Dueling Workforces How Globalization Drives Down Western Wages
Editor's Note: The following essay has been excerpted from the German best-seller "World War for Prosperity" by SPIEGEL editor Gabor Steingart. SPIEGEL ONLINE is publishing a series of daily excerpts from the book.
The capitalist is a logical creature -- he invests his money where he can expect the greatest return on his capital. Whether it's building a factory in the tropics or digging a tunnel in the permafrost, the capitalist is mainly interested in expanding his assets. After all, the most important objective of capital is to multiply. Were it to do the opposite -- if it decreased -- no one, not even workers, would be better off. Indeed, shrinking capital usually leads to a decline in jobs. Words like mismanagement, crisis, restructuring and layoffs quickly find their way into the newspapers.
Whether jobs will survive a crisis is ultimately determined by a single, remarkably straightforward question: Can invested capital be turned into more capital? No capitalist would be interested in looking on as his investment shrinks from one day to the next, otherwise he'd quickly cease to be a capitalist.
Workers have a better reputation, although they're just as likely to go where the jobs are. If they are left to migrate freely, they'll go where the pay is good and where they can expect a reliable standard of living. Southern Italians migrate to northern Italy, eastern Germans to western Germany and South Americans to North America. Millions of people are constantly crossing oceans and continents for the sole purpose of getting closer to what they are convinced is the promised land.
But the great injustice is that capital is welcome almost everywhere, while workers are not. Tricks and incentives are used to attract investment worldwide, but countries routinely close their borders to migrating workers. In some cases, they even call upon their militaries to keep out potential troublemakers.
There is also another aspect in which labor and capital differ. Capital and the capitalist are a single entity. They are essentially joined at the hip, with one incapable of surviving without the other. Separating capital from its private owners doesn't work, as states like the former East Germany learned when they nationalized their industries.
The capitalist is flexible, and has become truly restless
The workers' handicap, in a nutshell, is that the same symbiotic relationship doesn't apply to labor and workers. Although workers can be prevented from traveling across national borders, no border guards can keep someone else from taking their jobs. In retrospect, perhaps the true wonder of the post-World War II world is the fact that the countries of the West have managed for decades to control outsiders' entry to their labor markets.
The nations traded all kinds of goods, imported and exported everything under the sun, from bananas to television sets, from gasoline to steel, and money was transferred back and forth. Workers, though, were never exported and imported. Although West Germany brought Turkish guest workers into the country for many years, they were soon subject to the same rules and conditions as German workers.
Nor were there any especially significant differences between the labor markets in Europe and America. The companies headquartered on opposite sides of the Atlantic were competitors, not rivals. They paid wages, not charity. Children were children and not workers. Civil society passed laws to ensure civilized relations between workers and manufacturers, so that the two groups, despite decades of exploitation and class struggle, eventually discovered that they had more in common than they had once assumed.
Communist leaders in Eastern Europe eyed the West's tête-à-tête between labor and management with suspicion, but declined to become a part of it. They traded raw materials and goods with the West while keeping their distance from its labor and capital markets. The countries of the Third World also seemed to exist on a different planet, with Western disinterest and their own powerlessness ensuring their exclusion from the process we now call globalization.
But all of that has fundamentally changed. The chasm between the West and the rest of the world has not only been filled, but now resembles a bridge. The capitalists are storming across that bridge, looking for adventure and making full use of their newly acquired freedom to travel. They tour the most remote places on earth, their factories are popping up everywhere and jobs are readily following.
In 1980, the sum of all countries' direct investments, that is, the funds a given nation invests outside its own borders, amounted to only $500 billion. The old-school capitalist tended to be more of a stay-at-home type.
But his successor is of a different breed altogether. Total worldwide direct investment has jumped to $10 trillion, an increase of almost 2,000 percent in only 25 years. The capitalist is flexible, even restless in many cases, and now expects jobs to mimic his own wanderlust. The old-school entrepreneur was a patriarch and was often even more of a nationalist than his fellow citizens. The modern capitalist is a frequent flyer many times over; he is both at home and an outsider wherever he goes. Calling him a nationalist couldnt be more off the mark.
Trading labor like silver or silk
Jobs now follow the capitalist on his travels throughout the world. They leave the West, only to reappear elsewhere. They turn up in an Indian software company, a Hungarian toy factory or a Chinese automotive engine plant. Despite frequent claims to the contrary, jobs don't simply disappear into thin air. Instead, they are replaced by technology or by workers located somewhere else.
The unheard of has happened, something no one really expected. A global labor market has developed, a market that is expanding daily and palpably changing the way billions of people live and work. People today are connected through an invisible system of conduits, people who don't know each other and, in some cases, aren't even aware of the existence of the country in which their counterparts live.
This is precisely what distinguishes today's globalization from the trading nations of the past, the colonial empire and industrial capitalism of the mid-19th century. For the first time in history, a largely homogeneous economic system has developed that encompasses all production factors. Capital, raw materials and human labor are traded just as silver and silk were in the past.
Many of the things we once took for granted have become less than certain. Power and wealth are being redistributed, and so is opportunity. Although we all see the world, we see it from widely differing perspectives.
The newcomers in the global labor market look ahead with optimism and great expectations for the future. For the first time, many are able to bring home wages that are more than just a pittance. For them, the global labor market holds unbelievable promise.
But the new era is far less promising for millions of workers in the West, dispelling the optimism of the early years. Many will leave the labor market in the coming years. Even in places where Western workers are presumably able to hold their own, wages are declining -- not drastically, but bit by bit each year. Suddenly workers find themselves confronting a sensation they have never felt before, at least not to this extent: insecurity.
Part II: Western workers now in the minority
For its detractors and supporters alike, the development of a global labor market is a process of historic dimensions, a process that becomes all the more palpable when one considers the unusually large masses of people surging onto this market. In the 1970s, 90 million workers from Hong Kong, Malaysia, Singapore, Japan and Taiwan became part of an economic system previously dominated almost entirely by the Western Europeans, Canadians and Americans. The Asian Tiger states were greeted with considerable astonishment and the Japanese with the deep respect they deserved. But these newcomers in the global labor market were merely the vanguard of the modern age.
The West's workers have become a minority
The Chinese joined the club a short time later, followed, in the wake of the collapse of the Soviet Union, by Eastern Europeans and Indians. Within what amounts to little more than a blink of the historical eye, some 1.2 billion additional workers entered the labor market. This massive influx has led to a sharp shift in the balance of power: The West's 350 million well-trained, but expensive workers, who until recently were responsible for a large share of global production, became a minority virtually overnight.
As if this expansion of supply alone weren't impressive enough, high birth rates in the world's rising economic powers are responsible for ever-growing numbers of new workers eager to enter the global labor market. They want jobs, and they'll do whatever it takes to get them. Despite the fact that no new states have entered the global labor market in the past decade, an additional 400 million people have. Another 200 million, according to the United Nations International Labor Organization in Geneva, are also eager to work but unable to land a job, no matter how poorly paid. Far from being unemployable, this vast army of unemployed is essentially made up of workers on hold.
The world's stock prices flicker across bank computer screens. The stock prices of American and European companies are assimilated within minutes, sometimes even seconds. If computer screens were installed at the unemployment office showing wages in various countries, many would be surprised by what they would see. The same leveling of prices can be seen in the global labor market, just in slow motion.
The addition of billions of willing workers has set off a process that will soon change the fundamental structure of Western societies: wages and, at the same time, standards of living of ordinary laborers are approaching the same level. In a bitter twist of irony, capital now ensures that the old leftist demand of equal wages for equal work is actually being put into practice. Only this time, those equal wages are being applied around the globe and to the detriment of Western workers.
Labor for $3 a day -- and less
The phrase wage scale autonomy is gaining a whole new meaning. In the past, employers and employees in the West negotiated wages independently of the state. In times of labor inflation, however, employers are able to set wages independently of the trade unions because, after all, there are millions of workers who are willing to underbid their fellow laborers. Wages are rising in Eastern Europe and Southeast Asia and falling in the West, while those in China and India steadily remain at some of the lowest levels worldwide. Of the roughly 3 billion people currently active on the global labor market, about half earn less than $3 a day, which means two things: First, these people are dirt-poor and, second, their poverty wages are forcing down the wages of other, better paid workers. The fates of those at the lowest end of the wage pyramid are linked to those in the middle.
One of the greatest mistakes made today is to believe that the millions of migrant workers in China and unionized workers in Wolfsburg and Detroit have nothing to do with each other. This may seem to be the case, but it isn't. The typical Chinese migrant worker probably has no idea where Wolfsburg Volkswagens hometown -- is, while German and American autoworkers may have only the vaguest notion of what it means to be a migrant worker. Nevertheless, their biographies are inextricably linked.
The migrant worker, who often lives in cage-like hovels and works, without any legal safeguards whatsoever, for a company that supplies parts to a Chinese auto plant, competes with a full-time but unskilled laborer in that same Chinese plant. Their wages are not significantly different because the migrant worker wants nothing more than to capture the Chinese full-time worker's job. Local business owners are constantly tempted to replace their full-time workers with migrants. Willingly or unwillingly, the two sets of workers are in bitter competition for the same wages.
Of course, the unskilled but full-time worker does his best to escape this wage competition. His goal, at a minimum, is to become a skilled worker in the Chinese auto plant, and he is willing to do just about anything -- work overtime, attend training courses, refrain from demanding higher wages -- to achieve that goal. After all, success will one day allow him to join the privileged class of young, well-trained Chinese. The full-time, unskilled laborer sees the migrant worker the way he is seen by the established skilled worker -- as a fierce rival. To make headway, he is willing to accept even the lowest entry wage, especially in a country that lacks the kind of organized labor organizations that might otherwise dissuade him from doing so.
Once the unskilled Chinese laborer achieves his goal and has a few years' experience under his belt, he becomes a rival to autoworkers in Detroit and Wolfsgburg. Although the two groups -- Chinese skilled workers and Western, unionized autoworkers -- remain strangers, they are now irrevocably linked from an economic standpoint. The wages and performance of the two sets of competitors are now stored on the computers of top executives in their respective companies. The rivals butt heads, but only as statistics. When it comes to making investment decisions, they always stand in direct competition.
Abandoning the promise of a rising standard of living
There is a glut of workers on the new global labor market. Eighteen million Europeans are now unemployed. Add to that the women who have opted to retreat into family life and the older workers who are being sent into retirement against their will, and Europe's real unemployment figure surges upwards to about 30 million. This European army of the unemployed is equal to the populations of Berlin, Paris, London, Madrid, Brussels, Rome, Lisbon and Athens put together. German sociologist Ulrich Beck refers to these people as the "structurally superfluous."
The true extent of shrinking wages in Europe only becomes evident when one considers the unemployed and the employed together. Those who choose to see only the employed are blind to the scope of the problem. In reality, total wages are declining at a much faster rate than income statistics suggest. A decline in wages is taking place on the global labor market that no one in the West expected. After all, the promise of the postwar years was that rising wages would bring growing affluence. But it was a promise that was abandoned practically overnight. Indeed, if there were such a thing as a global labor office, its computer monitors would show wages in the West on a steady decline.
No one should expect a rapid rise in incomes in the Far East or Eastern Europe, where the fact that millions of farmers and slum dwellers are still waiting for industrial employment creates an additional downward pressure on wages. Wages in the Far East are increasing at a substantially lower rate than the West would like to see. According to the Munich-based economic research think tank IFO Institute, even an immediate wage freeze in Western Europe wouldn't be particularly effective. Even if wages increased steadily in the Far East and India, in 30 years incomes in these countries would still be only half as high as they are in the West. The truth today is quite simple: Workers in Europe and America who are unable to provide better justification for their wage levels than collective bargaining agreements, the high cost of living and the Western tradition of balancing capital and labor will find themselves locked out in the future.
Contrary to some views, this will by no means lead to a global loss of industry jobs. As long as the number of goods produced, sold and consumed grows, there will be no loss of jobs. Indeed, at the beginning of the 21st century, the world economy is experiencing one of its greatest growth spurts of the past few decades. Despite the Internet and despite the increasing use of automation, the number of industry jobs continues to rise, and yet the distribution of labor has changed considerably as a global labor market has developed. Where labor is needed is now only of interest to those who are unsuccessful in their efforts to enter the labor market. But even though the labor market has lost its borders, Western workers have no choice but to remain where they are.