“Within a hundred years,” wrote John Maynard Keynes in 1930, humanity’s “economic problem” – the requirement to work to produce the goods and services that sustain us – would be resolved. In his essay Economic Possibilities for our Grandchildren he said “the standard of life in progressive countries … will be between four and eight times as high as it is today”. The productivity gains, Keynes thought, would mean people’s material needs would be satisfied. Their dilemma would be how to spend their free time. Some people were stubborn, he accepted, and would still work “three hours a day”, but both the poor and the rich would enjoy such wealth that this would become unnecessary.
History suggests Keynes got it wrong. While workers in the industrialised nations have seen the length of their average working week drop by more than a fifth in the past century, they are still working about 40 hours. Globally, says the UN’s International Labour Organization (ILO), men are working 46 hours a week. This hardly fulfils Keynes’s vision of a future global economy distinguished by leisure and abundance. Perhaps he underestimated the human preference to consume rather than relax and unwind.
There is a more straightforward answer than individual greed, and one that ought to be heeded as artificial intelligence rapidly advances. The ILO warned last week that “global labour income share, which represents the portion of total income earned by workers, fell by 0.6 percentage points from 2019 to 2022 and has since remained flat”. It went on to say that since 2004, workers have missed out on $2.4tn (£1.8tn) in income. Where has cash has gone? Into booming corporate profits.
Productivity growth makes it possible for both wages and profits to increase while prices remain stable. Since 2020, the pandemic and Russia’s Ukrainian war have contributed to an inflationary spike. Real wages rose in many nations – but company profits gained even more. It is this government-backed imbalance between those who own capital and those who sell their labour to them that lurks behind the reason Keynes’s prediction didn’t come true.
Since the 1970s there has been a weakening of workers’ bargaining power. In the UK, real wage growth averaged 2.9% in the 1970s and 1980s, 1.5% in the 1990s and 1.2% in the 2000s. During this time the growth in output per hour worked averaged 2.1%, with the result that wage increases fell behind productivity growth. Even in the past decade when UK real wages were stagnant, productivity was not.
Productivity growth can increase a nation’s wealth. But it produces widespread economic benefit only if the wealth is shared. That requires laws to ensure workers get a fair slice of the pie. Things may be changing. Historians view Joe Biden as the most pro-worker US president in almost a century. In Britain, Sir Keir Starmer has repealed anti-strike legislation and raised public sector pay. Delegates at the first Trades Union Congress annual conference under a Labour government for 15 years may expect more. Trade unions are key to preventing the rise of Europe’s extremists. Studies show far-right attitudes correlate with feelings of powerlessness in the workplace. Keynes perhaps naively thought that rapid productivity growth would naturally be spread evenly. In the decades that followed that didn’t happen. Arguments for a fairer society must prevail in communities and legislatures. Only then can such a society be brought into existence.