World economy: Profits soar while wages fall

Seventy-three percent of those who were asked in a national opinion poll were in favour of increasing the top rate of income tax on incomes of greater than £100,000 from 40p in the pound to 50p.

Only 22 per cent were opposed and even 68 per cent of those in the top ‘AB’ social grade were in favour. The Tories are naturally opposed to these proposals but so also is Labour, which is now so embedded as a big business party that it dare not even trim the fingernails of the rich and the capitalists. The Liberal Democrats demagogically favour the proposal but will never be in a position to implement it.

Some election pundits are even “surprised” at this poll result. This just shows how far removed they are from reality, how little they understand the simmering discontent which has built up at the vast wealth amassed by the rich at the expense of working-class people. The £2 billion-plus profits of Tesco’s is just the latest example of the bonanza enjoyed by big business, not just in Britain but worldwide. Even the august International Herald Tribune (11 April 2005) is compelled to admit: “Across wealthy nations, pay has stagnated and job creation stalled at a time when corporate profits are soaring.”

It points to the example of the French supermarket giant Carrefour, the world’s second biggest retailer, which recently announced profits of €1.4 billion ($1.8 billion). This company awarded its shareholders a 27 per cent increase in dividends while Ms Picard, a union member, complained that she had “worked at the company for 12 years [and] received an annual wage increase of only 1.79 percent. That’s less than inflation – I can hardly afford to shop here myself anymore.” She earns only €800 (about £575) a month.

Ruthless neo-liberalism

Across the rich nations – the countries covered by the Organisation for Economic Cooperation and Development (OECD) – wages have fallen massively. This is the result of the ruthless application of neo-liberal policies by Blair and other capitalist governments. Privatisation, downsizing, lengthening of the working day and cuts in wages are the order of the day while profits have been boosted massively. From 70 per cent of total wealth 30 years ago, wages as a proportion of total outlay by companies is now down to 64 per cent (see chart).

Conversely, the loot pocketed by the bosses has soared: “Corporations are getting a growing share of the spoils and that is a recipe for tension.” [Kenneth Rogoff, Professor of Economics at Harvard University, and former Chief Economist at the International Monetary Fund.] The share of corporate profits in the combined national income of the Group of Seven (G7) major industrialised countries has “reached an all-time high, according to a study by UBS Warburg”. Even in Germany, with a moribund domestic economy, “businesses are on a roll. From General Electric to Deutsche Bank, healthy balance sheets are translating into handsome dividends”.

The spokespersons of capitalism brazenly admit: "Globalization, technology and the interplay of the two have long worked to erode the bargaining power of employees in developed countries. Indeed, the main slide in the wage share occurred between 1985 and 1995.” But now the “abundant and cheap pools of labour are… opening up – to an unprecedented number of sectors – [this] is taking the phenomenon to another level, said Stephen Roach, chief economist at Morgan Stanley in New York.” In a statement that should send a chill down the spines of every worker and the trade unions, Roach states: "Globalization is now accelerating at hyper-speed and corporations are thinking long and hard about giving higher rewards to workers at home."

International trade soared to 28 percent of global GDP last year, compared with 19 percent in 1991. Moreover, “A whole range of services that were once considered ‘untradable’ can easily be provided on the other side of the globe: anything from accounting and legal services to software programming, engineering and financial analysis.” The general threat of ‘outsourcing’ affects all workers: "‘The pressure on wages to fall is there regardless of whether they are immediately affected by outsourcing threats,’ said Peter Bofinger, a member of Germany’s Council of Economic Advisers.”

Domestically, large unemployment in France and Germany , for instance, is now held over the heads of the working class as a whip to drive down wages and conditions and at the same time the ‘relocation’ of industry is an ever-present threat. In Carrefour, the jobs done by the workers today, claims the International Herald Tribune, “cannot be done from Poland or China, but most of France’s 2.8 million jobless could replace [the present workforce].” He goes on: “Consider Wal-Mart, which pays its employees on average $9.68 per hour, a rate… too low to feed a family in the United States, yet [it] reportedly receives 10 applications for each new job it offers.”

But there is another side to the piling up of profits by big business. By cutting the share that the working class receives, and massively so as these figures show, ultimately this cuts the market. The ability of working people to buy back the goods that they produce is therefore undermined by the threat of an economic recession or slump. Capitalism can overcome this problem, as it has done in the past period, by an enormous extension of credit, what Karl Marx called ‘fictitious capital’, and a drive by the major industrial powers towards the world market to sell their goods rather than at home. Germany, for instance, overtook America as the world’s largest exporter last year and yet in the fourth quarter of 2004 its economy shrank by 0.2 per cent, wages fell by 1.5 per cent and the jobless total surged to a record 5.2 million.

Carrefour plans to open about half of the new stores planned for this year and next in China. The dangers to the working class are obvious as globalization, including an influx of cheap labour from Eastern Europe and elsewhere, squeezes the living standards and conditions of the working class of Britain and Europe. Even some capitalists are worried about this savage cutting of domestic demand: “If you want to milk the cow you need to feed it,” says Bofinger. There are “certain impassable limits”, as Karl Marx explained, to cutting wages and living standards as a means of boosting profitability, which if exceeded means that the working class cannot maintain itself, reproduce and therefore provide future profits for the capitalists. But the individual capitalists have a short-term perspective, their primary goal is to maximise profits. Their system is based not on social need but on production for profit.

Colossal wealth

One of the reasons for this colossal piling up of wealth by the rich capitalists is the absence of fighting, combative trade unions prepared to counter the ruthless plans of big business, both on a domestic and an international scale. There are limits to the ability of capitalism to expand internationally, as the workers in the poor countries, including China, begin to organise themselves, create trade unions and fight for a greater share of the wealth they create, in the form of wages, etc. Internationally the trade unions should come together now to combat the conspiracy of big business against workers throughout the world.

Common action, for similar wage rates and conditions, for instance in Europe, is essential. Also vital is to organise immigrant labour into the trade unions and fight for the rate for the job. So worried are some sections of German capitalism at the influx of cheap labour that the Schröder government is suggesting the introduction of a minimum wage. As welcome as such a measure would be, it would be the bare minimum and the unions should fight for common rates for the job and a living wage. This will mean the pushing aside of pro-capitalist ‘moderate’ trade union leaders and their replacement by a fighting, militant trade union leadership that recognises that only by mobilising the power of the working class is it possible to stop this process of continual deterioration in the rights and conditions of the working class. When Rogoff warns that neo-liberal policies are creating “tension”, he is warning the bosses that if they continue down this road, a massive explosion of the class struggle is inevitable. The first signs of this have been shown in France and elsewhere in the mighty demonstrations of the last month.

An additional factor which has allowed the capitalists to ride roughshod over the working class is the absence of mass radical workers’ parties, which existed in the past. Blair, Schröder and the rest of the ex-social democrats of Europe and elsewhere have gone over to capitalism lock, stock and barrel. They are not even prepared to implement a small increase in taxes on the rich. The socialist does favour a tax on the fat cats, the capitalists, more substantial than a mere extra 10p in the pound. But we also recognise that they will erode such attacks on their wealth unless the commanding heights of the economy are taken away from them. The capitalists no longer think they have to look over their shoulder at the threat that was posed in the past from mass political organisations of the working class, so are blatant in amassing opulent wealth. We have to remedy this situation by beginning now the process, even in this election, of creating mass organisations, which can challenge the very nature of capitalist society and prepare for a democratic socialist planned economy.

Tony Blair, as well as Gordon Brown, claims that “things are getting better”. The International Herald Tribune shows this for the lie that it is. Capitalism in its ‘modern’ phase offers working people a future of cuts in wages, unemployment and all the other aspects of neo-liberalism which working people are now rejecting. In this election, the fight is not just for votes but also to ram home the message to working-class people that ruthless capitalism offers a bleak future and the need is to prepare for a socialist one.

Special feature from The Socialist, paper of the Socialist Party, cwi in England and Wales.

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April 2005