Stewart Lansley: innumerate or what?

Since the end of the 1970s, earnings for the bulk of the workforce have been falling behind increases in wider prosperity. As a result, the share of national output taken by wages has been in freefall, shrinking from around 60% in 1980 to 53% in 2007. In contrast, the share taken by profits in that year stood at a near post-war high.

Moreover, this squeeze has been felt most heavily by middle and low earners. While real earnings for well-paid professionals more than doubled in the three decades to 2008, middle earners enjoyed a rise of 56% and pay for those near the bottom tenth rose by a mere 27%. Some unskilled and semi-skilled jobs now pay little more in real terms – and in some cases less – than they did in the late 1970s. As a result, the proportion of the population working on low pay has almost doubled from 12% in 1977 to over 22% today.

This sustained shrinking of the earnings pool,

What?

While economic capacity has been rising at 1.9% a year over this 30-year period, wages have been rising by only 1.6%, a gap which has been getting even wider over the last decade. Between 2000 and 2007, productivity increased at almost twice the rate of real wages. It was this trend that has been the main cause of stagnant real earnings.

What is the gibbering nonsense?

Having told us that real wages have been rising for decades, having given us the actual number by which they have, how can you then turn around and say either that the earnings pool has shrunk or that real wages have stagnated?

Did you not read the earlier sentences you wrote?

It is true that the workers are getting a smaller share of a larger pie. And if that smaller share of said larger pie led to the total amount, the size of the slice, being smaller then I\’d be just as appalled as you\’re pretending to be.

But as you point out, this isn\’t true. The pie has grown so much larger that that smaller share is actually a larger slice.

Which brings us to a Chuck Norris is wearing Spandex point: your argument is invalid.

33 comments on “Stewart Lansley: innumerate or what?

  1. What this means is that company profits, in real terms, in aggregate, have moved from negative to positive.
    Since a sustained period of negative company profits leads to insolvency and unemployment, there are reasons to welcome a moderate rise in the share of GNP going to profits.
    “the proportion of the population working on low pay has almost doubled from 12% in 1977 to over 22% today.” LIES, DAMN LIES AND MORE LIES. Real disposable income per head rose by more than 50% between 1977 and 1989 and more than doubled by 2007 (you may note, or may ignore, the fact that median and lower incomes rose faster under Lady Thatcher than after she resigned).
    If Mr Lansley wants to say “New Labour favoured the rich”, that is an arguable viewpoint but to suggest that earnings for the bulk of the workforce have declined is blatantly false. There are examples where workers are earning less in inflation-adjusted terms than in 1977 (me, for one, so I can guarantee that it is true) but every reliable statistic shows that those on low wages are on average significantly better off than 33 years ago.

  2. It evidently escaped Mr Worstall that Mervyn King fessed up that real wages have been declining for years in a major speech.
    We had this argument concerning the good Lansley last August when the argument was “So the workers increased productivity is feeding profits not the wage fund,so what?(The standard response from laissez faire revivalists)
    So the workers can’t buy all they produce that’s what.

    Tim adds: No, Our Merv said that real wages had, in the last couple of years, fallen back to 2005 levels. Saying that wages have fallen in a recession is really very different from saying that real wages have fallen or stayed static for a generation and a half.

  3. DBC:

    The major cause of increased worker productivity over time is an increase in the amount of capital invested. Employers, workers, and consumers will normally share in such gains but the specific accruals to each will vary between industries and firms. Consumers get their “share” as the result of decreased unit costs (and competition between firms). Workers get their share (as always) from increases in the demand for that type labor (in relation to its supply), and the firms reap profits if they’ve managed, by increased investment, to (anticipatorily) adjust their production to demand by consumers. None of those parties can be said to have a particular “claim” on any part of whatever market changes may have taken place as the result of productivity increases.

  4. @TW
    He’s not saying that real wages have declined over fifty years: he’s saying that the workers’ purchasing power has not kept up with their increased productivity. You know this very well ,as you made this point yourself last August.
    You can split hairs about definitions of real wages as much as you like but if the mass of people cannot purchase what’s produced any system of mass production won’t work.

  5. DBC Reed @4

    OK let’s move out of the realm of the theoretical & into real life.
    A furniture company employs a skilled woodworker who can, in a good week, fashion 10 items of furniture. The company invests in computer controlled machinery that can do exactly the same tasks to a higher standard of accuracy in a tenth of the time. The only skills that the operator requires are to load the raw material & push the start button. Assembly, because of the increased accuracy of the machining process, becomes simply a of matter glueing the parts together in the right order.
    The company has gone from the requirement of a highly skilled craftsman to that of a semi-skilled operator & raised productivity tenfold.
    This is not theory. This is what actually happened in a furniture workshop.
    Perhaps you can explain why the benefits in productivity should not be shared solely between the company that made the investment in profits & the consumer in reduced prices. (The semi-skilled operator can now actually afford to buy an item of furniture he’s produced rather than it only being the province of the wealthy.)
    In this example the increased productivity comes purely from the move from the need for an expensive craftsman to that of training up an unskilled labourer & the resultant reduction in labour costs.
    What’s wrong with that?

  6. DBC

    workers’ purchasing power has not kept up with their increased productivity

    simply does not imply, even in theory, that

    the mass of people cannot purchase what’s produced

    You’ve left out the volume term. We’re not concentrating on producing a more gilded lily, we’re making more lilies. As in Pete’s example – the mass produced furniture may even be less good that the craftsman produced piece, but you only need so many chairs – if they cost you 1/10th of what they used to, more people will be able to afford the 4.2 (or whatever) chairs used by your stereotypical family.

    It doesn’t matter whether I can purchase my entire output – it matters whether I can purchase enough of my output (actually, the equivalent proportions of the outputs of many other people) to support my desired level of comfort.

  7. @pete
    Why do you stop at leaving the one unskilled guy to glue the bits together?
    Why not have complete machine/robot production with production going on all night with the lights off?Does happen.
    How are you then going to distribute the purchasing-power so people can buy the furniture? There are ways of doing this but it is not through laissez faire,markets will always provide ,bollocks.Seriously, I would be interested in your solutions to this hundred year old dilemma.

  8. Maybe I should have added that the redundant craftsman went on & used his savings to set up his own company.
    Now instead of repetitively churning out the same stuff week in week out he makes bespoke items where his skills are really utilised. One of his customers is the company who used to employ him, for which he makes pre-production prototypes. He currently employs three people but is talking about investing in CNC technology to increase productivity.
    Surely, wasn’t the solution to the hundred year old dilemma stopping large scale production of buggy whips?

  9. DBC:

    It is of absolutely no significance whether a worker is enabled, by wages received, to purchase an item of his production or not. Very famously, Henry Ford has been credited with paying a higher-than- market wage so that those very workers might become customers for the vehicles produced but that is entirely a misrepresentation: Ford was not stupid. He “overpaid” for quite a different reason: to get a better, more motivated, and more reliable (and pliable) worker. The fact that the worker could afford to buy the vehicle was the outcome of an entirely separate decision on Ford’s part: to make a vehicle in a specific price range.

    In a primitive, pre-trade (more or less autarkic)
    existence, men produce specifically for their own consumption and any tendency to produce more or better or longer-lasting must arise from consumption desires of the individual. Trade with others (for consumption goods unavailable or merely less ably produced by one’s self)
    increases the consumption quotas of both individuals and men everywhere–back to our most remote ancestors qualifying for the term “human”–are generally capable of appreciating
    (and acting on) such relationship.

    In the primitive world, both increases and decreases in productivity benefit (or burden) only the individual producer and decisions with regard to what shall be produced (and how) are entirely the purview of that individual. In the
    ” market society,” which the individual chose for general superiority to primitivity, men choose a better (more productive and greater consumption choices) system for themselves and others but still one subject to the scarcity of nature-given things necessary to consumption (including his own abilities and capacity for labor). In so doing, he escapes the harshest “carrots and sticks” on which survival is incumbent by substituting a far gentler panoply of carrots and sticks: he subjects himself to production governed (and rewarded) by the values of his fellow men of the market. Within the scope of his abilities, he is free to choose whatever most suits his desires but must accept that others will dictate–through market prices–what he may receive in exchange. He may rankle now and then (or even frequently) as the result of such compulsion but integrates himself into it, recognizing (on one level or another), that no other, even thinkable system could provide such great benefits with such absolute minimum of inescapable compulsion:
    all those “others” comprising the market do not tell one what he must do, they tell him only what they will be prepared to give him for whatever might be his own choice.

  10. The craftsman referred to above is dead keen on getting that computer guided router but, being a bit long in the tooth & set in his ways, is daunted by the 1200 pages of technical manuals he’d have to plough through to master it. Now, if there happened to be someone of a more academic bent in the London area who could cope with that sort of thing he’d be happy to get back to fashioning those exquisite secret mortise & tenon joints he so excels at.
    Then there’d be six people gainfully employed where once there was only one.
    Interested in a job DBC?

  11. @ GB
    Too boring.
    @Pete
    Interesting but it is a basically a play back of the old there is no no such thing as technological redundancy fob -off they used on the Luddites: never mind hand loom weaving there’s plenty of jobs in the factories(Actually the factories used child labour).
    If the redundant craftsman you describe could find a market for his skills and several others’, the demand being so great,why could n’t his original employers tap into this demand?

  12. OK, DBC, I can explain it but, bearing in mind your previous comments I don’t know if you’re close enough to this particular world to understand it.
    The furniture company started out in the early years of the C20th & at its peak employed several skilled craftsmen plus unskilled labour, apprentices, office staff etc. These were the days when, despite leftish propaganda to the contrary, the earnings differential slope was a lot steeper than it is today. A moderately successful minor professional, say a clerk or teacher could afford to buy the result of several hours work by a skilled craftsman. Within the factory itself the earnings slope was much steeper. A top bench joiner would have been getting 3-4 times the rate of the floor sweeper & the apprentices were paid almost nothing. And don’t forget the tax system had little effect on any of them. Only the highest earners would even have paid tax.
    Fast forward to its decline & its a different picture. The company’s products have been almost ikea’d out of the market place. On top of the skilled man’s labour costs have to go the soaring costs of the factory rent & business rates, compliance with health & safety regs, (That means expensive air filtration systems, special areas for finishing product use, compliance with all sorts of workplace safety procedures. All very admirable but a far cry from the busy, dirty noisy factory it was in its heyday.) higher wage bills for the semi-skilled. The list goes on & on. And at every stage the taxman demands his dues & the bureaucrats interfere..
    So why the move to mechanisation? There really wasn’t any choice apart from closure.
    You see its a lot easier to expand a business than to contract it. Managing a business in decline is like conducting a military withdrawal under fire. It’s inclined to end up as a catastrophe. To get to the point you’re suggesting, where the company just does high quality bespoke stuff, pretty well all of the office staff would have to go & most of the unskilled labour. They’d have to move to smaller, cheaper premises. They’d have to reduce to the essential core of skilled workers & each increment of this decline means more work for those left with little prospect of an increase in earnings to compensate.
    Our skilled craftsmen left to go it alone. Initially he did his own paperwork & answered his own phone. Cut a few corners on the H&S while no-one was looking. Kept his overheads to a minimum. He could sell his skills for less than half the rate his previous employer would have had to charge just to break even. It’s actually cheaper for them to pay him to do the prototype work now than when he worked for them, yet he earns a lot more for doing it. So now he’s expanding into a niche in the market that his previous employers couldn’t have fitted & they’re continuing in one they do.
    And
    If you want to understand the Industrial Revolution try getting rid of some of your preconceived notions. There were no ‘children’ at that time. The concept of ‘child’ belongs to the late C19th. Back then there were infants & the rest. Everybody worked from when they were big enough to stand up & as they had done since they were banging flints together. Folk went into the factories because 12 hours a day 6 days a week was a reduction in working hours & they got fed at the end of it. Try following the south end of a northbound plough-horse in driving icy rain in the half dark of a winter’s morning. That used to be ‘children’s’ work.

  13. Dunno how we’ve got side tracked into C20th furniture-factory economics.Seems to me if the original craftsmen were only producing 10 pieces a week,there were no economies of scale ,no sub-division of labour and no” line”production where one guy concentrated on one process .Also zero machinery.Why did n’t they work at home and bring the stuff to the factory at the end of the week?This is what used to happen in the boot and show industry in Northampton.But not in the C20th!
    I was trying to elicit from you how robot factories would sell their goods given lack of aggregate purchasing power.
    The point about child labour I was making
    rests on the fact that child labourers were paid 20% of adult rate( max) and so adult former craftsmen could n’t find work.They started to ban child labour well early in the C19th.

  14. “Dunno how we’ve got side tracked into C20th furniture-factory economics.”
    Because it illustrates how the cake gets larger & we get more cake. Also it’s good to deal with real world examples because too much theory & you end up with socialism.

    “Seems to me if the original craftsmen were only producing 10 pieces a week,there were no economies of scale ,no sub-division of labour and no” line”production where one guy concentrated on one process .Also zero machinery.Why didn’t they work at home and bring the stuff to the factory at the end of the week?”
    I wasn’t trying to be condescending when I said it’s difficult to discuss the real world with someone who’s only seemed to have experienced the theoretical. This is how a lot of industry worked/works. Of course there’s economies of scale but you don’t just get them from production lines. That furniture factory was full of expensive plant that no one man could justify owning but benefited by having access to it when needed. Furniture isn’t just handsaw & mallet & chisel. There’s spindle moulders, lathes, planers, thicknessers, sanders….. That’s tens of thousands of pounds worth of gear. But it all needs a skilled man to use it. Some industries are like that. A skilled woodworker, a skilled machinest, they take a piece of raw material & make something. A fine table. An aeroplane component. Start to finish. Some things just aren’t amenable to production lines. They weren’t making enough of them.
    Of course you’re also right in a sense because our furniture factory was being Ikea’d to death so they had to adapt to survive. Their niche was partly taken over by their ex-employee. He hasn’t got the economies of scale but he does have the flexibility of smallness.

  15. You can split hairs about definitions of real wages as much as you like but if the mass of people cannot purchase what’s produced any system of mass production won’t work.

    It’s been pointed out before that Boeing seems to do quite nicely despite few of its workers being able to buy a 777.

  16. @pete
    Still no sight of proferred solutions to the problem of no purchasing-power created by robot factories.
    I cannot imagine how a factory where craftsmen made a very small number of pieces though backed by thousands of pounds worth of equipment was ever going to compete with somewhere that had even C19th division of labour: one geezer turning table legs ,another planing the tops and another fitting them together.
    As for the independent craftsman making a living producing one-off prototypes : how does he afford the thousand of pounds worth of equipment he may use on an as- and-when basis?This gear would seem to be definitive spare capacity (You’re not this lone craftsman are you/you seem to be heavily involved in his fate?)
    @TM How is the Boeing going to stay in use if aggregate purchasing power declines due to robot production lines.?What you’re supposed to say is: all those pushed out of production (like in Detroit) will be re rediredted by the Invisible Hand into service industries .Yeah right ,so guys flipping burgers are going to buy a lot of plane tickets?

  17. “I cannot imagine how a factory where craftsmen made a very small number of pieces though backed by thousands of pounds worth of equipment was ever going to compete with somewhere that had even C19th division of labour: one geezer turning table legs ,another planing the tops and another fitting them together.”

    You may not be able to imagine it but there’s hundreds of factories doing just that. How do you think a Formula 1 racing car gets built?

    “As for the independent craftsman making a living producing one-off prototypes : how does he afford the thousand of pounds worth of equipment he may use on an as- and-when basis?”

    Because there’s usually several routes to the same endpoint. Some are labour intensive. Some require expensive tools.
    Let’s give you a real world example:

    I’m not part of this industry but I do use its products. I needed to copy a mid-Victorian newel post. That’s the thing at the bottom of a staircase the handrail connects to. I go to a sizeable turning workshop & ask them to quote for making one. The itemised estimate shows the setting up time on their sophisticated lathe costs 3 times the machining time. That’s because the setting up is a very skilled & time consuming operation. The setting up time will be the same if I want one newel post or a thousand. So I go to a small craftsman who turns these things up on a simple lathe by hand & eye. His hourly rate is higher than the machine time at the other place because he’s a very skilled man rather than just a machine operator but there’s no setting up time.
    Estimate’s 30% cheaper.

    And that’s really the answer to your robot factory puzzle. The profits from the robot factory end up being spent on things that robot factories can’t make. There’s no point making the money just to let it pile up in the corner like waste paper is there?

  18. A rather amusing & somewhat relevant anecdote occurs:

    I did some work for a guy designed the electronics gives cheap plastic toys voices. He owns the patent. He makes a fraction of a cent on each one produced but factories in China turn out millions of the things* so he’s quite wealthy. I did some of the stuff that made the living room of his apartment a fair simulacrum of a medieval hall & everything had to look as if it had been hand made near the start of the last millennium.

    *The kicker is some of those chips go in shiny little walking robots.

  19. @Pete
    We are supposed tobe dicussing how the workers share of the value of industrial production has been going down.You want to discuss your newel post (Thank you ,I do know what these are).
    Your examples drawn from the alleged real world have a strange otherworldly aura.Of course, a computerised lathe is going to be unsuitable for a one-off: this amount of technical capacity is only going to be cost effective over massive long runs.
    Given your involvement building mock medieval interiors I am surprised you could n’t “bodge” something yourself,bodgers, in the original sense of the word ,being able to turn wood on one-way lathes powered by bent-over wrist-thickness saplings. I am not suggesting heading out to the woods but a small lathe
    should n’t be out of the question surely?

  20. How is the Boeing going to stay in use if aggregate purchasing power declines due to robot production lines.?

    That ‘if’ is doing an awful lot of work.

  21. That’s what we seemed to be discussing I thought. That all of this is happening because the wealth goes round.

    The real robot factory – the one that makes the little talking robots – has to find someone to buy them or their just worthless pieces of noisy plastic.

    The newel post was a work of art. Cost £1200. Well beyond my capabilities I’m afraid.

    I couldn’t make little talking robots either. But I might want to buy one.

  22. Sorry, punched submit before I’d finished.

    DBC, you answer a question for a change.
    If the workers share of industrial production is going down where’s the balance going? Is it piling up as heaps of notes in cupboards somewhere? Accumulating as gold bars? Or does it get spent on Ferraris & private jets? Or faux medieval interiors? Because someone has to make all those.
    Or, just maybe, is it disappearing in taxes because the one thing we do know is that if you want to destroy wealth you can’t beat governments at doing so?

  23. @Pete
    Do you really think robotic production is about producing toys?
    And you paid £1,200 for a turned newel post?
    Any profits not claimed by the workers will be claimed by the owners- lets call them capitalists .There are not many of these and any small shareholders will get derisory dividends .
    The returns to capital will not support a mass production market:be he ever so stinking rich the capitalist will only buy one loaf of bread though he has appropriated the purchasing power that could buy thousands .Sooner or later the aggregate reduced purchasing-power will contract demand and then production . That’s the Marxist line on all this, I believe.I could n’t be sure because I’m not a Marxist .
    The Douglasite line I do know and that makes a lot of sense.

  24. If all production is carried out by robots, we will be in the thankful position of having everybody freed up to do other stuff, stuff which is of greater added value, such as designing the stuff which the robots are making. I don’t know why lefties insist that if human beings are not making things you can drop on your foot then they can only flip burgers and the world will end, but it’s a fantasy that persists.

  25. “Any profits not claimed by the workers will be claimed by the owners- lets call them capitalists .There are not many of these and any small shareholders will get derisory dividends .”

    Pension funds anyone?

  26. “Pension funds anyone?”
    Well before Broon made his inroads into the pension system, yes but……..

    However to please DBC let’s go theoretical for a moment.

    That workers wages, as a proportion of the bigger cake, have fallen despite having risen in real terms is about what you’d expect.
    Take that furniture factory. A good proportion of the work that was done by skilled craftsmen is now done by machinery. The workers ‘share’ of the work done has fallen. But the ‘share’ done by the machines doesn’t come free. The machines cost money. The company had to borrow to finance the machinery, the money came from the financial system & the financial system is where our pension funds & savings reside. So essentially the workers have paid for the plant & receive the benefits of their investment. Of course the taxman skims quite a lot off the top but, & this is very much in theory, the taxes pay for the increased services that the workers enjoy. If you add it all together – wages, investment & pension income, benefits from state provided services you end up back at the proportions you had in 1980.

    In theory.

  27. Pensioners’ incomes are not going to run to many big ticket items.Pensioners ain’t going to buy no furniture:they bought it years ago when they were struggling to bring up families,with huge mortgages (most of it for the land underneath the house so the workers did n’t receive any wages for producing it) and no unions to keep up their wage levels.The average private/company pension in this country is quite small I believe, which is why people go round saying “My house is my pension”only to find that those clever people in the City ( with absolutely no connexion to the Conservative Party mind you) have screwed that up as well.

  28. It is a simple fact of life in the manufacturing sector that labour is a decreasing element in production, so of course the share revenue that goes to wages will be less.

    The challenge for governments in the years ahead will be how to get money into circulation when wealth creation is increasingly capital intensive and decreasingly labour intensive.

  29. @Maverick,
    Nothing like stating the bleedin’ obvious.This is precisely what we have been discussing on this thread for some considerable time.
    I have suggested the Major Douglas scheme of Social Credit as a solution but nobody seems to have heard of it.I blame too much science and IT in schools..

  30. Simple fact: UK manufacturing output today is actually higher than 50 years ago, although its share of GDP has declined relatively, compared with financial services, etc. And living standards have, in terms of the amount of stuff we can buy, holidays, etc, clearly improved hugely over that time. I don’t think that is a controversial statement.

  31. Something even more bleedin obvious from JP: not even the obvious point being made byMaverick but something even more obvious yet off the point.Of course its not controversial ,its platitudinous or two platitudes loosely joined together.

  32. Good grief. This argument rumbles on. Come back Tim you’re sorely missed.
    DBC
    The reason I tried to inject a tad of real life into the discussion is because people ain’t theories.
    There will never, ever be limit to demand because folk have strange desires. Offer them perfect, cheap goods from robot factories & they’ll clamour for imperfect expensive stuff made by hand. The fashion industry depends on people preferring items with a particular label on them rather than identical items with a different one. And next year they’ll bin the lot & buy the latest.
    On the production side, workers don’t just work for money. Really. My furniture craftsman would happily make a loss on an item if he believed it was going where it would be admired & cherished. Can you imagine what it feels like standing back & thinking that what you have just made will be bringing pleasure when you are dead & forgotten?
    Look at this comment thread. Hundreds of words. None of us were paid for it. We did it simply for our own pleasure.

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