Neoliberalism: A rat race to the bottom

Part of the virtual assembly “Labour rights in a neoliberal and post-socialist Macedonia” Author: Goran Lazarevski

One of the chief aims of the neoliberal-inspired transition to a free market economy was the deregulation of the labour market. In order to achieve this ideal a large number of labour rights and protections, formerly granted under socialism, were stripped away, unions were suppressed, minimum wage laws repealed (for an in-depth analysis of this process, see the excellent study by Lenka, “Devaluation of labour”). Decades later, the results are disenfranchised workers, laid-off workers and workers earning subsistence wages. Even the ideologues of this transition agree that large costs in human suffering were sustained, but they claim these were necessary in order to achieve competitiveness with the rest of the world. What this competitiveness means in practice is actually a rat race to the bottom, where the countries of the world compete among themselves which one would offer more precarious labour conditions and lower wages in order to attract foreign investors to build manufacturing plants. Thus, our government’s commitment to attracting FDI is an ideological commitment to participate in this race to the bottom, which is why we see the emergence of so called “free economic zones” – areas with taxes plummeting to 0% and wages also glued to the bottom.

The neoliberal globalisation project, however, had a self-defeating flaw in its very design, and that is the problem of generating aggregate demand that Keynes predicted long ago. If the developing world’s vast population is forced to slave away in factories for extremely low wages, then who will buy all those fancy products that these factories are supposed to produce? The answer was, of course, the Western (primarily US) consumer, so this consumer was encouraged to spend money (s)he did not have in order to keep the global economy going. These free-flowing “easy” money in turn helped produce the housing bubble which eventually collapsed and thus we are in the mess where we are today.

Unless sufficient internal demand is generated in major markets in the developing world, global imbalances, instability and economic stagnation are but guaranteed to persist in the future. But for this to happen, it is crucial for all countries to give up the rat race, i.e. strengthen their unions and introduce generous minimum wage laws that will guarantee their workers decent wages and thus purchasing power to sustain that domestic demand. The EU is in a unique position to pursue this agenda due to the ability to enact legislation to coordinate such pro-labour policies among all its member-states, reducing the credibility of the threat by investors to flee a market with stronger labour protection. So far the EU has been successful at this strategy to a certain degree, hence no surprise that standards of living in Europe are on par with those in the US.

It should be the economic imperative of all European countries to get under this labour rights umbrella and protect their workers from exploitation from multinationals, and thereby generate domestic demand and spur economic activity. But first we need their leaders to forget about their ideological commitment to the neoliberal mantra: “low taxes, low wages, and attract FDI”, and we need them to start focusing on developing the productive and purchasing potentials of their own economies.

In the particular case of Macedonia, these recommendations need to be tempered somewhat due to the country’s extremely high unemployment rate. In this sense, a flexible labour market is crucial for incentivising employment, however the central point remains – eliminating the minimum wage and weakening the labour unions has not brought the country any closer to prosperity. On the contrary, poverty and inequality have soared since its independence like never before in history. That is why the minimum wage raise expected to take place in 2014-2016 is most welcome and further steps in this direction should be encouraged. Additionally, strong and independent from political interference labour unions are a necessary partner in an economically prosperous society, and not a drag to the economy as they are usually viewed by our ruling elites.



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