Economist Richard Wolff compares the stagnation of wages in the U.S. for the past 30 years to the increase in wages in emerging markets and explains why capital left America
JESSICA DESVARIEUX, TRNN PRODUCER: Welcome to The Real News Network. I’m Jessica Desvarieux in Baltimore.
The International Labor Organization just released their global wages report.
Now joining us to discuss that report is Richard Wolff. Richard is the professor emeritus of economics at the University of Massachusetts Amherst, where he taught economics for 35 years. And he’s currently a visiting professor of the graduate program in international affairs at the New School University in New York.
Thanks so much for joining us, Rick.
RICHARD WOLFF, PROF. ECONOMICS, THE NEW SCHOOL: Thank you very much for inviting me.
DESVARIEUX: So, Rick, what really stood out to you in this report?
WOLFF: What stood out for me this ILO report are, first, the comparison of what has happened to wages. And the comparison is between the advanced economies–Western Europe, North America, and Japan on the one hand, and the so-called emerging, major emerging economies, and there they really mean China, but also India, Brazil, and a few other countries like that.
And here’s the stunning result. Looking over the last decade that we’re talking about–eight to ten years–wages have been rising much, much faster in the emerging economies than in the old established capitalist economies of Western Europe, North America, and Japan. And they’re not even close. Wage increases are in the three, four or five, six percent a year range in China, for example, and they’re in the 1 to 2 percent range in North America and Western Europe and Japan.
In other words, the capitalists’ decisions made over the last 30 years to move production out of North America, out of Western Europe, out of Japan, and into China, India, Brazil, and so on, has meant that wages stagnated in the old industrial centers like the United States, and they are going up very quickly in China. It’s a cautionary tale for people who want to be critical of the position of workers in China. If you want to understand China and you want to understand the United States, the ILO report makes it clear that wages are rising where capitalists have gone, and they’re not going anywhere in the places that capitalists have abandoned. And the United States is in the latter category.
DESVARIEUX: Let’s talk about why capitalists have abandoned the United States, Rick, because some people are going to say that they abandoned it because unions got too strong, they were demanding too much. People just can’t afford to pay people those kind of wages and have those kind of pensions. What do you say to that kind of argument?
WOLFF: I say that you must be living in a different planet from me. Let me give you a simple example. The number of people in the private sector–and that’s what we mean when we talk about capitalists making a decision, not a government job, a private sector job where your employer is a capitalist making a profit–in the capitalist private sector of the United States, less than 7 percent of workers are represented by a trade union. That’s right–6.9 percent of private sector employees are in a union. To talk about unions being strong, with that number, is a hallucination. To imagine that unions are shaping the level of wages in our country by their strength is another hallucination. This has nothing to do with our situation.
And, indeed, over the last 30 years, wages and the United States have not gone up. They’ve been stagnating. That’s in part what the ILO report indicates. So if capitalists are leaving, it’s not because wages are rising here. The reason capitalists are leaving is because wages are very low in those parts of the world that used to be poor colonial backwaters of the West.
Those countries have now stood up. They’re developing. They’re independent. And they want jobs for their people. And they know they have a powerful weapon, namely, the historically low wages. So a company leaves California or Cincinnati or Pittsburgh or Detroit and moves to Shanghai or Hyderabad or somewhere else, particularly in Asia, to take advantage of the fact that they can pay people there one-third, one-quarter, or less of what they would have to pay an equivalent worker here in the United States. The companies therefore make much more profits. And as any honest member of the business community will tell you, they’re in the business to make profits, and they left the United States because they could make more money over there.
But we as Americans have to then face something. For decades we have been giving these companies all kinds of benefits–tax holidays, subsidies, government support programs, government orders for whatever it is they produce. And states have done the same. And cities have done the same. But those companies took all those benefits, built themselves up, and have now decided hasta la vista, baby. I’m leaving. I’m going someplace else where I can take still more money. And I’m going to leave behind an empty factory, a parking lot with weeds growing out of it, decimated families who’ve lost jobs, decimated communities who have no more revenue coming in to the city or the state government because the jobs aren’t there, because the companies left town.
This is a catastrophe for the people left behind. And one of the ways it shows up in the United States, documented by this ILO report, is the stagnant wages, the wages that in North America, Western Europe, and Japan just aren’t going up hardly at all, while they go up very sharply in those areas to which the capitalists went to take advantage of their lower wages.
DESVARIEUX: Rick, if I’m one of those people that was left behind, as you describe, what do you do about it? ‘Cause it sounds pretty grim. Can you even compete with other workers? Should you be competing with them? What do you do?
WOLFF: Well, the solution is actually quite easy. When a capitalist leaves, it’s because he can make more profit by moving to China. Suppose you said to the business man or woman, we’re going to close that option, you can’t do that. Well, then the ingenuity and the creativity of that business person will have to be redirected someplace else.
There’s an example from child labor that can make this point. Once upon a time in American history, we allowed as a nation children to be employed, as young as four and five years of age. Capitalists in large numbers, particularly in the garment industry, but in other industries too, hired children. They paid them much less than they paid adults, and so they found great profits in getting work done by underpaid or low-paid children.
Reformers came back and said, my God, this is inhumane. Those children should be in school. It’s not healthy, not physically, not mentally, for them to be in sweatshops and factories and all the rest of it. And the capitalists said, my God, that’s going to damage our profits, and if you damage our profits, we won’t be able to help this economy grow. And the reformers said, well, we’re sorry, you’re going to have to find another way to grow. And laws were passed that made child labor illegal, and we didn’t do it anymore, and we haven’t done it for a long, long time.
Guess what. Did capitalism collapse? Hardly. Did businesses fall apart? Not at all. What you did was you made businesses find other ways to improve their profits–new technologies, new customers, new raw materials, new commodities to produce. There are lots of ways for businesses to make money. And when you cut off something that society doesn’t want, it’s not the end of the world.
Well, here’s my example: cut off the ability to abandon a city like Detroit or Cleveland or Camden, New Jersey, or thousands of other American cities suffering from this problem. Say to the businesses, you can’t take all that we’ve given you over the years in subsidies and tax breaks and special courses in the high schools to get kids ready to work in your business. You can’t walk away from that to go get profits someplace else, leaving a social disaster behind. That’s as unacceptable to us as child labor was years ago. And you close the door on factories leaving, and you say to the businesses, you’re just going to have to find less socially destructive ways to improve your business.
They overcame the problem with no longer being able to hire children. And guess what. They can also find ways to improve their business situation without laying waste to city after city in this country. And the social consequences of that are just beginning to percolate into our consciousness in places like Ferguson, Missouri; Cleveland, Ohio; the poorer sections of New York; etc.; etc.
DESVARIEUX: Rick, but I can just hear people, like, on the business side saying, but I own this company; how can you tell me what to do with something that I own?
WOLFF: Same story as with the child labor: it’s my business; I want to be able to hire who I want. Answer of the society: very nice, sir; it is your business; but you can’t do that, because it is socially unacceptable behavior.
Let me give you another example that’s more modern. There was a time when an employer felt, particularly if they were males, that they had all kinds of sexual rights with their female employees. And they didn’t hesitate in many examples–and we know of cases right now, don’t we?–where employers or people in power take advantage of their employer situation to extract sexual favors from their subordinates. And we have made, as a society, the decision that’s illegal.
And the answer it’s my business, I can do what I want, and if an employee doesn’t want to do what I want, they can jolly well leave, this answer of the business community has been laughed out of the courtroom. They can’t do it.
Now, I would argue as an economist that the damage done to our society from child labor and from sexually unwanted demands from employers are no better or worse than the damage done by having companies leave the United States, leaving behind decimated communities. This is an unacceptable social cost of capitalists’ freedom. And in those situations, you curtail the freedom of the capitalists for the greater freedom of the larger community not to be stuck with the costs of a capitalism that works this way. I think we’re better off for having stopped child labor. I think we’re better off for having made it illegal for an employer to impose sexual demands on subordinates. And I think we’ll be much better off if we stop permitting capitalists to get up and leave to make more money, leaving the waste and the destruction behind.
And I would add one more little historical piece of information. The country in the world that has perhaps gone the furthest in imposing limits and conditions and prohibitions on private capitalists leaving their country is the country called Germany. And in the last six years of this crisis, Germany has done better than every other capitalist country, certainly way better than the United States. So the notion that you can’t constrict your capitalists and make it difficult or impossible for them to leave, which the Germans do, that this will somehow harm your capitalist system, Germany is an example that the opposite is more likely the case.
DESVARIEUX: Alright. Rick Wolff, always a pleasure having you on. Thank you so much for joining us.
WOLFF: Thank you as well.
DESVARIEUX: And thank you for joining us on The Real News Network.