Piketty supports wage union?
As demonstrated in an analysis by internationally acclaimed French economist Thomas Piketty. In the European periphery there is a high rate of foreign ownership, and that is the reason for the huge outflow of profit from these regions, which is not counterbalanced by the inflow of EU transfers. The expert of income inequalities explains that low wages hinder innovation, business development and the elimination of impoverishment. Market processes cannot regulate this automatically.
For example from 2010 to 2016, the net inflow of EU transfers to Hungary was 4% of the country's GDP while the net outflow of profits and property incomes was 7.2%, says acclaimed economist Thomas Piketty in his article published last week . The analyst's opinion is fully in line with Günther Oettinger's "reality check" statements published in Global Handelsblatt, which has not received the attention in deserves: The German EU Commissioner explained that Hungary and Poland must not be punished by stopping the inflow of EU money because
most of that money comes back to Germany.
The striking gap between the inflow of EU transfers and the outflow of profits and property incomes is rooted in the privatization process. Noting that the investments of western companies did lead to increasing productivity, Piketty also emphasizes that
investors take advantage of their position of strength to keep wages low and maintain excessive margins.
Contrary to Piketty Some East European leaders consider low wages as a market tool to attract foreign investors.
Analysts have already indicated several times that an increasing share of property incomes is flowing to foreign corporations while the labour's share from the generated income is 10 percentage points lower in the V4 countries than that of western workers. The business magazine interviewed Piketty, who said that
low wage rates and the profits of foreign business owners could indeed be correlated.
Low Eastern European wages may have dire consequences, says the analyst. As he puts it, property and income inequalities "hinder innovation and enterprise, maintaining a bad balance where higher taxes, low wages, an increased rate of tax evasion and low-quality public services make it difficult for governments to tackle impoverishment”.
Piketty adds that profit could be a much better source for investment than subsidies (due to the latter's administrative difficulties and the so-called Dutch disease).
The famous analyst also notes that the leading economic powers take these inequalities for granted and they think that free market competition (i.e., the invisible hand by Adam Smith) will contribute to the fair division of wealth. In contrast with that, Piketty believes that the EU is such a large political and economic community where ownership structures are extremely complex, so it cannot be regulated uniquely by the goodwill of the market.
So, we conclude that Piketty may be referring to state or perhaps EU-level regulations. Although he does not specifically state it but the way he lists the risks arising from low wages and the idea of political intervention suggest that the wage union concept may be justified by Piketty's analysis as well.