May Day`s Significance in a Post-Turmoil World

1^st May 2009

The Malta Independent - Friday Wisdom

Today, workers round the world will down their tools, their pens or their keyboards to celebrate their achievements since the industrial revolution.

It is an opportune time to reflect whether May Day is just an occasion to celebrate past achievements or, in addition to this purely historical perspective, it has significance to understand current challenges which could be gradually and unobtrusively eroding past achievements. Workers must muse today how in future they can sustain their share of the national income.

The financial turmoil experienced in 2008 makes it doubly opportune to consider May Day well beyond its purely celebratory perspective.

Workers in developed countries have been rapidly losing share of their country’s national income. This was a process that actually started thirty years ago this week when Margaret Thatcher was elected as British Prime Minister in May 1979. Thatcher economic liberalism soon found support from Ronald Reagan who was elected to the US Presidency 18 months later. Together they pushed through Thatcherism or Reaganomics involving privatisation, deregulation, tax cutting, assault on the power of trade unions, and focus on wealth creation rather than wealth redistribution.

Their economic policies proved successful as developed economies overcame the chronic inflation problems and generated efficiency gains which brought about a long period of stable and high economic growth in the last two decades.

Labour movements found themselves without much power to defend their share of the national income at industrial level, as with the advent of globalisation competition increased exponentially. The level of wages was dictated not only by unemployment in the workers’ own country but more generally by wages payable in far less developed countries that joined in the globalisation game. A worker’s competitor for the preservation of his job and its conditions was no longer merely the unemployed guy living next door, but the Chinese peasant who decides to try his luck seeking an industrial job in one of China’s newly burgeoning cities.

Yet things remained pretty settled and peaceful. Workers did not make much issue of receiving a lower share of the national income. This might look strange considering labour’s traditional militancy. Thatcherism had removed the effectiveness of the most potent weapon that unions traditionally used to press their claims with i.e. the strike. After Thatcher taking on and crushing the British coal-miners, after Reagan’s victorious battle with the US air traffic controllers, and on the local front after the fiascos of the strikes at Phoenicia and Sea Malta, unions worldwide found that with much increased mobility of capital the strike instrument became blunt and ineffective.

But this apart, workers found their standard of living increasing satisfactorily even in the context of a reduced share of the national income, and this for two reasons. Firstly because the national income was increasing at an accelerated rate compared to the stagnation of the seventies so that a reduced share was still bigger in absolute terms. Secondly because what workers were not doing in better wages they were in fact doing in appreciating values of their assets. In accounting terms what they were not doing in the profit and loss account they were doing through revaluations in their balance sheets.

In places like the US, workers were in fact getting into the habit of augmenting their regular income by cashing out the increasing value of their primary residences through drawing second and third mortgages to settle bills accrued through consumption expenditures on their credit cards.

Suddenly in 2008 this model, which had been working well for several years, got broken. Property prices collapsed and many workers have seen the value of their residences dive below the value of their mortgages (negative equity). At the same time workers are facing increased unemployment and those that are still in jobs have no leverage to demand better conditions. On the contrary in countries with severe economic problems like Iceland, Baltic States, Hungary and to some extent even the US, UK and the EU, workers are having to accept pay cuts to preserve their jobs. In Malta we have seen workers having to hang on to their jobs by accepting shorter work weeks and correspondingly lesser earnings.

Suddenly Thatcherism and Reaganomics have been shattered. From strict monetarism we have switched to quantitative easing (essentially central banks printing money). From privatisation we have been forced back to nationalisation, de facto or official, of wide swathes of the financial sector as governments had to intervene with liquidity and fresh capital to save insolvent banks from folding up. From firm believers in free markets’ ability to regulate themselves through competition, we are reverting to strict regulation.

Clearly the pendulum of blind belief in the effectiveness of free markets had swung itself to the extreme of self-destruction. Thatcher’s doctrine that the market should not give something for nothing has been ridiculed by the markets’ total disregard of traditional value in rewarding with multi-million bonuses and munificent pensions bank executives who drove their organisations into near bankruptcy.

Workers are positioning themselves for this challenge in a very interesting way. Without the tools to defend their case in the industrial arena workers are defending themselves in the political arena by electing political leaders who are prepared to roll back the excesses of Thatcherism and Reaganomics without challenging the underlying strength of free markets.

Workers should particularly celebrate this year the election of the most socially oriented US President and should re-evaluate their model by looking at reality in the face and accept that their strength is best expressed through the election of social friendly governments rather attempting to vainly re-acquire power at the industrial level.