The policy of transferring incomes to capital and the rich

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Over at Progressive Economy Michael Burke reproduces a very revealing table from the CSO’s Irish National Income and Expenditure for 2011 report which illustrates just exactly what is behind the policy of increasing austerity even though it continues to fail to reduce the deficit. The following version of the table is taken from Table 1.1: Annual Percentage Changes in the Main Constituents of Table 1 on page 2.

Michael then gets to the point:

“Even though GDP has been contracting throughout the period, profits have risen in the last two years. At the same time employees’ remuneration has fallen sharply. In a recession the natural tendency is for profits to fall. This is because profits are the surplus after fixed costs and costs of labour and other input costs are deducted. Since fixed costs for firms are often unchanged, the fact the wages do not fall faster than sales means profits decline. This is what happened to profits in both 2008 and 2009. However, after ‘austerity’ measures were introduced in 2008, wages fell in 2009 and have continued to fall since. This has allowed the natural fall in profits to be reversed, at the expense of wages.

To put this in perspective, labour’s share of national income has fallen so far in 2 years that it could be increased by 8.7 per cent over 2011 levels and this would still only have the effect of returning its share of national income to the crisis levels of 2009.

It is argued that the policy measures which have the effect of lowering wages and increasing profits are necessary in order to generate recovery, often described as ‘restoring competitiveness’ even while there is incessant and misplaced boasting about the rise in Irish exports.

But it is impossible to engineer a sustained recovery without an increase in investment. The decline in Gross Fixed Capital Formation (GFCF) is greater than the total decline in GDP, €32bn versus €30bn (Table 5). Yet, from 2009 onwards, when profits rose by €8.6bn, GFCF fell by €9.5bn. The policy of transferring incomes for labour and the poor to capital and the rich, which is the real content of austerity, has been an utter failure in reviving growth.

Policy ought to be aimed at the optimum sustainable growth in prosperity for all citizens. The policy of transferring incomes to capital and the rich does not achieve that, nor does it foster investment, the determinant of all future prosperity. Meanwhile the bluster about an improving deficit position should be recognised for what it is, just bluster.”

You can read the whole thing here.

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Donagh is the editor of Irish Left Review. Contact Donagh through email:

One Response

  1. Niall

    September 7, 2012 10:21 am

    I don’t follow the logic. Taking 2007 as 100, profits now stand at 87.628 and wages at 86.54. Both have declined by broadly similar amounts – profits fell substantially immediately with remuneration taking longer to decline. Because of the immediate hit on profits, they have recovered more quickly. There might be a story here if profits continue to accelerate and
    remuneration stalls.

    2007 2008 2009 2010 2011
    Profits 100 85.4 78.7388 82.203 87.628
    Wages 100 103.5 93.8745 87.772 86.543