The kind of competition that’s really going on

I’d like to expand just a bit on the central point that Steven Rattner, our “car czar”, was making in his article I criticized yesterday.   In the article he claims that the primary culprit for workers in the US is

not a mere cyclical downturn that is likely to reverse itself; it is the pressure on American workers to cut their wages in order to remain competitive in the world marketplace.

This is a common position and there’s a substantial bit of truth to it.  But I think the way it’s phrased is highly misleading in that it fails to clearly expose what’s really going on.  Rattner is apparently referring to the “real wage” as he uses that term later in the article, but even that term has neutral connotations with a public unversed in economic terminology.

The wage level, taken as an isolated term, is of course meaningless.  If we were told that the median wage in some unknown civilization was five units, it would mean nothing unless we also knew the median price.  A cut in wages for the entire US economy would mean little if prices also adjusted down to the same degree and that’s what would roughly happen with a currency devaluation.  But that’s not what’s normally meant when we hear of the need for the US worker to become more competitive.  And that’s not what Rattner means either.

What’s pressuring US workers isn’t the “wage level”, it’s the exploitation level.  Exploitation levels in China and other parts of the world are far higher as workers have no other choice but to accept less return for their efforts – as measured by the percentage of the value they produce that’s distributed to them versus to the elites who own the businesses.  It’s the spread that counts, not simply the wage level.

I’d think the average worker would see things a bit differently if the press were perfectly clear on the type of competition that’s driving the global political economy.  Re-read Rattner’s excerpt slightly modified to be more precise:

(The primary culprit is) not a mere cyclical downturn that is likely to reverse itself; it is the pressure on American workers to receive a lower percentage of what they produce, i.e. to accept exploitation to a higher degree, in order to remain competitive with exploitation levels in the world marketplace.