Marx's reserve army of labour is about to go global

The eruption of the Indian and Chinese economies could shift the balance of power sharply in favour of capital in the rich world
Apiece of conventional wisdom about the world dear to economists is that the share of national income going to workers stays pretty stable. Karl Marx disagreed; he argued that labour-saving capital investment would limit demand for labour, while also bankrupting small-scale producers, in agriculture for example. They would swell the labour supply, creating a permanent "reserve army of labour" that would prevent real wages growing as fast as labour productivity. Workers would thus spend an increasing proportion of working time producing profits for capitalists - a falling share for labour or a rising rate of exploitation, in Marx's terminology.

Labour's share of national income was indeed declining in Britain in the decades before the publication of Marx's Capital in the 1860s. However, labour's share lurched up during the two world wars, and this is often interpreted as reflecting a more even balance of power between capital and labour brought about by the growth of trade unions.

The later 60s and 70s saw a profits squeeze in many European economies, including the UK, reflecting a further decline in the power of private ownership. Subsequently, labour's advances were beaten back through unemployment and the reassertion of "shareholder value". Workers' share of national income has fallen in much of Europe to more "normal" levels. As yet this is not the systematic downward trend predicted by Marx. But could that be about to change?

The Communist Manifesto proclaimed the inevitable spread of capitalism across the globe. This process was halted and even reversed during much of the 20th century by the isolation of the Soviet Union, eastern Europe and China from the world economy and the very slow pace of economic development in poor countries such as India. However, the extraordinary transformation of China's and India's economies promises to bring Marx and Engels' prediction to completion. What might be the implications for workers in rich countries?

At first glance, the eruption of China into the world economy seems to be just the latest example of Asian countries catching up with the leading industrial powers. China's export growth has been spectacular, but so was that of Japan and Korea in earlier decades.

What makes China (and India) fundamentally different, however, are their vast labour reserves. Total employment in China is estimated at around 750 million, or about one and a half times that of all the rich economies, and nearly 10 times the combined employment of Japan and Korea. About one half of China's employment is still in agriculture; together with tens of millions of urban underemployed, they constitute a reserve army of labour of quite unprecedented magnitude.

The effect of this reserve army has been to hold down wages. After nearly 25 years of rapid economic growth, wages in China's manufacturing sector are still only 3% of the US level; after similar periods of rapid expansion in Japan and Korea, wages were some 10 times as high.

Much attention has naturally been devoted to the effects on industrialised countries of the flood of imports. But there is another, more ominous, possibility. What if there was a major drain of capital spending, from the rich countries to China and the rest of the south?

Investment in developing countries by multinational companies has been growing, but it is still only 3-4% of their investment at home each year. Could the trickle turn into a flood? Television pictures of the machinery at the Longbridge car plant being packed up for shipment to China may be an extreme case. However, with such low wage costs in China and growing numbers of skilled workers, why should northern producers continue investing to maintain their capital stock in the north, let alone extend it? If investment peters out, where would northern workers find jobs? When Longbridge closed, a government minister was ill-advised to suggest that the car workers could seek jobs at Tesco. Hardly a comforting response.



· Andrew Glyn is an economics fellow at Corpus Christi College, Oxford, and author of Capitalism Unleashed. Email: