Was Karl Marx always wrong?

The Prospects Service© Centre for Economics and Business Research ltd

Was Karl Marx always wrong?Year 2, Lecture 3

Douglas McWilliams

Mercers School Memorial Professor of Commerce

Gresham College

11 December 2013

The Prospects Service © Centre for Economics and Business Research, 2013

Objectives

• To assess whether globalisation means that profitability will increase

• To discuss the extent to which ‘exploited workers’ whose wages are initially low benefit from faster real wage growth and so are ultimately better off

Outline

• Karl Marx and his relevant theories• What has happened to profit shares and

profitability• What is likely to happen over the next 20

years• When is ‘exploitation’ good for you

The Prospects Service © Centre for Economics and Business Research, 2013

Background

• ‘Supercompetitive’ emerging economies• Lack of competitiveness of Western economies and

difficulty in correcting this through devaluation• Boost to inflation from upward pressure on

commodity prices and devaluing currencies• So growth shortfall and upward pressure on

inflation likely• Meanwhile, skills and capacity are partly a function

of past growth and so past slow growth will have eroded capacity

5

In the past 30 years the world’s total labour force has increased by 68%

McKinsey Global Insttitute

1980 20100

500

1,000

1,500

2,000

2,500

3,000

Total number of employees in the world (mil-lions)

Emerging Advanced

6

In addition there has been a sharp drop in the number of employees in agriculture

McKinsey Global Insttitute

1980 20100%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Percentage of employees in agriculture

Emerging Advanced

7

So that in the past 30 years the world’s non farm labour force has increased by 115%

McKinsey Global Insttitute

1980 20100

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Number of non farm employees in world (mil-lions)

Emerging Advanced

The fall in the workers’ share of advanced economies’ incomes

Source: McKinsey Global Institute

Labour costs as a share of GDP have fallen around the world

10

The share of labour in each of the 4 major economies has declined recently

Labour share of GDP % in the four largest economies

NBER paper see text for citation

Slowing labour force growth in the advanced economies

Source: McKinsey Global Institute

And also in China as the impact of the demographic policy bites

Source: McKinsey Global Institute

13

In the next 20 years the world’s total labour force is expected to increase by only 24%

McKinsey Global Insttitute

1980 2010 20300

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Total number of employees in the world (mil-lions)

Emerging Advanced

14

..and the speed with which people come out of agriculture will slow…

McKinsey Global Insttitute

1980 2010 20300%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Percentage of employees in agriculture

Emerging Advanced

15

So the increase in the non agricultural labour force is likely to be only just over 40%

McKinsey Global Insttitute and Cebr calculations

1980 2010 20300

500

1,000

1,500

2,000

2,500

3,000

Number of non farm employees in world (mil-lions)

Emerging Advanced

Labour does best when its share is between 30% and 60%

1 2 3 4 5 6 7 8 9 100

50

100

150

200

250

Evolution of wages under different levels of ‘exploitation’

20% wage share30% wage share40% wage share50% wage share60% wage share70% wage share80% wage share90% wage share

Implications

• We are now in the middle phase of globalisation• The augmentation of the world’s labour supply continues but it

is starting to slow• Labour’s share of the economy has got smaller• But the higher profits that this allows helps investment• Karl Marx’s predictions may yet be proved right but are unlikely

to be proved right in the near future

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