What Can We Learn from Previous Crises about the Effects of the Financial Crisis on Labor Share?
by Özlem Onaran
"The paper analyzes the possible distributional consequences of the global crisis based on the lessons of the past crises experiences. The decline in the labor share across the globe has been a major factor that led to the current global crisis. What we are going through is a crisis of distribution, and similarly the policy reactions to the crisis are part of a distributional struggle. The paper presents the effects of the former crises in the developing countries and in Japan on income distribution, wages, and unemployment. This comparison is important not only because it compares developing vs. developed country cases, but also because it highlights the differences of the currency crises vs. domestic financial crises regarding the distributional consequences. However, despite differences, the cumulative effect is in both cases a dramatic pro-capital redistribution. Building on these lessons, the paper discusses the possible different effects of the current global crisis in the developed countries, Eastern Europe, and developing countries, and concludes with policy alternatives to avoid the socialization of the costs of the crisis."
Selected excerpt from policy alternatives:
In order to fundamentally solve the problems of this crisis, economic policy must most of all solve the distributional crisis. A new socio-economic and political paradigm is required focusing on full-employment, productivity led wage growth, and a shortening of work-time. This process should also decide on critical sectors for the society, in which the ownership rights cannot be left to the private sector and private profit motive. The crisis has indicated that the finance and the housing sectors are clear candidates for public ownership enhanced with democratic and transparent control mechanisms of all the stakeholders. The energy crisis is indicating that the energy sector and alternative energy investments also require public ownership. The problems with the private pension funds as well as private supplies of education, health, and infrastructure are showing that social services are also too critical to be ruled by private profit motives. A creative and participatory public discussion should question, in which other sectors public ownership would produce more egalitarian as well as more efficient outcomes. This does not mean to praise the public sector as such, but calls for the participation and control of the stakeholders (the workers, consumers, regional representatives etc.) in the decision making mechanisms within a public and transparent economic model. Such a shift in decision making also facilitates economy wide coordination of important decisions for a sustainable and planned development based on solidarity.