Well, yes, this is actually the point of it all

Britain\’s workers have suffered more financial pain since 2008 than in any five-year period of the modern age, according to research by a leading tax thinktank that shows employees have sacrificed pay to keep their jobs.

Describing this downturn as the longest and deepest slump in a century, the Institute for Fiscal Studies says workers have suffered unprecedented pay cuts of 6% in real terms over the last five years.

Historically, real wages rise by about 2% a year. This suggests that people are more than 15% worse off than they would have been if the pre-crisis wage trends had continued.

Worth recalling how Germany got itself into the sweet spot it\’s currently in. Back around 1999, 2000, wages were too high in relation to the production coming from those being paid. Productivity was too low in short. So, the German government engineered a relative fall in the workers\’ wages. As productivity continued to rise wages did not thus reducing the labour cost of production.

Et voila. After a decade of doing this German industry is now extremely competitive.

And there are those who have insisted that British industry faces much the same problem. Wages are simply too high compared to the output from employing people. Thus the wages need to fall relative to output. All of which seems to be happening and Hurrah!

But what we really ought to note here is the difference between the German unions/lefties and their British counterparts. The Krauts, when faced with this problem, said, hmm, you\’re right you know. We really had better restrain wages for the next few years. Can anyone at all, anyone not going through drug induced hallucinations, imagine the British unions and or left agreeing a similar plan?

No, I didn\’t think so either. My conclusion from which being that while that German style, that cooperation that the TUC continually calls for, might work in Germany it don\’t over here. Because TUC.

16 thoughts on “Well, yes, this is actually the point of it all”

  1. So Much For Subtlety

    Can anyone at all, anyone not going through drug induced hallucinations, imagine the British unions and or left agreeing a similar plan?

    Well if the Communists took over …. Or even if the Labour Party was in power – I think the Australian Labour Party negotiated something like this back in the early 80s.

    To an embarrassing extent, West Germany inherited a lot of things from the Nazis. And a unified Trade Union movement purged of Leftists was one of them. Seems to have done them a lot of good. I wonder if it is too late for us to do the same?

    But in reality we will get a similar result in that any industry with a large Trade Union presence dies. The only parts of the economy that can grow are those with weak or non-existant Unions. That is what you get for letting your Trade Union movement become run from Moscow.

  2. The reason why there will be no co-operation from the TUC or the Labour Party is because they don’t see this as a necessary corrective move to align wages with productivity.

    They see it (see RM’s post today) as the price the workers are paying for bailing out the bankers and the tax-avoiding neo-liberal 1%.

    What’s even odder is that the Left’s favourite economists (such as Danny Blanchflower) are constantly saying that what we need is 5% inflation for 5 years to deal with the debt overhang (rather than austerity).

    The fact that this cripples real wages doesn’t seem to be a problem for him.

  3. Yeah, it’s all the workers’ fault for retaliating.

    What’s striking about industrial relations in Germany is not the unions’ behaviour but management’s. Germany has multi-employer collective bargaining, it has works’ councils whose approval is needed for changes in working practices, and it has a comprehensive system of “initial vocational training”.

    If an employer wants its employees to behave as if they’re both on the same side, it needs to act that way itself.

  4. “They see it (see RM’s post today) as the price the workers are paying for bailing out the bankers and the tax-avoiding neo-liberal 1%”

    C’mon, they have a point there.

  5. The comparison with Germany is not that simple. Germany sells to EU customers that buy its products in the same currency that the German workers are paid in.
    The UK however has an exchange rate between it and its export customers and this does the job of adjustment for productivity.

  6. If a Frenchman is paid 1 Euro to make a loaf of bread and an Englishman is paid 100 pounds to make a loaf of bread then the exchange rate is 100 pounds to the euro, and both loaves cost 1 Euro to the French retailer.
    UK workers earning from export can earn more if the workers productivity per hour goes up , but the pay per hour in Sterling is not relevant to export trade.

  7. I thought the trade unions in the UK mainly survived in the public sector (with all that entails).
    Most recently, the GPs seem finally to have accepted their socialised status by adopting the traditional manner of public sector unions.

  8. What PaulB and Dinero said.

    Bit naughty of Tim to ignore Germany’s mercantilist foreign policy of late

  9. >rm

    True
    rather than, as Tim says – “decreasing the Labour cost of production “, what Germany did was make its products cheaper amongst the Euro area participants.

  10. So Much For Subtlety

    PaulB – “Yeah, it-s all the workers- fault for retaliating.”

    Retaliating for what? Society as a whole decided that it would encourage bad loans to people who should not have been buying homes. How do the factory owners, such as are left, come to be at fault?

    What the Unions are doing is insisting that the costs of that p!ss poor piece of public policy should not be shared equally across society but come down on someone else except their members.

    Damn right the Unions should be blamed for that selfishness.

    “What-s striking about industrial relations in Germany is not the unions- behaviour but management-s. … If an employer wants its employees to behave as if they-re both on the same side, it needs to act that way itself.”

    Most of those things British workers also had – either openly or de facto. Which is why Murdoch could not modernise his plant with the Unions knowing. They also had 30 years of Soft Left One Nation Tories where the factory owners were desperate to appear on the same side as the workers.

    What did they get in return? Trots and the Winter of Discontent. There is no point in pretending to be on the same side if the other side bloody well is not on the same side. Once half the Union movement is openly welcoming a Soviet invasion, there is nothing left to discuss.

  11. But was it not also the case that the German’s supressed living costs? Younger UK workers on the other hand are facing rocketing rents and rapidly rising food and fuel costs.

    Thus their dimishing incomes are being captured by rent seekers and coorporations.

  12. @PaulB

    I don’t remember all those union bosses in nationalised industries in the 70s being paragons of reasonableness when Labour was in office.

    Perhaps if they had been then, in the same way that Tim describes the German unions behaving, we might still have had a nationalised car industry, mines and a Labour government almost permanently in office. Instead they acted like bully boys and Labour (and to some extent Heath) just capitulated. The unions have got the bargaining position they deserve.

  13. PT gets this right. Comparisons with Germany are pointless given the latter country’s much lower rates of homeownership and its greater care over rent levels.
    Worstall, who has turned himself into an uninteresting apologist for big business, is merely repeating the old bullshit about wage inflation in the UK. Even Enoch Powell, only Enoch Powell, constantly repeated that the Unions “were innocent as new born lambs” of causing an inflationary gap between wages and productivity and Friedman pretty well won the Nobel Prize for saying in 1970″ Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output”.
    An interesting insight into the role of the unions, or lack of it now ,is provided by this in the Guardian p3 “One third of workers experienced nominal wage or cuts between 2010 and 2011 and 70% experienced real wage cuts, the think tank (IFS) says ,blaming in part a drop in the number of unionised workers.”
    So unions keep up real wage levels; keep up demand; provide a market for the private sector.

  14. Tim wrote:
    “Et voila. After a decade of doing this German industry is now extremely competitive.”

    Well ok, you keep mentioning the glowing success of this German policy – but what I’m interested in is whether you agree with it or not. Knowing would perhaps give some insight into this neo-liberalism malarkey.

    My (somewhat) paleo-liberal ideals tend toward the notion of small government keeping out of the free market which self organises the appropriate balance of wages and productivity (etc). But apparently you can be “extremely competitive” by having big government “engineer” the economy in conjunction with corporations and subservient labour unions, all working for the national interest.

    Which is pretty much saying “fascism really works”.

    Tim adds: Ah, no, there’s a rhetorical step before the priase in my argument.

    Take, say, Willy Hutton. He argues that we should be more like Germany. So, if we should be more like Germany then…….

    I do not think we should be more like Germany. But I am taking the argument of those who think we should be and takin it to its conclusion.

  15. SimonF: the NUM was often unreasonable. But it’s been meek as a lamb since the failure of the miners’ strike in 1985. The result has not been a resurgence of coal mining in the UK, on the contrary production has shrunk to a small fraction of what it was. Evidently the unions have got nothing to do with it, it’s just that there are places overseas where it’s easier and therefore cheaper to dig the stuff up.

    Industrial relations at British Leyland were disastrous, but in so far as the problem was on the union side, it was not the union leaders, who usually opposed strike action, but the shop stewards who were responsible. And management must carry a good part of the blame for the willingness to of workers on the shopfloor to join unofficial strikes.

    Today the largest car manufacturer in the UK is Nissan. It has a single-union agreement (with Unite), not entirely unlike the German model, and near-perfect industrial relations. Evidently, union unreasonableness is not now a problem.

  16. Tim, thank you for the clarification. Something of a relief.

    The German example does show that countries with free(er) markets can be at a disadvantage to those who manipulate the markets. Presumably the Gerbils were clever enough to fit their engineering within EU and WTO agreements.

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