Minimum wage: Seattle proves that the fight for decent pay can and must be won

http://www.theguardian.com/commentisfree/2014/jun/07/seattle-minimum-wage-fifteen-dollars-fight

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Last Monday, the mayor of Seattle signed into law a city-wide minimum wage of $15 (£8.90) an hour. It will be phased in over the next three to seven years, but nonetheless it remains a path-breaking commitment. More amazingly, Kshama Sawant, Seattle's first socialist councillor since 1916, had been elected last year with the $15 wage as her key pledge .

This does not happen in the US. Socialist candidates in city elections don't win 93,000 votes. Proposals for what are dismissed as uneconomic and job-destroying minimum wage increases by the conservative business consensus do not get out of the starting blocks. But a two-year campaign driven by low-paid workers, especially from the fast food industry, galvanised the Seattle electorate. Ed Murray, the newly elected mayor, surfed the same tide as Sawant, campaigning alongside her not just for the minimum wage but for tougher labour standards across the city. It struck a powerful chord.

The campaigners had two important replies to the charges that this would make Seattle's fast food, catering and hotel industries uneconomic. The first was that living on the old minimum wage of $9.10 (£5.41) an hour was scarcely possible; families depended on food stamps, homes were dark and the cheapest of presents for kids was simply unaffordable. Compare that with the profits of the corporations and pay of the fast food bosses: the CEO of McDonald's is paid more than $9m (£5.3m). Maybe they could be paid less and their workers a fraction more?

Second, chronically low-paid work does not make any sense. It is bad for business. It chokes demand for goods and services, even for fast food. There is no worker loyalty or commitment, just a mass of desperate, distracted men and women permanently on the look-out for a better job. Pay people properly and they can become customers, build careers and drive the economy forward. One of the reasons for the US's slowest-ever economic recovery generating so few jobs is that inequality has been allowed to grow so high. It is now becoming economically dysfunctional.

Nick Hanauer, a member of Seattle's Income Inequality Advisory Commission, spells out the thinking. "People look at the $27bn (£16bn) in profit Walmart makes every year and they celebrate it without connecting it to the fact that Walmart workers are the biggest recipients of food stamps in the country and are all in poverty." But, Hanauer adds: "If you say to them, look, we can live in a world where Walmart made $17bn (£10bn) in profit and each one of the million lowest-paid Walmart workers would earn $10,000 (£5,900) more a year and all of them would be able to buy more stuff from your business, and you don't have to pay food stamps, then they're like, 'Oh, shit, we should do that!'"

Meanwhile, the rest of the US is watching. The newly elected mayor of New York City, Bill de Blasio, is already talking of a higher minimum wage than the new $10.10 (£6) rate that New York state is aiming to introduce this year, itself a rise on the existing federal minimum wage of $7.25 (£4.31). Thirty-four state legislatures are considering raising their minimum wages, with 73% opinion poll support. President Obama has lifted all federal employees on to a minimum wage of $10.10 by executive decree, but the bill he backed to increase the national minimum wage to the same level was inevitably blocked by the Republicans in the Senate in April.

Yet Democrats think the mood is changing; this is an issue on which they can win. Suddenly, the consequences of inequality are being understood to be bad, not just in terms of unfairness but in how the American economy and society work at a macro level. The dynamics of American inequality are well known: 95% of all income gains since 2009 have gone to the top 1% who now account for an astounding 22% of all US income. At the same time, after adjusting for inflation, the average American earns no more than he or she did in the 1970s. What is new is how these developments are being linked, the direct result of the way the new American capitalism works.

Reward CEOs with extravagant pay linked to share price performance and, of course, they will drive down wages along with terms and conditions of employment. Of course they will defer expensive investment and innovation. Large majorities, in surveys of executive opinion, confirm that this is what they do. The first-round effect is to lift profits, the share price and executives' bonuses. But the second-round effect is that the unskilled bottom of the workforce have their wages squeezed, and the incomes of the middle class stagnate as overall levels of investment – and productivity – stagnate also.

For a period, the US economy escaped the consequences by what Andrew Haldane, the Bank of England's chief economist, calls the "Let them eat credit" policy. People borrowed to sustain their living standards, indulged by American policymakers. But levels of household debt are now so high and the banks so fragile that even that escape hatch is closed. The result is a slow-burn recovery and mounting anger about how the system works.

American business and Republicans warn of half-a-million job losses if the minimum wage jumps to $10.10, but Britain's current minimum wage is about 30p higher in an economy with lower levels of overall productivity and set to go higher still. For the first time for decades, the American right is about to lose a big economic argument: ex-presidential candidate Mitt Romney urges it to retreat and back Obama, to show it understands the plight of ordinary Americans. It won't: it is too wedded to a bankrupt philosophy and too confident it can buy victories.

The fast-food workers who mounted protests about their pay in 150 American cities last month are better at reading the runes. They believe they can win city elections as they did in Seattle more easily than they can pitched strike battles. The public is with them.

The 1970s, plagued by stagflation, was the swing decade, heralding a 30-year march to the political right, arguing that less state would solve all economic problems. The 2010s, plagued by inequality, promise to be a second swing decade in which the US – and because American thinking is so dominant, the rest of the west – starts to reform and set limits to the operation of capitalism.

Seattle is an important milestone. Take note.