CITY UNIVERSITY LEADER'S LECTURE, 20th FEBRUARY 2007
'Globalisation and the UK labour market - the winners and the losers'
embargo 18:00 hours Tuesday Feb 20 2007
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I want to talk tonight about perhaps the defining issue of our time: globalisation. As profound a change, I believe, as the industrial revolution in the eighteenth and nineteenth centuries. Something that cuts across so many of the forces shaping our world, from mass migration to climate change, from international insecurity to economic development.
Indeed the world we live in today is unrecognisable from that even a decade ago. But as the Nobel-winning economist Professor Joseph Stiglitz has argued, the current model of globalisation - with its chronic inequalities both within and between nations - is unsustainable.
While the global economy is an enormously powerful engine of growth - of wealth creation - too many people are missing out. That's why, across the world, a new progressive movement has emerged demanding action from governments and international institutions on a number of fronts.
Action to advance fair trade as well as free trade - enabling developing nations to participate in the global trading system as equal partners, not merely as suppliers of cheap raw materials.
Action to address the most glaring inequalities - providing more and better aid to those whose need is greatest, and reducing the crippling burden of debt repayments for the poorest countries.
And action to promote decent work for all - empowering ordinary working people to lift themselves out of poverty.
As a result of decisions taken at the G8 summit in 2005, some progress has been made on this agenda. But more needs to be done to ensure developing countries, and their populations, have a proper stake in the global economy. And globalisation also poses a huge challenge for developed countries, not least the UK.
The scale and speed of change is daunting.
Two decades ago, Germany, France, the USA and Japan were deemed to be our main economic challengers. Now, the so-called BRICS countries - Brazil, Russia, India, China and South Africa command attention as growing economic powerhouses.
Two decades ago, the idea of importing Polish labour or using Indian call centres would have been inconceivable. Now, nobody bats an eyelid at British employers holding jobs fairs in Warsaw or offshoring work to Bangalore.
And two decades ago, the idea of our largest steelmaker or biggest airports operator falling into foreign-ownership would have seemed fanciful. Now, it is deemed to be an inevitable, even desirable, consequence of the UK's open economy.
And as we have seen, globalisation is not a static phenomenon. The goal posts are shifting; the rules of the game in a constant state of flux.
And it's here in the City of London - Britain's most intimate interface with the global economy - that some of the main drama takes place.
Capital, jobs and investment switched from one continent to another in the blink of an eye. Companies sold off, restructured and broken up by a new generation of corporate moguls. Decisions made that have implications far beyond the confines of the Square Mile. This evening, I want to discuss what all of this means for workers in this country.
And the core argument I want to make is simple.
While the UK gains from globalisation, we need to do more to ensure the benefits are spread more evenly. I believe our current approach is unsustainable over the longer term.
Quite simply there are too many losers, and not enough winners.
Globalisation has further distorted a labour market that is already one of the most unequal anywhere in the developed world. Where those at the top fare handsomely - while those at the bottom struggle to fend for themselves.
Think about here in the City, where average pay for full-time men now exceeds £100,000. A figure that conceals truly spectacular differentials between top and bottom. A £9 billion pre-Christmas bonus round for the high-flyers, while the people who clean their offices have to fight like hell to be paid £7 an hour.
I believe we need action both to lift minimum standards, and curb excess at the top. It's clear that executive pay - right across the economy - is now spiralling out of control. In recent years, Britain's new global elite - the company chiefs, the City financiers, the private equity partners - have enjoyed the kind of rewards that would send even the most avaricious of Premiership footballers into spasms of envy.
That's why, at the beginning of this year, the TUC called for a national debate about top pay. Nobody is against rewarding success, but it seems all sense of proportion, of moral direction, has been lost.
Consider the evidence.
The pay of FTSE-100 directors increased by 28 per cent last year. Since 2000, it has grown 17 times faster than the whole-economy average. In 1980, the average chief executive earned 10 times more than their staff; today, they earn 98 times more. And this is not just a debate about pay.
At a time when pension entitlements have been cut back dramatically for ordinary workers, FTSE-100 directors have amassed average pension pots worth nearly £3 million each. There is simply no objective justification for this largesse. A recent study by the Work Foundation exposed some of the myths attached to executive reward in this country.
One: there is a global market for talent. In fact the vast majority of CEOs are British, and most of them came up through the corporate ranks.
Two: captains of industry have to take more risks than the rest of us. In fact in the past five years, just one FTSE-100 CEO has been sacked - and he departed with a £5 million pay off.
And three: pay is linked to performance. In fact corporate growth has only been in line with GDP growth of around 3 per cent per annum.
The late, great American economist John Kenneth Galbraith put it rather more eloquently when he said: 'The salary of the chief executive of a large corporation is not a market award for achievement. It is frequently in the nature of a warm personal gesture by the individual to himself'.
So why should the rest of us care what a relatively small corporate elite pays itself? Well - this is an issue which affects all of us.
First, big bonuses and boardroom rewards feed inflation in the property market, especially in London and the South East. Meaning many ordinary workers, not just those on low wages, are unable to get on the housing ladder.
And second, an overheating housing market and bumper bonuses can tip the balance when it comes to interest rate decisions. Resulting in more expensive loans for business and more expensive mortgages for those people who can afford their own home.
None of this is exactly welcome at a time when the rump of the British workforce is increasingly struggling to get to grips with the realities of the new global economy. Make no mistake.
In terms of the world of work, globalisation is a creator of huge uncertainty. Something the Prime Minister himself has admitted. And the evidence is all around us.
Job insecurity for millions of workers, notably those in manufacturing and service industries vulnerable to offshoring. Work intensity ratcheted up, as organisations respond to competitive and financial pressures which seemingly become more acute by the day.
And pension entitlements trimmed back, with 70 per cent of final salary schemes either closed down completely or closed to new members since 2003.
Of course, it's those at the margins of the labour market who suffer most. The vast hidden army of vulnerable workers employed behind the shiny façade of UK plc. The people whose skills do not command a premium in the new global economy.
The care workers, the security guards, the catering staff, the cleaners, the fast food workers and all the others - doing the work nobody else wants to do, and doing it for a pittance. According to TUC research published last summer, one in five workers in this country can be classified as vulnerable.
Suffering some combination of low pay, job insecurity, exploitation and unrewarding work. And one group bears a disproportionate burden: the UK's growing number of migrant workers.
One of the most visible manifestations of globalisation in this country has been the recent influx of workers from all over the world, notably from Eastern Europe after EU enlargement in 2004.
But while some have a positive experience of working in Britain, for others the daily reality is of poverty pay, long hours and maltreatment at the hands of unscrupulous gangmasters and agencies.
That's why the TUC is calling on the government to follow the example of the Republic of Ireland and sit down to hammer out a new agreement between the social partners. One that supports an open labour market - but only when accompanied by a improved legal rights, a stronger enforcement regime, and equal treatment for all workers. So that migrant workers cannot be exploited; and the rest of the workforce cannot be undercut. Avoiding the situation where low-paid workers are effectively being pitted against one another in a race to the bottom.
Like the invisible army of cleaners in the City of London, among them migrant workers from every corner of the globe. Working late at night or in the pre-dawn early hours - invisible to those whose offices they clean. Often earning little more than the minimum wage itself.
Where they are represented by trade unions, we have been able to secure some important improvements in terms and conditions - but not without a fight.
And not without reminding blue-chip City firms - household names - about their moral obligations, even when they don't directly employ these workers. Because the excuse that it's nothing to do with us, that cleaning has been contracted-out, that it's for the contractors to determine pay rates, simply won't wash any more.
So why does tackling inequality like this matter?
Well, I return to my core argument: that a free-market free-for-all is ultimately in nobody's interests. A labour market as unequal as ours is simply not viable over the longer term. Even the Economist magazine, one of the house journals of the global elite, has noted that: 'a poisonous mix of inequality and sluggish wages threatens globalisation'.
In developed countries, the share of national income going to labour is at historic lows, while the share going to capital is at historic highs. In the United States, for example, wages and salaries now account for just 45 per cent of GDP, down four points since 2001, while profits now account for 12 per cent - a 40-year high.
Real wages for the poorest Americans are now 30 per cent lower than they were 30 years ago. And the real income of the average American family is actually lower today than it was five or six years ago. Many economists were lining up to make exactly this point at World Economic Forum in Davos last month.
They argued that unless action is taken to address redress the growing imbalance between capital and labour, there could well be a reaction against globalisation at the ballot box. A point acknowledged by former US Treasury Secretary Robert Rubin at a recent business summit hosted by Gordon Brown.
This is not idle speculation.
Think about America again, where the protectionist barriers are going up, the backlash against stagnant wages is growing, and the tectonic plates of public opinion are shifting. According to a poll in December by Bloomberg and the Los Angeles Times, almost three-quarters of Americans believe the gap between rich and poor is a serious concern. A finding that would have been inconceivable a few years back.
And here in the UK, according to a poll in the Sunday Telegraph last weekend, around seven in ten Britons think that lavish rewards at the top end are simply not justified. So what should our response be here in this country? What can we do to make sure it is the many rather than the few who benefit from globalisation?
How do we convince workers - voters - that Britain's future lies at the heart of a dynamic global economy? These are questions which merit bold answers.
Not retreating in on ourselves, not lapsing into the false securities of protectionism, but making positive choices so that the benefits of globalisation - and there are many - are accessible to everyone.
Now is the time for our politicians to show real leadership on this. Globalisation cannot be stopped; but it can be managed, moulded and shaped. I believe we need a determined policy response in four key areas.
First, we need to give better support to British workers who are in the frontline of the global economic revolution.
Because we buy more than we sell in the global market, because we are home to more multinationals who can easily relocate overseas, because cost-cutting is so embedded within UK management thinking, workers in this country are particularly exposed to the downsides of globalisation.
Not surprisingly, it's older workers and unskilled workers who pick up the tab. Cheap DVD players and clothes from the Far East are scant consolation if you've lost your job and have been downgraded to low-paid, insecure work - that is, assuming you've found work.
This is not some trade union myth.
As the OECD has noted, many displaced workers remain jobless for a year or more, and those who get jobs earn less on average than they did previously. Just think about the workers at MG Rover. Eight months after their firm collapsed, a study by the Work Foundation revealed a third were unemployed; and of those who had found work, on average their jobs paid £3,500 less a year.
That's why the TUC is calling for fairer entitlements for workers during redundancies.
That's why we're making the case for more investment in retraining initiatives at local and regional level. And that's why - crucially - we're calling for a new deal on skills.
Let's be clear about this. Higher skills are the best insurance policy we can take out in this age of globalisation. However, as the Leitch Report made clear before Christmas, our voluntarist approach to skills simply isn't delivering. With one in three employers turning a blind eye to its training responsibilities, eight million workers are losing out.
At a time when India and China are producing four million engineers, computer scientists and graduates each year, the UK continues to suffer from a serious shortfall of basic, intermediate and technical skills.
You don't need to have a PhD in trend analysis to work out the long-term implications of that.
Through our work providing learning opportunities to over 100,000 members a year, the trade union movement is doing its bit to rise to the skills challenge. Now is the time for ministers to compel employers to raise their game.
But supporting workers means more than just investing in their skills. Which takes me onto the second policy challenge we face - improving employment rights in this country. Recalibrating an employment relationship that remains fundamentally skewed in favour of employers. Rebalancing a labour market that ranks as one of the least regulated in Europe. Indeed British workers are quicker, easier and cheaper to sack than their European colleagues. An anomaly we would like the government to address as a matter of urgency.
Our argument isn't about crude protectionism. It's about the exact opposite - creating a level playing field for British workers. And don't let anyone tell us that a stronger framework of rights is a luxury we can ill afford in the age of global competition. Higher standards at work do not blunt our economic competitiveness; quite the opposite.
You only have to look at the latest Global Competitiveness Index from the World Economic Forum for confirmation of that. Which four countries does it rank as the most competitive in the world? Yes, you guessed: Switzerland, Finland, Sweden and Denmark. All associated with decent rights at work.
All committed to more equitable labour market outcomes. And all proof of the efficiency of equality. So we have nothing to fear from taking the high road to success. If we are to compete in the global economy tomorrow, we've got to break free from the low-skill, low-productivity equilibrium that has historically held this country back.
And we can also learn from our neighbours on the continent in a third key policy area: and that's industrial strategy. This year, manufacturing employment in the UK is likely to fall below three million for the first time in a century.
But it doesn't have to be like this. With the right policy framework - including targeted support for key sectors such as defence, aerospace, automotive, pharmaceuticals and environmental technologies - UK manufacturing can not only survive but thrive in the global economy. This is not about turning the clock back to the failed interventionism of the past.
It's about taking best practice in the EU and applying it here.
Our competitors in Europe have proved that with the right support, manufacturing can prosper in terms of jobs, exports, output, investment and productivity. Germany, for example, has shown that it is possible for a mature economy to have a successful manufacturing sector.
One that accounts for 28 per cent of employment; and one whose exports to China have grown five times faster than the UK's. There is no reason why we can't follow suit.
Indeed this is a good time to move onto the fourth and one of the most politically difficult policy challenges we face. Something that will define our success or failure in making globalisation work for all.
And that's standing up to an over-powerful City of London. Yes, the City is an international centre of excellence. And yes, our growing financial services industry is a creator of tremendous wealth.
I don't for one moment want to talk down the importance of that. But at the same time, we shouldn't be afraid to debate the City's role in our economy and our national life. Does the imperative to go for short-term returns damage companies' ability to build for the long term?
To what extent does the huge wealth created in the Square Mile trickle-down to people in Newcastle or Manchester or even Bethnal Green? How much of the City's tax take actually ends up in the Exchequer as opposed to being squirreled away to the Cayman Islands?
The problem is we simply don't know; too much of what happens in the City is clouded in secrecy.
And our politicians sometimes give the impression that they would prefer to let sleeping dogs lie. Better that our financiers make their money here than somewhere else is the cry - and we don't want to frighten them away.
Take the hot issue of the day: private equity firms. With speculation building about a possible takeover of Sainsbury's, the UK's burgeoning private equity industry is in the spotlight as never before.
It's already bigger than most people suppose. Across the UK, two-and-a-half million workers - one in six of the private sector workforce - are employed in companies controlled by private equity.
As you would expect, the trade union movement and the private equity industry don't have an easy relationship. Sometimes private equity firms turn failing businesses around, providing decent returns to their investors, pensions funds included. Sometimes, however, they give the impression of being little more than amoral asset-strippers after a quick buck.
Casino capitalists enjoying huge personal windfalls from deals at the same time as they gamble with other people's futures.
This is not just trade union dogma. As a recent study by the chief investment officer at Fidelity International showed, there is little evidence overall to show that private equity improves bottom line performance.
And as the respected City figure Paul Myners recently commented, in companies that are often leveraged to the hilt, it's employees who end up shouldering much of the risk, with downward pressure on pay, pensions and job security.
The problem is simple: private equity can steer clear of the responsibilities a public company has to live up to. Its owners will disclose as little as possible about what they are doing, and why.
On issues like employment practices and corporate social responsibility, the silence is usually deafening.
That's why the TUC will shortly be producing a briefing on private equity for our network of over 1,000 pension fund trustees - who help manage assets worth more than £300 billion. Encouraging them to look long and hard at all these issues before they support major new investments in private equity.
And why, next month, trade union leaders from 40 countries will be gathering in Paris to discuss how to make the industry more accountable. We will be feeding our concerns to German Chancellor Angela Merkel ahead of June's G8 summit. And with stronger standards of corporate governance likely to be one of the themes of the German Presidency, we believe the argument is on our side.
So this evening I challenge ministers not turn a blind eye.
To think about how to better regulate an industry that at the moment is pretty much allowed to operate with impunity. But I want to finish by issuing a much more significant challenge to our politicians here in the UK.
And that's to show the British people how globalisation can work for everyone. Not just the high-flyers, the professionals whose skills are in demand, those for whom the global economy is already a theatre of opportunity. But all workers: the people struggling to make ends meet, concerned about the next round of restructuring, worried about what the future might hold.
The Prime Minister has described the British people as 'reluctant global citizens' and he is right. The battle for hearts and minds has yet to be won.
With one political era drawing to a close and another about to begin, now is the time for a fundamental rethink about how we respond to a world that is changing and changing fast. Not peddling false arguments about the UK being over-taxed and over-regulated, myths that have been comprehensively dismissed by the OECD, World Bank and others.
But articulating an imaginative, positive narrative about how this country can succeed in this age of global competition. That means making bold choices about how we capture the possibilities of new technology, how we utilise the dynamism of the global economy, and yes, how we distribute the huge wealth created by more open markets.
In plain English: putting the fight against inequality right at the top of agenda. Because I believe the great political challenge of the next generation will be to give globalisation a human face.
We've got to show everybody the global economy is our servant and not our master. If we can, I'm convinced we'll reap the rewards. If we can't, then who knows?
Press release (3,900 words) issued 20 Feb 2007
