We are told that for China strikes and unions flexing thier muscles is a good thing because low wages are a part of China’s problem. But in the West, workers just have to remove their heads from the sand.
The CBI has joined the debate. This morning it is releasing a report calling for more regulation to curtail the power of unions. John Cridland, CBI Deputy Director General, said: “As we enter a period of fragile recovery, we need to do everything we can to create a jobs market that works for Britain, and to ensure Britain is the place to work… To position the UK for growth, any new employment legislation must pass a simple test of whether it will encourage job creation. We also need to look at changing the rules around industrial action. Strikes cause misery. They prevent ordinary people going about their daily lives, whether it’s getting to work or getting the kids to school. Strikes also cost the economy dearly and undermine our efforts to help rebuild the economy. That is why we believe the bar needs to be raised.”
He may be right. But equally, it is possible that across the developed world companies are making profits at the expense of their labour force. In 2006, US corporate profits as a percentage of GDP hit their highest level ever. The ratio remains high.
In tough times it makes sense for companies to cut costs by keeping wages as low as possible. But if all companies do this in tandem, the result can be less aggregate demand, meaning times get tougher, meaning companies cut costs even more. And we get a downward spiral.
Just remember this. What is right for the individual can be catastrophic if applied by everyone.
The argument for and against companies cutting wages is not quite as clear cut as we are being told.
And finally, there’s gold. It could be argued that the factors that lie behind the recent hikes in gold are the same as the factors that pushed up house prices during the last decade.
Now the Saudis have embraced that yellow metal. When it comes to the economy, gold does not glisten
© Investment & Business News 2013