Getting out of the crisis – more exploitation, more emigration

There are two ways a capitalist economy can get out of slump.  The first is by raising the rate of exploitation of the workforce enough to drive up profits and renew investment. The second is to liquidate weak and unprofitable capital (i.e companies) or write off old machinery, equipment and plant from company books (i.e. devalue the stock of capital).  Of course, capitalists attempt to do both in order to restore profits and profitability after a slump.  This is taking a long time in the current crisis since the bottom of the Great Recession in mid-2009.

Progress in devaluing and deleveraging the stock of capital and debt built up before is taking time and even being avoided by monetary policy.  But progress in raising the rate of exploitation has been considerable.  I took a look at the EU’s AMECO database to see if I could measure the progress by different capitalist economies in squeezing wages and raising the rate of exploitation.

I used the AMECO database measure of adjusted wage share, defined there as compensation per employee as percentage of GDP at factor cost per person employed.  In effect, this is the cost to the capitalist economy of employing the workforce (wages and benefits) as a percentage of the new value created each year.  I calculated the percentage change in that share since it peaked at or during the crisis (the peak for each country in wage share was mainly in 2009, although there were exceptions).

I found that every capitalist economy had managed to reduce labour’s share of the new value created since 2009.  Labour has been paying for this crisis everywhere.

change in wage share since peak

Not surprisingly, it has been the workers of the Baltic states and the distressed Eurozone states of Greece, Ireland, Cyprus, Spain and Portugal who have taken the biggest hit to wage share in GDP.  In these countries, real wages have fallen, unemployment has rocketed and hundreds of thousands have left their homeland to look for work somewhere else.  That has enabled companies in those countries to sharply increase the rate of exploitation of their reduced workforce, although so far that has not been enough to restore profitability to levels before the Great Recession and thus sustain sufficiently high new investment to get unemployment down and these economies onto a sustained path of growth – now after five years and in some cases seven.

The major economies of Japan and the US have also achieved a ‘moderate’ reduction in wage share, which is helping to restore profitability. What is worrying for the capitalists of Italy or France is the failure to raise the rate of exploitation much at all.  This failure is slowing the pace of return to profitability – no wonder Italy’s economy continues to grind down and France is stagnant.   And clearly Slovenian capitalism needs to do more to reduce wage share there if it is to recover profitability – at least as much as Portugal, Ireland or Romania.

In all these countries, governments are preparing an agenda of ‘labour market reform’, spending cuts and privatisations designed to hit labour’s share in the national output – there is more misery to come.  Italy’s new Blairite leader, Matteo Renzi is pledged to such neoliberal measures.  France’s Francoise Hollande has had a Damascene conversion to a neo-liberal agenda and Slovenia’s ‘social democrat’ coalition is preparing similar measures.

But it is not just the politicians of austerity that have driven or aim to drive down labour’s share.  Government policy based on the Keynesian ‘alternative’ of debt restructuring and devaluation of the currency has led to the same result.  Iceland’s supposedly Keynesian policies have produced a larger fall in labour’s share than in austerity Spain or Portugal (see my post,

One of the striking contributions to the fall in labour’s share of new value has been from emigration.  I have reported before on this important factor in turning things round for the smaller capitalist economies in the Baltic states and Ireland (  But now it has become an important contribution to reducing costs for the capitalist sector in the larger economies like Spain.  Before the crisis, Spain was the largest recipient of immigrants to its workforce: from Latin America, Portugal and North Africa.  Now that has been completely reversed.

Hundreds of thousands of migrants are heading back home every year, and the country’s overall population is falling for the first time since records began. Spain’s population jumped from 40m in 1999 to more than 47m in 2010, one of the most pronounced demographic shifts experienced by a European country in modern times. The surge was almost entirely the result of migrants from countries such as Ecuador, Bolivia, Romania and Morocco. The number of foreigners living in Spain increased eightfold in just over a decade, while their share of the population soared from less than 2 per cent in 1999 to more than 12 per cent in 2009.

Now, increasingly, they are leaving Spain altogether. In 2008, one year after the start of the crisis, Spain still recorded 310,000 more migrant arrivals than departures. That number fell to just 13,000 the following year before turning negative in 2010. In 2012 there were more than 140,000 more departures than arrivals, and the pace of the exodus is picking up fast. According to the national statistics office, the foreign-born population now stands at 6.6m, down from more than 7m just two years ago.

This net emigration acts a safety valve for Spanish capitalism – unemployment would be even higher without it.  It helps the capitalist sector get down labour costs without provoking a social explosion.  However, over the longer term, this spells deep trouble for capitalist expansion in Spain.  There remains a huge overhang of unfilled real estate from the property boom that triggered the crisis in Spain.  A falling population means that this form of unproductive capital will continue to weigh down Spain’s recovery.  And with a public sector debt to GDP ratio hitting 100%, there will be fewer workers to extract value to service that debt.

Unless the productivity of the smaller labour force can be raised, Spain’s growth rate will be limited.  German capitalism has succeeded to some extent in coping with a falling population (see my post,  Spanish capitalism will be less able.  After all, most of the people emigrating are the skilled and more productive parts of the workforce.  They are going to Germany, France, the US, even Latin America.  Maybe they will return as many did in the Baltic states or Ireland after past recessions ended.  But given the length of this Long Depression, this time could be different.

9 thoughts on “Getting out of the crisis – more exploitation, more emigration

  1. Dear Michael,
    How do you interpretate the development in the stock market? Is it another buble we are witnessing?

  2. Well the “market is reducing” wages not the capitalists 😉
    In most of those countries where wages have fall , the wages where unrealistically higher, driven mostly by large, inefficient, over-indebted public sector.

    Same situation is in Croatia; we have very very large, inefficient, public sector that is producing most of our public debt and we are going straight to bankrupt.

    And also our government (not capitalists but government) are expecting people to leave the country – so they can get “rid of unemployment” -and even better, they expect from those emigrants to send money to the home 😉

    That is the same way what former socialist Yugoslavia did 🙂

    1. In Marxist analysis, talking about a capitalist government is also the same as talking about capitalists. Both take part in the same commodity circuit. The vulgar concept of market, as an abstract concept, by the vulgar economists does not exist. What exist is a generalized commodity production, which leads to 7 different types of trade:
      Governments and private companies, if each considered as an individual capitalist, may occupy several economic sectors and thus may cooperate or compete. What matters it is the capitalists seek higher profits, so stagnant countries will tend to invest in more profitable places. Slashing wages increase tend to increase profits, though that is not a guarantee. So, the distinction between government and private sector is not very meaningful, in this case.

  3. “That is the same way what former socialist Yugoslavia did :)” Luka, that should be your clue for questioning the so-called “socialist” character of all the pre-1989 states and economies of Eastern and central Europe as well as the former Soviet Union. In fact the form of production was transitional between capitalism and socialism, containing elements of both where neither one nor the other predominated. The result was an incoherent form of economy that was doomed to failure over the long run. The claim that this was “fully functioning socialism”, moreover, one “on the road to ‘full communism'(!)” was a big lie originating with Stalin after 1925. The working people of these countries instinctively perceived the lie and hence the state lost all support, causing the 1989-91 collapse.

    Now these today are all more or less “fully functioning” *capitalist* states and economies. That’s because capitalism has already existed as a coherent form of production and economy since 17th century England, likely at the earliest, and can be imported and imposed from above (that’s where institutions like the IMF come in) relatively quickly by a state organized on a political program to do so. That is exactly what has happened in all of the former “socialist” countries, including Russia and Ukraine, just in case there is any doubt about the latter, where one clique of capitalists is likely to to be replaced by another, backed by the EU and IMF, where the country itself will be plundered for its cheap labor to be exported just as with Croatia, while the Ukraine consumer market will be a dumping ground for foreign imports, driving domestic consumer provision out of business, generating a vicious cycle of unemployed and impoverished labor.

    Confusion arises over the persistent existence of elements of “socialism” under fully functioning capitalism. In the U.S. where I live – supposedly the “perfect capitalist country” that everyone is supposed to want to be like – we have MASSIVE public subsidies in all areas of the economy. Most of these go directly to capitalist private enterprise, but some also go directly to consumer individuals (Social Security, medicare, unemployment insurance, food stamps, etc). The latter are thought of as “socialism” by the American Far Right, but the former that go directly into capitalist pockets, strangely are not thought of in this way.

    The basic question is this: Why does fully functioning capitalism need all of this “socialism”, even at the same time as institutions such as the IMF seek to reduce these “socialist” elements of a capitalist economy? We could ask even more basically, why does capitalism even need a government (the “State”) at all? The capitalist economy is theoretically self-regulating, after all, (as Karl Marx was the first to show how, btw, and is why the State does not enter anywhere as a necessary element in his abstract analysis).

    Well, minimally a police state is required to protect private property, without which capitalism cannot exist. However, even a capitalist police state, relying solely on force, can be overwhelmed as we just saw in Ukraine, and to prevent a propertyless majority of wage laborers from simply seizing all of the capitalist’s private property, some of the property must be shared out to gain the consent, without force, of the majority (that’s called “democracy”). This can generally limit the ability of capitalists seen as a group, to get rich as fast as they can, and the competition to do so acts as a collective pressure to reduce public provision, especially to individuals. Not all at once of course, because that would lead to the scenario above, a working class socialist revolution, something the capitalists have been sensitized to since 1917 and 1949. That is why IMF programs are called “structural adjustments”, the idea being that these are merely “technical adjustments” (and why they are often imposed by unelected “technocrat” politicians) to create a little more room to squeeze just a little more 0.X% growth out of the GDP.

    The problem arises over a long run application of such “technical adjustments”. Here in the US/UK we have been continuously subjected to these for almost 40 years (in the US without the IMF dictating this, because the IMF by and large IS the US), and the long term result has been the reduction of the standard of living of working people to the point where many cannot afford the privilege of buying a house, as we saw in 2008. That caused in turn a huge financial crisis and massive unemployment whose effects we are still suffering from today.

    The long run tendency of IMF-style policies (often called “neo-liberialism”, but I don’t really like the term) is to destroy the non-capitalist support basis (mistakenly thought of as “socialist”) for the capitalist system itself, including the Earth’s ecology as well. That is a result that those who think the “IMF is correct” need to address. The ultimate result is the destruction of capitalism itself. Those of us who understand that this tendency towards capitalist self-destruction is inevitable don’t want to simply wait around to see the wonderful logical result. We want to get rid of this system altogether while there is still something economically to work with. My solution is to replace it with the direct rule of the majority who actually work and live in modern daily material life, rather than above it all as do the tiny minority of capitalists. There is no magic blueprint for replacing capitalism. One clue is that it will likely be everything capitalism is not. It will then be in the hands of that majority to create a new social order that meets real human needs under modern conditions.

  4. I am currently reading your book (which is brilliant by the way) and just read this chapter. I was wondering if you could explain in more detail about how emigration provides a “safety valve” for capitalism, specifically how it can reduce labour cost, as this was unclear to me. In my experience immigration is often exploited by the capitalist class to drive down wages and conditions by creating a “reserve army” of labour that can undermine and undercut wages and conditions. Why does the opposite not happen in the case of emigration?

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