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The problem of inequality won’t be solved simply by more education and training; inequality is hardwired into the rules of this hyper globalized world. The director of the Division on Globalization and Development Strategies at UNCTAD joins Paul Jay on theAnalysis.news podcast.
Transcript edited for clarity.
Paul Jay
Hi, I’m Paul Jay. Welcome to theAnalysis.news podcast. Don’t forget there’s a donate button
at the top of the webpage.
This is part three of my discussion with Richard Kozul-Wright, who’s the director of the
Division on Globalization and Development Strategies at UNCTAD, the United Nations
Conference on Trade and Development. He’s the author of the 2020 Report of UNCTAD
‘Transforming Economies: Making Industrial Policy Work for Growth, Jobs, and
Development’.
You really should listen to Part One and Part Two, because it will make a lot more sense if
you do. But it will still make sense, I think, even if you don’t.
So before I introduce and say hi to Richard, I’m going to read a quote from the report. So this
is in the chapter ‘Almost Everyone Left Behind.’
“In a textbook world, income distribution is a well-rehearsed fiction. Wages are negotiated in
markets where everyone has equal bargaining power, and the outcome is a wage reflecting
each worker’s productivity. Only in this narrow sense is the income distribution fair. In the
real hyper globalized world of austerity and depressed employment, corporations wield
unique power in wage negotiations, and the textbook foundations of fairness and distribution
melt away. Even so, any rising inequality from more liberalizations is justified, assuming that
the gains from improved allocation of resources, empowered middle-class consumers, and
improved government revenues would be more than enough to compensate those at the
bottom. That conclusion requires dubious assumptions like full employment everywhere and
at all times. It also misses the point. Power and policies, not fair competition, determine how
adjustment processes play out.”
So thanks for joining us, Richard.
Richard Kozul-Wright
Nice to be back, Paul.
Paul Jay
So break that down. When you call this fair negotiations, and they keep talking about a fair
wage, it’s almost like fair taxes, that it’s a well-rehearsed fiction. Why do you call it so?
Richard Kozul-Wright
It’s one of the great weaknesses of conventional economics, its inability to deal with the
distribution question in any serious way, and to offer what is ultimately just a justification for
the status quo. That’s a longstanding debate and a critique of most heterodox economists.
Paul Jay
What is that?
Richard Kozul-Wright
Anyone who is outside of the kind of mainstream neoclassical tradition, based on these
ideas that the economic activity is simply a set of transactions between individuals who have
are fully rational and fully endowed with all the necessary information to make optimal
decisions. As long as markets are left alone and not interfered with by governments, then
prices will allocate resources in the most efficient way, and everyone will be happy. I mean
anyone who recognizes that as a kind of mythical view of capitalist economies, it’s in one
way or another heterodox, and it’s a broad group that encompasses everybody from both
post Keynesians through the Austrians and Marxists, to be quite honest. But it’s a rejection
of that very stylized view of optimal market behavior.
Paul Jay
OK, well, keep breaking down then. So explain why that’s fiction, and how does it affect
people?
Richard Kozul-Wright
I mean, for the reasons we said in terms of power, if you take power out of the transactional
relationship between buyers and consumers and producers, between creditors and debtors
and of course, between labor and capital, you’re going to take out one of the most important
elements of both of those relationships. In our world, everyone recognizes that inequality has
increased massively over the last three decades, four decades, everywhere.
No one disputes that. I think there are different attempts to understand why that’s taking
place. Amongst many economists, it’s a debate about whether trade or technological change
has been the source of these growing inequalities. Behind that is this idea that trade and
technology are good, but somehow certain groups of people have been forgotten about or
left behind; that is the kind of phrase that reverberates around our world to explain the
growing disparities within and across countries.
This idea that we forgot about people and all we need to do is just give them a bit more
education or train them a bit better, and everything will be all right. That we want to critique
the analysis that we’ve been doing now for some years and to remind people the inequality
is hardwired into the rules of this hyper globalized world. It’s a very footloose capital and
increasingly flexible and precarious labor market conditions and policies that are oriented
towards maintaining the place of those at the top of the pile.
It’s not a kind of accident that we see this growing inequality. It’s how the system works. It’s
how the system is intended to work. There are these very increasingly large semi
monopolistic or monopolistic corporations with a huge amount of economic-political power in
the position to generate rents for themselves. Rents rise to the top. Wages are kept down as
labor market institutions and regulations are eviscerated. So wages stagnate, and kind of
desperation happens. The one thing that trickles down in that world is desperation,
essentially. That kind of recognition that it’s the rules of the game and not a kind of accident
or forgetfulness that has created the kinds of inequalities that we see. It is kind of central to
the work that we’re doing.
Paul Jay
And desperation is very profitable. I know when I lived in Baltimore, I keep citing this
example, but I think it’s a good one. It’s kind of typical what was going on there. There’s such
high unemployment in Baltimore that people were desperate for jobs. So we talked to a guy
at Johns Hopkins Hospital who had 14 years seniority, cleaned surgical rooms after, had to
clean up the blood and guts, risking infection, had to take special drugs to try to avoid getting
infected. At the time, we talked to the guy; it was maybe two-three years ago, he was making
13 dollars an hour.
It’s only possible to get such cheap labor if people are so desperate. You can look at that on
a global scale, and then you talk about footloose capital, the fact that big corporations can go
where the labor is cheapest, play countries off against each other to some extent. To some
extent, they need a ‘China’ that has a disciplined work and trained workforce. But even there,
the Chinese government for a long time was helping keep wages low, maybe a little less so
now. But for a long time, they were.
You have a situation wherein your report you talk about how the share of income that goes
to profits has been going up and up in relationship to wages. But I think you make a very
important point about the moment we’re in, which is all of this existed pre-pandemic.
You write, “if these pre-COVID-19 forces of wage repression remain in place, the labor share
will likely continue its decline in many economies in the next years, exacerbating inequalities
in the United States. After a 50 year dissent, the labor share is now back to its 1950s level. If
current trends continue in 10 years’ time, it will be back to the brink of the abyss level of
1930″. One should add to that with this massive unemployment; there is no way wages are
going up. The only way they’re gone is down.
Richard Kozul-Wright
In a way, there’s even more to that story. Particularly at the top, there’s a tendency to ignore
the nature of economic power at the top of the tree. A lot of that increase profit goes to very
large international corporations. There are much smaller and more precarious businesses
that do not benefit in the same way. You watch how these large firms operate. Not only are
they in a position to generate very large rents through intellectual property and control over
brands and monopsony power and other mechanisms, but of course, they’re in the position
to hide those profits from governments. Effective tax rates are extremely low as a
consequence, forcing governments into borrowing and problems that emerge in the balance
sheets of governments.
Not only do they hide the profits in tax havens, despite the fact that people have this image
of tax havens as somehow being kind of Caribbean islands or fancy guys in Panama shirts
parading on beaches. Most of the big tax havens in this world are in the advanced
economies. But these companies are able to shift profits around these tax havens to hide
their profits.
What do they do with their liquid resources? They don’t invest in productive activities:
investment and skills; they buy back their own shares, which has been taking place on a
phenomenal scale since the end of the global financial crisis.
The figure I saw, S&P 500 companies have channeled a trillion dollars a year into share
buybacks as part of the financing themselves.
Paul Jay
Interestingly enough, accumulating almost the exact same amount of corporate debt, about
a trillion dollars.
Richard Kozul-Wright
Yeah, because it’s more profitable to borrow and invest in financial assets than there is in
your own kind of productive activity, because who are you going to sell this stuff too. As
wages are repressed, demand is kept low, and the returns on investment in those activities
become minimal. The best way to make money is to engage in short term financial
transactions of one kind or another. These big corporations are sitting on piles of liquid
assets that they use for those purposes.
Paul Jay
You write, “A sustainable recovery requires faster wage growth for low wage jobs, too, in
order to revive productivity and employment growth, wage repression and ever weaker labor
market rules are only going to make the world economies pre-existing conditions worse.”
And it’s interesting when they had this CARE legislation which gave some money to people
during the pandemic, which is far from over. As we talk, they supposedly are going to start
negotiating again for a package in the Congress, although it looks like it’s not really going to
happen.
But the Republicans, one of the things they’re most concerned about is that some people
were getting more subsidy than they were getting wages when they were working and how
horrible that was that people might get used to that kind of money and demand higher
wages.
Well, actually, that’s precisely what is needed. But everything they do is in the other
direction. They see such a direct connection that if you pay higher wages, your profits are
not as high and the same thing globally. How they think a world, much of which is going to
be devastated by the pandemic, is going to somehow also be a market for goods. Most
Americans just don’t care about any market outside the United States. The bottom line is
that it’s simply not rational.
Richard Kozul-Wright
This is where we try and link in the notion. Everyone’s now talking about recovering better or
building back better. Is that Bidens’ slogan?
Paul Jay
Yeah, something like that.
Richard Kozul-Wright
Building back better. Our solution to that is an expansionary macroeconomic agenda
focused on full employment with an appropriate mix of monetary expansionary/monetary
policy, very importantly, a fiscal policy and public investment. But that’s not the end of the
story. Clearly, if you’re going to recover better, if we’re not going to repeat the mistakes of
the past 2009 financial crisis, we need this kind of New Deal agenda. Our reading of the old
New Deal was that it was a combination of, first of all, relief, then recovery and then
redistribution and regulation, particularly the regulation of finance. The redistribution was all
about strengthening organized labor in one way or another and building a middle-class on
the basis of this. I listened to Biden in the debate, and his inability to defend the idea of a
Green New Deal is quite shocking because it was the old New Deal that precisely made the
middle-class great in America the first time around.
The inability to make that connection with the kinds of policies that are needed post-COVID-
19 was pretty sad, really. That kind of combination of recovery and redistribution and
reregulation is the heart of the alternative that we want to say is not only relevant in the
United States or Western Europe, but also in many developing countries.
Paul Jay
The reluctance of Biden to talk about a new deal in that way, people try to say it is because
he doesn’t want to alienate centrist voters and Republicans who might come over to the
Democrats. And maybe there’s a minor factor in that. But I think it’s far more he doesn’t want
to alienate the financial sector, because right now, I think a good part of the financial sector,
maybe even the majority, are OK with Biden being president.
I think they would like to see a Republican Senate so they can control anything that actually
gets done. But I think they realize Trump is enough of a madman that they’d rather have a
more reliable neo-liberal politician running the state. That puts a lot of pressure on Biden, not
to talk about something that sounds too much like a New Deal.
I once asked Tom Ferguson, who is a political economist, he knows a lot of the people in the
finance sector, what he thought, how they would react to a Bernie Sanders or Warren versus
fascism if that were their choice. Like Trumpient real authoritarianism or a Warren or a
Sanders. He said they would choose authoritarianism if a wealth tax were on the table, that
to them is simply unacceptable.
That’s part of an outlook and pressure that’s on Biden for staying within the realm of what the
financial sector will accept, which I guess is also a reflection that sort of a people’s
movement pushing from the other direction isn’t strong enough right now.
Richard Kozul-Wright
Yeah, I guess. That’s probably true. That’s not an exclusively United States problem. That
rejection of the New Deal begins with Clinton, if not before. This point that we want to try and
make is that those kinds of measures were the basis in which you got an expanding middle-
class.
It’s true of Western Europe, although we didn’t call it a New Deal, but similar types of policies
that focused on full employment in which wages were in some way connected to productivity
improvements because of the strength of organized labor. Because of that, firms were forced
to kind of innovate and invest rather than channel their profits into financial activities of one
kind. You get this kind of virtuous circle in the 1950s and 60s across advanced capitalist
economies, which was the basis of a growing middle-class. Given the way in which we’ve
seen the wage decline consistently over 40 or 50 years, underneath that politically,
sociologically is this evisceration of the middle-class. ‘The Vanishing of the Middle-Class,’ I
think, was the title of a book by Peter Temin. That’s what you see. You would have thought
progressive politicians would want to hold that up as an alternative to what we’ve seen over
the course of the last 30 or 40 years and the kind of anxieties and frustrations that has bred.
Paul Jay
Well, you in your report say it, if they don’t take the kind of approach you’re suggesting, you
call it a doomsday scenario. So in the next segment of our interview, we’ll talk about your
recommendations for what you think should be done. And also, I’m going to raise the
question, shouldn’t more public ownership be part of those recommendations? But we’ll do
that in part four of our conversation.
So thanks very much for joining us, Richard.
Richard Kozul-Wright
Thanks, Paul. Thanks for the invitation.
Paul Jay
And thank you for joining us on theAnalysis.news podcast.