October 4, 2022
Who will pay for the change from efficiency to flexibility?

Are we entering a new era of redistribution of wealth? Or will the imbalance between capital and labor that has characterized economic history of the past half century continue?

This question is worth asking, especially in the US, as the bite of inflation and the midterm elections are near.

In this column three years ago, I argued that we are leaving the era of wealth accumulation that began with the Reagan-Thatcher Revolution and moving towards a new era in which the balance of power between capital and labor is somewhat less will change. later direction.

Putting aside the new UK Prime Minister Liz Truss, who wants to bring back the 1980s, I think we are finally entering the neo-liberal era, especially in the US, where the power imbalance is most evident. Is.

In many OECD countries, there has been a disruption of productivity and wages over the past 40 years, during which the corporate sector took a large share of national income gains. But in Western Europe 55 percent of productivity gains still go to labor, with American workers making it out to only 14 percent – ​​and much of it goes to workers in the top third.

Globalization, which will favor local labor markets in some industries, is starting to shift that dynamic. There is also an aging demographic, which will create millions of new onshore jobs in caregiving occupations alongside a structurally tighter labor market.

But the third part of the capital-labour story is the increasing pressure on companies to strengthen the position of consumers and the state in times of rising costs. Inflation is happening for all kinds of reasons, but one of them is the shift in economic focus from efficiency to resilience. Both the public and private sectors are trying to protect themselves from climate change, geopolitics and market changes. Changes in supply chains, reserve currency allocation and fiscal policies are all part of this. But flexibility costs money. The question is who will pay?

Governments want companies to bear some of the burden. Consider the discussion about price controls in the energy and electricity sectors, as G7 nations look for ways to contain spiraling gas and electricity costs. The EU is hoping to impose unexpected taxes on non-gas power producers when their market prices exceed a certain threshold.

In the US, Congress wrote price controls on drugs into the Inflation Reduction Act budget bill in August. There is also a push to create a floor under labor markets across industries (something that is unusual in the US, where there is usually company-by-company unionization). California Governor Gavin Newsom just signed a bill that could raise wages in the fast-food industry to $22 an hour starting next year. Even business-friendly Commerce Secretary Gina Raimondo is advocating that companies do more to help pay for labor training and childcare.

There’s also a big push around President Joe Biden’s worker-focused trade policy, which was front and center at the Prosperity Ministerial Indo-Pacific Economic Framework for Prosperity Ministerial in Los Angeles last week. Some national security officials are eager to cut new deals with countries such as Vietnam, Malaysia, Thailand and Brunei as part of the US effort to increase its own economic and security power base in Asia to counter China.

Catherine Tai, the US Trade Representative, is keen to ensure that domestic labor does not suffer in the process, as do progressives such as Rosa Delaro, Elizabeth Warren and Bernie Sanders. He, along with 42 House Democrats, wrote a letter to the Biden administration last week requesting more transparency around the Asia trade talks so they don’t become a race to the bottom.

As Tai told me: “There’s a lot more in terms of balancing domestic and international economic policy.” But in his view, new trade deals should not mean lower wages for American workers, lower environmental standards or allow multinationals to evade taxes or lock in monopoly power. “It’s about building the economy from the bottom up and out of the middle,” she says.

Tai only controls the trade negotiations. For example, the Department of Commerce, which is more sympathetic to Big Tech, is in charge of negotiations about supply chains, infrastructure and tax. And safety hawks sympathize with the “bigger is better” argument being offered by Corporate America.

But it would be foolish for Democrats to do anything that is seriously problematic to the Labor outlook ahead of autumn’s midterm elections. Regaining the working class is critical to maintaining a majority in Congress. Research shows that the Democratic loss of factory towns (like the ones I grew up with) due to the neoliberal trade policy of the past 20 years is a big part of what made Donald Trump possible.

President Biden has always been sympathetic to labor interests and key appointments such as Lena Khan of the Federal Trade Commission and Gary Gensler of the Securities and Exchange Commission have placed this at the center of his mission. But for the “work no money” slogan to be truly meaningful, Democrats need to win big in the midterm. If they do, watch the capital-labor power balance move even further.

rana.foroohar@ft.com

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