Tackling Unemployment and Growing Public Debt

Anis Chowdhury

Jomo Kwame Sundaram

While global economic recovery remains anaemic, most industrialised countries continue to face growing unemployment and public debt. Average unemployment in the Organisation for Economic Co-operation and Development (OECD) countries rose from around 5% in 2007 to over 8% in 2012. The Eurozone is faring worse, with unemployment over 11%, and still rising in some countries. The unemployment rate in Spain rose to 26% in 2012, with youth unemployment surging to 55%. In Greece, it stood at 26.8%, the highest in the European Union (EU) with youth unemployment edging towards 60%.

After the Great Recession hit developed countries in 2009, the public debt situation deteriorated rapidly. The average public debt in industrialised economies increased from around 70% of GDP in 2007 to about 110% in 2012.

Planet Earth is Wage-Led!

Özlem Onaran

A simultaneous increase in the profit share by 1%-point in the major developed and developing countries, leads to a 0.36% decline in global GDP

The dramatic decline in the share of wages in GDP in both the developed and developing world during the neoliberal era of the post-1980s has accompanied lower growth rates at the global level as well as in many countries. Mainstream economics continue to guide policy towards further wage moderation along with austerity as one of the major responses to the Great Recession. In our recent report for the International Labour Office (Onaran and Galanis, 2012), we show the vicious cycle generated by this race to the bottom. The main caveat of this wisdom is to treat wages as a cost item. However, wages have a dual role affecting not just costs but also demand. We work with a post-Keynesian/post-Kaleckian model, which allows this dual role.

A fall in the wage share has both negative and positive effects
We estimate the effect of a change in income distribution on aggregate demand (i.e. on consumption, investment, and net exports) in the G20 countries. Consumption is a function of wage and profit income, and is expected to decrease when the wage share decreases. Investment is estimated as a function of the profit share as well as demand, and a higher profitability is expected to stimulate investment for a given level of aggregate demand. Finally, exports and imports are estimated as functions of relative prices, which in turn are functions of nominal unit labour costs, closely related to the wage share. The total effect of the decrease in the wage share on aggregate demand depends on the relative size of the reactions of consumption, investment and net exports. If the total effect is negative, the demand regime is called wage-led; otherwise the regime is profit-led. Mainstream economic policy assumes that economies are always profit-led, whereas in the post-Keynesian models the relationship between the wage share and demand is an empirical matter, and depends on the structural characteristics of the economy. 

The Meaning of Marikana

Ben Fine

Sam Ashman[1]

The mining core of South Africa’s economy saw, in 2012, the most explosive and significant strike wave since the defeat of apartheid. At Marikana, it involved the killing of 34 Lonmin strikers allegedly by police on 16th August. These events, and the response to them by the Tripartite Alliance of the African National Congress (ANC), Congress of South African Trade Unions (Cosatu) and the South African Communist Party (SACP), starkly reveal the economic and social issues in South Africa today, highlighting how many features of the apartheid system have been reproduced and even intensified.

These events have drawn attention to the scale of South Africa’s mineral wealth and the industry’s dependence on cheap, black, and often migrant labour. In April 2010, a Citigroup report identified South Africa as the world’s richest country in terms of its mineral reserves, valued at $2.5 trillion. Platinum group metals (PGMs) constituted $2.3 trillion, the bulk of this value, all located in the Bushveld Ignateous Complex (BIC) geological formation spreading across Gauteng, the North West and Limpopo provinces. This area also contains the world’s largest chromium and vanadium reserves and produces ferrochrome, nickel and other minerals.

Platinum is one of a family of six chemically-similar elements that make up the PGMs. South Africa is estimated to hold 87% of the world’s PGM reserves and accounted for 76% of world platinum production in 2009. Since the early 1990s, platinum has been the fastest growing sub-sector within the mining industry and the BIC area has been the fastest growing South African region with growth exceeding 15% in some years. The sector is dominated by three big producers: Anglo American Platinum (80% owned by Anglo American), Impala Platinum and Lonmin.

Against this backdrop, there are four systemic factors underpinning events at Marikana.

A Site of Struggle: Organised Labour and Domestic Worker Organising in Mozambique

Ruth Castel-Branco

Though rooted in colonialism, domestic work has become a hallmark of modern urban living in Mozambique. There are more than 39000 registered domestic workers living in and around Maputo - a 30% increase in 10 years - and domestic work has become the most important occupation for urban women, after self-employment (INE 2007). So vital is domestic work to Maputo’s economy that when the Mozambican state moved to extend labour protection to domestic workers in 2008, the Ministry of Labour removed minimum wage language for fear that employers, many who are themselves minimum wage earners, would no longer be able to participate in the labour force.

Despite the importance of paid domestic work, organised labour has historically paid little attention to this sector. In contrast to South Africa, where the extension of labour protection to domestic workers was seen as key to redressing the injustices of apartheid and engendering democracy, in Mozambique this was outside Frelimo’s - and thus the Organização dos Trabalhadores Moçambicanos’s (Mozambican Workers’ Organization –OTM) - political imagination.