Gluers and sawyers from the furniture factories in Galax near the mountains of Virginia lost their jobs last year when American retailers decided they could find a better supplier in China. At the other end of the furniture industry RN lost his job when Home Depot decided it could find a better chief executive in his deputy. But any likeness ends there. RNâ€™s exit was as extravagantly rewarded as his occupation of the corner office had been. Next to his $210 million severance pay, the redundant woodworkersâ€™ packages were mean to the point of provocation.
Thatâ€™s the way it goes all over the rich world. Since 2001 the pay of the typical worker in the US has been stuck, with real wages growing less than half as fast as productivity. By contrast, the executive types gathering for the World Economic Forum in Davos in Switzerland have enjoyed a bonanza. If you look back 20 years, the total pay of the typical top American manager has increased from roughly 40 times the average — the level for four decades — to 110 times the average now.
These are the glory days of global capitalism. The mix of technology and economic integration transforming the world has created unparalleled prosperity. In the past five years the world has seen faster growth than at any time since the early 1970s. In China each person now produces four times as much as in the early 1990s. Having joined the global labor force, hundreds of millions of people in developing countries have won the chance to escape squalor and poverty. Hundreds of millions more stand to join them.
That promises to improve the lot of humanity as a whole incalculably. But in the rich world laborâ€™s share of GDP has fallen to historic lows, while profits are soaring. A clamor is abroad that RN and his friends among the top hundredth — or even the top thousandth — of the population are seizing the lionâ€™s share of globalizationâ€™s gains. Meanwhile everyone else — not just blue collar factory workers but also the wider office-working middle class shuffles along grimly for the next round of cost cuts. They are not happy.
Fear and clothing
Signs of a backlash abound. Stephen Roach, the chief economist at Morgan Stanley, has counted 27 pieces of anti-China legislation in Congress since early 2005. The German Marshall fund found last year that, although most people still say they favor trade, more than half of Americans want to protect companies from foreign competition even if that slows growth. In a hint of laborâ€™s possible resurgence, the House of Representatives has just voted to raise the federal minimum wage for the first time in a decade. Even Japan is alarmed about inequality, stagnant wages and jobs going to China, Europe has tied itself in knots trying to â€˜manageâ€™ trade in China textiles.