In my comment called “The war of the century which will define our future”, made at the end of 2016, I pointed out that globalization damaged the win-win balance between two essential factors of production: Labor and Capital. Basically, I explained that, while globalization boosted the number of opportunities/the demand for capital, the supply of capital remained rather limited and highly selective, resulting in increased bargaining power, with the workforce, with governments, with international institutions. Hence, globalization came with two winners and one loser. The capital-holding elites and the workforce in emerging countries won, while the labor in developed countries was disadvantaged.
Economic statistics indicated, in the context of globalization, a stagnation and even a decline in the welfare of the middle class in developed countries, a continuous enrichment of elites and poverty relief for a significant part of the population in emerging countries, with China topping this list. In other words, the trend was to reduce international economic polarization and increase “intra-national” economic polarization in developed countries.
In the same context, I also said that the only weapon left to Labor was the vote, given that, regardless of their wealth, each individual has the right to vote. And by exercising this right in protest, the economically deprived masses have brought to the fore nationalist or extremist political forces. I also noted that the economic frustration of the masses was deftly redirected towards rather non-economic topics, as such political forces would come to power by calling attention to migrant-related issues, EU membership, the threat of China and so on. The growing economic inequities in developed countries and the fact that the rising return on capital was barely reflected in the countries of origin did not lead to initiatives either in the campaigns of the populists or in the campaigns of the nationalists. I gave the example of President Trump, a politician allegedly concerned about the welfare of blue collars, who, however, believed it was right to lower taxes for the richest Americans.
I also said that this should not come as a surprise, given the strong influence that business circles have on parties in developed countries. In this context, I wrote that Labor was probably left without ammunition in the “War of the Century”, given that the money allocated to the media and political parties will be able to steer the vote of the masses in any direction desired.
The pandemic exposed Labor as the most vulnerable factor of production and made me conclude that Labor will definitely lose this war through the marginalization of certain socio-professional categories and the economic advantage of those with financial or intellectual capital.
But a number of recent developments revealed important changes which offer Labor opportunities for re-establishing, to a great extent, a new balance with Capital. Why?
In my opinion, we are dealing with two determinants. Firstly, technology is not replacing the human resource at the expected pace so as to cause increased unemployment. Secondly, we are witnessing an acceleration of the deglobalization produced by the geopolitical tensions generated by the war in Ukraine and the unprecedented rise of geopolitical tension between China and the US. These developments obliterated entirely (in Russia) or partially (in China) the opportunities that Capital had in two of the world’s largest countries. And, if the pandemic claimed a deglobalization by eliminating the dependence on unique supply chain and moving towards diversification, the ongoing geopolitical and economic segmentation requires the complete elimination of certain supply chains to be replaced with others, in areas located in the same geopolitical bloc.
Such developments trigger a surge in labor demand in the countries of the Atlantic bloc. The figures point to the tensions on the labor market in both the US and the EU, as well as an intense hunt for talent in all economic sectors. Suddenly, the power of Labor no longer came solely from the right to determine for whom it is willing to vote, but from the right to choose for whom it is willing to work. Representative in this regard is the “Great Resignation” movement, through which, in the USA, the number of those who decided to quit their jobs peaked by the end of 2021. As shown by the studies , most of them got re-hired in companies that offered them better working conditions (in terms of salaries, career advancement opportunities, benefits, work-life balance).
The tipping of the negotiating stance between Labor and Capital gives Labor the upper hand, enabling it to negotiate its aspirations with determination. The problem is that, just as the previous imbalance favoring the Capital led to excesses with negative consequences, the imbalance favoring Labor also risks producing similar effects. The most obvious is the increase in labor costs and its inflationary impact.
One of the effects of globalization was a long period of low inflation, as the cost of labor decreased through the relocation of economic activities. Similarly, a relocation of activities to countries with higher labor costs will have an inflationary impact. Moreover, given a generalized increase in prices due to energy costs, there is now the chance of a vicious circle due to the mutual fueling of price and wage increases.
At the same time, another significant phenomenon emerged, especially in the white-collar segment: an increasing pressure to phase-out the physical presence at the workplace, in favor of working from home. Initially regarded as a benefit that will boost employee motivation and engagement, it later turned out that this kind of approach brought about a series of rather significant challenges. Many managers or entrepreneurs pointed out to me that prolonged or permanent physical separation from the workplace resulted in significant mental detachment from the employer, from the coworkers, accompanied by the weakening or even irrelevance of the organizational culture. The socio-professional fabric was weakened. The integration of newcomers also suffered both in terms of personal connections that would be built while in the office, and through education in line with the organization’s shared values.
While, at the individual level, fewer workers at the office was ideal, the shortcomings of this spatial and relational detachment was worrisome for the managers by the consequences it produced in the companies’ activity. And reversing this situation is hard to imagine, especially on the professional segment that will preserve their bargaining power.
But all those who make up Labor, as a factor of production, shouldn’t they be happy about having the upper hand? Only up to a point. Because a sizeable part of our professional development lies in the ability to “steal the skills” by observing others at work, as visibility remains an important ingredient of a promotion. Besides this, we are not only providers, but also customers. Or a price increase induced by labor costs or a deterioration in the quality of activity in the companies where we buy services or products will worsen our customer experience.
Is this indicative of a final repositioning between Labor and Capital? I think it’s rather a transition period. Overall, the demand for labor will shrink as systems based on disruptive technologies gradually take over. In fact, I expect that pandemic-driven vulnerabilities, the forecasted future pandemics brought by climate change, but also the increase in Labor costs for the above-stated reasons will accelerate Capital investments in technologies that reduce the dependence on Labor.
On the other hand, difficult-to-replace professionals will maintain their bargaining power, using this asset to dictate working conditions. Their physical detachment from the workplace will increase the chances of a “mercenarization” by the fact that, in the absence of retention elements related to the quality of human interaction within a team and of the organizational culture, the pecuniary elements will prevail leading to a high staff turnover and to fewer and more expensive retention tools for employers.
In the end, despite the latest developments, the names of the winners in the “war of the century” remain unchanged: the holders of financial or intellectual capital.
For reference:
The war of the century which will define our future
