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Bill Geddes
1997 (Revised January
2010) XPS Version; PDF Version; Kindle (zipped '.mobi' file) Version
The financial shocks of the past three years in Western
countries have alerted people who live in these countries to the fragility
of the financial environment upon which they depend for present wellbeing
and future security. Similar shocks have been experienced in Third World 1
countries at regular intervals since the 1970s. The recent crisis pales in
comparison with the currency problems endured in Asian, Central/South
American and African countries between 1990 and 2000.2
There is something fundamentally unstable about the current
World Economic Order.
It is time to examine and contextualise the neo-liberal drive to
deregulation and globalisation of market activity in both Western and Third
World communities over the past forty years. We should also examine
the nature and consequences of the structural adjustments 3 which
have been required for successful participation in the neo-liberal world
economic order which has emerged over that time.
Between the early 1930s and the middle to late 1970s, most
Western governments promoted protectionist, 'developmentalist' policies aimed at
harnessing economic activity to national and community needs. Governments
limited and directed market activity through imposing rules and regulations on
imports and exports and on fiscal and financial activity. From the mid-1960s,
neo-liberal arguments were increasingly successful in challenging the legitimacy
of the protectionist legislation of the period. Neo-liberalism places the market
at the centre of 'development'. The presumption is that if the state privatises
as much of its activity as possible, making it directly answerable to 'market
forces', and deregulates fiscal and financial activity, market forces will
ensure rational, efficient economic organisation and activity which will, in the
long-run, result in a more rational organisation of society, to the benefit of
its members (see Capitalism and Third World Nations for more on this). It
has been in the context of this deregulation of national economies, and the
facilitation of international economic activity that the present global economy
has emerged.
In this discussion we will briefly examine the relationship
between community social templates, resource utilisation and the constantly
escalating productive and consumptive demands of Western communities. We then
trace the emergence of what, in the West, came to be called the welfare state,
and some of the reasons for the imposition of protectionist legislation on
economic activity. This provides a platform for understanding the post-1970s
demand for the lowering of protectionist barriers to market activity which
characterises the neo-liberal economic reorganisation of the past thirty years.
The global economy which has emerged has been based on a progressive removal of
national governmental restrictions on international market activity. We
will examine some of the demands made for the internationalisation of
market activity over the period and some of the consequences of unregulated,
international market exchange for both First and Third World communities
It became accepted during the 1930s in Western countries that
people were wholly dependent on wage incomes for their livelihood and that the
state should, therefore, accept some responsibility for their social welfare if
they lost employment. On the other hand, those responsible for policy
development and implementation in colonial territories considered that people in
non-Western communities, if they lost employment, could return to their home
communities and depend on subsistence resources for their livelihood. Since this
presumption has led to some of the most important strains and stresses on both
Western and non-Western communities in the past twenty years, it is necessary to
understand both the rationale and the consequences of this belief in the
continued existence of viable subsistence alternatives for non-Western people.
Prior to European intrusion, most non-Western people lived in
subsistence orientated communities (see Subsistence and status). Economic activity was focused on the
provision, by its own members, of most of the goods and services required by the
local community, and that community accepted responsibility for the well-being
of its members. Trade was usually limited to a few products or raw materials not
directly available to the community. It was often focused directly on the
circulation of status-related goods and was not central to the supply of
everyday needs and wants. As has been outlined (see Subsistence and status), in most communities the material
requirements of individuals and groups have been socially circumscribed and fit
the productive potential of the environments they inhabit. So, over long periods
of time, such communities have been able, in all but very adverse physical
conditions, to meet most of their needs from their own environments.
Since material needs and wants have been socially circumscribed,
the technologies necessary for their production have also remained relatively
stable. There is little need to develop more sophisticated, efficient, and
streamlined production techniques and technologies where those which have been
developed provide both the quantity and quality of goods required and where
requirements do not constantly escalate. Rather, people spend their time in
pursuits which directly relate to the requirements of the social templates of
their communities, through which they achieve increased social status and
respect.
Western Europeans, on the other hand, became involved in
material production and in the consumption of goods and services for very
different reasons. Western European social templates focus directly on the
production and consumption of goods and services. They are economically
orientated. They are also focused on individual competitive opposition, on what
economists call 'market activity' (see Reciprocity and Exchange). In such templates, where
individuals gain status and respect through the competitive accumulation and
consumption of goods and services or of the means for obtaining these - through
accumulating money or resources which can directly or indirectly be converted
into cash income - the supply of goods and services in the community is
inherently inflationary. Therefore, those items which are in shortest supply,
but in greatest demand, become the most highly 'valued', that is, the most
important in determining relative status.
Since people are involved in individualised competitive
accumulation and consumption, there is constant pressure to produce increasing
quantities of goods to feed the acquisitive and consumptive appetites of
community members. There is, therefore, constant pressure being placed on
current productive techniques and technologies, since the requirements placed on
current technologies are constantly escalating. Producers who are able to
improve productive efficiency through more 'economic' use of their resources,
through streamlining production techniques, and through improving technology,
gain a competitive edge over their rivals.
The consequences of this drive are that techniques and
technologies are constantly being improved and refined to enable constantly
increasing production; constantly increasing exploitation of the environment;
and constantly decreasing materials and production costs. Community resources
are placed under constant pressure. They are in short supply, or, as economists
are wont to remind us, they are 'scarce'. As such, they become increasingly
'valuable' and therefore become desired possessions in the drive for status and
respect. This, in turn, leads to their accumulation by those with the wealth and
power to appropriate them 4.
In early modern Western Europe this led to land enclosure and
the dispossession of increasing numbers of rural dwellers 5 who were forced, by
their loss of subsistence resources, to become poorly paid rural labourers or to
migrate to the towns where they might be able to live by their wits or, if they
were lucky, find paid employment. Land became unavailable to most members of the
community for subsistence lifestyles. It had become incorporated into the social
template as one of the possessions through which people could attain and
maintain status. As such it had to be 'owned' by the individual rather than by
the community, and the individual had to limit the possibility of others
enhancing their statuses through its use. That is, laws of trespass became
inevitable 6.
Losing access to subsistence resource bases, people had to rely
on cash income both to ensure subsistence and to maintain and enhance their
social statuses. Poverty became defined not only in terms of loss of access to
subsistence resource bases, but also in terms of the ability to maintain the
levels of accumulation and consumption of goods and services which were required
for the social statuses which people had attained. The 'success' of individuals
could be determined by the cash income available to them, or by the cash value
of their holdings.
In Western communities, increasing numbers of people could only
maintain their statuses and satisfy their expanding needs through wage labour.
As Marx observed, the only saleable commodity left to many individuals was their
ability to labour. They became compelled by both their subsistence and
status-related needs to sell their labour power to those who controlled the
means of production. And, since labour power became another source of wealth and
therefore of status, it was used as all other resources were used, to increase
the wealth of those who controlled it - to produce the maximum output for the
minimum input. So Marx claimed:
The Roman slave was held by fetters: the wage-labourer is bound
to his owner by invisible threads. The appearance of independence is kept up by
means of a constant change of employers, and by the fictio juris of a contract.
(Marx 1867, vol. 1, pt 7, ch. 23)
With labour in plentiful supply and employment difficult to
find, employers could reduce labour costs and make it more pliant through
challenging social restrictions on the exploitation of labour. It soon became
argued that all forms of social interference in the marketplace of labour should
be removed. As Townsend (Joseph Townsend (1786) also see Polanyi 1957,
p.113) argued in the late eighteenth century, labour should be made
directly available, without social impediments, through the marketplace. People
should be 'freed' from social 'restrictions' on their 'right' to sell their
labour power to the highest bidder and businesses should be 'freed' from
'political interference' to engage labour at 'market prices'. Of course, in a
period of plentiful labour, market forces ensured that such prices would be very
low. As Marx explained:
To become a free seller of labour-power, who carries his
commodity wherever he finds a market, he must ... have escaped from the regime
of the guilds, their rules for apprentices and journeymen, and the impediments
of their labour regulations. Hence, the historical movement which changes the
producers into wage-workers, appears, on the one hand, as their emancipation
from serfdom and from the fetters of the guilds, and this side alone exists for
our bourgeois historians. But, on the other hand, these new freedmen became
sellers of themselves only after they had been robbed of all their own means of
production, and of all the guarantees of existence afforded by the old feudal
arrangements. And the history of this, their expropriation, is written in the
annals of mankind in letters of blood and fire.
(Marx 1867, vol. 1, pt 8, ch. 26 -
see Thomas More (1516) for a 16th
Century account of the consequences of that expropriation)
Thomas Jefferson, writing home from Paris in the late 18th
century, put it starkly:
…they have divided their nations into two classes, wolves and
sheep. I do not exaggerate. This is a true picture of Europe. …man is the only
animal which devours his own kind; for I can apply no milder term to the
governments of Europe, and to the general prey of the rich on the poor. (Thomas
Jefferson, 1787) 7
Where people lose access to their subsistence environments and
become entirely dependent on wage labour for the supply of their needs and
wants, loss of employment leads to both socially-defined and absolute poverty.
The history of the emergence of capitalism in Western Europe is, simultaneously,
the history of endemic poverty for large numbers of displaced people who were
compelled to sell their labour power on the open market. The improvement in the
quality of life of Western European wage labourers coincided with the expansion
of Western Europe into the rest of the world.
When Western people entered non-Western territories, they
quickly began to reorganise the invaded environments to contribute to the
snowballing production and consumption needs of the West 8. They oversaw an
expansion in utilisation of available resources, stepping up production and
export to the raw materials markets of Western Europe. This ushered in a period
in which non-Western regions were reorganised to mass produce particular
commodities for European markets. Regions became devoted to 'mono-agricultural'
export, to large-scale production of a very few primary commodities for export,
rather than for the communities whose environments were reorganised.
Where mono-agricultural development in large holdings was not feasible,
indigenous communities were re-organised to emphasise cash-cropping, producing
agricultural products required for European markets on
small-holdings.
This, over time, made such regions very vulnerable to
fluctuations in market demand for their produce. In any period of economic
downturn in the West, local people, increasingly reliant on cash income from
commodity exports for their subsistence, found their source of income
diminished, and therefore their subsistence under threat. Further, the inherent
drive of the capitalist system to reduce costs, resulted in constantly
decreasing returns to raw materials producers, in turn, this resulted,
inevitably, in constant pressure to increase production quantities. Naturally,
this led to further pressure on prices and a spiral of over exploitation of the
environment simply to maintain subsistence lifestyles.
Once Western economic forces gained control in non-Western
areas, whether local peoples were or were not orientated to the same acquisitive
and consumptive drives as Western people, they soon found their environments
being reorganised to suit Western needs. Increasing numbers found themselves
involved in wage labour, in cash cropping, and in placing increasing productive
demands on their own environments. And, as in Western Europe in earlier
centuries, increasing numbers of people found themselves displaced from their
subsistence resource bases as Western forms of productive organisation and
ownership were imposed and more and more land became individually owned and
committed to commercial crop production.
Since most non-Western communities limited their needs and wants
to the productive potential of their own environments, any additional demands,
beyond those of their own communities, very soon expanded use of the environment
beyond sustainability. Even where there was no alienation of land for commercial
purposes, new demands placed on environments to provide not only for the ongoing
needs of local communities, but also crops for sale to gain cash income for new
goods offered by Western traders, placed new pressures on local environments. In
the long run, the new demands, stimulated by Western trade and directly required
by Western authorities, led to the depletion of their resources, and forced
increasing numbers of people into wage labour as the primary means of
subsistence.
Whether non-Western people adopted Western status systems or
not, their environments could not be protected from the constantly escalating
productive demands of the West.9 The current environmental crises of the vast
majority of Third World countries are not, as many Western experts would have us
believe, a consequence of uncontrolled population growth 10 and ineffective and inefficient
technologies. They are, rather, the consequences of attempting to reorganise
non-Western communities to live by Western presumptions and of requiring them to
utilise their environments, not only to meet their own needs and wants, but also
to contribute to the snowballing needs and wants of the Western world. The
production stimulated in and forced upon Third World communities was not focused
on the needs and wants of those communities. It was focused on the needs and
wants of Western communities. It was, and still is export orientated
production.
The influx of new raw materials ushered in a prolonged
period of rapid growth in commodity production in Europe which, in turn, fuelled
an explosion in consumption in Western countries. This, of course, increased
labour requirements and labour, in Western countries, became relatively scarce.
Now, for the first time, market forces actually led to an improvement in wages
and conditions for labourers. Wage labourers could begin to negotiate better
employment terms. Unions became increasingly powerful since their members were
not threatened by loss of employment if they insisted on improvements in their
wages and conditions. It also gave credibility to the claims of 'free
marketeers' that 'free'11
competition would, inevitably, result in improved lifestyles for those who
entrusted their lives to 'market forces.' The prolonged economic difficulties of
the last quarter of the nineteenth century did little to dent this belief in the
efficacy of market forces, though they did strengthen the determination of
workers' organisations to have legislative protections put in place against
excessive exploitation by employers.
Western social templates result in constant, though relatively
slow, expansion in the felt needs of community members. This is so because in
order at least to maintain one's social status relative to others, one must
ensure that one is at least as affluent as, or, preferably, slightly more
affluent than they are. Of course, to increase significantly one's private
possessions and/or publicly stated income is to improve one's social standing
beyond that of one's 'social equals' and enter into a new group, within which
one will need to establish oneself and probably accept a disadvantageous
position until accepted by the group. The costs associated with such a leap in
status deter many from attempting to 'climb the ladder'. Comparisons are usually
made between others of similar wealth to oneself, attempting to gain as high a
position in their estimation as is possible without having to move into a new
status group.
So, over time, because of this competition within status
groups,12 the felt needs
of Western people expanded. As the needs expanded so the necessary income to
support those needs also expanded. During periods of economic growth in Western
countries,. people (obtaining higher wages through improved bargaining power)
transfer discretionary incomes into necessary income through expansion of felt
needs, and so set new baselines for wages.13
Inevitably, over time, the perceived needs of Western people
became far greater than the perceived needs of people in communities governed by
other social templates. In the eyes of most non-Western people, Westerners
became, and still are, materially very wealthy. So, the incomes deemed
'necessary' by Western people have to cover the acquisition of necessities not
perceived as such by people in most other communities.
Thus, even without factoring in the social welfare needs of
Western communities, the necessary incomes will be substantially higher than
necessary incomes in non-Western communities. A distinction needs to be made
between the necessary income to meet perceived individual needs and the social
welfare component costs of production. Wages are not higher in Western countries
because they include a social welfare component, they are higher to cover the
perceived needs of Western individuals.
Social welfare costs refer to both the costs of the community
and the responsibilities of the community toward all its members, not only those
related to the 'poor box', but also those related to the general well-being,
education and organisation of the community and its members. Over the past two
hundred years, Western countries have increasingly emphasised individual rights
and responsibilities at the expense of those of the community. In the process,
the community becomes weakened until it no longer provides its members with a
strong, immediate sense of shared responsibility and identity. This move toward
the individualisation of the population and weakening of the responsibilities
and cohesion of communities has been accentuated over the past twenty years.
It took Western communities a long time to come to terms with
the need to provide a coherent social welfare program which included both the
funding of general community responsibilities and protection of those in the
community who had lost access to subsistence resources and could not find
employment. It was not until the early 1930s that concerted efforts were made by
Western governments to establish welfare legislation to underwrite health,
education and the livelihoods of the least affluent of their populations. Prior
to that, piecemeal legislation existed in conjunction with community-based
charities to meet the needs of those in the most desperate of economic straits.
In the eighteenth and nineteenth centuries, the most common
attitude amongst the 'middle classes', those who had most completely absorbed
the capitalist ethic, to those who had lost access to subsistence resources but
had no cash income is well expressed in a paper written by R. J. Morrison in
1842 entitled, 'Proposals to abolish all poor-laws except for the old and
infirm: and to establish asylum farms on which to locate the destitute
able-bodied poor; who might thereon maintain themselves and benefit the country
£18,600,000 annually'. The paper was written in defence of an 1834 amendment to
the Poor Laws in which the destitute were to have social welfare supports
removed in order to compel them to accept whatever wages and conditions the
market might impose. There was also, of course, a range of papers written by
individuals and groups concerned for the welfare of the destitute, arguing for
state protection of the poor. Legislative measures to provide for the poor were,
however, at best partial and under constant attack from economic enterprises
which saw them as imposts threatening the competitive viability of
industry.14
It was not until Western nations were plunged into economic
depression following the stock market collapses of 1929 that Western governments
were forced by popular pressure into building coherent sets of social welfare
policies and institutions. From the 1930s to the 1970s, in Western nations, as
Stephen Gill explains:
... statist planners and productivist forces pressed successfully
for the creation of a national economic capacity (and also autonomy), welfarism,
and Keynesianism, with specific policies designed to inhibit the pure mobility
of short-term speculative capital. The aim, in the words of the US Secretary of
Treasury during the New Deal, was to make finance the 'servant' rather than the
'master' of production.
(Gill 1994, p.174)
After the 1929 financial collapse, people in Western nations,
who had been experiencing economic boom conditions over the preceding ten years,
found out just how vulnerable they were to the vagaries of the international
marketplace. Stock markets crashed, businesses collapsed, and millions of people
lost their jobs. Since most Western wage earners, by the 1930s, no longer had
access to subsistence resources, loss of employment meant destitution for
millions. In the wake of this economic depression, voters in many Western
countries turned to political parties which promised that they would directly
address the problems of the Depression period.
In the USA, Franklin D. Roosevelt promised the population a 'New
Deal' which would introduce a range of measures to protect people from such
disasters in the future. Amongst the measures he introduced were:
The Fair Labor Standards Act (1938). The
Administration, in 1933, attempted to set up an agency to enforce codes of fair
practice for business and industry. The legitimacy of the initial agency was
successfully challenged in the courts, but, by 1938 its intentions had been
successfully established through the above Act. The codes included minimum age;
minimum wages; maximum hours; the right of workers to join unions; and provided
means for establishing minimum prices to protect businesses from unscrupulous
price cutting.
The Social Security Act (1935) which aimed to
provide workers with a guarantee that, in the event of their encountering
reduced circumstances, their basic needs would be met. Among the programs which
were established over time were: unemployment, old age, and disability
insurance; public assistance for the needy; and child welfare. In 1965, Medicare
was added to the Social Security system to provide hospital care, nursing homes,
and other medical services for those over the age of 65 years.
The National Labor Relations Act (1935) which,
amongst other things, guaranteed workers the right to organise and collectively
bargain with their employers; guaranteed workers the right to strike; prohibited
unfair labour practices by employers; outlawed company unions or
employer-controlled unions; prohibited discrimination against employees who
brought charges against or testified against a company in court; and made it
unlawful for the employer to refuse to bargain collectively with an authorised
employee representative.
As Paul Boller says, 'In its efforts to cope with the Great
Depression, the federal government under Roosevelt took measures to help the
poor and jobless for the first time in American history' (1981, p. 259). Through
measures such as these, Western governments accepted direct responsibility for
managing their economies in the interests of their constituents. Effectively,
producers were required to include a 'social welfare' component as part of the
costs of production. The price of each product included not only the direct
costs of labour, material resources, infrastructure and technology, and a
'profit' component; now the price also included the social welfare requirements
of workers, their dependents and other members of the community.
Most of those who were involved in managing economic enterprises
saw these new costs as illegitimate imposts on business. It is possible to
argue, however, that after more than two hundred years of social trauma
resulting from the market-driven need to cut costs (to which social costs seemed
most vulnerable), Western nations had matured. At last, communities were
insisting that capitalist enterprises be geared to meeting the needs and wants
of the communities within which they existed. This was not an illegitimate
demand. Where enterprises are required to purchase material resources, from the
outset it has been accepted that the price of resources includes two separate
components. The first component comprises the costs of extraction and processing
of the resource. The second component comprises the profit margin of the
supplier. Any supplier which, over the long run, sold its product for less than
the cost of extraction and processing, would, by definition, fail.
While all enterprises drive to reduce costs, there is a cost of
material resources below which, over the long run, prices cannot be maintained.
This same logic, however, had not been applied to the supply of labour. Because,
in the early years of European capitalism, labour had been supplied from
communities which still had access to subsistence resources and which relied on,
as Marx put it, 'all the guarantees of existence afforded by the old feudal
arrangements', it was assumed that business only had to pay the competitive
market rate for labour, without a baseline determined by the 'costs of
extraction and processing' of labour. In a real sense, capitalist enterprise, as
it evolved in Western Europe, was parasitic upon the communities within which it
operated.
As those communities became reshaped by the new forces of
capitalism, they increasingly became dependent upon capitalist forms of
production and consumption for subsistence. That is, communities lost other
means of subsistence and had to rely on market-driven production and employment
for all their needs and wants.15 Community needs and wants do not only relate to
employed people and their dependants, but include the requirements of all
community members, and of all the activities and responsibilities of the
community. Capitalist activity became the basic means by which communities
supplied their needs and wants. However, since businesses had long calculated
their inputs excluding any costs associated with support of the communities
within which they operated, they, inevitably, saw any attempts at imposing such
costs as illegitimate and parasitic.
Capitalist enterprise in its evolution was parasitic on
communities in which both individual subsistence and the community's needs and
wants had been supplied by other means. While it undermined and displaced
those alternative avenues of need and want provision, the presumption that
community welfare requirements were met through other means remained. In a
peculiar way, which can only be understood as one understands the primary
ideologies of Western people (see Ideology and Reality), economic activity was assumed to be
separate from social and political activity, subject to its own laws and
regulations and with its own independent sets of responsibilities relating to
performance within the marketplace. Communities, it was argued, should take
responsibility for the provision of their own needs and wants. They should not
become 'parasitic' on business.
In the 1930s, Western communities finally required economic
enterprises to accept social welfare needs as part of production costs. As long
as all businesses within a nation accepted the welfare component as an
inescapable cost of production, and could be protected from competition from
imported products which did not include such a cost, social welfare could be
maintained as a reasonable cost on production. After all, the real issue at
stake was whether productive activity occurred primarily for the good of the
community or whether production could be divorced from social responsibility.
Was 'the economy' separate from, and not responsible to 'the community', or was
it simply the means by which the community met all of its material
needs and wants? In the climate of the 1930s and in the post Second World
War era, the answer was very definitely that 'the economy' was the means by
which a community met its needs and wants, which included the needs and wants of
its least advantaged members. Governments, therefore, managed economies in the
interests of their populations.16
Of course, since success in the marketplace is based on keeping
costs as low as possible in order to remain competitive, those involved in
economic enterprise have, since the 1930s, strongly resisted and protested the
'imposition' of social welfare costs. This opposition has been expressed both
through 'neo-conservative' politics and through the policies of the 'radical
right', that is politics based on arguments about the centrality of the
marketplace; the separation of economic activity from political and social
activity; and the reinstatement of pre-1930s conditions for industry.
In a market economy, the costs of raw materials are based on
demand and supply and costs of extraction and processing. The social costs of
production however, are, in the 1990s, claimed to be based only on demand and
supply. The costs of the community in which that labour is situated are
separated from the costs of labour itself. That is, the costs of 'extraction and
processing' of the labour are shifted away from the enterprise to the community
to the extent that economic enterprises can convince the community that they are
separate from it and bear no responsibility for its well-being 17. Even where wages
include a component for the upbringing of offspring and for the old age of the
worker, these costs are assumed to be related to the personal requirements of
the individual worker. As the British Prime Minister Margaret Thatcher
proclaimed in the 1980s 18, there is no society, only individuals
who choose to congregate and should, as individuals, meet the costs of their
interaction. That is, 'user pay' principles should apply to social costs, and
most social costs, as distinct from economic costs, are, of course, costs on
individuals rather than on economic enterprises. This has been the
argument at the centre of neo-conservative political demands for removal of
social welfare costs from economic enterprise. As we will see, in the 1980s and
1990s these arguments were increasingly effective in reducing social
welfare costs to industry.
In a period of booming economic growth following the Second
World War, Western countries continued to accept responsibility for the social
and economic welfare of their populations and a range of taxes and charges were
instituted to cover the costs of education, health, and social welfare programs.
In the 'small l ' liberal climate of the period, it was considered socially
responsible to redistribute incomes toward the poor through such programs. This
resulted in the sliding taxation scales of the period and increases in company
tax rates. After all, it was argued, businesses not only benefited directly
through better educated, better nourished and more contented employees, they
were also, in the final analysis, community assets, which should contribute to
community well-being. Businesses had a 'social' responsibility. The society did
not exist to service the economy, rather, the economy existed to provide a
better quality of life for community members.
In this climate, with the economy servicing the community,
industries and, therefore, the jobs which they created and the contributions
they made to social welfare, could be 'protected' through the imposition of a
range of tariffs on competing imports. The inflow of goods could be regulated by
a range of permits, licences, quotas and charges. This 'interference' with
'free' international trade was strongly justified in terms of governmental
responsibility for insulating its population from the effects of unregulated
international competition. Because of the experiences of the 1930s, this
included governmental responsibility to safeguard jobs which would, otherwise,
be lost to those countries where production was cheaper because those who
controlled production did not accept that economic pricings should include costs
related to the maintenance of social welfare.
Effectively, Western governments required the value of goods to
include a component for the social welfare - the 'costs of extraction and
processing' of the communities in which they were produced. They,
therefore, had to protect producers and manufacturers from unfair competition
from counterparts in other countries whose pricings did not include such a
component and a range of barriers to trade were instituted. Since the
mid1970s this 'protectionism' has been blamed by neo-liberal commentators
for most of the economic problems facing businesses, since it made business
internationally 'uncompetitive'.
It was also believed that there needed to be strong checks on
the fluidity of capital, so that it could not flow in and out of countries at
will. This belief was founded in historical experience. In the eighteenth and
nineteenth centuries, as banking expanded to provide facilities to increasing
numbers of investors, it was found that unless legislative checks were
instituted, banks were at risk of collapse, based, not on their own performance,
but on rumour and speculation in the community 19. If people heard that a
bank was in trouble they, quite reasonably, hurriedly withdrew their deposits.
Since banks make money through re-lending and investing income received as
deposits, no bank, if required to return all deposits, could continue to
operate. Without legislative protection from such runs on their holdings, banks
collapsed; they were 'bankrupted'.
In fact, the New Deal legislation of Roosevelt in the USA quite
explicitly included further reinforcement and refinement of such protections,
since it was widely held that a prime cause of the 1930s Depression had been the
failure of major banks. The Glass-Steagall Act of June 1933 gave government the
authority to curb speculation by the banks and established the Federal Deposit
Insurance Corporation (FDIC) which guaranteed all deposits up to $US2500. This
was aimed at convincing small investors that their money would be secure in a
bank so that they would not withdraw deposits in anticipation of bank failure.
The maximum amount has been periodically increased since then to more or less
keep pace with inflation 20. In 1935, Congress transferred a great
deal of the authority formerly wielded by regional Federal Reserve Banks to the
Federal Reserve Board in Washington which, in addition to its basic fiscal
responsibilities, was given power to exercise direct control over interest rates
and could therefore 'manage' economic activity in the marketplace by encouraging
or discouraging bank lending.
Just as it was necessary to stabilise banks and manage them to
contribute to community well-being, it was believed countries were at risk
unless legislation was in place to limit the possibility of invested capital
being withdrawn from a country whenever it appeared that there was some kind of
economic problem which threatened short-term profits. This safeguarded
productive enterprises from short-term economic swings over which they had
little or no control. Similarly, national currencies were protected from
international exploitation. Exchange rates were fixed by governments and
legislation existed limiting the possibility of trade in currency. In these and
a range of other ways, governments 'managed' their economies 21. The economy was
servant to the country rather than the country being servant to an
internationalised economy which could claim to be independent of communities and
not responsible for their social welfare.
The situation was a little different in the Third World, since
many of the welfare programs established in Western nations were not established
in postcolonial countries. Most colonial governments assumed that wage labourers
in their regions belonged to rural communities which would support them and had
access to subsistence alternatives if they lost employment. They therefore saw
little need to provide economic safety nets for people who had little or no cash
income. So, few Third World nations developed the kinds of social welfare
programs which became standard in most First World countries. Those who lost
employment should, as colonial governments had insisted they must, return to
their rural bases and become involved once again in rural communities and
subsistence forms of livelihood. This presumption of the continued existence of
viable subsistence alternatives to wage employment has persisted in the face of
mounting evidence of the degradation of rural environments and burgeoning rural
poverty. In consequence, those who have no viable subsistence alternatives find
themselves destitute and the problem of deepening rural and urban poverty in
Third World countries mounts daily.
Because wage rates and taxes and charges on businesses are
calculated to cover the costs of welfare in Western countries, industries have
to factor in such costs. On the other hand, where no such welfare is provided,
the costs of industry are much lower. Third World countries, which originally
attracted labour-intensive industry on the basis of much lower labour costs,
cannot, therefore, institute welfare programs, since this would raise costs and
discourage the entry of labour-intensive industry.22 So, although the subsistence alternatives in many
countries are now more imagined than real, Third World governments and
industries continue to calculate wages excluding a social welfare component.
This, coupled with a smaller range of perceived needs and therefore lower
necessary incomes for Third World workers, make labour-intensive industrial
goods much cheaper than such goods manufactured in Western countries.
Western countries, during the 1950s and 1960s, were well aware
of the possibility of losing labour-intensive industry to low-wage countries.
This was one of the reasons for maintaining tariff barriers. They were aimed at
supporting local enterprise from low-wage competition. Although with booming
economic conditions, this did not prevent the development of immigration
programs which brought low-skilled, low-paid labour into Western countries to
provide workers for those positions considered menial by Western people. This
kind of 'protectionism' could only continue, of course, if Western governments
concurred and import restrictions were biased against producers whose prices did
not take into account both a social welfare component and the heightened needs
base of Western workers.
During the late 1960s and the 1970s, international organisations
such as the World Bank and the International Monetary Fund, and a range of
nongovernment organisations committed to improving the economic lot of
Third World peoples, argued strongly that Western governments should
'deregulate' economic activity and encourage international economic interaction
through lowering tariff barriers and allowing imports from low wage
countries. Transnational companies increasingly began to locate their low-wage
production activities in selected Third World countries, taking advantage of new
transport developments, particularly the development of container shipping which
transformed Western waterfronts during the 1970s. Those who were most directly
involved in Third World development planning and programs saw this new movement
to produce low-wage goods in Third World countries as providing a new base for
national development in those countries. With the failure of import substitution
industrialisation, and the faltering of value-added industrial development, this
new move by transnational companies to relocate in Third World countries was
seen as a 'window of opportunity' for Third World people. Where
government-directed planning had not succeeded, private investment from Western
countries would. Development agencies, therefore, strongly promoted various
forms of deregulation to facilitate transnational investment in the Third World.
From the late 1970s, Western governments, seeking ways in which
to stimulate their own faltering trade, began to take such advice seriously and
a number of Western countries lowered tariff barriers to selected Third World
countries. However, the consequences have been rather different than initially
anticipated by the experts. As Jorge Nef recounts:
The transnationalisation of production and the displacement of
manufacturing to the semi-periphery, on account of the 'comparative advantages'
brought about by depressed economic circumstances and the 'low-wage economy',
results in import dependency in the North. This deserves further explanation.
The import dependency mentioned here does not mean that developed countries
become dependent on less-developed countries for the satisfaction of their
consumption needs. Since most international trade takes place among
transnationals, all that import dependency means is First World conglomerates
buying from their affiliates or from other transnationals relocated in
peripheral territories. The bulk of the population at the centre, therefore,
becomes dependent on imports coming from core firms domiciled in 'investor
friendly' host countries. Via plant closures and loss of jobs, such globalism
replicates in the centre similarly depressed conditions to those in the
periphery.
Manufacture evolves into a global maquiladora operating in
economies of scale and integrating its finances and distribution by means of
major transnational companies and franchises (for an analysis of maquiladoras,
see Kopinak 1993, pp.141-162). Abundant, and above all cheap, labour and
pro-business biases on the part of host governments are fundamental conditions
for the new type of productive system. Since there are many peripheral areas
with easy access to inexpensive raw materials and with unrepresentative
governments willing to go out of their way to please foreign investors, a
decline of employment and wages at the centre will not necessarily create
incentives to invest, or increase productivity. Nor would it increase
'competitiveness'. Since production, distribution, and accumulation are now
global, it would rather evolve into a situation of permanent unemployment,
transforming the bulk of the blue collar workers - the 'working' class - into a
'non-working' underclass.
(Nef 1995, ch. 3)
This relocation of low-wage production to Third World countries
and the importation of goods into First World countries resulted in an altered
balance of payments without there being any shift in purchasing patterns in
those countries. That is, the 'balance of payment crisis' which has been a major
cause of concern in Western countries over the past fifteen years, has, in large
part, been a consequence of the internationalisation of production which came
with the lowering of tariff barriers and transfer of low-wage industry to Third
World countries. The move to lower tariff barriers and to allow cheap imports
from low-wage countries required a reduction in protective legislation in
Western countries and, from the late 1970s, Western governments began to make
such changes. As an FAO report describes:
In the process of adjustment the inward-orientated
industrialisation strategies of the 1960s and 1970s were replaced by more
outward-looking ones. At the same time, a new institutional structure for trade
was being constructed. The Uruguay Round of the General Agreement on Trade and
Tariffs (GATT) negotiations, dedicated to reducing protection according to a
predefined schedule, were concluded [in 1994] and the World Trade Organisation
(WTO) was founded.
(FAO 1996, p. 2)
Economic experts giving advice in these matters seemed unaware
of the social welfare differentials between Western and Third World countries,
or seem to have accepted, unreservedly, that such considerations should not be
taken into account in moves toward the internationalisation of economic
activity.23 Economics
focuses on 'the economy' as a self-existent, independent environment subject to
its own laws and constraints, which, in the process of producing and
distributing goods and services, generates income for the community through the
economic interactions of individuals. Political and social environments are
considered to be similarly independent. The requirements of each should,
therefore, be met from within their own 'resource bases'. Economic activity
should be freed from political and social 'interference'. There is no
presumption of the necessity for a 'social welfare' component to costs. So, the
best economy is one which is 'freed' to pursue economic goals, unfettered by
social and political constraints aimed at harnessing economic activity to other
ends. Low-wage economies, if they are subject to fewer such constraints, are, by
definition, more 'efficient' than high-wage economies if they are based on
social and political 'protectionism'. If Western businesses were to compete 'on
a level playing field' with businesses from these countries, they needed to be
freed from the shackles placed upon them by protectionist legislation and
'excessive' social welfare demands.
Of course, economic experts have not only ignored the social
welfare requirements of communities, they have been equally myopic about the
environmental costs of economic activity. As Stephen Shrybman says:
Nowhere is the failure to integrate the environment and the
economy clearer than in the GATT negotiations in which, with only limited
exceptions, evaluating the environmental implications of trade proposals is not
even on the table. To make matters worse, the negotiations are veiled in
secrecy, and virtually no opportunity exists for public comment or debate.
(Shrybman 1990, p. 17)
Just as economists have failed to accept that social welfare
costs should be incorporated into pricings, so they failed to consider the
environmental costs of economic exploitation. In both cases, the costs involved,
not being immediate and inescapable imposts on the producer, could be ignored in
the interests of competitive pricing.
As in the eighteenth and nineteenth centuries, Western countries
were again being told that they should accept the 'logic of the marketplace',
and accept that an efficient economy would deliver social welfare rewards. And,
once they were required to confront the issue, many economists also argued that,
as the environmental impacts of industry became economically significant, they,
too, would automatically be factored into production costs. There is, however,
as we have seen, no evidence from history that in the absence of legislation
requiring social welfare and environmental costs to be built into price
structures, improved 'market efficiency' will deliver social welfare returns and
ensure the protection of the environment from pillage. No argument is made that
costs of extraction and processing should be removed from the pricing of
material resources, on the presumption that, in some strange way, they will be
returned to extractive industry through improved market conditions - the
argument would be patently absurd. Yet, this argument is made, with no apparent
awareness of its absurdity, in relation to the social welfare costs of labour.
As Samuels and Shaffer claim, the argument that regulation of businesses
increases costs, while deregulation improves economic efficiency and will lead
to benefits for both businesses and the communities which are required to
support them in the deregulated environment, is based on a false premise:
... rather than creating costs, both regulation and deregulation
shift them. For example, regulation of an upstream polluter will increase the
polluter's costs of production. But these are costs which hitherto had been
borne by others. In this case, the costs formerly borne by the downstream
pollutee will be lowered by regulation ... Regulation has not created the costs,
only reassigned them, and that is precisely what deregulation will do.
Regulation and deregulation each consists of lower costs for one party and
higher costs for the other.
(Samuels & Shaffer 1982, p. 467)
It is the nature of 'market competition' that prices will be
driven to the margins of profitability. If no social welfare component is built
into industrial costs then prices fall below levels at which social welfare can
be sustained. In the absence of alternative means of ensuring social welfare,
allowing social welfare costs to be excluded from calculation of the costs of
production leads, inevitably, to the impoverishment of those who cannot obtain
employment or who are not employable. It also leads to a necessary scaling down
of 'non-economic' community activity and organisation. In a most peculiar way,
'economic activity' becomes a form of 'non-social' activity which only
contributes to social welfare through the personal incomes generated by economic
activity - which, themselves, will not include a social welfare component so
long as competition for jobs keeps wage rates low.24 'The economy' becomes an environment which is
separate from, and not responsible to, the community which sustains it (see
Geddes 1995 for an examination of the nature of this peculiar detachment of the
economic from the social).
A number of theoretical models emerged during the 1970s
purportedly demonstrating the inadvisability of allowing 'political
interference' in economic activity. Government regulations constraining economic
activity are assumed to be detrimental to both the economy and to the community
which depends on a healthy economy for well-being. Further, since a prime
assumption of economic theory is that all individuals act out of self interest,
including those in government, the activities of government will, by definition,
advantage special interest groups. The imposition of government imposts on
economic activity is, therefore, not in the interests of the community but of
privileged interest groups. If, however, government backs out of economic
regulation, competition in the marketplace will lower prices, improve products,
allow for the accumulation of profits, encouraging investment which, in turn,
will result in job creation which will flow back to the community as increased
community well-being. As Peter Kahn has described:
Support for the wave of deregulation that began in the 1970s came
from liberal as well as conservative economists. But deregulation was pursued
with single minded vigour during the 1980s at least in part for ideological
reasons. It embodied a political theory which justified the administration's
distaste for activist government. That theory, called 'public choice', was
espoused by a group of market-orientated economists and lawyers who claimed to
demonstrate two things: first, that an activist government is all but incapable
of reaching efficient public-spirited decisions, and second, that private
markets do so routinely and automatically. According to public choice theory,
regulatory policy results from a badly flawed political marketplace, which makes
decisions based not on economic efficiency, but on the power of interest groups
to use government to pursue private benefit at the expense of general welfare
... Public choice theory played an important role in the economic policy of
Presidents Reagan and Bush. The proposed balanced budget amendment, and other
schemes to limit government or place it on automatic pilot, grow out of this
body of theory.
(Kahn 1991, p. 44)
'Public choice' theory has, similarly, played an important part
in the economic policies of President Clinton. As economic activity became
internationalised and the demands of governments increasingly came to be seen as
obstructing and distorting economic efficiency, economic justifications for
freeing economic endeavour from political constraint became elaborated. Now, all
the problems of the 1970s and early 1980s could be attributed to 'government
interference' in the marketplace. The 'gains' made through the liberalisation of
international trade seemed to be obvious.
By the late 1970s, people in Western countries were beginning to
benefit from the lower-priced imported goods from low-wage countries as major
retailers began to obtain the bulk of their merchandise from such sources. As
the majority of people in Western countries felt the effects of this
flowthrough of lowered costs in the form of cheaper goods, they willingly
bought these in place of higher-priced locally manufactured alternatives. Within
a short period the effect of lowering tariff barriers became noticeable.
Unemployment began to rise in First World countries, with those who worked in
labour-intensive industries being the first to feel the effects of low-wage
competition.
This unequal competition forced First World manufacturing
enterprises to consider a number of strategies to 'level the playing field';
they could:
·
relocate their manufacturing activities in overseas low-wage areas, thus
avoiding the increased 'needs' related wage and welfare component costs of
employment in First World countries;
·
focus on improving efficiency through altering production techniques and
technologies, displacing employees with cost-saving machinery, taking advantage
of the new technological innovations which have accompanied the continuing
computerisation of the First World (and, incidentally, avoiding many of the
social welfare costs which have been, in one way or another, levied in
association with employment);
·
argue strongly for lowering wage rates and the removal of welfare orientated
taxes and levies so that they could remain competitive within their present
country; or,
·
move out of labour-intensive industry, investing in the newly emerging
international bond, stock and money markets.
Whether businesses invested in low-wage countries or in the
rapidly expanding financial markets, they found the transfer of funds across
national boundaries impeded by the range of regulations imposed on financial
transactions in previous decades. Therefore, businesses joined with importers
and financial institutions in demanding removal of the fiscal and financial
regulations imposed by Western governments to control both investment and the
money supply. In the process, national controls on economic activity have been
continually reduced, freeing an internationalising economy from the demands of
the communities which supply the labour and other resources for their
activities.
Over the past twenty years all the above
strategies have been utilised by businesses seeking an advantage in the
marketplace. Many companies initially moved their labour-intensive operations
'off-shore', to take advantage of labour costs in countries where perceived
needs are lower and no social welfare component is built into industrial costs.
In the process they argued for further lowering of tariff and quota barriers to
facilitate this 'internationalisation' of economic activity. The growing
internationalisation of business gave further impetus to arguments for
government deregulation of economic activity. Successful companies were
'transnational'. Governments, at the instigation of 'economic experts', strongly
encouraged the internationalisation of home-grown businesses, providing tax and
other incentives to such expansion. This, of course, facilitated the move of
labour-intensive industry to low-wage countries and the freeing of economic
enterprise from residual national constraints.
Many Western-based firms altered their focuses and forms of
organisation, reducing their reliance on wage labour through automating
production, while those that continued to rely on unskilled labour gained a
clear advantage through increased competition for jobs in Western countries as
the numbers of unemployed grew. As James Mittleman describes:
In the early and mid-twentieth century, industrial organisation
in the USA and other Western countries centred on mass production and the
assembly line staffed by semi-skilled workers who could easily be replaced. In
the last decades of the twentieth century, the Fordist system of mass production
and mass consumption has tended to give way to another structure. Post-Fordism
entails a more flexible, fragmented and often geographically dispersed labour
force. The new model is based on greater specialisation - batch production in
small firms linked through dense networks and niche marketing. Accompanying the
movement from Fordism to post-Fordism is a shift from vertical integration of
production to vertical disintegration, especially as enterprises seek to
establish distinct niches ... An integral part of this restructuring process is
the weakening of trade unions based in the old Fordist industries. The strength
of organised labour has clearly declined in the West, and workers are docile in
some other regions, notably so in East Asia ... Whereas capital is forming large
unregulated markets, labour is less capable of transnational reorganisation.
Capital is increasingly globalised, but labour unions and the collective rights
of workers still primarily delimit their reference point as the
nation-state. The changing relations between capital and labour - the one
clearly on the ascent and the other markedly defensive - are linked to the
tension between the economic globalisation trend and the Westphalian territorial
mode of political organisation.
(Mittleman 1994, pp. 283-4)
Businesses, in the face of union opposition, argued that if
automation was not allowed they could not remain viable in the new climate of
international economic competition. Given the burgeoning unemployment and
obvious' globalisation' of economic competition, neither governments nor labour
unions were able to counter such demands and by the mid-1980s the move to
automation was commonplace. The major costs of production now centred in
technology rather than labour. What started out as a move to automation by
labour-intensive industries to counter international competition, became a
general move by industry to take advantage of the new forms of automation made
possible by developments in computer technologies. As Kukowski and Boulton
describe of the Sony Corporation's moves to automation:
Sony management described the following as an example of the
benefits gained from the company's factory automation activities: It took three
to four months to start up Sony's original production lines in Japan, but it
required only two to three weeks to bring replicated lines up to speed in
Singapore and France. Changing models required only 9.1 % of additional capital
investment in Sony's first changeover, 3.5% in the second changeover, and only
1.5% in the third changeover. In addition, the move to automation resulted in
improved quality. The best defect rate using manual labour was 2000 parts per
million (PPM), compared to 20 PPM after the first week of automation. Sony's
personnel policy was to remove employees from manual labour jobs through
automation so that 'they could become more creative in solving problems and
improving operations'. Due to Sony's strong knowledge base in automation and its
focus on design for manufacturability, between 1987 and 1990 it increased sales
by 121 % with an increase of only 35 employees.
(Kukowski & Boulton 1995, ch. 5 s. 3)
The Sony policy of removing 'employees from manual labour jobs
through automation so that "they could become more creative in solving problems
and improving operations'" is, of course, disingenuous. Typically, the
problem-solving skills required in the new plants require a level of expertise
beyond that held by manual labourers. The numbers of such people in a fully
automated plant, as Kukowski and Boulton show, is far smaller than required in a
non-automated factory. Not only have low-skilled workers found their jobs
under threat by these moves, increasing numbers of skilled workers have found
that their positions have disappeared as automated processes displace them. As
the authors say, a 121 per cent increase in sales by the company was accompanied
by the employment of a further thirty-five workers.
The new catchcry of industry, taken up and echoed by First World
government, educational, health and other institutions has become 'flexibility'.
As a Report to the Alberta Government on new economic practices in the 1990s
explains:
Human resource consultants Olmsted and Smith said that: With much
of foreign competitor's success credited to cheap labour and with technological
advances that permit work to be performed by fewer but more sophisticated
employees, American companies are focusing on assessing and redirecting labour
costs in order to become more profitable [1989, p.vii]. In 1993 the u. s. Labour
Secretary Robert Reich said: Firing workers to cut costs has gone so far that
even reasonably healthy companies are cutting jobs. The cost of these butcher
strategies is borne by all, not only in lost output but in higher taxes ... With
the worst of the layoffs behind them, companies are searching for ways to become
'lean and mean' but effective, and 'flexibility' is today's buzzword.
Flexibility is increasingly viewed as providing ways to manage time, space and
people more effectively within the upswings and downturns of a global economy.
It is also seen as a way to attract and retain good employees in a labour market
that is steadily becoming more competitive. Two different strategies have begun
to emerge about how to create a more flexible workplace. The first strategy
would create flexibility by using a 'core' workforce and a 'contingent'
workforce to manage the workload. The second is to allow flexible working hours
and various forms of reduced working hours to meet demand.
(Alberta Labour 1994, p. 3)
As Mittleman (1994) says, Fordist industrial organisation is now
most usually employed in the remaining labour-intensive industries. Those which
have moved to new technologies have usually also moved to new forms of
organisation. These often include the networking of small, closely interlinked
companies or company divisions, usually controlled by a 'parent' company, each
of which takes responsibility for production of a particular product component.
The new organisation of production, often called Just-In-Time JIT) production
processes, coupled with Total-Quality-Control (TQC) systems of surveillance,
emphasise direct worker responsibility for the quality of output, coupled with
direct accountability to authorities for performance. The term 'just in time'
refers to the relationship which is anticipated between supply and demand. This
form of organisation aims to reduce the inventories of manufacturers to a
minimum, relying on efficient production techniques to produce item components
as they are required, and to have quality control built into the process of
production, rather than relying on post-production testing.
JIT processes require a direct link between the supplier and the
marketplace. This form of organisation allows for rapid responses to increases,
decreases and changes in demand. It therefore assumes rapid filling of orders,
rapid scaling down of production as markets become saturated, and rapid
retooling and reorganisation as products are altered or displaced to meet new
demand. As in Sony's case, factories can be built quickly to meet particular
demand, and dismantled and moved just as quickly. And the factory is built at
the source of demand. This, in the 1990s, has resulted in a shift of investment
in industry away from low-wage countries and back into major markets. It has
emphasised the development of a skilled, versatile, mobile and yet expendable
labour force which can rapidly respond to changes in market preferences, rather
than a workforce which supplies low-skilled, cheap labour inputs.
It requires flexible employment arrangements, the use of
short-term contracts rather than long-term commitment to maintenance of a stable
body of employees. In introducing these changes, businesses have capitalised on
the high unemployment levels in developed countries to institute new styles of
relationship between managers and employees, based on employee uncertainty and
'management by stress' (Sewell & Wilkinson 1992, p. 279). In a very real
sense, businesses, in the 1990s, have renounced responsibility for the social
welfare of their employees along with renouncing responsibility for meeting the
social welfare requirements of the communities within which they operate. Their
responsibilities relate to ensuring 'economic efficiency', not to contribution
to the quality of life of those they employ. They have become international
organisations, geared to exploiting temporary markets wherever they arise and
geared, equally, to the most economically efficient use of all inputs, including
labour. As the Alberta report cited above says:
Increasing use of temporary workers has been a major change in
the workplace. Temporary workers may be hired on a contract, through a temporary
agency or they may be placed on a company's payroll.
They are different from other employees in that companies make no
commitment to these employees; they are expendable. This 'contingent workforce'
includes part-time employees, temps, contract employees and freelancers.
Traditionally temporary workers filled mainly low-skilled jobs; these days
skilled technical, professional and executive positions may also be filled on a
temporary basis. Many sources estimate that 20 to 25 per cent of the U.S.
workforce are contingent workers. The Canadian situation is similar. Most
predict that this trend towards relying on temporary workers will grow,
forecasting that up to one half of all workers could be employed on this basis
by the year 2000. The largest private employer in the U.s., by number of
employees, is Manpower Inc. with 500,000 workers. Manpower Inc. supplies other
companies with temporary workers. Several factors have contributed to this
significant change in human relations practices. A key factor is the corporate
downsizing of the past ten years. Many companies including blue chip firms have
laid off staff. Some companies have had several rounds of layoffs. Even as
business improves companies remain reluctant to hire on more employees in case
the recovery is temporary. For some companies it makes more sense to operate
with a core group of regular employees whose skills are critical to the
business, and then expand and contract the work force as needed.
(Alberta Labour 1994, pp.3-4)
This move to temporary employment is also a move toward
increasing stress amongst employees. Since any downturn in company performance
will result in the layoff of temporary staff, those who are in this
category - or those who feel that they are next in line to be reduced to
temporary status - feel a constant sense of insecurity, and are driven to
perform by the fear that if they are seen as less than totally committed to
improved performance they will be the first to go. Not only have the new
management techniques introduced increased 'economic efficiency', coupled with
decreased contribution to social welfare costs of the communities in which they
operate, they have also introduced endemic stress to those communities.
Increasing numbers of people live in constant fear of losing their jobs, and
therefore their incomes. More and more people live with a gnawing sense of
threat which they cannot escape. And, in the new climate which dissociates
businesses from 'social responsibility', this increase in stress is seen as
positively contributing to 'economic efficiency'. Of course, even in this area,
such increases in stress are of short-term value. In the long term, they result
in decreased not increased performance from employees. However, economic experts
have not shown versatility in thinking through such consequences of their
logically-constructed models. No doubt, before long, there will be an expert who
'discovers' this commonplace truth as a new insight, a new contribution made by
economics to understanding the human condition!
Alan Jenkins outlines some of 'the existing techniques and
practices germane to JIT, covering a number of areas of management':
Streamlining or smoothing of process flow by rearranging the
physical layout of production.
Reducing work set-up times to reduce batch sizes.
Reducing inventory/buffer stock levels to render more visible
process and quality defects ...
Flexibility and multi skilling of the workforce in order to match
Product simplification.
production levels to order demand at all times.
Autonomous teams, with wide responsibilities, working in
production cells ...
(Jenkins 1994, pp. 23-4)
These techniques veil a number of consequences for employees and
for the businesses which employ them. First, although employees are grouped into
teams, in the interests of quality control, team members are required to monitor
the performance of colleagues. Since the teams are small, if the quality of
production is poor, all members are under threat. There is no security of
tenure. In such a climate, as Sewell and Wilkinson describe of a British
factory:
... the operators at Kay work in the knowledge that their basic
work activity is subject to constant scrutiny, a factor which, when combined
with the certainty of immediate public humiliation which will accompany the
exposure of their divergences, invokes a powerful disciplinary force ... up to
the point when a member finally absents themselves [sic] from the shop floor at
Kay they are, at least tacitly, acceding to being constantly subjected to close
surveillance of an Electronic Panopticon which has the ability to
penetrate to the very core of an individual's work activities, providing a
mechanism of Power/Knowledge which can bring out the minutest
distinctions between individuals. Thus, in attending work, members
simultaneously submit themselves to 'the direction of their tasks, their nature,
method, pace and quality of work [by management] ... [and] a system of worker
evaluation, punishment and reward'.
(Sewell & Wilkinson 1992, pp. 283-4, 287)
In this new, far more flexible era of production, what firms
need is rapid access to markets and a close relationship between design and
production processes. That is, with social welfare costs being reduced through
minimising employment, firms can now relocate production closer to markets. Many
companies are relocating in Western countries, where their markets are
strongest. In consonance with this return to high-wage areas, there have been
concerted political campaigns aimed at lowering or removing the residual social
welfare components of industrial costs in Western countries.
Concurrently with this move to JIT and TQC processes, all over
the world there have been insistent demands for fiscal and financial
deregulation, both to facilitate the 'internationalisation' of productive
enterprises taking advantage of cost anomalies in different parts of the world,
and to enable speculation in currencies and stocks and bonds. As the attack on
investment and fiscal regulations became increasingly effective in the late
1970s and early 1980s, people began investing money in the rapidly expanding
international currency, bond and stock markets which provided lucrative options
for investors to developing alternative forms of productive enterprise. As Susan
Strange has described:
Changes in the global financial structure in recent decades can
be considered under five main headings:
(1) the system has grown enormously in size, in the number
and value of transactions conducted in it, in the number and economic importance
of the markets and the market operators;
(2) the technology of finance has changed as fast as the
technology in any manufacturing or productive sector in the world economy;
(3) the global system has penetrated national systems more
deeply and effectively than ever before - though some people are apt to retort
that there is nothing new in international banking or international debt, the
degree to which both have played a growing part in national economies and
societies is quite new;
(4) The provision and marketing of credit have become overall a
much less regulated and much more competitive business than it used to be
when national systems were less integrated in the global system; and, not least,
(5) the relation of demand for and supply of credit has
changed rather radically, with very large implications for the world political
economy and for the material prospects of many social groups and social
institutions in the future.
(Strange 1994, p. 232)
Although it is difficult to quantify the growth in international
financial speculation, there is no doubt that it has eclipsed investment in
productive enterprise over the past two decades. Hundreds of billions of dollars
are shifted daily to take advantage of fluctuating currency values and changes
in the value of stocks and bonds based on short-term predictions related to
movements in interest rates, government decisions, perceived threat to profits,
and short-term profit-taking. Government decisions around the world are
increasingly made with an eye to 'market response' to their policies, and news
bulletins regularly report 'market fluctuation' based on reactions to policy
decisions, or even to chance comments by politicians. And financial markets,
conversely, react to such reports of their own responses, thus magnifying
short-term investment responses to often marginally important government
activity. As Strange concludes:
No one who knows anything about international finance is in any
doubt that it has grown rather phenomenally in the last quarter century. There
is, however, the problem of measurement and, connected with it, the problem of
definition. The numbers that are available are only rough indicators, not
precise indices. Here are a few of them:
Transactions in the Eurocurrency markets had risen to over US$
1,000 billion - 1 trillion - in the year 1984, compared with US$75 billion in
1970 and only US$3 billion in the early 1960s.
Trading in the foreign exchange markets worldwide in the late
1980s amounted to over US$600 billion a day, no less than 32 times the
volume of international commercial transactions worldwide.
Between the mid-1960s and the mid-1980s, international banking
grew at a compound rate of 26 per cent a year on average, compared with an
average growth in output of a little over 10 per cent.
The issue of bonds is a credit instrument traditionally
associated with international finance since the last century. Equal in value to
2 per cent of world exports in 1980, their total value had risen to 9 per cent
of world exports by 1985 and they have continued to grow in popularity since.
ECU-dominated bond issues, which totalled ECU 1.9 billion in 1982, totalled
nearly ECU 17 billion in 1988.
Transnational trading in shares was comparatively rare even by
1980. Most national stock exchanges dealt only in the shares of nationally
registered companies within the state. By 1989, more than 18 per cent of all
share trading was in the shares of foreign corporations-only the major
multinationals. Among the significant numbers, we should also note the growth of
trading in futures and options in some of the main international financial
centres like London, Paris, and Frankfurt.
(Strange 1994, pp. 233-4)
The 'entrepreneurs' of the 1980s were not 'industrialists' but
players in international currency, bond and stock trading and experts in
financial manipulation. They knew a great deal more about Wall Street
possibilities than about new productive enterprise. As Robert Guttman has
described:
Deregulation of money has turned many Americans into investors
(see especially the role of pension plans and mutual funds), and has allowed the
middle class to join the rentier class (the 'money class'). This change in class
composition is reinforced by aging baby boomers going from being debtors in the
1970s (favouring inflation) to becoming savers (favouring low inflation and high
'real' interest rates). This gives the Federal Reserve a political constituency
for the 'hard money' course of the last fifteen years, which favours financial
investors. Deregulation of money has also led to much more volatile interest
rates and exchange rates, which in turn have dramatically accelerated the use of
hedging and speculative investments for capital gains as the new profit-centre
of MNCs and TNBs, and with a concomitant wave of innovations to facilitate this
activity (e.g., financial futures and other derivatives). The trend toward the
dominance of a new kind of financial capital, which I characterise as
fictitious capital, has also been profoundly deepened by the rapid
securitization of credit (as a now more attractive form of financial
capital for both sides, as opposed to the traditional loan capital mediated by
commercial banks), which has helped to promote securities trading as a
profitable, high-risk activity. This leads to an unprecedented combination of
financial explosion and industrial stagnation, with ST-orientated shareholder
capital combining with international competition battles and the labour-saving
information revolution to enforce global 'downsizing'. Electronic money is
entirely global in nature, composed of an unregulated worldwide Euro-banking
network, global investment portfolios, and interconnected financial markets.
(Guttman 1995)
Effectively, in the short-term, what the removal of tariff
barriers did was to transfer the difference in wage rates between labourers in
First World and Third World countries into the pockets of those who retained
their employment, and therefore their incomes, in First World countries. So, for
the bulk of the population, the lowering of prices meant an increase in
discretionary income. This allowed middle-income earners to join in the new
speculative investment boom of the 1980s. This, in turn, gave them a vested
interest in changes in working conditions which might positively contribute to
increased investment returns and led them to support arguments for further
deregulation and 'streamlining' of business, reduction in government
expenditures and taxation 'relief'.
The transfer of income from low to middle wage earners resulted
in a transient sense of affluence. Consequently, there was less pressure on
employers to give regular wage increases to provide increased income for
expanding wants and needs during the first years of this transfer of work to
Third World communities. In the 1980s real wages grew more slowly in First World
countries. However, an expansion in discretionary income is usually followed by
an expansion in perceived needs in Western communities. As the initial flush of
felt prosperity waned, more and more middle-income earners accepted neo-liberal
arguments for 'governmental downsizing' and tax reform, aimed at providing them
with further discretionary income.
In a time when wage increases had become closely linked with
increases in 'productivity', that is with increases in company profits resulting
not from price increases but from an improved ratio between wage costs and
material output, one way of expanding incomes was through reducing government
taxes and charges-introducing 'user-pay' schemes which placed the same demands
on all people, regardless of income. This new emphasis on reductions in
government spending, once again effectively shifted income from low-wage to
middle- and high-wage individuals. This resulted in further widening the gap
between low-wage earners and middle- and upper-income earners.
In the 1980s, Western middle-income earners experienced a sense
of affluence at the very time that unemployment statistics showed a rapid growth
in the numbers of people who could no longer find work, and in the numbers of
those who had to accept lower wages and deteriorating work conditions in order
to retain employment. This, in turn, lessened the sense of threat amongst the
more articulate members of Western communities which would otherwise have
accompanied a rise in unemployment statistics in the community. Those most
directly affected by the changes could, therefore, find little support from the
bulk of the population. Not even the labour unions which were trapped by the
dual effects of this shift could mount an effective campaign against the
relocation of industry and deteriorating work conditions for low-paid workers.
Labour leaders found that they simply could not motivate the majority of Western
employees in the face of their new-found affluence.
Over time, however, the savings which middle-income earners had
experienced with the lowering of tariff barriers, were whittled away. The wants
of those whose real incomes had been improved by the import of low-wage
manufactures expanded, so that, over time, the requirements of such people
became greater, effectively reducing their discretionary incomes. Now, First
World countries had lost their labour-intensive industries-or had mechanised
them or had established 'informal sweatshops' in which people are subjected
to 'Third World conditions and pay' and the initial advantages to consumers
which had accrued from the internationalisation of competition began to
disappear.
The lowering of tariff barriers in First World countries and the
resulting distortion of First World economies gave doctrinaire, right-wing
economic experts a platform from which to argue for drastic reformation of First
World economies. Pointing to the distortions and their effects, right-wing
politicians were able to argue that the burgeoning unemployment and its side
effects in increased crime, increased youth unemployment, and ghettoising of
low-waged residential districts were the result of economic distortion within
First World countries.
It was argued that well-meaning, but short-sighted, liberal
governments had expanded governmental services beyond the capacity of their
economies to absorb the associated costs. The only way in which First World
countries could regain the economic initiative would be for governments to step
back from their failed attempts at 'economic management' and allow 'market
forces' to rectify the problem. High on the lists of remedies for unemployment
and the renovation of economies were: the establishment of 'individual
contracts' and the removal of 'collective bargaining' by workers; the lowering
of minimum wage rates; the watering down of maximum hour rates; the removal of
price protection; and the scaling down of social welfare benefits. All those
provisions which had been central to the 1930s 'New Deal' in the USA and which
had been echoed in other Western countries were now under attack as 'economic
luxuries' which no country could permanently afford.
In the climate of reform engendered by neo-liberal arguments,
rather than economic enterprises contributing to government social welfare
expenditures, the emphasis was reversed. Government should provide stimulus to
private enterprise. As Mitchell and Manning claim:
During the Reagan administration, the ideas of privatisation,
deregulation, and public-private partnerships became entwined in the USA, as
they had during the Thatcher years in Great Britain ... They are the primary
components of an industrial policy founded in what has come to be called
neo-orthodox economics. Along with supposedly tight fiscal policies and
judicious monetary policy, they make up the core of both the Thatcher and Reagan
approaches to promoting economic growth and development by unleashing the powers
of the private marketplace ... [With the emergence of the Third World 'Debt
Crisis' in the mid-1980s, the GECD, UN, World Bank and IMF attempted to
provide policy direction to those countries involved.] Their prescription for
Third World governments, economic adjustment, was drawn directly from the
Thatcher/Reagan doctrines of neo-orthodox economics: cutbacks in public
expenditures, privatisation, deregulation, and public-private partnerships
[PPP]. New loans from the Bank or the IMF today enforce the adoption of such
policies ... and the USA Agency for International Development [US AID] promotes
public-private partnerships as the key to achieving higher rates of economic
growth ... PPPs themselves, rather than being the centrepiece of a development
strategy, are primarily a set of institutional relationships between the
government and various actors in the private-sector and civil society ... In the
typical confusion of terms, US AID and other donor agencies promote
privatisation and government subsidies to private entrepreneurs in the name of
building public-private partnerships ... But privatisation is privatisation and
subsidies are subsidies; public-private partnerships they are not.
(Mitchell & Manning 1991, pp. 46-9)
Under the New Deal, private enterprises were required to
incorporate a public social welfare component into the costs of production.
However, under neo-liberal direction in the 1980s and 1990s, the 'public-sector'
has provided 'incentives' to private enterprise, believing that such stimulation
of industry is needed to ensure a growth in employment and therefore increased
social welfare. At the same time, the social welfare costs of the past become
illegitimate imposts which make productive enterprises uncompetitive and so cost
jobs. Therefore, social welfare imposts are, according to the new logic of the
1990s, counterproductive. Instead of promoting social welfare they create
unemployment and consequent social misery. By sleight of hand, social welfare
demands made of economic enterprises are considered irresponsible, but the
tapping of public resources by private enterprises is considered socially
responsible.
Since private businesses are now competing with businesses which
are able to tap the resources of countries where no social welfare component is
included in production, Western enterprises must be compensated by government
for any continuing residual social welfare costs associated with production.
Only in this way can governments ensure that enterprises based within their
territories are able to compete 'on a level playing field' with those based in
Third World territories where they not only have few, if any, social welfare
imposts, but are also publicly subsidised through a range of 'incentives' in
order to ensure that they remain in the territory.
The presumption that government had a responsibility to direct
economic activity also underwrote political activity in Third World countries in
the post-Second World War years. This set of assumptions, and the practices that
followed from it have, in the literature, usually been referred to as
'developmentalism'. Worldwide economic activity was considered to be the result
of the interaction of many separate, but interconnected, 'national economies',
each controlled by a national government which tried to ensure that the economy
was managed and 'developed' to provide the best possible returns for all
community members within its own borders.
As colonial territories gained independence, this presumption of
separation and responsibility for internal 'development' passed to the new
governments. However, since it was assumed that such governments had little
expertise in managing economies, most colonial powers retained strong economic
ties, providing economic management advice and, through linking economic
assistance with scrutiny of economic performance, also providing constant
economic direction as a condition of aid. Inevitably, therefore, the economies
of most postcolonial countries remained strongly tied to economic actors in the
former centres of colonial power. Independence brought little change in economic
organisation or in the established emphasis on export-orientated production,
feeding industrial enterprises in the First World.
Whereas it was assumed that First World governments managed
their economies in the interests of their populations, Third World governments
were assumed to be managing their economies in the interests of 'economic
development'. Since governments needed to be funded from within their own
territories, it was seen as necessary that a first prerequisite of Third World
governments was to establish the necessary infrastructural support so that
industrial development could proceed. Money and effort were to be spent on major
development projects, on building dams, in constructing ports, in constructing
road and rail networks, and other infrastructural requirements of an
industrialised country.
These developments, from 1950 to the 1970s,
were assumed to be focused on two kinds of industrial development: the export of
raw materials to the First World, and the development of import substitution
industry (ISI) within the country. While it was recognised that few Third World
countries could develop competitively viable export industries in the short
term, it was believed that if a range of protective tariffs and import
restrictions were imposed on the importation of particular commodities, local
industries would develop to supply the local market. As they grew in strength,
they could then reorientate their activities toward export, thus providing a
base for further export-orientated production. This apparently logical
development plan was, however, fraught with many hidden pitfalls. As Erica
Schoenberger explains,
Investments in developing-country markets such as India, Brazil,
Argentina, or Mexico were driven mainly by extremely high protectionist barriers
associated with import substitution policies. In general, these markets were not
sufficiently large to sustain optimum volume production, so costs tended to be
high in any case (see Holmes 1983; NofaI1983). Nor were they large enough to
allow for fully integrated or wholly self-contained production. Thus the system
as a whole functioned on the basis of long-distance-sometimes extremely
long-distance--supply lines.
(Schoenberger 1994, p. 55)
Import substitution policies failed to recognise two fundamental
problems. First, local businesses, having to import all their technology and
rely on overseas expertise in establishing enterprises (as well as supplying a
far smaller market than major overseas exporters), could not hope to compete
with overseas products. The cost of such import substitutions was usually much
higher than that of the previously imported items. Second, in communities which
still saw purchased commodities as alternatives to locally-produced items (for
which the expertise still existed in most communities), demand fell as price
increased. ISI businesses, with few exceptions, failed to expand as anticipated
in the face of falling demand coupled with expanding costs. In some countries
industries were, in the interests of development, subsidised to make their
products affordable. This, of course, defeated the initial reasons for their
establishment, which were to generate revenue for government and to provide a
base for further industrial development.
As import substitution failed to fulfil its mooted potential, to
meet their growing debt commitments and fund further 'development' activities,
countries placed increasing emphasis on the export of primary commodities to
generate income. This resulted in constantly expanding production and export of
raw materials to industrialised countries. Until the mid-1960s, with the
industrialised world in a period of booming growth following the Second World
War, this expansion was absorbed with little reduction in price. However, from
the mid-1960s, as industrialised production started to contract in the face of
over-supply, prices of primary commodities began to fall. Since then, countries
relying on primary product sales to fund their development activities and
service their debts have found themselves caught in a classic capitalist
conundrum. As prices fell countries needed to export greater quantities to meet
their commitments. As supply increased, prices fell. Since they had little
short-term alternative, Third World countries then had to attempt further to
increase supplies to maintain their incomes. During the same period, the
industrialised demand for primary products fell. During the 1980s, primary
commodity imports to industrialised countries fell by more than nine per cent,
resulting in a primary commodity glut on world markets. Together, these factors
led to falling prices for finished goods in industrialised countries and an
increasingly serious debt problem in Third World countries.
Third World countries, which had relied on the twin strategies
of primary commodity export and the development of import substituting industry
to kick-start their economies into what W. W. Rostow (1961), in a wonderfully
optimistic turn of phrase, called a 'take-off into self-sustained growth',
found, to their dismay, that the anticipated rewards of their sustained attempts
at 'development' had led them into a state of chronic indebtedness. First World
'development agencies', looking for reasons for the failure of their confidently
promoted development schemes and projects, in large measure found them, not in
the rationale of the plans themselves, but in the 'corruption' of Third World
governments. From the mid-1960s, it became fashionable in development circles to
speak of the endemic corruption of politics and government in Third World
nations. Patron-clientism, which was and is an expression of the
'personalisation' of leadership which is standard in most of the world (other
than in Western countries), came to be seen as a major obstacle to development.
From the early 1970s, with import substitution failing to
deliver the expected rewards, and primary commodity prices faltering,
development agencies began to look elsewhere for the key to successful Third
World development. An important alternative to import substitution was,
obviously, the further processing of primary commodities within the country of
origin, rather than shipping raw materials for processing in industrialised
countries. Primary commodities should have 'value-added' to them prior to
shipment. Rather than shipping raw materials, money should be spent on
processing plant, thus earning exporting countries additional income and, in the
process, kick-starting their economies through the establishment of a processing
industry which would take advantage of, and stimulate further, infrastructural
developments.
Unfortunately, the enthusiasm of 'development experts' seems
once again to have outstripped their expertise. While it seemed logically sound
to develop 'value-added' enterprises in Third World countries, the rationale
failed to take into account the existing industries in industrialised countries.
No industry voluntarily commits suicide, and no industry in the industrialised
world was going to help a competitive industry in a Third World country to
become established. The expertise was not provided, outdated technology was
supplied, and, most importantly, the network of purchasers established by
processing industries in industrialised countries was not available to Third
World suppliers. With all the disadvantages stacked against Third World
'value-added' industry, it was inevitable that Third World enterprises would
fail to compete against their well established rivals. Not only was this
true, but, given that demand in industrialised countries was shrinking or
stalled, the timing for such value-added industrial expansion was less than
propitious. Once again, an anticipated success story turned into a financial
millstone for Third World countries.
Again, development agencies looked for reasons for the failure
and saw the problem not as lying in the development direction established by
themselves but in the performance of governments. The reasons for failure lay in
the lack of expertise in government, in political interference, in the syphoning
of capital out of businesses and into the hands of politicians, bureaucrats and
their supporters. And, as we have seen in Capitalism and Third World Nations, there was substantial
evidence that businesses caught in the web of patron-client networks were often
milked for funds. However, once again, rather than seeking to understand the
phenomenon, patron-clientism and 'corruption' came to be seen as stumbling
blocks to economic development.25
In the middle to late 1970s, as aid agencies took stock of yet
another round of failed plans and projects, they did so in the intellectual and
ideological climate of neo-liberalism. The problem was now perceived as one of
public distortion of private enterprise. Governments should not be involved in
economic enterprise. Rather, governments were there to provide a stable backdrop
to private economic activity. As Third World countries, burdened by
insupportable debts, turned to the International Monetary Fund for assistance,
they found themselves faced with a new set of development requirements. The old
had failed, but, at last, aid agencies had found the touchstone to
development-privatisation. No longer should governments seek to actively develop
the economies of their territories. Now they should provide the kinds of
political and economic environments which would stimulate the natural
entrepreneurial instincts of their populations.
From the mid-1970s, economic conditions began to deteriorate
around the world as a result not only of rapidly increasing oil prices resulting
from the monopoly practices of OPEC (a cartel formed by major oil producing and
exporting countries to control oil prices), but also· from a general stagnation
in economies around the world. Everywhere, and in every economic area, the world
seemed to be producing more than it could reasonably consume and so markets
faltered and prices fell. This provided an excellent platform for economic
theorists and practitioners who were opposed to the 'soft', 'uneconomic'
policies of developmentalism.
Neo-liberal economic experts managed to convince governments
everywhere that the only way in which countries could ensure long-term 'economic
well-being' was through removing those programs and regulations which distorted
'market activity'. It was in the distortion of processes of economic exchange
that the evils of the late 1970s and 1980s could be located. In this brave new
world, it would be the responsibility of governments to provide a stable
political and social environment and provide the necessary institutional
frameworks within which private, independent individuals, whether real or
artificial (see Geddes, Hughes & Remenyi 1994, pp.90f£.), could engage in
uninhibited, competitive, accumulative exchange. Governments, it was argued,
should get out of economics. Economic activity should be 'deregulated'. The
presumption has been that when markets are freed from government interference,
nations and communities will reap the rewards which accrue to those who operate
within streamlined, efficient economies. As Haworth describes:
Contemporary theoretical discussion around Public Choice Theory,
Agency Theory and Transaction Cost Analysis has presented a view of government
as parasitical on individual interests and resources. In this critique,
politicians and civil servants are transformed from Weberian constructs,
offering public service on a professional and vocational basis, to
self-interested abusers of resources coerced from the people ...
It follows from these arguments that the state as government
requires substantial pruning of its purview and an equally important
reorientation of its functions. This is perhaps most succinctly captured by
Friedman who baldly argued for government which:
... maintained law and order, defined property rights, served as
a means whereby we could modify property rights and other rules of the economic
game, adjudicated disputes about the interpretation of the rules, enforced
contracts, promoted competition, provided monetary framework, engaged in
activities to counter technical monopolies and to overcome neighbourhood effects
widely regarded as sufficiently important to justify government intervention,
and which supplemented private charity and the private family in protecting the
irresponsible, whether madman or child ... the consistent liberal is not an
anarchist.' [Friedman & Friedman 1962, p. 34]
(Haworth 1994, p. 28)26
Neo-liberal attitudes to government are well summed up by
Cristobal Kay:
The neo-liberals are ... hostile to the state and trade unions,
advocating privatisation, liberalization, private entrepreneurship and
deregulation of the labour markets. The state is seen as the source of most of
the development problems of the LDCs [Less Developed Countries]. They argue that
state interventionism (or dirigisme in Lal's terminology) has created
distortions in the price mechanisms which has resulted in the misallocation of
productive resources and therefore lower rates of growth. The neo-liberal slogan
is that imperfect markets work far better than imperfect governments and
planning.
(Kay 1993, p. 695)
Fundamental to the neo-liberal creed is the presumption that
Government should not interfere in the functioning of national or international
market exchange, either through regulations which attempt to straitjacket market
activity or through the supply of goods and services to the community. It is
there as an arbiter of disputes among suppliers and consumers, and its most
important role is in the maintenance of those rules and regulations which will
ensure that economic activity-the production, exchange, and consumption of goods
and services-remains equitable. This requires two important forms of
legislation.
The first is aimed at ensuring that those involved in a
transaction are 'free' from coercion to be involved in, or to settle the
transaction to their disadvantage. That is, the state should ensure that
economic activity takes place on a 'level playing field'. As Milton Friedman, a
neo-liberal theorist, explained, governments are responsible to ensure 'the
protection of individuals in the society from coercion whether it comes from
outside or from their fellow citizens. Unless there is such protection, we are
not really free to choose' (Friedman & Friedman 1980, p. 29).
Secondly, the state should ensure that the market remains truly
competitive. That is, it should ensure that there is no collusion on the part of
suppliers or purchasers to fix prices or to gain a monopoly in any area of
trade. This is because the most efficient economy is that which is most
competitive. Unfettered competition will ensure that prices are kept low, that
quality is constantly improved and that supply is similarly constantly improved.
It will also ensure that the reach of markets is constantly expanded as
competitors strive to remain viable through expanding sales. This will result in
the 'internationalisation' of business activities. Companies should be strongly
encouraged to operate across national borders, and a prime responsibility of
government is to make such internationalisation possible through removing
legislative obstacles. Unfettered competition will also ensure that suppliers
are forced to be innovative in improving and diversifying their product ranges
so that they might keep ahead of the inevitable saturation of the market by
particular products. This constant emphasis on innovation, it is argued, results
in human beings continually exploring their environments, searching for new ways
in which to profit. In the process they expand their horizons, thus ensuring
fuller development of the human potential.
These two requirements of government preclude it from
involvement in economic activity. One cannot allow the referee to start playing
because if the government is a player, it will also be a biased arbiter.
Further, since those who work for the government are not primarily focused on
material profit, but on the provision of services in the absence of competition,
they will, by definition, be less efficient than private enterprise. Such
services should therefore, wherever possible, be privatised to improve their
efficiency. So, there must be a clear and unequivocal separation of the public
realm of government from the private realm of economic activity. The primary
responsibility of the public realm is to ensure that private players abide by
the rules of fair trading.27
The rules of fair trading and economic development require two
fundamental principles to be maintained. The first is that no individual can be
compelled to enter into a transaction with another individual. The second is
that self-interested accumulative activity, provided it does not infringe the
first principle, should be rewarded. The person who, playing the game by the
rules, is able to accumulate property of one kind or another is not only
entitled to that property, but should be recognised as having substantially
contributed to the public good in the act of accumulation. Unless such people
are able to directly, materially benefit from their activity they will put less
effort into it. This, in turn, will result in economic stagnation. On the other
hand, if those who generate profits are allowed to retain them, they, through
reinvesting those profits, will generate increased economic activity. This is
because those who succeed in the marketplace will be those who have most
aggressively and single mindedly focused on production and exchange, on
expanding supply and on innovation. In short, the person will have proved
himself or herself to be an 'entrepreneur'.
The term is an important one, for it sums up all that is best in
a neoliberal world. Webster's Dictionary defines the entrepreneur as
'one who organises, manages, and assumes the risks of a business or enterprise'.
Synonyms include: capitalist, contractor, executive, producer, financier,
businessperson, broker, industrialist, merchant, retailer, impresario, backer,
and investor. In all these synonyms, the key feature is the assumption of risk
in making a profit, for the proof of entrepreneurial skill is in the rewards
that are accumulated.
To a person well enculturated in a Western industrial society,
this is unremarkable. We are all aware that economic success brings status and
respect. Those who fail economically lose respect and status; those who succeed
gain status; and those who manage to maintain their economic position relative
to those around them, in doing so maintain their present statuses.28 However, since economic
activity is by definition inflationary (that is it presumes constant expansion
of income), in order to maintain status Western individuals are required to keep
on achieving in the realm of work, in the pursuit of wealth.29 The dominant status system of Western
societies is based on constantly expanding income, which allows for constantly
expanding consumption. One of the ways in which people demonstrate expanding
income is through expanding conspicuous consumption. This, in turn, requires
constantly expanding production to meet the wants of those involved in
maintaining and enhancing status, which, of course, should generate increased
employment making further increases in national consumption possible.30
These assumptions are considered to be fundamental to human
nature.
It is assumed that since human nature is the distillation of
millions of years of evolutionary experience, human beings as individuals will
be adapted innately (through natural selection) to make the best of their
natural and social environments. (Of course, there are many who do not accept an
evolutionary explanation, preferring to rely on the 'natural law' argument [see
Geddes 1995] as justification for their belief in the primacy of independent and
competitively opposed individuals.) Effectively, therefore, if one removes all
social inhibitions aimed at channelling and distorting human behaviour, human
beings will be freed to real self-development which, inevitably, will be most
satisfactorily expressed in involvement in market exchange. So, human
communities are best served, and individuals will benefit most, if they are
empowered to engage in the uninhibited, competitive exchange of goods and
services. All human beings, it is claimed, are naturally and individually
competitively opposed to each other and intent on accumulation.31
In the light of these presumptions, it becomes inevitable that
neo-liberal advisers will argue for the 'privatisation' of government agencies
and activities. Government should not be involved in the marketplace, so all
services and goods supplied by government should be divested to private
investors. The only responsibility of government is to ensure safety and equity
amongst its populace. In Western nations, the movement towards privatisation has
resulted in a range of government agencies being sold in order to be operated by
private individuals or firms for private profit. In the Third World, the
consequences of this neo-liberal belief in the efficacy of 'market-led recovery'
have been far more dramatic.
Both the International Monetary Fund and the World Bank have
developed programs for the reorientation of Third World economies which directly
reflect the basic assumptions of the neo-liberal belief in the power of private
enterprise to kick-start Third World economies. These policies have come to be
known collectively as 'Structural Adjustment Programs' (SAPs). Barry Riddell
claims that:
... the I.M.F. has imposed 'conditionalities' in sub-Saharan
Africa as integral elements of Structural Adjustment Programs (S.A.P.s) that
affect not only the lives of all the inhabitants, but also the nature and
landscapes of the nations concerned-their very geographical composition ...
Although the specifics of S.A.P.s differ, four basic elements are always
present: currency devaluation, the removal! reduction of the state from the
workings of the economy, the elimination of subsidies in an attempt to reduce
expenditures, and trade liberalization ... at the same time, the countries
themselves are altered in certain fundamental ways. These involve the
organisation of the state, the character of the environment, the supply of food,
the meaning of development, urban-rural interaction, and distinctly different
future prospects for the several areas that make up the Third World.
(Riddell 1992, p. 53)
Governments are fundamentally affected by structural adjustment
programs in a number of ways. First, the old active involvement in planning and
promoting economic development, assumed under previous development regimes,
disappears. The government should now avoid any involvement in planning and
promoting economic activity. This should be left to the 'private-sector'.
Second, the government should divest itself of all those areas
of service provision which, in the past, have largely been its rationale for
existence. Now, those government departments and agencies involved in the
delivery of services to the population should be sold to private enterprise.
Governments should, in this new climate, distance themselves from service
provision. This policy of privatisation originated, as Mitchell and Manning say,
in First World government reorganisation:
The contemporary idea of public-private partnerships as an
approach to economic development had its origins in American and British public
policy during the late 1970s. Faced with a mushrooming budget deficit and a
stagnant economy, the Carter administration tried to curb government spending
through the introduction of zero-based budgeting and championship of
the concept of privatisation. The former meant justifying government
spending programs each year during the annual budgeting cycle. The latter
advocated spinning off feasible programs to the private-sector, where they would
be operated on a for-profit basis ... Both tactics were meant to save the
government money, and perhaps make the economy work more efficiently, by
broadening the sphere of activity directed by market forces.
(Mitchell & Manning 1991, pp. 45-6)
The emphasis on privatisation in the 1990s is primarily a
movement away from treating individuals as 'citizens' to treating them as
'clients' and 'customers' (see Sharp 1994, p. 4), from seeing the population as
members of a co-operative community, to seeing them as competitive,
individualised consumers. In such circumstances, individuals are required to
accept the costs of services as individually attributable. Any who require
'subsidisation' in order to meet their needs and wants are therefore exposed as
'inefficient,' as a 'cost' on other individuals, as a 'tax burden'. This
movement from community to individual responsibility is based on a definition of
all acceptable exchange as competitively balanced and individualised.32 Social responsibility has,
therefore, to be legislated and 'public watchdogs' appointed to ensure the
welfare of those who rely on 'subsidies' to make ends meet while eliminating
'cheats' and 'frauds'.
In Third World countries, an implicit purpose of this
privatisation of service provision is, of course, to sever the political
connection with revenue raising, thus, supposedly, reducing the level of
political opportunism and corruption associated with service provision and the
syphoning of resources from government coffers into political networks. Of
course, as has been described in Capitalism and Third World Nations, such syphoning of funds
into patron-client networks is a feature of both government and business
organisation in many Third World countries. In order to reduce political
involvement in business organisation and activity, it becomes necessary to
deregulate private enterprise, to remove the legislative levers which can be
manipulated by politicians and their associates to ensure access to revenue from
private business.33 Once
this happens, since transnational companies can now develop their activities
within Third World countries with less need for political sponsorship, business
activity quickly passes into the hands of foreign entrepreneurial forces.
Transnational companies have learned, over the past twenty years, to utilise
their superior international integration in order to maximise their control
within national boundaries. As the Secretary-General of UNCTAD explains:
International trade and production have not expanded at the same
rate as international financial transactions, but production by transnational
corporations has grown faster than trade. More importantly, trade and the
internationally integrated production of TNCs have acted both separately and in
interplay with each other to increase interdependence of economies in terms of
production activities, lending a qualitative dimension to globalisation that
distinguishes it from its earlier variants ... The principal driving force in
the globalisation process today is the search of both private and publicly-owned
firms (and more generally, producers and asset holders) for profits worldwide.
Their efforts are made possible or facilitated by advances in information
technology and by decreasing transport and communication costs. To maintain or
increase market share and maximise profits in a world economy with rapid
technological change, converging consumer tastes and liberalised flows of goods,
services, capital and technology across national boundaries, firms are pursuing
strategies that allow them to exploit all available sources of competitive
strength, combining their own, firm-specific assets with assets that are
specific to particular locations. They minimise transaction costs and maximise
efficiency and profits through appropriate choice of modes of international
transactions and distribution of assets and of international production activity
... As firms increasingly see transnational production as necessary for their
competitiveness and profitability, they are exerting more and more pressures on
Governments to provide conditions that will allow them to operate worldwide.
This involves not only further liberalization of international trade but also
freedom of entry, right of establishment and national treatment, as well as
freedom for international financial transactions, deregulation and privatisation
... Macroeconomic forces have, meanwhile, exerted other pressures on firms and
Governments. Slow growth of demand, stagnant wages and persistently high
unemployment in the developed countries over the past 20 years have resulted in
pressures from firms and workers that have influenced these countries' policies.
The slow growth of domestic demand and the related squeeze on profits in
developed countries has led firms there to intensify their search for growth and
profits in other markets; in so doing, they also apply pressure on their home
Governments to demand greater openness of foreign markets.
(UNCTAD 1996, ch. 1, pp 15-16,20-21)
Not only have neo-liberals seen big government as the bete
noire of development and emphasised privatisation of government activity and
the deregulation of private enterprise to counter this, they have also seen such
government as responsible for the debt crisis of Third World countries. Since
the late 1970s, First World lenders have remained concerned about the ability of
Third World countries to service debts accumulated during the heady days of the
1970s. During the 1970s, as OPEC countries tried to reinvest windfall profits
from the rapid rise in oils prices around the world, First World banks,
embarrassed by the large amounts of money available for investment, were less
than cautious in their lending policies, encouraging Third World governments and
private enterprises to borrow heavily on very little security. One of the
consequences of the flood of money available to Third World elites was a rapid
inflation in the purchasing power of those who had access to the borrowed money.
As Briones and Zosa describe for the Philippines:
The benefits of the debt have long been enjoyed by the governing
and favoured elite, and they are still reaping the benefits of the current debt
management strategy. The masses, on the other hand, bear the burden of debt
service through expenditure cuts in economic and social welfare services in the
national budget.
(Briones & Zosa 1994, p. 258)
As we have seen for both Indonesia and Nigeria (see chs 2 and
9), Third World elites, linked through a range of patron-client relationships,
gained access to money borrowed by both government and business interests and
were able to use this money to further their own status aspirations. ~ resulted
in an inflation in expectations amongst elites. Since, in communities where
social templates are not primarily based on material accumulation, any inflation
in the material requirements of those with status becomes firmly
institutionalised, this inflation results in a rapid reduction in the material
quality of life for those of lower status as soon ~ access to external
borrowings dries up (see Geddes, Hughes & Remenyi 1994, pp. 112ff.). Rather
than the anticipated 'trickle down' effect, assumed to result inevitably from
investment of the borrowed funds in productive enterprise and the consequent
increase in labour requirements, Third Work communities experienced the reverse.
Communities experienced a 'trickle up' effect as patrons sought new avenues of
funding for their new need~ and clients realised that their patrons were only
useful if they could retain their status positions, which required them to
contribute to the costs 0 those needs.
During the 1980s, those Third World governments and private
enterprises which had gained access to the windfall funds of the 1970s
inevitably found themselves unable to meet debt servicing costs and First World
lenders became concerned that they might default on their loans They took steps
to ensure that this would not happen. As Briones and Zos. describe of the
Philippines:
... for more than two decades, external debt accumulation in the
Philippines has been characterised by an accelerating trend. These are monetary
and non-monetary liabilities incurred by both the public and the private-sector
from foreign entities such as commercial banks, multilateral organisations, the
International Monetary Fund, the private bond market, foreign government and
bilateral agencies, and other foreign institutions ... The Philippines external
debt increased almost ninefold between 1972 and 1982 ... This illustrates the
policy of development financing during the period-a policy where development
projects were financed by borrowings from external sources, particularly from
the international financial system, which was awash with recycled petrodollars
... Investment and international financial resources flowed into their
economies. Unfortunately, global finance innovations also facilitated the
outflow of these resources in larger amounts through capital flight, which
resulted from the unsettling political and social events prevailing at the time.
The outcome was the 1983 debt crisis where debtor economies like the Philippines
had to declare a series of moratoria on debt service payments ... Even after the
debt crisis, the Philippine external debt continued to rise. This was accounted
for mainly by net availment of foreign loans, foreign exchange fluctuations, and
capitalised interest on debt service payments after the debt reschedulings
following the moratoria ... Again, shift in the international financial and
monetary systems played a major role in the structure of the Philippine external
debt. With the capitalisation of unpaid interest after the moratoria, debt
stocks rose and correspondingly bloated debt service payments. This necessitated
the need for more loans and financial assistance, which the international
financial community provided at increasingly higher costs financially,
economically, and politically. The access enjoyed by developing countries to
Eurocurrency credit markets in the 1970s and 1980s made these debtor nations
more vulnerable to foreign exchange fluctuations.
(Briones & Zosa 1994, pp. 253-5)
A feature of most structural adjustment programs instituted in
Third World countries has been the emphasis placed not only on the privatisation
of government services, but also on the need to attract foreign direct
investment (FDI). One way in which to lure investors into Third World countries
and, simultaneously, tackle their debt burden has been the promotion of a
variety of debt reduction schemes through which investors can avail themselves
of national assets at bargain basement prices. These 'debt-equity conversion
programs' include ways in which foreign investors can avail themselves of
national assets, usually in the process of the privatisation of government
assets in the course of structural adjustment programs devised and overseen by
the World Bank and the International Monetary Fund. The schemes involve
governments in reducing debts, primarily to commercial banks, in exchange for
government assets or for private-sector assets, often bought with discounted
local currency. This is best explained through an example. The following is a
debt-equity swap arranged by General Motors in Mexico. The summary comes from
the presiding Judge Stephen Swift's summation of a case brought before the US
Tax Court by the US Inland Revenue Service against General Motors for
understating its gains in the transaction:
In October 1987, G.M. Trading paid $600,000 to the NMB
Nederlandsche Middenstandsbank N.V. Bank (NMB) for $1.2 million of U. S.
dollar-denominated debt guaranteed by the Mexican government, reflecting the
prevailing market discount rate of 50% for such debt. The company incurred
$34,000 in fees as a result of the transaction. In November 1987, the Mexican
Ministry of Finance and Public Credit deposited 1,736,694,000 pesos-equal to
$1,044,000, or $1.2 million at a 13% discount-into an account established in
Procesos' favour. Procesos then transferred 173,670 shares of its class B
stock-one share for every 10,000 pesos or remaining fraction thereof-to the
Mexican government, which transferred them to G.M. Trading in exchange for
cancellation of the $1.2 million dollar-denominated debt. The Internal
Revenue Service argued, and the court agreed, that G.M. Trading realised a
$410,000 gain on the debt-equity exchange-the fair-market value of the
1,736,694,000 pesos less its $634,000 cost of participating in the exchange.
(Zobrist, Wichman, Murai & Ichiki 1992)
As this example illustrates, debt/equity transfers often involve
the transfer of debts incurred by private enterprises to the government. The
buy-out of Procesos by G.M. Trading was based on an initial Mexican Government
bail-out of the company to the tune of $US1 044 000, for which G.M. Trading paid
a total of $US634 000 in external funds.
During the 1970s, many development advisers believed that the
flood of investment finance available to Third World enterprises would ensure
rapid industrial development. They advised governments, therefore, to underwrite
private enterprise borrowings, assuring them that future investment returns
would not only meet debt repayments but also generate increasing public
revenues. As private enterprises failed, governments found themselves
responsible for their external borrowings. Short of defaulting on their
commitments, there have been two principle ways in which they have grappled with
the mounting debt burden created by private enterprise failure. They could
assume responsibility for the debt, and pay it out in local currency through the
transfer of resources to transnational companies, as in the above case, or they
could buy back the debt papers from banks themselves at a fifty per cent
discount, though this, of course, usually requires further borrowing of 'hard
currency' to fund the buy-back-usually at high interest rates because the credit
worthiness of governments facing such difficulties is obviously low. The result
of either practice can create new problems for Third World governments, as
Briones and Zosa describe for the Philippines:
The Philippines has reduced around $3.4 billion of external debt
through the above-mentioned schemes, including its debt buy-back of US $1.3
billion. It is important to stress that, although these voluntary debt reduction
schemes may ease cash-flow payments, they are clearly inadequate to reduce
overall debt stocks. Furthermore, these schemes are expensive and require
foreign exchange resources to implement. For example, the cash buy-back of US
$1.3 billion (which involved purchasing the debt papers at 50 cents in the
dollar) had to be supported by an official loan of US $650 million from
multilateral and bilateral creditors as the Philippines did not have the
reserves to support the buy-back. Thus, what was gained in reduction of
commercial bank debt was lost in terms of an increase in official loans.
Furthermore, debt-equity programs and other debt schemes also create undue
inflationary pressure. These, too, link the debt problem to investments in
debtor economies like the Philippines. As scarce capital deters local investors,
the premium enjoyed by investors in debt-equity programs and debt-for-note/debt
programs favour foreign investors and accords them the opportunity of availing
themselves of the assets/resources in the economy at 'sweet-heart' prices. The
hold of transnationals in key industries and sectors of the Philippine economy
remains a burning issue. In the medium and long-term, the pressure on foreign
exchange reserves brought about by profit remittances will also have to be
addressed.
(Briones & Zosa 1994, pp. 269-270)
It is little wonder that political leaders in Third World
countries are now speaking of a new age of colonialism, in which those major
assets of Third World countries which are not already foreign owned pass into
the hands of transnational companies at bargain-basement prices. In these new
arrangements, Third World governments often become partners in
public-private partnerships dominated by overseas interests. Those
interests invariably argue for further reorganisation of national economies
along neo-liberal lines, decreasing government involvement in economic activity,
and further deregulating economic and financial activity. This, in turn, further
facilitates the free movement of capital and enables the ready transfer of
profits from Third World countries into the rapidly expanding financial markets
of the West. There are a number of important consequences of reorganising
communities in terms of neo-liberal principles.
The first is that uninhibited competition will always act to
drive down costs and prices. The most successful firm will be the one which is
able to lower costs, and therefore lower price, and so gain an edge over rivals
in the marketplace. Over time, this inevitably puts downward pressure on primary
commodity prices, that is on the raw materials of production, or the basic
production inputs. As those prices decrease, small holdings become non-viable
and smallholders are forced to sell and move off the land. The processes of land
consolidation and constantly increasing economies of scale result, inevitably,
in the movement of people out of the countryside and into towns and cities. This
phenomenon is not confined to Third World countries. Average farm sizes in
Western nations have similarly expanded over the past century. The consequences
are the rural-urban migration phenomenon of the twentieth century and the
emergence of a growing population of people who have lost access to subsistence
resources and must rely on whatever money they are able to obtain from activity
in towns for subsistence. This, in turn, has resulted in very large informal
economies in most Third World countries. As Charmes describes:
Estimates of the informal sector as comprising between 20 and 60
per cent of urban or non-agricultural employment are now accepted truths, and
the wide margin is taken as evidence that the lower level of development of a
country, the larger its informal sector ... Whilst these data provide a measure
of the importance of informal activities in the towns or urban regions
concerned, they cannot be used for more thorough analysis or for international
or temporal comparisons because of the diversity of definitions adopted, sources
used and assumptions needed to reach these estimates. Some of them are based on
a definition by income level (Asuncion, for example) or by nonwage
employment, while others give no specific definition because of the lack of
genuine national data (Niger). For this reason, estimates based on the
application of a single criterion of definition are of greater value: this
criterion may be the non-agricultural and nonwage labour force, a statistic
which can be drawn directly from population censuses, or the non-agricultural
and non-registered labour force, a statistic which requires comparison of
population census findings with registration sources, such as enterprise
surveys.
(Charmes 1990, p. 17)
Perhaps the most important point to remember in considering
informal economic activity in Third World countries is that people are involved
in supplying their subsistence and status-related needs and wants in ways which
are acceptable to people in their own communities. They are organising activity
in ways which 'fit' the requirements of the social templates which underwrite
all communal organisation and activity (see Geddes 1995). The forms of
productive exchange and consumptive organisation and activity which emerge are
likely to reflect more closely forms from the community's own past than formal
economic organisation and activity. For this reason, a great deal of the
activity will only coincide poorly with the requirements for involvement in
Western economic activity, that is in 'formal' economic activity. Attempts by
well-meaning development agencies to 'harness the informal sector' in promoting
formal economic development are inappropriate since they are attempts to
refashion such activity to fit the presumptions and requirements for involvement
in Western social template activity. The social engineering implications of such
attempts are enormous, though seldom recognised by those who promote such
refashioning.
Formal economic activity will always focus on
areas where money is to be made. That is, by definition, production will
continue to expand until it is surplus to requirements. Western economies are
premised upon a supply glut, not on supply scarcity. This feature,
in combination with the consequences outlined above, results in the stimulation
of production at ever reduced cost since once an individual or firm has invested
capital in production, it is often difficult in the real world to diversify. So,
the only way to maintain income as prices are being driven down is to increase
production. This results in a paradox. The less profitable that production
becomes, the greater the effort to increase production to compensate for falling
returns through increased sales. Until, of course, the firm or individual can no
longer compete and the business collapses. The consequences of this are, of
course, that constantly increasing demands are made of the environment. At the
very time when those involved are least able to afford the costs of
environmental protection, they are being forced into expanded utilisation of the
resources available to them. Under such circumstances, relatively costly
conservation programs are beyond the means of those whose activity is most
likely to result in long-term environmental degradation. This has, in many Third
World countries, resulted in looming environmental disaster. As James Speth has
described:
... according to recent estimates by the world's leading soil
scientists, an area of about 1.2 billion hectares-about the size of China and
India combined-has experienced moderate to extreme soil deterioration since
World War II as a result of human activities. Over three-fourths of that
deterioration has occurred in the developing regions, most of it in arid and
semi-arid regions. When combined with other environmental threats to the
agricultural resource base-loss of water and generic resources, loss of
cultural resources, and climate change, both local and global-the situation is
disturbing indeed.
(Speth 1994)
As long as there is money to be made from an activity, the
number of producers will continue to multiply and the exploitation of resources
will continue to expand until they are in short supply. That is, economic
activity becomes premised on a scarcity of resources. As resources become
scarce, people, inevitably, utilise those which are only marginally productive.
This process has been compounded in Third World countries through the
expropriation of resources for capitalist development. As Dharam Ghai says:
The establishment of colonial rule in the 19th and early 20th
century in most parts of Africa set in motion a series of developments with
profound implications for the environmental balance. The principal mechanisms
disturbing the equilibrium were expropriation of land for settlement and
plantations, assumption of state sovereignty over natural resources,
commercialisation of agriculture, development projects and policies and
population growth ... these developments not only disrupted the long established
systems of shifting cultivation and nomadic pastoralism but also confined
indigenous populations to restricted areas often of low agricultural potential
... The situation varied by regions and colonial authorities but the general
trend was towards increasing central control and growing disenfranchisement of
local communities ... The process continued after independence from colonial
rule ... The search for profits brought an ever increasing area of land under
cultivation. Some of the earlier practices of crop rotation, intercropping,
mixed farming and shifting cultivation were either abandoned or restricted ...
the growth of export commodities such as cotton and groundnuts reduced soil
fertility and increased its vulnerability to erosion. This was especially the
case with continuous mono-cropping. The deleterious effects on soil fertility
have also been observed with continuous mono-cropping of food crops such as
maize even when fertilisers are used.
(Ghai 1993, p. 65)
While resources are available, the number of suppliers and the
volume of production will continue to expand until production exceeds the
requirements of the marketplace. This has been an experience shared by most
Third World communities over the past fifty years. What starts as a specialised
product for a niche market, becomes the flavour of development programs as word
passes from one aid organisation to another. Before long, the market has been
saturated and the investment made in necessary infrastructure becomes added to
the debt load of the country. In almost all cases, the number of suppliers
greatly exceeds the number of buyers, the market forces competition upon
suppliers, forcing down prices until returns on production are marginal. At that
point, and not before then, production stops expanding. With production
marginally in excess of market requirements, producers remain in competition and
economic success depends on reorganisation of production to trim costs. Those
producers who do not reorganise production, or do so less effectively, become
uncompetitive and drop out of production. This, over time, leads to economies of
scale so that small producers find themselves unable to compete with large
producers. As the size of productive enterprises grows, the sophistication of
production also increases as producers look for new ways of cutting costs,
leading to increased use of machinery and other forms of cost-reducing and
production-increasing technology. As this happens, the capital requirements of
being involved in production escalate, making it less likely that new firms can
successfully enter into the marketplace to challenge the dominance of the large
players.
Many Third World countries, in trying to develop viable
industrial sectors, have found themselves in just this position in relation to
already industrialised countries. With the emergence of Just-In-Time production
processes, they become relegated to the position of suppliers of cheap labour
until the industries which have relocated to take advantage of that resource
re-tool with emerging technology and relocate nearer their major markets.
Consequently, in attempts to attract and then retain industry to their regions,
governments find themselves having to offer greater and greater incentives,
sometimes supplying most of the necessary infrastructural supports, in order to
lure companies to relocate. Of course, the smaller the necessary investment in
establishing a factory, the easier it is for the business to relocate elsewhere
in pursuit of cheaper labour or more attractive inducements. Third World
governments find themselves subsidising transnational corporations in order to
ensure that they locate and remain in their countries. At times, the returns to
Third World countries barely cover their outlays in attracting and retaining
transnational corporate investment in the country. As John Borrego describes:
The spatio-temporal unity of the polity and economy,
characterising the earlier phases of capitalist development, has been fractured.
The State's capacity to mediate between market and society has been weakened. In
particular, global capitalism has substantially reduced the local, regional and
national State's control over its economic and non-economic environments (Ross
& Trachte, 1990). Post-Fordist firms seek settings with 'good business
environments'. While this concept can suggest qualities such as a skilled labour
force and highly developed and maintained infrastructure, it can also mean
low wages, weak unions, and lax regulation of the work place and
environment which disempower people and communities. In this setting, States use
tax abatements and various other subsidies to attract or Simply hold businesses.
'Economic development' often means States encouraging competitive rollbacks in
all these areas which force communities into 'placewars' in order to attract
globally mobile capital (Mingione, 1991; Donald Haider, 1992: 127-134).
(Borrego 1995, pp. 37-8)
Since only those producers who are able to respond to market
forces will survive, those who find themselves no longer able to economically
compete in a particular product area will, if they are to remain economically
viable, have to find other products for which there remains a strong demand.
That is, they will have to diversify. So, long-term economic success in the
Western marketplace requires access to, and understanding of, the emerging
technologies for reducing costs and increasing production and/ or sufficient
grasp of market realities to be able to predict future demand and gear
production to that prediction.
In the real world, of course, few small operators are able to
rapidly change from one form of production to another as the market becomes
saturated. This kind of rapid response to market demand requires the sort of
sophisticated technologies, organisation and information employed by Sony, as we
have already seen. Small producers do not have access to the necessary
information, technology and organisational expertise and so are unable to
successfully compete with transnational companies. Instead, as profitability
drops, production tends to expand until the cash reserves of producers are
expended and they have been driven into debt. Then, already in debt, they are
forced out of production-there is little possibility of diversifying into more
profitable forms of production since that would require capital and they have
already used their surplus in a vain attempt to remain viable in the current
form of production.
This scenario is played out all over the world as product supply
to the market reaches saturation levels. And, since the aim of production is to
make money, the only way in which a producer can ensure that he or she remains
in a profitable venture, other than through cutting costs and increasing
production, is through cornering the necessary resources for that production,
that is through gaining a monopoly in an area of production. This is seldom
possible in primary production, and Western nations have laws limiting the
possibility of monopoly control of production since it is well understood that
cartel price-fixing arrangements, or the cornering of a market by a single
producer, limits the possibilities of production and therefore erodes the
efficiency of the marketplace.
The inevitable end result of this play of market forces is not
increased well-being for small producers, but marginal subsistence. Only those
producers who are prepared to lower prices until they can just survive will
remain. All others will lose market share. The sweat shop is not a step on the
road to 'economic development', it is the destination of most Third World people
who aspire to Western-style economic development. Western economic forces, given
free rein, lead to the mass of people living lives of borderline starvation, of
endemic poverty, with the few who control the means of production able to
maintain wealthy lifestyles.
One of the important reasons why Western nations introduced
baseline wage rates through the last part of the nineteenth and the twentieth
centuries has been because without them market forces would have reduced the
bulk of the population to this level. Now, through deregulating national
economies and universalising competition, those countries which decide to retain
basic wage rates find themselves unable to compete in labour-intensive
production with countries which do not have basic wage rates. Inevitably,
therefore, those who are ideologically committed to allowing market forces free
play argue that it is 'rational' to remove basic rates. But rational for whom?
If the consequences of allowing market force: free rein is the long-term
impoverishment of the majority of the population then that which is rational in
terms of the marketplace becomes irrational in terms of the long-term well-being
of communities of people.
The presumption that there is an 'unseen hand' ensuring that
what is good for the marketplace is good for society is an ideological one, and
is not based upon a rational assessment of the long-term results of organising
society to serve the marketplace, but is based upon an historical argument which
certain sections of Western European communities used in justifying a break with
feudalism and a loosening of government restrictions on profit making. The
organisation of society to serve the marketplace was not to the advantage of the
majority of people in the eighteenth century or in the firs1 half of the
nineteenth century, and its success for Western nations in the latter half of
the nineteenth century and during most of the twentieth century has been based
upon privileged access to the resources of the world and low-cost primary
production to an expanding world market. However, the last two decades of the
twentieth century have, indeed, ushered Western communities into a 'new world
order'.
Western nations have accepted the arguments of neo-liberal
economics that in order to ensure 'economic efficiency', national economies need
to be deregulated and opened to worldwide competition. Of course, the arguments
are logically impeccable, given the forces driving Western economic organisation
and activity. In a deregulated world, those who don't deregulate cannot compete
in the international marketplace. But the reason they can't compete is that they
have retained those minimum standards of well-being which were set in place
during times of economic expansion.
In the long run, in a deregulated worldwide economy, there are
no winners. Since costs are always driven down, and prices are similarly
adjusted to the margins, the logical outcome of allowing market forces full play
is that small businesses become uncompetitive and large ones are made marginally
profitable. There seems to be a 'law of entropy' in action in the marketplace,
driving down production costs and prices and, in the process, reducing the bulk
of people involved in small-scale primary production to penury. As Paul Burkett
describes:
The severe economic crisis experienced in most of the periphery
in the 1980s is shown by World Bank data. During the 1980-88 period, the average
annual growth rate of real per capita gross domestic product (GDP) in the
countries of Sub-Saharan Africa (excluding South Africa) was -2.4 per cent. For
Latin America and the Caribbean, per capita GDP growth averaged -0.7 per
cent. Overall, per capita GDP shrank at an average annual rate of -0.8per cent
in the countries that the World Bank classifies as 'low-income' (excluding China
and India).
(Burkett 1991, p. 475)
Burkett asks why centuries 'of production for the world market
left the majority of Third World people with appallingly low living standards'
and concludes: 'One answer is that it is the global capitalist economy that
itself reproduces underdevelopment and poverty in the Third World' (1991,
p. 477).
Over the past twenty years, the world has become aware of a
growing population of destitute people living not only in Third World slums and
areas of rural depression, but also in First World cities. Stephen Gill suggests
that what has happened through most of the world is an extension of the kind of
disorder experienced in the old Soviet Union in the wake of Gorbachev's policy
of perestroika. As he says:
Robert Cox (1992) has coined the phrase 'global perestroika' to
describe this process. Thus, rather than being simply explicable in terms of
conscious political decisions and the direct use of political power, global
perestroika (that is, the process beyond the former USSR) has produced a type of
institutionalised chaos that is propelled by the restructuring of global
capitalism. Of importance here are accelerating changes in production, finance,
and knowledge that have given rise to a relatively coherent, interrelated
pattern. In this pattern there has been a cumulative if uneven rise in the
structural power of internationally mobile capital (Gill & Law 1988, 1989),
a rise that has brought with it certain limitations and contradictions. This
emerging world order, then, can be contrasted with the one that prevailed in the
metropolitan nations in the 1950s and 1960s. From the vantage point of the early
1990s, it appears to be characterised by deepening social inequalities, economic
depression for most parts of the world, and a reconfiguration of global security
structures. These changes are strengthening the strong, often at the expense of
the weak. The principle of distributive justice that is increasingly associated
with this order is, to paraphrase the Book of Matthew, 'to him that hath shall
be given, to him that hath not shall be taken away'. This is what I mean by
'patterned disorder'.
(Gill 1994, pp. 170-1)
The implementation of structural adjustment programs in Third
World countries seems to have resulted in just such a process of patterned
disorder. People have lost access to subsistence resource bases, communities
have been disrupted, poverty has become endemic in many areas of the Third
World, and the disparity between the rich and the poor has grown more pronounced
in both Third World and industrialised countries. But, at the same time,
internationalised business activity has become globalised and increasingly
profitable. For many people in Third World countries, globalisation seems like a
conspiracy of the rich against the poor and defenceless. As Marjorie Mbilinyi,
author of Big Slavery: The Crisis of Women's Employment and Incomes in
Tanzania (1991), said in an interview at the University of Guelph:
We could have a lot of despair in Africa right now. Many of us
see this as a moment of mass genocide. And it's a very conscious one, we think,
on the side of at least some big government actors as well as some of the actors
in agencies like the World Bank and the IMP. The peoples of Africa are being
steadily impoverished. They are also being dispossessed of their lands.
Governments like Tanzania, partly in response to popular demand, had begun to
nationalise assets and try to guide the economy in the direction that would meet
the basic needs of the people and increase national control and make it more
inward orientated. Now we have complete reversal so that it is almost worse than
in the colonial period.
(Mbilinyi 1994)
Fantu Cheru claims of African experience:
The overwhelming consensus among the poor in Africa today is that
development, over the past 25 years, has been an instrument of social control.
For these people, development has always meant the progressive modernisation of
their poverty. The absence of freedom, the sacrifice of culture, the loss of
solidarity and self reliance which I personally observed and experienced in many
African countries, including my own, explains why a growing number of poor
Africans beg: please do not develop us!
(Cheru 1989, p. 20)
There are strong international pressures for the deregulation of
economic activity within national borders and for the lowering of tariff
barriers and other forms of restrictive import and export regulations.
International business is becoming truly independent of national governments and
increasingly able to play countries and regions off against each other in
negotiating investment terms. And, in the process, is increasingly able to
escape responsibility for funding social welfare needs of the communities within
which it operates. In attempts to limit the effects of this
internationalisation, there have been a number of regional trade organisations
established, trying to gain the advantages of internationalisation while
maintaining some control over regional economic activity. In large measure,
however, they provide further support to transnational economic activity and
provide little regulation.
Nation-states, once firmly in control of economic activity
within their borders are, in a new deregulated, privatised world, decreasingly
able to shield their populations from the exploitative consequences of
unregulated and internationalised market exchange. Those countries with few
bargaining counters become those most vulnerable to demands by transnational
business for even more favourable conditions of trade and access to their
resources. For many people in Third World countries, the new economic order is
one in which they have lost what power they once had to control their own
destinies. They do not even have the recourse of the colonial past to appeal to
the colonising power to limit exploitation within their regions. Now, there is
no international forum capable of limiting and directing the bargaining
advantages of businesses whose holdings and turnover eclipse those of the
countries with which they do business. No longer is the economy the means by
which communities meet their needs and wants. Now communities service an
internationalised economy which need accept no reciprocal responsibilities for
their welfare.
1 See Why 'Third World'? for an explanation of the use of this
term
2 Janet Yellen (2007), President and CEO, Federal
Reserve Bank of San Francisco, described the Asian
experience:
At the time of the crisis, I was the Chair of President
Clinton’s Council of Economic Advisers, and, as you may imagine, it was
definitely a “front-burner” issue for us. As the crisis spread from country to
country, there was deep concern about how big the impact would be on the U.S.
economy, and the markets certainly were jittery: that October, the Dow Jones
Industrial Average plunged over 500 points. For the five Asian nations most
associated with the crisis—Thailand, Korea, Indonesia, the Philippines, and
Malaysia—the toll in both human and economic terms was enormous: in 1998, these
countries saw their economies shrink by an average of 7.7 percent and many
millions of their people lost their jobs. More broadly, there was concern that
the crisis had revealed new sources of risk in the international financial
architecture.
[Accessed 5th January 2010]
3 There has been a great deal of
discussion about and criticism of 'structural adjustment programs'
devised by the International Monetary Fund and World Bank to ensure that
the economies of countries requiring financial assistance are 'structurally
adjusted' to minimise future problems. Type the term into any search engine and
you will have access to thousands of these. Personally I
consider that the major problems of these programs relate to the
presumption by World Bank officials that countries can readily be refashioned to
Western neo-liberal economic understandings and forms of organisation and
practice. See Ideology and Reality for more on this.
4 How much richer our lives would be if we could
divest ourselves of the drive to self-promotional productivity and
consumption but retain our will to cooperate in a quest for understanding
and knowledge. The Writer of The Proverbs put it well:
Wisdom is supreme; therefore get wisdom. Though it cost all you
have, get understanding... How much better to get wisdom than gold, to choose
understanding rather than silver!
(Proverbs 4:7; 16:16 [New
International Version of the Bible])
As it is, our creativity becomes
harnessed to the capitalist drive to accumulation and consumption and directed
not by the creative and the inquiring, but by the self-promoting accumulators in
Western communities.
5 See Thomas More (1516); The Nature of Work
6 See Emergence of Capitalism
7 Letter to Colonel Edward Carrington, Paris, January
16, 1787
8 For an excellent, illustrated summary of the
experience on the African continent see Colonialism and Africa's Integration into the Global
Economy
Primary Revenue Generating Products During Colonial
Era
[accessed 16 January 2010];
also
Victoria Tauli-Corpuz and Parshuram Tamang (2007) for 'the
impact of commercial tree plantations and monocropping on indigenous peoples’
lands and communities'.
9 These constantly escalating demands have not
lessened in the late twentieth century. As long as Western social templates are
centred on competitive material accumulation and consumption, attempts at
'sustainable development' must, by definition, fail. Sustainability requires a
stable demand for material goods. This can only happen when the social templates
of communities are focused on something other than competitive, individual
material accumulation and consumption. Of course, to hold consumption and
accumulation at present levels is already an unsustainable proposition. Unless
the social templates of Western countries and their accumulative and consumptive
demands are reduced to genuinely sustainable levels, and the status systems of
other communities are not warped through competition with the West and through
the stimulation of material needs and wants by promotional agencies,
'sustainable development' is an oxymoron.
10 This, of course, is a contentious assertion.
The populations of Third World communities are, indeed, out of control. However,
we need to ask when they began this uncontrolled growth. It seems that in almost
all Third World countries the take-off into uncontrolled population growth
coincided with the commencement of the 'development' drive of the post-Second
World War period. It is contended that the rapid increase in population growth
is largely a consequence of the disruption of communities, through attempting to
reorganise them to Western requirements. Communal controls on population have
been disrupted, and people are socially disorientated and confused. Population
growth is no longer driven by the needs and requirements of communities, and
individuals have not been reorientated to Western forms of individualised
population control based on material cost calculations. As I have argued
elsewhere (Ideology and reality), Western belief that people can easily
be reorientated to Western assumptions and Western drives is naive. The more
vigorously such attempts are pursued, the more disrupted communities become and
therefore the less effective population control measures become.
11 We must, of course, remember what this term
refers to in economic parlance. It refers, as Marx observed, to the removal of
social restrictions on the exploitation of labour and of competitive exchange.
12 This is not competition within 'classes',
since class, as a means of evaluating comparative social status is becoming less
important as capitalism becomes the ideological lodestone of increasing numbers
of people in Western communities. Class designation is the last of the feudal
designations, warped by changes from co-operative to competitive hierarchical
relationships, to succumb to the individualising forces of Western capitalism.
13 Discretionary income is income which is
surplus to the provision of 'necessities'. The growth in perceived 'necessities'
in Western communities tends to absorb discretionary income. When individuals
find that there is a regular surplus income, they tend to commit that surplus to
expenditure which becomes a part of future 'need provision'. If, at a later
time, a person is no longer able to fund such a commitment, that person feels a
genuine sense of deprivation, of impoverishment.
14 It needs to be remembered that any business,
in order to ensure competitiveness, will, by definition, challenge any costs,
attempting to reduce or eliminate them in the drive to competitive pricing and
increased profit. Challenges to 'social costs' are not, in fact, based on
attempts to lower standards of living for community members, but on attempts to
lower product prices and increase profits. One need not assume some kind of
conspiracy between 'owners of the means of production' to profit at the expense
of less fortunate community members. That might be a consequence of the drive to
lower costs, but it is not the purpose of that drive. Rather, attempts to lower
or remove social costs of production are a consequence of the nature of 'free
markets'. They are effects of the system, not evidence of class conspiracy.
15 In Marxist terms, pre-capitalist 'modes of
production' supported the new capitalist mode of production, allowing businesses
to exclude the social requirements of the communities within which they existed
in their calculation of production costs. As those pre-capitalist modes were
displaced, businesses rejected community demands for inclusion of those costs as
part of the costs of production. They saw themselves not as intrinsic to the
community within which they existed, as its means of supplying its needs and
wants, but as external to it, living alongside it, and in competition with it as
a supplier of labour. Yet prominent community leaders were, almost inevitably,
also prominent capitalists. In their felt need to keep costs from rising, they
accepted this separation of the economic environment from the community in which
it was placed, leading to a constantly diminishing community capacity to ensure
the social welfare of its members.
(See International Review
of Social History Vol. 53 Supp. 16 (2008) for a re-appraisal of the classic
distinction between the "capitalist" and "pre-capitalist" modes of
production.)
16 This has often been called a 'developmentalist'
approach to economic activity. The government sets in place legislation to
channel economic activity in directions thought to be appropriate to the needs
of the community and to furthering the viability of business in order to ensure
long-term social welfare.
17 Unfortunately, costs related to maintaining the
integrity of the environment from which raw materials are extracted
are usually excluded from consideration. The environmental
deterioration is accepted as 'collateral damage' of capitalist
enterprise. Costs related to maintaining the integrity of the community from
which labour is drawn and within which capitalist enterprise is conducted are
similarly ignored in the interests of 'profitability' and 'competitive
advantage'. Is is only possible to do this if 'the economy' and 'economic
activity' are considered entirely separate from other 'environments', an
independently existing, self-regulating domain (see Emergence of Capitalism).
18 British Prime Minister Margaret Thatcher,
talking to Women's Own magazine, October 31 1987:
I think we've been through a period where too many people have
been given to understand that if they have a problem, it's the government's job
to cope with it. 'I have a problem, I'll get a grant.' 'I'm homeless, the
government must house me.' They're casting their problem on society. And, you
know, there is no such thing as society. There are individual men and women, and
there are families. And no government can do anything except through people, and
people must look to themselves first. It's our duty to look after ourselves and
then, also to look after our neighbour. People have got the entitlements too
much in mind, without the obligations. There's no such thing as entitlement,
unless someone has first met an obligation.
19 See Russell (1916 page 81) for a short history
of the first run on a bank in England in 1667 and the subsequent
establishment of the Bank of England in 1694.
20 See The History of the FDIC for more on this.
21 See Reserve Requirement: History, Current Practice, and Potential
Reform for a description of U.S. FDIC monetary policy; Meltzer (2003)
for a history of U.S. monetary policy to 1951
22 However, recent shifts to 'flexible automation' in
many industries have made this advantage less important and have resulted in
declining international investment in many Third World countries in recent years
(see Schoenberger 1994).
23 The principles underlying moves to 'free'
international trade from the disadvantages of 'protectionism' are well spelt out
in the World Trade Organisation (WTO) statement of purpose:
The economic case for an open trading system based upon
multilaterally agreed rules is simple enough and rests largely on commercial
common sense. All countries, including the poorest, have assets-human,
industrial, natural, financial-which they can employ to produce goods and
services for their domestic markets or to compete overseas. 'Comparative
advantage' means that countries prosper by taking advantage of their assets in
order to concentrate on what they can produce best. This happens naturally for
firms in the domestic market, but that is only half the story. The other half
involves the world market. Most firms recognise that the bigger the market the
greater their potential-in terms of achieving efficient scales of operation and
having access to large numbers of customers. In other words, liberal trade
policies which allow the unrestricted flow of goods, services and productive
inputs multiply the rewards that come with producing the best products, with the
best design, at the best price ... The alternative of import protection and
perpetual government subsidies leads to bloated, inefficient companies supplying
consumers with outdated, unattractive products. Ultimately, factories close and
jobs are lost despite protection and subsidies. If other governments pursue such
policies overseas, markets contract and world economic activity is reduced. One
of the objectives of the WTO is to prevent such a self-defeating and destructive
drift into protectionism.
(WTO Home Page; http://www.unicc.org/wto/2_1_0_wpf.html)
24 This has been clearly demonstrated in the shift in
taxation towards income and away from business through the last twenty-five
years in Western countries. The top rate of income taxation in Australia
twenty-five years ago was applied to those incomes which were more than ten
times the size of average incomes. In 1996, the rate cuts in for incomes which
are one-and-a-half times the average wage. That is, the social welfare
requirements of the community are increasingly being borne by wage earners,
rather than by economic enterprises.
25 In fact, they do not appear to have seriously
hampered economic development in the East Asian 'tiger' nations.
26 See Boston (1991) for a discussion of the emergence
of these theoretical arguments.
27 See Geddes, Hughes and Remenyi (1994, pp. 90ff.)
for a discussion of the nature of and relationship between 'private' and
'public' environments in Western communities.
28 See Geddes, Hughes and Remenyi (1994, pp. 64ff.)
for a discussion of status systems or 'social templates' in Western and
non-Western communities.
29 See Geddes, Hughes & Remenyi (1994, pp. 108ff.)
for a discussion of the nature of 'achievement' in Western communities and some
contrasting orientations in other communities.
30 See Geddes (1993 pp. 105ff.) for a discussion
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31 See Geddes (1993, pp. 117ff.) and Geddes, Hughes
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exchange. The presumption that there is only one definition of human exchange,
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imposed by society, seems to be based on a rather naive understanding of
processes of categorisation and classification and therefore of processes of
human interaction.
32 See Geddes (1993, pp.117ff.) and Geddes, Hughes and
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