ABSTRACT
Manufacturing output and employment have declined in many western economies, as much labour-intensive manufacturing has moved to the non-western world. Services now provide the bulk of employment throughout the West. The difficulty of raising productivity in service enterprises without reducing wage costs. The ‘serviceisation’ of western economies thus leads to insecure and low-paid jobs and a general stagnation in real wages. It also increases the power of employers relative to workers and produces a hostility to tax rises among both. Service-dominated economies are therefore conducive environments for rising inequality and government austerity policies. Moreover, in competitively lowering taxes to attract multi-national investment, many western states engage in a ‘race to the bottom’, with public expenditure cuts following tax cuts and producing yet more austerity and inequality. But in an ever more competitive world economy there are only two options. Either one joins the race and hopes that the benefits of ‘inward’ investment outweigh the costs of austerity, or one pursues multi-state forms of tax harmonisation designed to avoid the race and its baleful effects. The latter is preferable but much more difficult to accomplish, which is why the ‘realism’ of the former appeals to policy-makers. But in either case the fundamental issue is surviving and thriving in a fiercely competitive globalised economy.
