Karl Marx would see zero-hour contracts for what they are: rank exploitation – the type of working conditions that spawned trade unions in the first place

It is a pity Karl Marx was not around last week to comment on the news that 90% of the workers at Sports Direct are on zero-hours contracts. The author of the Communist Manifesto would also have had plenty to say about the news that the official estimates of those working in this form of casualised labour had shot up by 25%. It would have amused him to hear that even Buckingham Palace – the very symbol of the ruling class – had got in on the act.

It is safe to say Marx would have cavilled with those who see zero-hour contracts as an expression of Britain’s economic strength, a demonstration of flexible labour markets in action. He would have thought “reserve army of labour” a better description of conditions in which workers were expected to be permanently on call for an employer.

The Office for National Statistics said last week that 250,000 people were now on zero-hours contracts – a 25% increase on its previous estimates but still small in relation to the 30 million people employed in the UK. The estimate is, however, disputed by some labour market experts who point out that more than 300,000 care workers are on such contracts. What is certain is that the total is on a steep upward curve; it may be as high as one million and growing.

Bodies representing employers say zero-hours contracts should be welcomed since without them unemployment would be even higher. Better, they say, that people should be working 20 hours one week and no hours at all the next rather than be on the dole.

Seen in this light, Vince Cable – who is conducting a review of the contracts – should be thinking of further deregulation of the labour market rather than contemplating measures that might reduce this “flexibility”. He could, for instance, repeal the 1874 Factory Act that banned children under 10 from working in a manufacturing plant. He could rethink the 1847 10-hour Act that said children should not work for more than 10 hours a day. He could be really bold and say that Parliament erred in 1841 when it voted in favour of the Mines Act that prevented a child under 10 from working underground in a pit. Because, let’s face it, all this legislation represented regulation of the labour market that made it less “flexible”.

It’s only fair to say that some employees are content to be on zero-hours contracts. Some students, for example, want to combine work with study and are willing to turn up when summoned. That’s also true of older workers topping up their pensions with a bit of irregular, part-time work.

That said, there is an early 19th-century feel to zero-hours contracts. It is as though Britain has gone back to the future, returned to an age where the employer had the whip hand and where the rights that workers enjoyed under the feudal system had been removed.

Research by the Resolution Foundation thinktank shows that those on zero-hours contracts earn less than those on staff or on fixed-hours contracts. They have no rights to sick pay. Holiday pay is often refused. And there is plenty of anecdotal evidence to show that if they turn down work when it is offered – even if it is to take a child for a medical appointment – they will be pigeon-holed as not suitably “flexible”. The choice to refuse work is, in reality, no such thing.

These were the sorts of labour market practices that gave rise to trade unions in the first place. Back then they had a name: exploitation.

Many big employers are wary of zero-hours contracts and there are sound economics reasons for their refusal to do so. The first is the risk of reputational damage. There have been plenty of examples in recent years of firms that have suffered from a consumer backlash against business practices deemed to be unethical or anti-social, and in an age when social media campaigns go viral the damage can be instant and severe.

The second is that in an economy increasingly dominated by the service sector, many firms want their employees to be loyal, motivated and customer-friendly. They believe that the chances of recruiting and retaining the best staff improve when employees are paid higher wages and have greater job security.

Public sector employers, in particular, should be aware of the risks. The growing use of such contracts in care homes is the consequence of an ageing population and the drive to cut costs. This is a combustible mixture, and it doesn’t take much imagination to envisage the likely outcome: more cases of neglect and cruelty.

Finally, there are the big picture consequences of casualised labour. For the individual firm, cutting costs through zero-hours contracts may make perfect sense. Firms only employ labour when they need it, so that the cost of employing an additional worker is equivalent to the extra output produced. Lower wages equals higher profit, leading eventually to higher investment and an increase in employment.

The issue is whether this equation works at an economy-wide level, the Keynesian doctrine is that driving down wages leads either to falling aggregate demand (leading to lower profits and pressure for even lower wages), a higher government bill for tax credits or increased individual debt.

In the 30 years that followed the second world war, the social democratic model held sway. It was a time when governments followed full-employment strategies, trade unions were strong, and when governments believed that rising real wages and job security were good for capitalism.

The mood changed in the mid-1970s, and in the subsequent decade high levels of unemployment, curbs on trade unions, deregulation and globalisation combined to shift the balance of power in favour of employers.

So what happens now? In one sense, a controlled experiment is under way. If the free marketeers are right, then companies such as Sports Direct will thrive while Tesco will not. Similarly, those countries that have “flexible” labour markets such as the UK will do better than those countries that cling on to social democratic values.

Marx would have seen zero-hours contracts as the continuation of a long historical trend, stretching back to the mid-1960s when the profitability of western manufacturing firms started to fall. From that moment, he would say, the search was on for measures to boost profits, and this has manifested itself in a number of ways: by direct attacks on organised labour; by the increased financialisation of the economy; by the search for cheap raw materials whatever the environmental cost; and by asset bubbles. Accordingly, zero-hours contracts are the response to tougher conditions facing firms as a result of the financial crisis. Reversing that trend will require more than legislation: it will mean tackling one of the root causes of that crisis: the imbalance of power in the labour market.