Trades Unionism and Migration

Liberal commentators present the ‘free movement of labour’ as a great advance in  civilisation, and its possible restriction following Brexit as a body blow to that European civilisation. A century and a half ago the Political emigre Karl Marx wrote of this process in an article called ‘Forced Emigration’:

Begin with pauperizing the inhabitants of a country, and when there is no more profit to be ground out of them, when they have grown a burden to the revenue, drive them away, and sum up your Net Revenue! Such is the doctrine laid down by Ricardo, in his celebrated work, The Principle of Political Economy. The annual profits of a capitalist amounting to £2,000, what does it matter to him whether he employs 100 men or 1,000 men? “Is not,” says Ricardo, “the real income of a nation similar?” The net real income of a nation, rents and profits, remaining the same, it is no subject of consideration whether it is derived from 10 millions of people or from 12 millions. Sismondi, in his Nouveaux Principes d’Économie Politique, answers that, according to this view of the matter, the English nation would not be interested at all in the disappearance of the whole population, the King[c] (at that time it was no Queen, but a King) remaining alone in the midst of the island, supposing only that automatic machinery enabled him to procure the amount of Net Revenue now produced by a population of 20 millions.

At the time he was referring to what was being done to the population of Scotland and Ireland, who at the time, to satisfy the ‘improvement’ of agriculture were being forced from the small holdings to emigrate at the rate of over 300,000 a year. But it could as well refer to what has been happening to Southern and Eastern Europe recently. In Greece and Spain the austerity policies of the European Union have driven unemployment to levels where one in 4 or one in 5 of the adult population has no job.

unemployment_rates2c_seasonally_adjusted2c_april_2016

Unemployment in Europe April 2016 (Eurostat)

For youth the figures across Southern Europe are far worse.  Greece, Spain, Portugal, Italy and Croatia, all have youth unemployment rates of  30% or more. The EU has as Marx put it ‘pauperised the inhabitants of whole countries’, and then holds it up as freedom’s triumph when they are driven to emigrate. Meanwhile Britain, France and the USA have systematically subverted secular states in the Arab World by invasion or the supply of arms to Jihadist rebels, unleashing a flood of impoverished refugees from these formerly stable, and in some cases prosperous nations.

I showed in my last post how migration increases the exploitation of the working classes by the employing class.  This has become the deliberate and conscious policy of the rulers of the European Union, one shared by our own employing class. With Brexit having been voted on by the people, the business interest are desperate to do a deal which will still secure them access to cheap labour. This is why they so favour the Norway option.

In 1866 faced with  a similar strategy, albeit on much more puny scale, by the employing class in Britain Marx issued the following proclamation on behalf of the International Worker’s association.

Some time ago the London journeymen tailors formed a general association to uphold their demands against the London master tailors, who are mostly big capitalists. It was a question not only of bringing wages into line with the increased prices of means of subsistence, but also of putting an end to the exceedingly harsh treatment of the workers in this branch of industry. The masters sought to frustrate this plan by recruiting journeymen tailors, chiefly in Belgium, France and Switzerland. Thereupon the secretaries of the Central Council of the International Working Men’s Association published in Belgian, French and Swiss newspapers a warning which was a complete success.The London masters’ manoeuvre was foiled; they had to surrender and meet their workers’ just demands.
Defeated in England, the masters are now trying to take counter-measures, starting in Scotland. The fact is that, as a result of the London events, they had to agree, initially, to a 15 per cent, wage rise in Edinburgh as well. But secretly they sent agents to Germany to recruit journeymen tailors, particularly in the Hanover and Mecklenburg areas, for importation to Edinburgh. The first group has already been shipped off. The purpose of this importation is the same as that of the importation of Indian COOLIES to Jamaica, namely, perpetuation of slavery. If the Edinburgh masters succeeded, through the import of German labour, in nullifying the concessions they had already made, it would inevitably lead to repercussions in England. No one would suffer more than the German workers themselves, who constitute in Great Britain a larger number than the workers of all the other Continental nations. And the newly-imported workers, being completely helpless in a strange land, would soon sink to the level of pariahs.

Furthermore, it is a point of honour with the German workers to prove to other countries that they, like their brothers in France, Belgium and Switzerland, know how to defend the common interests of their class and will not become obedient mercenaries of capital in its struggle against labour.
On behalf of the Central Council of the International Working Men’s Association,
Karl Marx

The policy here was essentially to first use a moral appeal to workers not to cross frontiers to undercut the rates of fellow workers. Those who did so, were threatened with the status of Pariah if they came. What the 19th century workers movement meant by ‘pariah status’ is made clear in the following description of those events published recently in a commemorative article in the Northern Echo

George Stephenson, the leader of the Darlington Master Tailors, recruited 15 German tailors and returned with them to Bank Top on the 6.43pm train.

He placed them in a lodging house – run by Mrs Nelson – which, the moment his back was turned, was stormed by angry strikers.

They drove the Germans across town until Mr Stephenson found them sanctuary in the Station Hotel, in Hopetown.

“A large crowd collected in front of the house, amongst whom were 20 or 30 tailors using threatening and obscene language,” said the D&S Times.

At least one of them, Edward Cawfield, burst into the pub and accosted Mr Stephenson as he tried to protect the Germans.

Mr Cawfield “seized Mr Stephenson by the beard and a struggle ensued, in the course of which the hat of complainant (Stephenson) was crushed, his coat torn and his head bruised”.

The stand-off continued late into the night. A couple of days later, Mr Cawfield appeared before magistrates and was fined ten shillings for assaulting Mr Stephenson.

In other words  ‘obedient mercenaries of capital’ got the standard reception for blacklegs.

By 1880 we see the topic being touched again in the Programme of the  French Workers Party, co-authored by Marx, and Guesde which included the following immediate economic objectives:

  • Protective supervision of apprentices by the workers’ organizations;
  • Legal minimum wage, determined each year according to the local price of food, by a workers’ statistical commission;
  • Legal prohibition of bosses employing foreign workers at a wage less than that of French workers;
  • Equal pay for equal work, for workers of both sexes;

What is significant about this is that it moves beyond a mere trades union response – appeals to solidarity, use of physical force when that failed, to a political response. The Worker’s Party was standing on an election manifesto advocating that  the state intervene and prohibit the employment of foreign workers at less than the going French rate. Note that the target of prohibition here is not the migrant workers but the employers.

In principle both these tactics could be employed by the trades union federations in Europe. A general appeal could be issued to workers not to cross borders and accept work that undercut workers in the country they moved to. That would be backed up with the appropriate threat of ‘pariah status’ should this appeal be disregarded.

Within each country, the Labour parties should, on coming to power enact legislation prohibiting the employment of foreign labour at below local union rates, and stipulating that all workers coming into the country to work must join the appropriate local union. Attempts to enforce milder versions of this in the EU have led to legal penalties being levied by the ECJ against unions in the Laval and Viking cases.

An important feature of this old programme is the heavy emphasis that it lays on the self administration of labour legislation by the worker’s own organisations: supervision of apprentices, workers statistical commission. The corresponding political demands in the context of preventing the import of low paid migrant labour would be something like:

  • Enforcement of the laws against the exploitation of migrant labour to be the responsibility of the local Trades Councils who would have the authority to shut down all employers found to be breaking these laws;
  • Work permits to be issued by Trades Councils when people join the appropriate union;
  • Full legal immunity for mass picketing, secondary actions, blacklisting etc, used in enforcement of the regulations.

 

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Brexit, immigration and exploitation

A key debate during the referendum campaign was on whether immigration exercised a downward pressure on wages or not. This was prominently argued over during the TV debates and if the Ashcroft polls are to be believed, the second most important reason given by Leave voters for their choice of vote was hat leaving “offered the best chance for the UK to regain control over immigration and its own borders.”

Among both Labour and Tory supporters who voted Leave, the most important consideration was : “the principle that decisions about the UK should be taken in the UK”.

Since the Leave result on Friday morning social media has been full of Remain voters complaining about the ignorance and xenophobia of working class voters in the North who gave border controls as a motive for voting against the EU. But were the fears expressed about the effects of immigration from within the EU just ignorant prejudice, or did they reflect something real?

The Remain campaign, during the TV debates, emphasised the contribution that immigrant workers made to the economy and particularly to the NHS, pointing out that they were hard workers who paid taxes and contributed to the national exchequer. But that was to spectacularly miss the point. You do not reduce people’s worries by saying the EU immigrants work hard. Hard workers who will accept low wages, are likely to seem more of a threat than people who take it easy.

Does competition with immigrant labour tend to reduce real wages?

To test this I have regressed the rate of exploitation in the UK against the number of people comming into the country each year. The rate of exploitation measures how many pence of profit and interest each worker generates for their employer. For example the rate of exploitation is 70% it means that for each £1 workers get paid, they generate 70p profit for their employer.

Here is a scatter plot showing the relationship between immigration and exploitation in the UK since 1970.

svagainstimmigration

Each year is shown as a dot with the X position being the number of immigrants that year, and the Y position being the number of £ profit produced for each £ paid in wages. It is quite clear that in years when immigration is high, exploitation is high. The year with the lowest exploitation rate of 53p in the £ had 200,000 immigrants, the year with the highest exploitation, 89p in the £, had 589,000 immigrants. Overall the correlation between immigration and exploitation was 75%.

Correlation measures what percentage of the variation in one thing is explained by another. This shows that 75% of the variation in exploitation year to year, is explained by the variation in immigration year to year.

Now statistical explanation does not necessarily imply causation. If we have a causal theory linking to phenomena, then correlation provides confirmatory evidence for the theory, but you need a causal model first.

Well there is a theory explaining why we should expect this. It was set out in the chapter of Marx’s capital dealing with the law of capital accumulation. He described a process whereby periods of rapid capital accumulation would drive down unemployment, raise wages and reduces exploitation. This, he said, would then provoke a reaction. Slower accumulation would then increase unemployment and allow exploitation to rise. Basically the more competition workers faced from what Marx called the Reserve Army of Labour, the higher would be the rate of exploitation and vice versa.

What Tony Blair’s decision to allow free movement of workers from the EU accession countries did was to dramatically increase the size of the effective reserve army of labour competing with workers here. That necessarily increased profits at the expense of wages. When both Labour and Tory remain campaigners pretended that this was not happening, they were simply not believed, which is a key reason that the Remain campaign failed.
Countries that allow easy immigration can offset the tendency of the rate of profit to fall.
Immigration boosts the working population in three ways:

  1. It directly and immediately compensates for a low birth rate. This is not a problem in the UK but is for Germany.
  2. The activity rate of the immigrants is high because they are disproportionately of working age.
  3. Immigrants families tend to have higher birth rates than the settled population of developed capitalist countries, so that they indirectly compensate for the low birthrate of the former.

More rapid population growth boosts the rate of profit by two distinct mechanisms. One the one hand a more rapid expansion of the labour force increases competition for jobs and allows the rate of exploitation to be increased. Secondly a growing population absorbs accumulated capital preventing, or at least slowing down, a rise in the capital to labour ratio.

What we see in the UK is not some idiosyncrasy, but a general tendency of capitalism. Profitability and exploitation are helped by rapidly growing workforces.

The effect of a rapidly growing population is most strikingly seen if we contrast an emerging capitalist economy like South Africa with a mature one like Japan.

On the left you see the trend of the profit rate in South Africa, on the right the population. The solid line on the left is the predicted rate of profit obtained by comparing the accumulation of capital to the growth of the workforce. The actual profit rate is the dotted line. See how the high population growth gives a high predicted rate of profit, which is achieved some years later. In such nations the capital accumulated each year is insufficient to keep up with the rising population, so the capital to labour ratio falls. A lower capital to labour ratio then gives rise to a higher rate of profit.
Ultimately it is sex that drives capitalism. The soaring profit rate in South African capitalism is driven by the much greater sexual productivity of South African women. South African fertility was still 2.5 in 2008 against only 1.3 in Japan. But South Africa is already on the path towards capitalist maturity. Its 2008 fertility rate was only half what it
was forty years earlier. In other African countries the demographic transition is barely starting. In Nigeria, fertility in 2008 was a huge 5.7 children per woman, in Zambia 5.8, in Tanzania 5.6. Equatorial Africa is, in the early 21st century, capitalism’s last best hope of profitability.

Now compare that with Japan where fertility is so low that the population is shrinking and you see what that does to the profit rate on the left.

Exploitation and profitability depend on rapidly expanding workforces. For the left to adopt the Blairite cant that immigration does not degrade the social position of working class voters would be to cede realistic political economy to UKIP.

Social Democratic post Brexit strategy

I am writing this as a Marxist economist who, for the long term advocates something much more radical than social democracy. But Society never solves problems that it is not directly faced with, and in the current situation the solution that would be provided by a revived social democracy is the probably the best that can be hoped for. But it needs to be articulated and thought through.

It was a mark of the success of social democracy that it was able to force the rate of profit so far down and maintain such a relative labour shortage that the question of directly social allocation of investment became a real social issue by the late 70s – that was what Bennism was all about. 40 years of neo-liberalism has run down the capital stock and worked on an economic model of labour surplus, low wage, low capital investment growth which has depressed living standards  and raised the rate of profit.

The line put by some of the left that ‘capitalism can no longer  afford social democracy’ is arrant nonsense. The share of property income is very high by historical standards. There is plenty that can be diverted from property income to national investment and raising living standards. But that can only occur when nationalised industry once again plays a leading role as it still does in China.

 

In a mixed economy the rate of capital accumulation is much higher even with a low rate of profit as shown below. China invests more at any given rate of profit than the private economy of the USA.

accumulationchinaandus#

Tory claims notwithstanding the UK economy is remarkably weak. Production, Manufacturing and Construction had still not regained pre recession levels in 2014, 7 years after the recession. Such growth as there had been was in services, and what little improvements there had been in living standards since 2013 were in large part due to the fall in the world price of oil and its knockon effect on retail prices. The recovery has been by far the slowest and weakest from any recession since the second world war.

Figure 4- UK GDP output components growth, quarter-on-quarter, indexed from Quarter1 2008 = 100

The Tories laid great emphasis on claims to have reduced the public sector deficit, but in 2014 this still ran at 5.3% of GDP. Their intention when taking office had been to eliminate the deficit entirely over a 5 year parliament. Similar promises have been made with respect to their current term of office.

How are we to explain this signal failure?

Quite simply, because the public sector deficit is largely outwith deliberate control by the government.

Simple national accounts tell us that the following must hold :

Public sector deficit = Trade deficit + Private sector surplus

If the balance of trade is in deficit, then the public sector will run a deficit too. The only exception to this would be if the whole private sector was running a sufficient financial deficit to offset the trade deficit. Since the private sector has been trying to run down its debts since the recession, ie run a surplus, this avenue has been closed. And the balance of trade has been seriously in deficit.

tradetrend
 UK international current account as percent of GDP. Office of National Statistics April 2015 Economic Review.

 

In 2014 the trade deficit was roughly the same as the public sector deficit – both were between 5% and 6% of GDP. In earlier years after the recession the public sector deficit was bigger than the trade deficit. In those years the private sector was trying to run its debts down. This stopped in 2014 when the Help to Buy scheme led to more people taking out mortgages.

But the persistence of the trade deficit means that it will be almost impossible for the government to hit its public deficit target. Cuts to welfare only reduce the government deficit to the extent that they reduce imports – not much.

When people look back to the 1945 Labour government, what people remember now is the way they set up the NHS and the welfare state – the opposite of what is now understood by austerity. But in its day it was known as an Austerity government, but the austerity of Cripps1 was very different from that of Osbourne. It was an austerity devoted to building up manufacturing and exports in order to escape from the burden of the wartime dollar debts. That went along with high taxation particularly on upper income levels and additional taxes on luxury goods, rationing of bricks to ensure that they were all used to build council housing for workers.

If a government was serious about tackling the deficit – rather than looking for excuses to dismantle the welfare state they would be trying more directly to boost exports and reduce imports. What would that involve?

Exchange Rate Policy

Membership of the EU prohibited one of the old tools that states had for reducing imports. It was no longer possible to impose customs duties on imports. This restriction is now removed.

There has been much debate about joining the European Single Market outside the EU but it is highly doubtful that this would be beneficial. UK has a huge trade deficit with the EU, exporting £135 billion in 2015 versus imports of £225 billion. Moving to WTO level tariffs would probably be helpful in reducing this deficit.

But, being outwith the Eurozone, the UK could always have devalued its exchange rate to discourage imports and encourage exports. This tool was used with success by British governments in 50s and 60s.

Doing it now with a floating exchange rate and an independent central bank is slightly harder but not impossible. Since Black Wednesday (16 September 1992 ) when Sterling crashed out of the European Exchange Rate Mechanism, the UK government has not attempted to control the level of sterling. That debacle was taken to have shown the folly of attempting exchange rate control in modern currency markets awash with hot money. What it actually showed was how difficult it was to hold the value of Sterling up, but that does not mean it could not be forced down.

At present though the Bank of England interest rate is close to zero, which seems to prevent reducing the interest rate which has, in the past, been an important way of pushing down the exchange the value of the £. Today, a serious attempt at devaluation would require the Bank of England either to impose a negative exchange rate, or to directly intervene in the currency market by purchasing gold and foreign currencies on a large scale. It might be politically more palatable to take the latter course which could be presented as a prudent buildup of gold reserves.

However this still leaves the problem that the government can no longer dictate the Bank’s monetary policy. That is up to the Monetary Policy Committee whose remit does not run to taking into account the effects of monetary policy on the balance of payments. A government, could however, legislate to change the terms of reference of the Monetary Policy Committee so that they were not just concerned with inflation. They could be required to also maintain a neutral balance of payments. In retrospect, it can be seen that failing to build this into their terms of reference was one of Gordon Brown’s big mistakes.

Investment

Given that the trade deficit is about 6% of GDP, it follows that eliminating the deficit would require a net 6% increase in production, about £95 billion with all the increase going either as exports or as import substitution. In a good year the economy grows by 2% or so. It would seem that this could be done in perhaps three years. But this is much easier said than done.

Growth in Britain has typically been growth in consumption or growth in services as shown in Illustration 1. The biggest item of growth in 2014 was in real estate. Far from helping exports, this type of growth tends to suck in imports.

Growth in manufacturing is what is required. Given the small share of manufactures in the UK economy this means manufactures have to grow by much more than 6% to close the trade deficit. In order to grow, and in order to improve productivity there would need to be big investments. If Piketty is to be believed, contemporary European economies have a capital/output ratio of around 500%, so a £95 billion increase in production would require a capital investment of the order of £500 billion If the aim was to achieve the output gain over a 5 year parliament, this implies an investment of £100 billion a year.

That could in principle come from reducing consumption by £100 billion a year, in the Cripps model by disproportionally reducing the consumption of the middle and upper classes. But that was in the aftermath of war, now it would be unrealistic to adopt extreme Crippsian austerity. All gains in output going as exports whilst depressing consumption by £100 billion a year for 5 years would be too steep. It would probably be necessary to allow some of the growth to feed through into consumption and to fund some of the investment by capital inflows. A 5 year timescale would then be too short for the turnaround, a decade more like it.

Forcing investment

Now the EU restrictions on aid to state industry and nationalisation are removed, it is possible to have a long term industrial strategy with the state playing a leading role as it successfully did from the 1940s to the 1970s. Take one example. A state energy industry could invest heavily in wind and nuclear to reduce imports of fossil fuel and carbon dioxide emissions.

For my part I would prefer that was done with AGRs rather than the PWRs currently foreseen, both from the standpoint of the poorer intrinsic safety of the latter, and to restart a domestic nuclear construction industry.

It would be necessary to completely re-orient the banking sector from being oriented around financing mortgages. This has led to a combination of higher debt, and escalating house prices which, these have benefited existing home owners but blocks the next generation from the owning houses. But even more seriously it diverts finance from industrial development.

A potential policy would be to legislate that mortgage debts in excess 3 times the income of the borrower were unenforceable, and to ban loans for buy to let. This would a) put a cap on house prices, b) divert lending into investment.

1Setting out the goals of his 1950 budget he said:

“Our aim is to create a happy country in which there is an equality of opportunity, not too great a disparity of personal incomes, and in which every man and woman can. feel they are welcomed and have a full part to play. It is basic to that kind of life that there should be full employment and full participation by workers in the industrial life of the community.”