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  1. Politics
22 January 2015

The global elite in Davos must give the world a pay rise

Speaking for the 99 per cent at the World Economic Forum.

By Frances O'Grady

George Osborne may be feeling quite pleased with himself when he gets up to address the World Economic Forum in Davos this week. The self-styled poster boy of post-crash recovery will no doubt boast of Britain’s return to growth and rising employment. But one uncomfortable fact that he and other politicians here are unlikely to mention is the continuing slide in the share of global wealth going on wages.

I’m in Davos too, as part of a small delegation of trade union leaders from around the world. We may be in a minority here among the heads of state and titans of finance, but we speak for the majority of the world – the 99 per cent. And just as the TUC has argued that Britain needs a pay rise, we are arguing in Davos that the world needs a pay rise too.

The share of national income going to wages across industrialized countries has fallen from over 66 per cent in the early Eighties to around 61 per cent, according to the OECD. Globally, the decline is even sharper – from 62.5 per cent in 1980 to 54 per cent in 2010, according to the United Nations. What’s more, the falling share is distributed increasingly unequally. Rising pay inequalities at the same time as a falling wage share mean even less of the rewards of growth go to the working people who create them.

The loss for most people’s wages means a greater share globally is going to those who are already the wealthiest. It means the super richer are getting stupendously richer and the rest of us are being left behind. And it means that politicians who keep telling us they want to ‘reward hard work’ have been speaking hollow words.

The World Economic Forum itself has at least finally put deepening income inequality at the top of its list of global concerns. It says that poverty, environmental degradation, persistent unemployment, political instability, violence and conflict are all related to deepening income inequality. But are the members of the global elite gathered in their exclusive mountain retreat ready to take the action needed to reverse this trend?

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It means rejecting a broken economic system that has made them very rich, but brought the rest of the world an avalanche of social problems and restricted economic growth. The evidence that inequality within countries is bad for growth has been presented in recent reports from both the IMF and the OECD.

The world economy is wage led, and if the wages for the 99 per cent increase then their greater spending power boosts growth. Giving more and more to the top one per cent does not have the same impact – except perhaps on the luxury yacht market or future industries like private space flights.

The collapse of oil prices, and the resulting low inflation, will no doubt give the economy an immediate boost at a convenient time for George Osborne. But while an adrenaline shot can get a sick patient out of bed for a while, it’s no cure.

Cheap oil is a sign of a weakening global economy, reflected in the decision this week by the IMF to downgrade its growth forecasts for the UK and global economies. Global demand is growing weak, and there’s a very real risk that low inflation is the calm before the storm.

The lasting cure that Britain and the world need is a new global business model that works for us all. And at the heart of it must be a return to stronger wage growth. This would create a sustained increase in demand. It would help create the conditions in which new businesses can be created and prosper. And it would reverse the deepening inequality that is blighting so many lives.

This can only be achieved if workers have a stronger voice. Collective bargaining must be extended, and we need stronger employment rights to reverse the trend of casualisation. A solid and secure economy will never be built on the shaky foundations of zero-hours contracts, agency workers, job insecurity, and a global race to the bottom for pay and conditions.

Corporations need to start paying the taxes they owe in the countries where they make their vast profits – and governments need to make them. This will help ensure countries have the revenue needed to invest in long-term growth.

And a financial transactions tax – now backed by the Democrats in the USA as well as eleven EU member states – would crack down on financial speculation. That could help shift the focus of financial institutions back to long-term investment in high-skilled and well-paid job creation in real industries, instead of casino capitalism.

Frances O’Grady is TUC General Secretary

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