Capitalism as we know it has failed. Not even the Tories can defend it

Larry Summers, the former US treasury secretary, once explained why he thought inequality had risen. “One of the reasons,” he said, “is that people are being treated closer to the way that they’re supposed to be treated.”

That story is recounted in Hell to Pay, a brilliant new book by Michael Lind about how the suppression of wages is driving economic, social and political crises in America. The idea that we are paid what we deserve – and that the decline in mid-skilled, mid-paid jobs simply reflects the high-tech, globalized economy in which we live – derives from free market theory. But it is, Lind argues, utter nonsense.

In Britain, like in America, the labour market has bifurcated because of political choices and corporate behavior. Businesses have reduced employment costs by offshoring production to countries with lower labour standards and wages, or by using immigration to import cheaper workers. They have replaced full-time employees with rights and pensions with part-time contractors and gig economy workers. The post-war militancy and overreach of trade unions, and the restrictive laws that followed, has given employers monopsony power: that is, the ability to lower the price of labour because of their relative power over workers.

At the heart of all these changes is a model of globalization that has caused the economic elites of the West to get richer, and which has allowed millions of people in Asia to escape poverty, but which has also relentlessly and systematically damaged the interests of the Western working – and increasingly middle – class.

Our model of globalization was not, as Tony Blair put it, as inevitable as summer giving way to autumn. Trade agreements were struck, international institutions created, and when the likes of China broke the rules, dumped goods, stole industrial secrets, and used the system the West had created against us, reality was ignored. In as much as anybody noticed the effects on British workers, the reaction was to subsidize low pay, through tax credits, or – better, but not enough – increase it through minimum wages.

Source: The Telegraph