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Third World Wages Undercut the First World's Way of Life

March 01, 1987|Walter Russell Mead | Walter Russell Mead is a political economist whose book, "Mortal Splendor: The American Empire in Transition," will be published by Houghton Mifflin in April

NEW YORK — The shift of basic industry from advanced countries to low-wage, low-regulation Third World environments is no longer simply a problem. The move has become a basic fact of life, casting its shadow over virtually every aspect of politics and economics in both the First and the Third Worlds.

The effects have been dramatic. From 1975 to 1983--the most recent year for which complete statistics are available, 3.7 million manufacturing jobs were lost in a group of high-wage countries, including the United States, Canada, Great Britain, France and West Germany. During that same period, 3.67 million manufacturing jobs were added in Asia. Even Japan, where hourly compensation costs for manufacturing employees are half those in America, began to lose manufacturing jobs in 1983--and expects to lose 800,000 by the year 2000.

The world's wage differentials are huge. In 1983 the hourly average "compensation cost" (including direct wages, benefits and payroll taxes) for industrial workers was $1.29 in Korea, $1.40 in Hong Kong, and $1.45 in Mexico. By comparison, the compensation cost for a U.S. industrial worker in 1983 was $12.26; in West Germany, $10.41 and in Canada, $11.44.

The effects on Europe and the United States have been dramatic. Unemployment in European countries has skyrocketed, tripling and quadrupling in many countries and--particularly among younger workers--reaching levels not seen since the 1930s.

In the United States, real wages are down. The average earnings for non-supervisory employees in the United States peaked during 1973 at $201 per week (using constant 1977 dollars). Since then, they have fallen 15% to $171 at the end of 1986. In constant, inflation-adjusted dollars, retail sales workers in 1986 earned no more than they did in 1955. The living standard of the American middle class stopped rising; this was the great economic fact of the last 15 years. The median household income fell; the poverty level rose. This trend, unless stopped, will transform American politics.

Call it liberal capitalism or modern industrial democracy, the compromise between the working classes and the controlling classes represents the underlying basis for political and economic life in the West and to some extent in Japan; now it has been overtaken by events.

That 20th-Century compromise made its appearance in virtually every advanced industrial economy of Europe and North America. It balanced two interests that most 19th-Century social thinkers had believed to be irreconcilable. Sooner in some countries, later in others, every major political party adopted the idea, competing to offer economic programs that would best ensure a growing economy with higher wages for workers and higher profits for capital. What all parties had in common was the belief that the politics of social compromise could deliver a rising standard of living for the masses.

If Karl Marx was the theorist of social conflict, John Maynard Keynes was the theorist of social compromise. It was Keynes who demonstrated that a high standard of living for the masses was necessary to the functioning of a modern capitalist economy. If the masses could not afford the goods produced by the factories, a vicious circle would begin. Layoffs and wage cuts would reduce purchasing power more and the economy would sink toward a new, and much less favorable, equilibrium. Programs designed to raise consumption and to cushion individual workers from the shock of change were therefore in the interest of both capitalist and worker.

This domestic compromise was secured by an analogous international system. The United States, supreme in the non-communist world after World War II, promoted it. Colonial and imperial rivalries of the past were replaced by a system of international free trade. Multilateral treaties and agencies provided a framework for the resolution of economic questions; multilateral security treaties ensured that military and political questions among Western states were addressed within a common framework.

The Great Compromise of the 20th Century was arguably the most enlightened and farsighted social bargain ever negotiated. Advanced Western countries enjoyed decades, in some cases generations, of rapid economic and social development. Under the "Pax Americana," age-old national rivalries were sublimated into cooperative ventures and structures. While fascism believed that international diplomacy was an unending struggle for supremacy in which no lasting compromise was possible, and communism believed that the struggle among classes was similarly uncompromisable, neither one could undo this exasperating milksop of a social system based on reason and accommodation.

Now this system is endangered--not because of its enemies, but because of the consequences of its own successes.

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