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Unions and the Growth Mania

by Elmar Altvater Saturday, Apr. 15, 2006 at 9:27 AM

The more productivity advances, the less labor is needed to realize a certain growth rate.. A de-acceleration can reduce the increase of labor productivity and lead to more employment.. A strategy beyond growth should be developed.


Unions and the Growth Mania. Redesigning Employment Policy for the Post-Fossil Age

By Elmar Altvater

[This Article published in: Freitag 09, 3/3/2006 is translated from the German on the World Wide Web,]

All the data shows unmistakably that economic growth in industrial countries is declining. Appreciable growth can only still be realized when more and more materials and energy are transformed into goods and services that constitute the gross domestic product. However the absolute increase of consumption of nature has been remarkably stable for years… In Germany, the real GDP only drew 0.36 percent annually between 2001 and 2005.

As everybody knows, growth is basically dependent on two components: growth of working hours and growth of productivity based on many influences – technical progress, the system of industrial relations, financial markets, the training of workers and the active participation of particular age groups. All these factors are responsible for the “varieties” of capitalism, “Atlantic” or “Rhine” capitalism. The growth equation can also be interpreted causally. The more productivity advances, the less labor is needed to realize a certain growth rate. To compensate, production must increase with productivity. If this does not succeed, unemployment grows.

David Ricardo clearly recognized this at the beginning of the 19th century. He spoke of the redundant population arising with the “increased wealth of the nations”: unemployed, marginalized and the many forced to migration. From 1820 to 1914, 55 million Europeans left the continent and found a new home in the “new world,” in Australia, Asia and Africa. Today many of the “superfluous in the world” are forced to unemployment or precarious working conditions in an informal economy – even to migration without conquering a “new world.” The borders are tight. A new “home” is only found in illegal or semi-legal conditions.

The unions are in a dilemma in all this. What happens when the growth rates stagnate and the golden age of high-income growth is over? What if increased productivity is responsible for a mass unemployment that is structurally hardened and weakens union negotiating power so that more productivity does not lead to higher wages? The collective wage agreements since 1997 demonstrate this. In these agreements, only weak job growth occurred while unemployment climbed. Production growth was never enough to compensate for the productivity growth. Are there still possibilities for increased growth that creates jobs? What results from the “limits of growth” for union policy?

With rising growth rates, more jobs are usually lost than are created. “New growth” comes about in part through more laborsaving productivity. Only when the competitiveness of the “location” in the global competition is improved will new jobs be created with new market shares at the cost of jobs in other “locations.” On balance, jumping over national borders in a globalized world, more jobs are lost than new jobs are created. As a result, the numbers of unemployed and short-term workers and the sectors of the informal economy have become greater for decades – in all regions of the world.

In general, growth cannot be stimulated as many desire. Consider only the ecological limits. These limits gained worldwide attention with the hurricanes of the summer and fall 2005. The inevitable limits of the energy supply become clearer and clearer. The growth of the past 200 years (since the industrial revolution) was based decisively on the easy and cheap availability of fossil sources of energy whose supplies are finite and becoming scarce. The peak of oil production – “peak oil” – is already exceeded or will be exceeded in the foreseeable future (in the next decade). 940 billion barrels of oil have been burned. Between 768 and 1,148 billion – the same amount – are presumed in the earth’s crust. Oil will only be available at higher prices since the demand grows in industrial countries and newly industrialized countries while the supply decreases. Therefore the second half of the planetary oil supply could be consumed more quickly than the first, perhaps in four to five decades.

We would do well to recall the beginning of the fossil age. When the industrial revolution began, the growth of the economy accelerated enormously in a short time. The average annual growth rate of the GDP rose 2.2 percent between 1820 and 2000. In this millennium, the rate is at best 0.2 percent. This qualitative leap in a capitalist growth economy left behind its traces in semantics. The person of the middle Ages barely had an idea of growth or of a constantly high growth.

Thus the perceptions and discourse changed in two centuries. Economic theory supplied growth theories in the Keynesian neo-classical and institutionalized varieties. Their common denominator was all problems of a national economy could be solved through growth. “Growth is good for the poor,” the World Bank wrote with view to the millennium goal of cutting poverty in half by 2010 while ignoring that growth is only possible when investments flow. What happens when financing costs – above all, interests – are higher than the real growth rates manifest almost everywhere in the world since the eighties? Indebtedness soared while poverty was not reduced.

Growth is in no way an exclusively economic category but has social and political dimensions. “Growth is good for jobs,” it is said again and again. This can be true but need not be true. Whether investments are made depends on the comparison of profits earned on the international financial markets, the real “marginal utility of capital” or the profit rates of invested capital. Under these circumstances, high interest rates and yields are often burdens of real investments. When investments are made, they usually serve rationalization and lead to the loss of jobs given the competitive pressure on the international commodity markets.

Nevertheless increased growth was declared the general economy goal. In their coalition agreement of November 2005, CDU/CSU and the SPD emphasized a “new growth” that is “more growth” in the quantitative sense. More growth should open up more job chances, bring more revenue for social security, revive demand and revitalize public budgets. The basic question is not tackled. Can growth still be a responsible growth of economic policy in an already highly developed industrial country? Is a material- and energy consumption expanding with growth permissible given the environmental burdens? Why isn’t the effect of the international financial markets on interests, profits and real-economic growth considered?

The unions are also obviously not free from growth mania. Even if there is no direct connection between investments, growth and jobs, the chance for more jobs is greater in a dynamically growing economy than in a stagnating or shriveling economy. Therefore unionists almost never put growth in question. Most doubt the possibility of stimulating growth with the neoclassical-neoliberal methods of supply control. The experiences of past decades back them up. Country-comparisons show that growth rates are in no way higher where a strict supply-side course of deregulation, Privatization and flexibility of the labor market prevails. A policy of increasing demand through higher individual wages and corresponding social spending would undoubtedly stimulate growth of the GDP. A strategy for raising mass purchasing power can only be carried out when there are growth possibilities.

When does this happen? Through the mass unemployment in all industrial countries, a nearly unlimited labor potential is available even if there may be bottlenecks with certain workers. However capital inputs become more expensive. Firstly, the capital co-efficient usually increases with technical progress. Secondly, the costs of real investments rise with a high interest level on the capital markets and with the high profit claims of international capital investors. Possibilities exist for negotiating a lower international interest level. However this failed for a long time because of vigorous lobby interests.

Thirdly, the expense for utilizing raw materials, particularly the oil and gas

sources of energy, climbs. For a while, “swing producers” like Saudi Arabia could curb the rise of oil- and gas-prices amid their shortage. However limited are set to these possibilities today for geological and political reasons (instabilities of the OPEC countries) in which a demand-oriented growth policy can run aground. This offers a perspective – beyond the supply-side attempts – as long as growth reserves really exist. If these reserves are used up, neither supply-side nor demand-side can accomplish much. The hope for high growth rates changes into an illusion.

The unions must follow a twofold strategy. Stimulation of growth through more demand is only possible if the possibilities exist. These possibilities must be expanded through an active economic and social policy on national, European and global planes. Parallel to this, a policy must be devised for that time when growth becomes recognized as the mania of the fossil age and the past. John Stuart Mill, a classical author of political economy from the 19th century, aimed at a stationary economy of contemplative contentedness without accumulation and growth. Economic progress – of development, not growth – could help reduce working hours. As a result, the union strategy of reducing working hours is given a very new accent at the limits of growth and the fossil era – far beyond justifications like more freedom for self-realization (“Saturdays belong to my papa”).

What energies will be available when the fossil sources come to an end and nuclear energy cannot be a sensible alternative? Renewable sources of energy can and must replace the fossil sources – biomass, wind, photovoltaics, tides, waterpower and other technologies to transform solar energy. It seems questionable whether the renewable sources of energy will allow a similar time- and space regime as the fossil sources, whether or not regional cycles can replace the global interchange and whether or not the speed of the production processes must be slowed. Since the acceleration of all processes in the past had the consequence that labor productivity rose (more could be produced in the same time), a “de-acceleration” could reduce the increase of labor productivity – and lead to more employment. This means, parallel to a promotion of growth and the use of political possibilities offered by a growing economy, a “strategy beyond growth” should be developed that concentrates on renewable sources of energy. We stand at the threshold between the fossil growth age and the post-fossil age of renewable energy for which we must seriously prepare. For unions, this preparation should consist in utilizing the open time window and adjusting to an employment- and income policy of the post-fossil age.

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