The productivity scam

Tane, over at The Standard, posted today on Prime Minister John Key's reported comments on wages and productivity. The Herald carries an NZPA report that quotes Key as saying,

"In reality, lifting the minimum wage will only take workers so far," he said. "In the end, it's productivity that drives wages.

How does that work exactly, John?

In his post, Tane made one point that stuck in my mind:

"...in a capitalist system any benefit from productivity increases goes directly into the pockets of business owners. You need a mechanism to translate that into wages. And that mechanism is decent employment protections and a unionised workforce that has the strength to bargain decent wage increases."

It's obvious when you say it. Anyone who has been working for wages knows it's true. What amazes me is how rarely we hear that said. Instead, the vast majority of politicians, media and business people, almost to a man (or a woman), have for decades been telling us all the same thing John Key said: Increased productivity is the key to higher wages.

Oh..and they have also told us unions are bad. To be fair, some unions have been bad (just as some businesses have been bad - Blue Chip anyone?). No one could argue the union that used to regularly hold the inter island Cook Strait ferry service to ransom did themselves or anyone else any favours in the long run. In the US, unions were too often the target for infiltration by organised crime. But as we can clearly see today, the boardrooms and trading rooms of the banking world have been similarly infested by either idiots or criminals (or both) and to much worse effect. The failures are mainly human failures and don't necessarily invalidate the original purpose of the organisations they pervert - be they unions or banks.

The question Tane answers is HOW productivity can be turned into higher wages. When we consider his answer and look at how the labour market has been changing in recent decades, we see organised labour getting weaker, not stronger. As a consequence, whatever the productivity gains might be, there is absolutely no guaranttee whatever that those gains will flow through to employees as higher wages.

My own anecdotal observations suggest strongly the supply of labour more than outweighs any effect productivity might have. If labour is scarce, wages will go up almost without reference to productivity improvements. If labour is abundant, employers can and do bid wages down, again without regard to productivity. They may even move the whole business from a place where labour is tight to another where it's abundant and therefore cheaper. Productivity is very much an also-ran. 

If labour is abundant in a given sector, or in the economy as a whole, I'm betting you could improve productivity all you like and wages won't budge. Wages may even fall if too many people are competing for the same jobs.

I know of a company in Auckland where the workers have been told they won't be getting any wage rises this year. Word came down from HQ in the US. Some of the conglomerate's other units in other regions are struggling in the downturn. We're all supposed to pull together and share the pain. It's an admirable sentiment. We're all in it together. The motivation hardly matters. The point is: productivity is irrelevant.

But the local company (originally a Kiwi company until bought in 2007) in NZ and Australia has just had its best year ever and is in the middle of a strong first quarter. Still no wage rises. Clearly, performance here means nothing to the people making the decisions.

If you don't like it, your only option is to seek employment elsewhere. 

The productivity mantra would suggest to us that the more you increase productivity, the more money you will earn. But that money must first be filtered through the balance sheet of the company you might work for. That company's head office might be in New York, London, Amsterdam, Tokyo or wherever. History, even anecdotal as in my anonymised example above, shows very clearly the money tends to get stuck there and what money does go to employees tends to be huge bonuses for those at the top. The folks down the bottom get.....not so much. Maybe they get to keep their jobs. Maybe not. They may even be outsourced entirely as management looks for the next "productivity increase". Many is the worker who was sacked from the place they work and offered what is essentially the same job - at lower wages - with a contractor who will now perform the same service for the company they used to provide. I could bore you with the sad tail of the Polish cleaning ladies at a bank.....but I won't. It's too typical. 

Tane cites experience in the US:

"The American experience has been even more stark - since the mid 1970s productivity has increased by 70 percent but wages have remained static. Between 2001 and 2004, when productivity rose 11.7 percent, median household income grew by a mere 1.6 percent."

"That’s what happens when you remove employment protections and make it harder for workers to organise through their unions - wages stagnate and the benefits of economic growth go exclusively to those at the top."

The more you think about it, the more obvious it becomes this has been a scam all along...and it's not the only one.

We already know "trickle down" is essentially a lie. The wealthiest told us if they get all the money, we will get some of it as they spend it.Then they bought a lot of expensive imported stuff and at the same time millions of jobs got outsourced to India and China or Mexico or wherever. Trickle that.

Then there was the automation scam. This was a great uncle to the later productivity scam. I remember back in the 60s and early 70s, automation was going to lead to shorter working hours and more prosperity and free time for everyone. We might not have to work at all as one day robots might do all the work for us. That was a scam, too. You know that if robots could do it all, there would also be police robots used to suppress the unrest among the burgeoning hungry unemployed.

Poor dumb beasts that most people are, many have been convinced that what is best for them is actually bad and what is worst for them is actually good. One might think of it as a form of the Stockholm Syndrome: trapped inside a corporate-owned and driven propaganda bubble, where they are told endlessly policies that reduce their own wages, conditions and job security are "good", they come to think of their captors interests as being their own and fight hard to stop anyone from improving their situation.

The evidence is accumulating that rampant capitalism must be offset by transparent and effectively political institutions and strong organisations of workers collectively representing their own interests as effectively as those at the top have done for the past 30 years.

This brings me back to our Prime Minister, John Key. Yes, broadly speaking, at macro-economic level, if one economy is more productive than another (and what they make is sought after), that economy will do well.

But militating against that are all of the factors above which render completely invalid any presumption that IF productivity rises in Workplace A, THEN wages will certainly rise.

They may and they may not....as other, more significant factors allow or require.

Is Mr. Key knowingly perpetrating the productivity scam? Or has he simply embraced it as an article of faith, part of the catechism of the Business Religion.......and not actually looked at what happens in real life and seen it for what it is?

Finally, please note that almost all people, if properly managed, trained and motivated, do work at their jobs diligently and do the things they are expected to do. Many perform at a higher level still. Any worker - unionised or not - must be productive and do the job that needs doing. NO arguments there. The point of this post is to highlight that most often this is taken for granted and is irrelevant to their wages and conditions. For example, people working in a busy restaurant for the minimum wage are paid the same amount as people working in a less busy restaurant who don't need to work as hard. They are often spectacularly productive and conscientious. But as far as wages are concerned, it doesn't matter. They still get paid the same. Productivity doesn't matter enough to see them paid any more.

If you got this far and you're finding this hard to accept, that's OK. Like all of us, you've been conditioned for years to think otherwise and seeing things as they really are can give one a headache.

Take an aspirin/disprin and keep your eyes open.