously choose an efficient market wage is a myth.

Managers have simply taken advantage of the weakness of labour to direct an outsized portion of the gains from increased productivity to business owners, as the International Labour Organization (ILO)’s Global Wage Report for 2012-13 shows (take a glance at figure 36 on page 48).

The second reason we need collective industrial relations is to mitigate the risk that expanding domestic demand will lead to inflation.

Inflation is much less of a risk if wages and productivity growth remain in sync over the long term, but there’s also a need to make sure that exceptions to the general rule – in both directions – can be accommodated where there’s a case for them.

Ensuring that wage growth remains at a socially and economically useful level means workers and employers sitting down together and settling on appropriate wage rates in the context of the relevant productivity figures, investment strategies and plans for production.


Failed strategy

The authors of the UNCTAD report have the courage to recognise what the evidence says: keeping labour costs down in the name of export-led growth strategies is a failed economic strategy.

The alternative, increasing incomes, demands that we construct collective bargaining systems where these have never existed and that we rebuild them where they have been demolished.

That this argument is beginning to get some purchase is evident from the renewed stirrings of anti-union argument in right-wing think tanks and policy forums.

They know their dominance is coming to an end and they are desperate to produce new arguments against allowing workers increased influence over management decision-making.

You can see this in the actions of corporate front organisations like the US National Right to Work Legal Defense Foundation, but also on the international level with the attempts by employers’ representatives in the ILO to establish that ILO conventions do not protect the right to strike.

The right is trying to pretend that the jury is still out on the need for collective industrial relations.

But thirty years of neoliberalism has provided all the evidence we could possibly need that excluding workers from decisions about pay and conditions has seriously damaging social and economic consequences.

What we have to start talking about now is what kind of collective industrial relations we need.

It’s not a question of whether we do it, but how. Collective industrial relations is back.


 An unabridged version of this article was originally posted on the New Unionism blog.