On Falling Numbers of Wage Slaves

You will have read elsewhere that inflation is below zero and wages, after a period of stagnation, are rising again.

That last is generally ascribed to a recovery after the recession. With unemployment now having apparently settled below 6 per cent in the UK, people are confident enough to ask for more money, and employers are prosperous enough to afford this.

There is a much wider picture, though. The world is running out of wage slaves.

Have a look at this blog from Duncan Weldon, Newsnight economics correspondent. You can find it here. http://www.bbc.co.uk/news/business-34488950

Weldon’s thesis, and that of other economists, is that the proportion of the world population that is in work rose sharply in the four decades to 2013. The “Baby Boomers” born after the War came to maturity, and contraception kept the number of dependent children down, allowing more of them to work.

Then China and the former Soviet Union entered the world economy. Weldon says the global workforce available to employers roughly doubled in two decades.

Since 2012, when the share of the world population of working age peaked, it has been declining. The Baby Boomers started to retire. That lower birth rate meant there were fewer of their offspring available to replace them. Before that, the ready availability of labour had been driving down wages across the world, in countries as different economically as the US, Japan and Sweden.

This is why the Germans are so ambivalent about migration. They appreciate they will have to import workers from younger working populations. There is a limit to the extent that can happen, for reasons of social cohesion.

Acting against this fall in the availability of labour, of course, is automation and advances in IT, I would point out. How they will balance out remains to be seen.

This looks like a huge demographic change, though. Already the rising cost of living in cities like London is leading to staff shortages. Ask any recruitment specialist, and I speak to them regularly, and they tell of a lack of trained people, especially in areas such as IT. The IT crowd can in some places name its price. And demand offices in trendy areas such as Clerkenwell with chill-out rooms, table tennis tables and Spacehoppers to get around the office. (This is true, BTW, except perhaps the Spacehoppers. Well, not in every office.)

If that supply of available labour does tighten, then the current rise in wages, against a low inflation environment, will accelerate drastically. It has to. Those higher wages, though, may then stoke inflation. Which will trigger further demand for higher wages.

We have been here before. The Black Death in the 14^th Century, when a third of the population died, led to a shortage of agricultural labour. Wages shot up. The extra freedom this gave workers was one of the factors that broke the old feudal system, and led to the rise of the mercantile middle classes, and the transfer of economic and political power from the old aristocracy to them. It ultimately led to the Civil War.

One thing that keeps the chief executives I speak to every day awake at night is that shortage of the right people for the right jobs. This is why the business community is so keen on immigration, not just to find low-paid workers but to bring in well-trained technocrats.

If the above is true, the relationship between employee and employer could be set for a radical change, to the great benefit of the former. Bring it on.

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On Free Markets

A website that promotes the free market above all else has been agonising over a recent survey that suggests the majority of the population do not share its views.

Specifically, 62 per cent of those asked want more government. Slightly more than half think financial services should be better regulated, something like that think the same of the provision of food, and a similar proportion agree on energy.

Much hand-wringing over how the free marketeers are failing to get their message over. Not true.  Most people, aside from a few unreconstructed Marxists, the political equivalent of the Flat Earthers, agree that a free market is the best way to regulate the economy, by providing the sort of feedback loop that competition in such a market provides.

Poor providers of service will lose out to those that do a better job. This is undeniably true in areas like retail where there are low barriers of entry and anyone can come into the market. Those of us old enough to remember the 1970s will appreciate the sheer awfulness of trudging from shop to shop only to be told that “there isn’t much call for that sort of thing round here”. Nowadays, if it is economically unviable to sell it on the high street, you get it on the Internet.

Likewise long gone are the days when banks shut at 3.30 and at weekends, and if you got there too late you had no access to your own money.

But most people are aware that an untrammelled free market, without any checks on what corporates can get up too, would be a tyranny as great as anything once found behind the Iron Curtain. The same pro-market website quotes with concern another survey that found seven in ten people did not trust business.

You only have to consider banking over the past few years, or the sort of horrors that have made their way into the food chain, to understand why. People appreciate the benefits of a free market, but they also understand the need for regulation, either over how corporates are allowed to behave to their staff or the environment, or, in the case of monopoly providers, over the provision of services.

Take two thought experiments. Thames Water is owned by a collection of overseas investors only interested in the flow of dividends. If the company’s behaviour was unconstrained by the actions of the industry regulator, on prices charged and standards of service, how much would Londoners be paying for water, and how many broken pipes would get fixed?

If the train companies were not obliged, in return for running overcrowded but hugely profitable services at peak times, to run unprofitable ones at others, how many trains would run between 10.30 am and four in the afternoon?

Once you accept that a free market requires regulation, you are left to argue how far that should extend. The basic principle is settled, just as is the need for a free market in the first place. A subject I have written about again and again here.

Finally, who said:  “Our merchants and masters complain much of the bad effects of high wages in raising the price and lessening the sale of goods. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people.”

Or, more famously: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Adam Smith, the prophet of the free market. Who from the above would have been in that 69 per cent who said they did not trust business.

Apocalypse Deferred

I hate to say I told you so, but I did rather tell you so. At the start of last week I suggested here that there were reasons to worry about stock markets, and the financial system generally. At that time the FTSE 100 Index, the generally used measure, was at about 6,527. Last night it closed at about 6,212.

A fall of about five per cent in ten working days does not take us into Wall Street Crash territory, but it does suggest plenty of others shared my concerns. The past few days have seen something close to panic. Not that panic is unusual on the markets.

The way stock markets work is that people who suspect their shares are overvalued continue to hold them anyway. This is because they are afraid that, if they sell too early, they will miss out on further rises. They then dump them in an insane scramble when bad news comes along. This is what drives markets. Fear and greed.

I suggested that shares were being held up because people were forced to invest there for any kind of income, there being no ways of generating a return on your savings anywhere else. Meanwhile, there were signs that sophisticated investors, the big banks and other financial institutions, were so disenchanted with the geopolitical/global economic situation that they were preferring to stuff their cash into safe havens, government bonds, even if these were actually losing them money year on year.

What has happened is that most of the negative factors known then have got worse. Ebola, worse. IS and the Middle East, worse. The US economy,  worse. The eurozone, worse, with the three biggest economies, Germany, France and Italy, all apparently going into reverse, for different reasons.

The falling oil price, which is at a level that would have been astonishing a month ago, should be good news, if we as consumers and our basic industries have to pay less for fuel. Except that the price is falling, despite international tensions that would normally force it up, because of global economic weakness, particularly in China.

The other day the UK inflation figures came in well below what was expected. Again, this would once have been good news. Now it is seen as a negative, because it suggests our economy is stagnating.

I suspect the markets will stabilise at around this level, if a little lower. But it leaves an awful lot of clever and highly paid City analysts, many of whom saw that FTSE 100 figure at 7,200 or 7,400 by the end of this year, looking very silly indeed.