Now I realise that this might not be the first thing you think of when someone talks about the possibility of transforming Scotland’s economy and society into something better fit for its citizens. But it does help to describe one of the main transitions we need to make. And that’s important because my experience is that often people do not immediately get the nature and significance of that transition. A guest blog by Robin McAlpine.
In Britain right now we have a sort-of unspoken deal which works something like this: we’re going to pay you low wages but to make up for it we’re going to provide you with cheap food. Britain is the second lowest paid economy of all the advanced economies and in Scotland three out of five people who are in work earn less than £25,000. More acutely, nearly one in three people earn less than £14,000.
But then we’re no worse of than those high-earning Nordic types are we since they pay so much for food and drink that their cost of living means they might as well not be any better paid. See – we can get a loaf of bread for 30p and a pack of sausages for 60p.
It is here that we really need to think about not the individual bits of this low-pay economy (here’s my wage and now separately here’s the price of bread). They’re directly linked. In fact, one causes the other. It is precisely because we have an economy so dominated by low-cost, highly-processed food imported from parts of the world where labour is even cheaper than here that we have the low pay economy. And it’s because of where the value is added – and how.
If you take ingredients, mix them together and put them in the oven, the thing you take out of the oven afterwards is worth more than the ingredients you put in (and the cost of the electricity). That’s because your labour, the work you put into sourcing and mixing the ingredients and overseeing the cooking, added value to the ingredients. It turned them into bread. You then sell the bread for more than you paid for the ingredients. That makes you prosperous (well, if you sell enough…).
But if you do that on an industrial scale then a much greater proportion of the value that gets added will go not to the workers whose work created the value but to the owners of the factory in which it took place. They will probably pay comparatively low wages for fairly routine work. But if that factory is owned by someone who lives and works in your economy then the likelihood is that they will have bought the ingredients from fairly local suppliers, that they will use local engineers and electricians and plumbers – and they’ll pay their taxes here. So it is likely to reduce both the cost of the bread and the value of wages – but at least much of the economic value is kept in the economy.
Now if you start to do this on an global industrial scale, things change again. So now you will pay for your bread and you may even pay a bit less. But what you pay will go straight to a supermarket. That money will then go to their suppliers with a surplus going to their corporate profits. And since it is likely that the shareholders are abroad (or are managing their money in tax havens) the profit is not recycled into your economy. And there is a very good chance that the supplier is overseas as well. If bread is being made in a massive bread factory in Eastern Europe then almost all of the money you pay for your bread leaves the economy. It does create jobs, but they are even lower-paid than the factory jobs in your own economy and none of the value – wages, supply chain, profit, taxes – will be recycled into your economy.
Should you care? Well yes, for two reasons. You might not be a flour producer. You might not be the engineer who fixes the bread ovens. You might not be the electrician who wired up the factory. You might not even be the local grocers where the engineer and the electrician get their messages and weekend paper and which relies on people in their local area having decent incomes. But you may well wonder one day what exactly happened to your local grocers where you used to get gossip as well as milk. You may find yourself in a big edge-of-town supermarket buying your bread and needing your car to do it. When you get home you may well notice that to bring the price of that bread down an extra couple of pence they’ve used bad ingredients (because on an industrial scale a couple of pence on each loaf can make you a fortune). You may also notice that to be able to import the bread it’s been laden with preservatives. You’ll probably notice that your bread is rubbish. Or possibly worse, you might have forgotten what good bread tastes like.
And it may take you a while to notice it but the knock-on effect of this can be seen everywhere. Each time we take another step from a manufacturing economy to a consumer economy we make a little less value in our economy and export a little more of our wealth to corporate shareholders. And that means we pay a little less in wages and invest a little less in the productive infrastructure of the country. Do that for 40 years and you live in Britain.
(You can do this whole example using the sausages – but it really does get a bit disgusting and you may struggle to concentrate in the face of the horror…)
There is no big, national bulk bread brand in Norway. They don’t have massive bread factories working out how to trim 2p off the cost of production of a loaf by sticking in an additive. They buy their bread from a local baker, who buys their flour from a local supplier and pays their taxes. And good wages for workers who spend those wages in the economy – which they spend on those better sausages. Which means the local butcher is prosperous. So he buys better clothes which are made locally.
Norway has one of the highest wages in the world. And yes, the cost of living is a bit higher. But there are two massively important things that we have to understand. The first is that the cost of living is higher but the quality of life is higher still. If you have the choice between a high wage and higher prices or a low wage and lower prices, think about what those two options taste like. The second is that the wages are just plain higher than the rise in the cost of living. Norwegians have more disposable income than us. That’s what happens when you achieve a virtuous, localised economy.
Now of course Norway didn’t become prosperous from local bakers alone. And of course there are many products in the modern world that we do want to be made and traded on international markets (it would be hard if we had different computers running different software in every country). International cooperation is a wonderful thing and set aside bread for a second and ask which nation alone would build a large haldron collider? There can be incredible efficiency achieved through global markets.
But do you really want efficient bread? If efficient bread (the fresh, tasty version) involves punching an unnecessary hole in your local economy from which leaks the prosperity of your community, do you really want efficient bread? The collapse of localised economies in favour of global corporatism is the mechanism which has transferred wealth to the one per cent of society which has really benefitted from globalisation – and then they tell you that you’ve benefitted too. I mean, look how cheap your bread is!
Protectionism and insularity are not the answer, but neither is this untrammelled globalisation. We need to build productive, domestic economies which make the things we need day to day and which create good jobs in so doing. It will make us prosperous and it will improve our lives. Support your local baker, microbrewery, butcher, farm shop or whatever builds that resilience into your economy. Common Weal will soon be producing economic policy work explaining how we can encourage a transition to that kind of economy at a national, regional and local level.
Just don’t let someone offer you a deal which involves crap bread and crap sausages in exchange for crap wages.
Robin McAlpine is Director of Common Weal.