from Larry Elliott in the GUARDIAN (more at http://business.guardian.co.uk/story/0,,2110421,00.html):
The OECD has figures showing the share of income taken by the richest 0.1% of the population in the 20th century. In Edwardian Britain, for example, the super-rich took almost 12% of all income, but this share gradually declined to about 2% during the 1950s and 1960s, hitting a trough of about 1.5% in the late 1970s. The percentage then started to rise again, increasing to more than 3% by the turn of the millennium. Does it have to be this way? Not according to the OECD. "It has been claimed by some that only countries which emphasise market-oriented policies (characterised by limited welfare benefits and light regulation) may enjoy both successful employment performance and strong labour productivity growth simultaneously. This claim is not supported by the evidence, however." It added that "other successful employment performers (which combine strong work incentives with generous welfare protection and well-designed regulation) had, on average over the past decade, similar GDP per capita growth to that recorded in more market-reliant countries". Both the minimum wage and family-friendly employment policies were good for productivity. James Galbraith, economics professor at the University of Texas in Austin, goes one step further. In a recently published pamphlet* envisaging what Europe might look like in 2042 - 50 years after the Maastricht treaty - he argues that the future of the EU depends on it turning its back on the current liberalisation orthodoxy. The EU will only survive, he argues, if there is convergence of living standards between the poor periphery and the rich core. This convergence will not just happen, Galbraith adds. Instead, it will have to be part of an economic agenda for Europe. We all know what that agenda is at the moment. "If unemployment exists, the cause must lie in a failure of the real wage to adjust to its equilibrium value," Galbraith says. "Perhaps technological change and other factors have cut demand for workers equipped with relatively limited skills. To restore full employment, wages paid to such workers must fall. "This can be accomplished by weakening unions, cutting job protections and unemployment benefits, and otherwise dismantling market power that rash democratic governments have allowed to accumulate in the hands of the unskilled." No prizes for guessing which country is the template for all this: the US, naturally. In practice, though, this agenda presents problems for the future cohesion of the EU. It would not just mean that low-paid workers in France should accept pay cuts so they can price themselves back into jobs. It would also mean that their low-skilled counterparts in Poland must also accept a cut in their wages to maintain the same level of competitiveness. And since low-productivity workers represent a larger share of the Polish workforce than of the French, wage restraints must be more widely applied in Poland than in France. "This is the European paradox," Galbraith says. European ideals require convergence but European policies impose divergence. If the wage-cutters and the union-bashers were right, the pamphlet adds, you would expect to find a trade-off between inequality and unemployment, but according to Galbraith this does not hold true. "Countries and regions which are more egalitarian systematically enjoy less unemployment." Why is this so? Firstly, labour markets do not really work in the way the textbooks say they should. Galbraith says we have forgotten the insights of Keynes's General Theory of Employment, Interest and Money. False claim The second strand of his argument is, however, far more surprising. "The claim that the US has a more unequal pay structure than that of Europe is false. All calculations that purport to verify this claim have been based on comparisons between the entire US and individual countries of Europe," he says. "These calculations invalidly compare a large country with many small ones, and they exclude consideration of large inequalities that exist between European countries. When these inequalities are added in, the pay structure of the US emerges as more egalitarian than that of Europe." Galbraith argues that there is no contradiction between the ideal of European equality and full employment. Nor is there a contradiction between the true lessons to be learned for Europe - expansionary fiscal policy in downturns; a national system of welfare; wage top-ups for the low-skilled - and what is good for Europe. "The contradiction is between the policies that are required and what, so far, the political, academic, media and business elites of Europe have believed. Moreover, from the late 1930s through [to] the late 1990s, the US had always achieved high employment by reducing inequalities in its pay structure, not by increasing them." * Maastricht 2042 and the Fate of Europe by James Galbraith; The Levy Economics Institute; www.levy.org -- Jim Devine / "Bong Hits 4 Jesus."
