Economics of the Pay Freeze Workshop, 14 June

The OFFUM - Organising for Fighting Unions Manchester - workshop with Graham Turner, GFC Economics, was an exceptional event. The fact that a good half of those present bought a copy of Graham’s book, The Credit Crunch, Housing Bubbles, Globalisation and the Worldwide Economic Crisis, [Pluto Press, June 2008] is one measure of how well it was received.

Graham’s standpoint is resolutely pro-trade union but not in a tired, defensive way. Rather, here is fresh ammunition presented as a mountain of up to date facts and figures by a professional of high standing.

It is too much to claim that we could take all of it in and give a report that does it justice. Graham’s book is the place to go for that. But from my notes, I got the following. If any one wants to add comments, please do.

The boom of recent years has been based not on higher real wages but the expansion of credit. Now that the boom is over and we are left with the worst economic prospects in living memory, the credit crunch means that accepting a pay freeze is a recipe for taking the economy into a still deeper and longer recession.

The inflation that is hitting us is real and serious. Food prices are going up because of world wide food shortages – worsened by speculation. These shortages stem in large part from the growing marketisation of food production and the introduction of non food cash crops. Above all the price increases are the result of one third of all corn that is being grown going for biofuel because it is so profitable to do so. With global fuel prices it is even worse. Peak oil, that is oil production globally having hit its maximum, the claim by the Russian giant ‘Gazprom’ that oil could hit $250 a barrel is not fantasy. Wages not only have not contributed to inflation but because of the weakness of unions in recent years, have barely kept up with inflation. Profits share of the national wealth has increased and despite the financial crisis, earnings in the city are still rising.

At the same time, some prices, mainly imported manufactured goods, are still falling despite the weaker pound. This is measure of the fat profit margins of the retailers and the competition between them. But this situation also reminds us of how many manufacturing jobs have disappeared during the recent boom. It’s normal for such jobs to go in a slump but that shouldn’t happen in a boom. In Germany, now the largest exporter of manufactured goods in the world, the number of jobs in manufacturing has been rising. The conclusion is that the much praised expansion of Britain’s economy under Blair and Brown is particularly dependent on finance and construction, the two most vulnerable sectors at the moment. The challenge for us is to ensure wages to sustain demand.

As for the collapsing property market, the probable consequence of the bursting of a credit bubble that has being growing for so many years is that property prices will keep falling for a long time. There is a close parallel with the collapse of the property boom in Japan in 1990 which has led to falling property values ever since. While, as one of us put it to Graham, this means that houses become more affordable for young people, a better solution is to boost young people’s buying power and to have the government buy repossessed and empty properties and use them to recreate council - genuinely affordable – housing.