Global economic forces, Western realities:
From
Protectionism to Neo-Liberal Free Markets
Bill Geddes
June 7th 2010
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 Rather than creating costs, both
regulation and deregulation shift them… Regulation and deregulation each
consists of
lower costs for one party and higher costs for the
other.
(Samuels & Shaffer 1982, p. 467)
`Well! I've often seen a cat without a
grin,' thought Alice; `but a grin without a cat! It's the most curious thing I
ever saw in my life!'
(Lewis Carroll Alice's Adventures in
Wonderland)
The Regulation—Deregulation Cycle 
The problem of 2010 is 'sovereign debt' 1.
Western nations have profligately continued to fund social
welfare measures — such as aged pensions, free health care, free education,
unemployment benefits, child and family support, poverty alleviation … — as
though they still lived in a regulated and protected world.
But the world has been deregulated, protection has been traded
for globalisation. "Public debt sustainability has exploded as a serious issue
in advanced economies" (Roubini 2010).
The social welfare component built into production and financial
sector costs in Western nations is disappearing. Like the Cheshire cat, we are
left with little but the grin! Deregulation has shifted the costs from 'the
economy' to sovereign debt.
Western nation-states, once firmly in control of economic
activity within their borders are, in the deregulated, privatised world of the
21st century, decreasingly able to shield their populations from the
exploitative consequences of unregulated and internationalised financial
manipulation.
Now, there is no international forum capable of limiting and
directing the bargaining advantages of finance houses whose international
financial dealings eclipse those of the countries in which they do business.
No longer is the economy the means by which communities meet
their needs and wants. Now communities service an international network of
independent financial corporations which need accept no reciprocal
responsibilities for their welfare.
The surprise displayed by so many 'financial experts' in the
first decade of the 21st century, at the failure of the highly
suspect investment, lending and 'risk management' strategies of major Western
financial enterprises; and the subsequent need for bailout via increases in
'sovereign debt', begs the questions.
How is it that we, Western people, could be held to ransom by
international financial corporations?
and;
Why weren't they alerted by
the financial woes experienced in the so-called 'Tiger' economies of the 1990s
2 and so prepared for
the problems of the last three years?
The answer seems to be that they believed that Western nations
were immune to the problems visited upon non-western countries in previous
decades. Despite the chequered financial history of Western nations over the
past century, the experts 3 appear to have convinced themselves that
Western nations had finally been insulated from serious bank/financial failures
of the kind periodically endured in the rest of the world.
We need to remind ourselves of our own past and relearn its
lessons.
In order to understand how we got to our present position, we
need to understand the historical/philosophical underpinnings of both the
protectionist and neoliberal approaches to social and economic organisation and
activity.
In doing this, we will examine and historically contextualise:
- the growth of welfare capitalism in the 1920s;
- the emergence of the 'welfare state' in the 1930s;
- the progressive
- privatisation, from the 1970s, of the welfare state;
- emphasis on 'user pays' versions of welfare;
- and the subsequent unsustainability of residual publicly
funded social welfare costs; and
- the neoliberal drive to deregulation and globalisation
of market activity in Western communities over the past forty years.
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.
Western people are beginning to understand what people in the
rest of the world have endured over the past forty years: fragile economies,
unstable currencies, volatile investment environments and, when everything is on
the verge of collapse, harsh structural adjustment programs 4 devised and
prescribed by international agencies such as the World Bank and the
International Monetary Fund.
Similar financial crises have been experienced in Third World
5 countries
at regular intervals since the 1970s. The recent crisis pales in comparison with
the financial and fiscal problems endured in Asian, Central/South American and
African countries between 1990 and 2000.
In an assessment of the East and South East Asian financial
collapse of 1997-8 which reminds one of recent experiences in Western countries,
Janet Yellen (2007), President and CEO, Federal Reserve Bank of San Francisco,
explained that,
In spite of the risky lending practices that prevailed before the
crisis, foreign investors poured money into these countries at record rates.
Their willingness to do so appears to have stemmed in part from … a perception
that the governments of these nations stood ready to intervene to forestall bank
failures.
(Yellen 2007)6
A major problem for Third World countries is that they have
always been in the periphery of the global economic system, never able
effectively to address the core issues which have threatened long term economic
well being. So long as the problems they endured did not significantly affect
life in Western nations, there was little likelihood of those issues being
addressed.
Western nations have consistently reacted to periodic financial
failures only to the extent that they have threatened the wellbeing of
'responsible' people in Western countries. Attempts at regulating international
fiscal/financial organisation and activity over the past century have all
appeared in reaction to problems encountered in Western economies.
In this discussion we will explore the experiences of the West
which have provided a blueprint for changes in economic organisation and
practice in Third World countries. In a later discussion we will explore the
experiences of Third World countries as they have been required to follow
Western economic fashion shifts.
The 1929 Wall Street collapse, following the neoliberal 1920s,
produced the first major national initiatives in the USA to ensure that risky
lending practices of banks could no longer threaten the economic stability of
the nation (and, by extension, the world economic system based in Western
nations).
Prior to this collapse, as the US Federal Deposit Insurance
Corporation (FDIC 1984) described, the US, along with most other Western
nations, had experienced periodic financial failures over more than a hundred
years. Measures employed to counteract and insulate against such failures were
ad hoc and never effective over the long run.
It seems that regulatory authorities in Western nations are
unable to maintain and adapt regulatory measures taken in reaction to crises
once they have been mitigated. The FDIC, itself, established by the Roosevelt
administration in 1933 to 'reduce the economic disruptions caused by bank
failures', has been accused of being a toothless tiger in the 1st
decade of the 21st century.
Once the initial shock of a financial failure passes, and
measures introduced seem to have dealt with the problem, those authorities
responsible for ensuring against future financial failures become decreasingly
effectual. The measures introduced to handle a particular failure become less
appropriate over time as banking and investment strategies alter to circumvent
them, until they no longer safeguard against failure, and the problems
resurface.
Effectively, what we have in the historical record is a process
of moving from
- crisis;
- to regulation;
- to progressive weakening of the regulations;
- to deregulation;
- to crisis;
- to new regulation.
The official history of the US Federal Deposit Insurance
Corporation (FDIC) explained this in a 1984 publication outlining its
establishment and operation during its first fifty years 7.
Welfare capitalism and gutted unions
The 1929 crash followed a decade during which regulations which
had been enacted over the previous forty years had been progressively weakened
to allow uninhibited market activity to flourish.
Following the First World War, left leaning 'radicals' and trade
unions were successfully challenged and sidelined by employers and state
officials. Gerald Friedman (2008) has summed up their experiences over the 1920s
decade well.
The 1920s was an especially dark period for organized labor in
the United States where weaknesses visible before World War I became critical
failures. Labor's opponents used fear of Communism to foment a post-war red
scare that targeted union activists for police and vigilante violence. 8
Factory automation and assembly line organisation were refined
and extended during the war years. This, following the war, resulted in excess
productive capacity which, with the influx of people looking for work as troops
returned from the war, resulted in a short sharp urban recession in 1920-1.
Raymond Betts (1979) described similar problems in Western
Europe,
For millions of war veterans readjustment to civilian life was an
immense problem. The search for jobs, the attempt to repair marriages disrupted
by years away from home, the bitterness over reports of war profiteering, and
the disappointment over the shortages of housing were personal difficulties
quickly dampening the enthusiasm for the long sought-after peace.
In the US, this resulted in a sharp increase in unemployment
which quickly grew to more than 11% of the workforce. The unemployment problem
was compounded by the large numbers of women who had entered the workforce
during the War years and wished to continue working 9. These conditions, as Friedman has described,
greatly helped employers and their organisations in neutralising union strike
activity.
The US Commerce Secretary, Herbert Hoover (elected president in
1928), successfully argued for an expansion of the money supply, weakening of
investment strictures and an increase in urban wages as a means of stimulating
mass consumption to match the increasing productive capacity. This had the
desired effect and urban areas of the United States experienced a period of
rapid economic growth, fuelled by the newly stimulated era of mass
consumption.
Having neutralised workers' unions, businesses, in a time when
they were flush with profits from the developing boom conditions, sought to make
unionisation irrelevant. They did this by following the worker welfare practices
refined by Henry Ford during the 1st World War, incorporating
'welfare capitalism' into their staffing strategies. These practices had a long
history in western Europe and would have a similar history in Western Europe's
colonies through the late 19th and 20th centuries.
During the 19th century, socially aware business
owners, conscious of the appalling working conditions in most major industrial
centres in Western Europe had attempted to improve the lot of workers and their
families. A number of examples of 'company towns' emerged, such as New Lanark in
Scotland built by Robert Owen; Pullman on the outskirts of Chicago built by
George Pullman; and McDonald in Ohio, built by the Carnegie Steel Company.
The emergence of company towns and similar forms of welfare
capitalism might, very often, have been well intentioned and for the benefit of
employees. It was, of course, also a means of ensuring employee loyalty and
keeping employee organisation under control. An employee organisation which was
contained within a company could be insulated from worker organisations
elsewhere.
All-too-often these attempts at ensuring the welfare of workers
degenerated into truck systems 10, debt bondage, peonage and indenture 11. Such practices had been
commonplace forms of worker exploitation from the 17th century. They
had been formalised in English law with the passing of the 1601 Poor Laws.
Merle Travis expressed it well in a mid 20th century
folk song,
You load sixteen tons, what do you get?
Another day older and
deeper in debt.
Saint Peter, don't you call me, 'cause I can't go;
I owe
my soul to the company store.
Daniel Gross (2004) has neatly summed up the move to welfare
capitalism in the 1920s 12.
Henry Ford led the way. In January 1914, Ford Motor Co.
instituted the $5 day. Over the next several years, Ford took steps to ensure
that its employees remained healthy, loyal, and above all, efficient. It opened
an infirmary and established the "Sociological Department" to both keep tabs on
and look after the welfare of its workers. In 1922, Ford cut the work week from
six days to five.
In the roaring 1920s, when other highly profitable companies
began to emulate Ford, welfare capitalism began in earnest. Companies built
cafeterias and health clinics, sponsored baseball and bowling leagues, and
granted days off for the opening of deer season. Corning Glass Works began
providing health insurance in 1923. The same year, U.S. Steel slashed its
workday from 12 hours to eight. In 1927, International Harvester began offering
two-week paid vacations. All this was all done without government mandates and
largely without the influence of unions.
The 1920s was a decade of 'welfare capitalism', in which
employers took paternal responsibility for their employees.
It seemed to employed urban inhabitants that the prosperity of
the era was a consequence of: the weakening of union power; weakening of public
legislation on speculative investment; and commitment by businesses to the
welfare of their employees. It was believed that these were responsible for both
the strong growth in urban incomes and improvement in urban living conditions
13.
The United States urban employed experienced growing incomes
(almost 20% real increase over the period) coupled with falling commodity prices
as a consequence of the new mass production technologies and electrification of
industry.
American middle and working classes began a love affair with
private enterprise and material possessions which has lasted to the present.
But, there were losers. The prosperity of the decade did not
extend into the rural populations of the United States, and there were many
members of minority groups — such as a growing population of African Americans
moving from the impoverished rural south into northern, mid-western and western
cities — who had to settle for low paid service employment or could not get work
and found life harsh in a deregulated world.
By the end of the decade, the euphoria of the period evaporated,
the illusory wealth created by a speculative investment bubble vanished,
hundreds of thousands of people lost their savings and millions of urban workers
lost their jobs.
It was another in the list of economic bubbles which seem to be
an inevitable result of neoliberal free market policies 14. And, like other
bubbles before it, and a few since, it burst!
President Franklin D. Roosevelt summed it all up:
To review at this time the causes of this failure of our banking
system is unnecessary. Suffice it to say that the government has been compelled
to step in for the protection of depositors and the business of the
nation.
(President Franklin D. Roosevelt to Congress March 9, 1933)
Compare the response in 1933 to this response by President
Barack Obama following the 2008 Wall Street collapse which followed a neoliberal
revival over the previous thirty years:
… we don’t have any kind of process designed to contain the
failure of a Lehman Brothers or any of the largest and most interconnected
financial firms in our country.
That’s why, when this crisis began, crucial decisions about what
would happen to some of the world’s biggest companies — companies employing tens
of thousands of people and holding hundreds of billions of dollars in assets —
had to take place in hurried discussions in the middle of the night. That’s why,
to save the entire economy from an even worse catastrophe, we had to deploy
taxpayer dollars.
(President Barack Obama Cooper Union Speech April
23, 2010)
Quantitative Easing, Financial Collapse and Protectionism
The decade of the 1920s was shaped by the combined effects of
- expansion in the money supply 15;
- the streamlining and electrification of production;
- consequent mass production of cheap consumables;
- a deliberate decision to encourage spending;
- and unregulated speculative investment and
lending.
These, together, produced their inevitable result — the 1929
financial crisis.
While 1929 marked the beginning of the end, the effects of the
crisis emerged over the next four years. With loss of confidence in the future,
businesses and individuals reined in their spending, banks became increasingly
reluctant to fund the continued reliance on easy credit, and a downward spiral
commenced which would end, as the FDIC report described, in bank failure, a
freeze on investment, and subsequent massive unemployment.
From the stock market crash in the fall of 1929 to the end of
1933, about 9,000 banks suspended operations, resulting in losses to depositors
of about $1.3 billion. The closure of 4,000 banks in the first few months of
1933, and the panic that accompanied these suspensions, led President Roosevelt
to declare a bank holiday on March 6, 1933. The financial system was on the
verge of collapse, and both the manufacturing and agricultural sectors were
operating at a fraction of capacity.
(FDIC
1984)
By 1933, unemployment in the United States had risen to 25% of
the workforce. Close to 13 million people were unemployed. And, of course, the
'welfare capitalism' of businesses collapsed. Those who retained their jobs,
found that they were powerless. Company workers' associations provided no
protection against loss of conditions as businesses cut costs to stay
afloat.
The unemployed found themselves on their own, without access to
any of the welfare facilities they had taken for granted over the previous
decade. There was no "welfare safety net" to which the newly destitute could
turn. And the problems of the decade would not be shortlived 16.
It was inevitable that a dispossessed democratic electorate
would demand protection from its government. And that was what happened in the
U. S. federal election of 1932.
From Free Markets to Protectionism
There is something fundamentally unstable about a deregulated
neoliberal, free market economic order.
There has long been a belief in the US that 'free markets' are
unregulated markets. Any attempt at regulation has simplistically been
considered a move toward socialism 17. Attempts to provide a stable backdrop to
economic activity through regulation have been considered inherently
'anti-free-market' 18.
The presumption that free markets are best when unregulated
depends on a claim, first made by Aristotle and reiterated by Aquinas in the
13th century, that civilisation is based on people ordering their
lives by instincts implanted in each individual 19. If one accepts Aquinas' logic, then those
instincts, having been implanted by God who makes all things perfect, must, in
their expression, produce a perfect individual and a perfect society. Without
this metaphysical presumption, there really are no grounds for assuming that the
expression of uninhibited human nature will produce the summum bonum —
or greatest good 20.
Those who argue for government regulation to ensure a stable
legislative background to economic enterprise are assuming that an unregulated
market place is not a recipe for either perfect individuals or societies. They
are, implicitly, questioning Aquinas' logic. Many who feel the need for public
regulation of private economic practice, presume that unregulated markets will
result in a world in which 'the devil takes the hindermost'; where the
unscrupulous manipulator is given free rein 21.
In an unregulated world, governments can only react to problems
after they occur. The capacity to proactively regulate financial behaviour
through time to ensure long-term economic stability is removed. This anarchic
form of libertarianism has become dominant in US neoliberal thought in
conjunction with a resurgence of religious fundamentalism.
In 1932 Franklin D. Roosevelt, in response to the demands of a
disenchanted electorate, promised them a 'New Deal'. His government would
introduce a range of measures to address the current economic problems and
protect people from such disasters in the future.
The New Deal provoked a storm of protest from those who believed
in free markets, independent individualism and small government. They developed
and prosecuted a claim that the prolonged difficulties of the 1930s were due,
not to the unwise policies of the 1920s but to the 'collectivist', 'socialist'
policies of the New Deal government 22. The evils of the 1930s were due to the
leftist sympathies of politicians who promoted big government, the regulation of
private enterprise, and 'social welfare' policies which weakened the moral fibre
of the nation.
As we will see, the measures introduced to address the problems
of the period faced concerted challenge in the courts and fired an opposition
which would prosecute its case over the next 40 years. With the emergence of
economic difficulties from the late 1960s onward, that opposition would finally
gain traction and neoliberal policies would successfully be promoted.
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, as the post 2nd World War
economies of Western nations reaped the consequences of an overheated 1950s
economic boom, neoliberal arguments were increasingly successful in challenging
the legitimacy of the protectionist legislation of the period.
Neoliberalism 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. This will, in the long-run, result in a more
rational organisation of society, to the benefit of its members.
A fundamental presumption underpinning neoliberalism is that all
cultural and social forms are derivatives of individual, competitive,
acquisitive behaviour, which is fundamental to human nature 23. So, social change is
driven by competitive individual exchange. Uninhibited market exchange most
directly expresses that human nature. Therefore, by subjecting communities to
'market forces', one introduces rational social change 24.
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 order to understand how we got to our
present position, we need to understand the underpinnings of both the
protectionist and neoliberal approaches to social and economic organisation and
activity.
Welfare States and Protectionism
To contextualise the discussion we need to briefly examine:
- community social templates;
- resource utilisation;
- the constantly escalating productive and consumptive
demands of Western communities;
- 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 neoliberal 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 labour for their livelihood. They no longer
had access to the resources needed for a subsistence lifestyle. It was decided
that, in order to cushion the effects of loss of employment, and therefore
income, the state should 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.
These variant presumptions have led to some of the most
important strains and stresses on both Western and non-Western communities in
the past thirty years. So, 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 oriented communities 25. 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 24b, 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.
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/accumulation of goods and services. They are
economically oriented. They are also focused on individual competitive
opposition, on what economists call 'market activity' 26.
Where individuals gain status and respect through the
competitive accumulation and consumption of goods and services 27, the supply of goods
and services in the community is inherently inflationary. 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 28.
In early modern Western Europe this led to land enclosure and
the dispossession of increasing numbers of rural dwellers. (In colonial
territories, people were moved from their traditional environments to native
reserves of marginal agricultural usefulness) 29. The poor of Western Europe 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. Thomas More (1516) described this kind of dispossession in 16th
century England well:
[T]he owners as well as tenants are turned out of their
possessions, by tricks, or by main force, or being wearied out with ill-usage,
they are forced to sell them.
By which means those miserable people, both men and women,
married and unmarried, old and young, with their poor but numerous families
(since country business requires many hands), are all forced to change their
seats, not knowing whither to go; and they must sell almost for nothing their
household stuff, which could not bring them much money, even though they might
stay for a buyer. When that little money is at an end, for it will be soon
spent, what is left for them to do, but either to steal and so to be hanged (God
knows how justly), or to go about and beg? And if they do this, they are put in
prison as idle vagabonds 30.
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 31.
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.
Wage labour dependence
In Western communities, increasing numbers of people could only
maintain their statuses and satisfy their expanding needs through wage labour.
As Marx observed in the mid 19th century, 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.
Human beings became commodified 32, another resource which might be bought and
used to maximise profit.
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. During the
17th to early 20th century, this ensured that both living
and working conditions for the 'labouring poor' were harsh.
The influential people of Western communities, since the
17th century, have been capitalists 33. Since they were oriented to maximising
profits and minimising costs, it soon became argued that all forms of social
interference in the marketplace of labour should be removed.
As Joseph Townsend (1786) 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 34. Inevitably, given that the drive of capitalism
is to lower costs and increase profits, employers and owners of business
colluded to keep costs of labour down.
Adam Smith described the realities of 'combination' as employers
combined to further their interests during the 18th century, in his
most famous work An Inquiry into the Nature and Causes of the Wealth of
Nations (1776). The description he gives is as applicable thoughout the
capitalist world now as it was then. It is an explanation which has received
much less attention than it deserves through the past 200 years.
…Whoever imagines… that masters rarely combine, is as ignorant of
the world as of the subject. Masters are always and everywhere in a sort of
tacit, but constant and uniform combination, not to raise the wages of labour
above their actual rate.
To violate this combination is everywhere a most unpopular
action, and a sort of reproach to a master among his neighbours and equals. We
seldom, indeed, hear of this combination, because it is the usual, and one may
say, the natural state of things, which nobody ever hears of.
(1776, p.84)
35
From the 16th century onwards, the emerging legal
framework of economic relations was always biased toward those who increasingly
controlled the law courts of Western Europe 36. From the 16th century on,
'masters' increasingly used their privileged access to the law courts of Western
Europe to advantage themselves at the expense of both the 'rural' and
'labouring' poor.
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 37.
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.
The world which Western European colonial powers set out to
reorganise in the late 19th and 20th centuries was already
organised to provide inhabitants with their needs and wants. Europeans
did not move into empty regions. They dispossessed inhabitants of their lands
and resources, and compelled the populations either directly or through a
variety of subterfuges to supply the labour they required 38.
The planet was being reorganised to ensure that the needs and
wants of Western people could continue to expand. The story of the rest of the
world, since the late 19th century, is bound up in its progressive cooption to
continue feeding the expanding appetites of the West.
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 39. 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 40.
Free Markets Work: Improving Wages, Conditions and Consumption
The influx of new raw materials from non-Western regions in
the last quarter of the 19th century ushered in a prolonged period of
growth in commodity production in Europe. This, in turn, fuelled consumption in
Western countries. The developments, of course, increased labour requirements
and labour, in Western countries, became relatively scarce.
Now, for the first time, market forces led to an improvement in
wages and conditions for labourers. Wage labourers in Western nations could
begin to negotiate better employment terms 41. 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'42 competition would,
inevitably, result in improved lifestyles for those who entrusted their lives to
'market forces.'
Thomas Huxley (1893) described the position of free marketeers
in the second-half of the 19th century:
According to their views, not a shilling of public money must be
bestowed upon a public park or pleasure ground; not sixpence upon the relief of
starvation, or the cure of disease.
…The State is simply a policeman, and its duty is neither more
nor less than to prevent robbery and murder and enforce contracts. It is not to
promote good, nor even to do anything to prevent evil, except by the enforcement
of penalties upon those who have been guilty of obvious and tangible assault
upon purses or persons.
(1893, p. 258) 43
The prolonged economic difficulties of the last quarter of the
19th century 44 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.
Adam Smith, in 1776, had predicted the response of 'masters' to
attempts by workers to have regulations built into terms of employment,
The masters upon these occasions … never cease to call aloud for
the assistance of the civil magistrate, and the rigorous execution of those laws
which have been enacted with so much severity against the combinations of
servants, labourers, and journeymen.
(1776, p.85)
Yet, despite strong opposition from free market employers and
their supporters, conditions favoured workers in their determination to improve
their working conditions 45.
As employment conditions and wages slowly improved through the
last part of the century, more and more of the 'labouring poor' gained a
foothold into the ranks of the lower-middle classes. As they did so, they needed
to demonstrate their improving social positions in ways required by the
established Western European social templates: they would begin to accumulate
possessions and expand consumption.
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'. This usually requires entry 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 possible without having to move into a new status group.
So, over time, because of this competition within status
groups,46 the felt needs of Western
people expanded. As the needs expanded, 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.47
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. The incomes deemed 'necessary'
by Western people have to cover the acquisition of necessities not perceived as
such by people in most other communities.
So, 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. Community
costs do not only relate to the 'poor box', but also 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 thirty years.
It took Western communities a long time to come to terms with
the need to provide a coherent social welfare program. Such a program needed to
include 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, workers relied on welfare capitalism. Piecemeal
legislation existed in conjunction with community-based charities to meet the
needs of those in the most desperate of economic straits.
In the 18th and 19th centuries, the most
common attitude amongst the 'middle classes', to those who had lost access to
subsistence resources but had no cash income 48, is well expressed in a paper written by
R. J. Morrison in 1842. It was 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.49
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 savings and 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
overturned much of the employer/employee legislation and practice that had
emerged through the 1920s. Amongst other things it,
- 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.
To free marketeers, the legislation of the 1930s was a direct
attack on 'free enterprise', a 'socialist conspiracy' against the wealth
creators of the nation.
The campaign against these measures, which began in the 1930s,
was to continue through the rest of the century. Its rhetoric was refined
through the 1960s and emerged as neoliberal free market philosophies and
policies. These set the agenda for the globalisation of economic activity from
the mid 1970s.
In its inception, however, the New Deal legislation represented
the first coordinated governmental attempt in the US to ensure that the social
costs of communities were included in production costings. 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 50.
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.
In the early years of European capitalism, labour was supplied
from communities which still had access to subsistence resources. Labourers
relied, as Marx put it, on 'all the guarantees of existence afforded by the old
feudal arrangements'. Business only had to pay the competitive market rate for
labour, without a baseline determined by its 'costs of extraction and
processing'.
In a real sense, capitalist enterprise, as it evolved in Western
Europe, was parasitic upon the feudal communities within which it operated.
Capitalist enterprises saw themselves as separate from the communities in which
they did business 51.
As those communities became reshaped by the new forces of
capitalism, they increasingly became dependent upon capitalist forms of
production and consumption for subsistence. Communities lost their other means
of subsistence based on 'all the guarantees of existence afforded by the old
feudal arrangements' and had to rely on market-driven production and employment
for all their needs and wants.52
Community needs and wants do not only relate to employed people
and their dependants. They include the requirements of all community members,
and costs 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. When it undermined and displaced those
alternative avenues of need and want provision, the presumption that community
welfare requirements were met through other means was, conveniently,
retained.
In a peculiar way, which can only be understood as one
understands the primary ideologies of Western people 53, economic activity was assumed to be
separate from social and political activity. Following Adam Smith's
identification of an 'economic environment' 54 it was considered to be subject to its own
laws and regulations, 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.
Community costs are Production costs
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 55.
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 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. These included the needs and wants of
its least advantaged members. Governments, therefore, managed economies in the
interests of their populations.56
The New Deal reforms of the 1930s were the first reforms in the
United States which clearly established the principle that community costs
should be built into the costs of 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. A range of taxes and charges were
instituted to cover the costs of education, health, and social welfare programs.
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.
Not only did the 'Welfare State' emerge through such reforms, in
accord with the spirit of the times, benign welfare capitalism became 'normal
practice' for business. Daniel Gross (2004) has explained it well,
Even with the rise of the welfare state in the '30s, corporations
continued to assume responsibility for the well-being of their employees. It was
part of a grand bargain between labor, capital, and government that allowed for
remarkable growth, innovation, and rising standards of living for decades. It
also served as a bulwark against socialism. By endowing labor with dignity,
welfare capitalists made industrial work a ticket to the middle class.
(Welfare capitalism is
dying. We're going to miss it)
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. It was assumed that they 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.
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 57. This
belief was founded in historical experience and reflected the conviction of the
general public following the 1929 crash that,
…measures of a national scope were needed to alleviate the
disruptions caused by bank failures.
(FDIC
1984)
In the 18th and 19th 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 58.
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'.
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
failure in the regulation 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 59.
In 1935, Congress transferred a great deal of the authority
formerly wielded by regional Federal Reserve Banks to the Federal Reserve Board
in Washington. In addition to its basic fiscal responsibilities, it 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.
It was not only necessary to stabilise banks and manage them to
contribute to community well-being. It was also 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 60.
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.
No Social Welfare for post-colonial nations
The situation was a little different in the Third World. Many of
the welfare programs established in Western nations were not established in
postcolonial countries.
Most colonial administrations had assumed that wage labourers in
their regions belonged to rural communities which would support them. they were
assumed to have 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. Post colonial governments inherited administrations
which held these views.
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 administrations 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 have been
calculated to cover the costs of welfare in Western countries, industries have
had 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. 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 61.
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.
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 neoliberal 21st century, 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 62.
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 63, there is no
society, only individuals who choose to congregate and should, as individuals,
meet the costs of their interaction.
In the minds of those who accept this logic, there are only
individuals and the economy 64. Everything else is a consequence of economic
interaction between competing individuals. Those individuals should take
responsibility for the provision of their own needs and wants, they should not
demand contributions from other competing individuals. That is, 'user pays'
principles should apply to social costs.
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.
By the late 1960s, individuals and organisations, committed to
improving the economic lot of Third World peoples, seemed to have forgotten — or
perhaps never clearly understood — the reasons for the protectionist legislation
of the period. They 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.
The economic woes of the Third World they were attempting to
address were, of course, a result of problems that post-colonial nations endured
as they struggled to establish viable nation-states 65. Not least were
the burgeoning debts owed to First World countries which had provided them with
both 'development aid' and 'military aid' from the late 1950s onward 66.
With the approval of major Western governments, transnational
companies increasingly began to locate their low-wage production activities in
selected Third World countries. This was facilitated by 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 strongly approved these moves. They 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 67, 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 68.
Neoliberalism: A Cure for Economic Stagnation
After a period of economic boom conditions in Western countries
following the 2nd World War, they experienced a decade of economic
stagnation. This gave economists and those convinced that the reforms of the
1930s were both economically and morally wrong, a base from which to argue that
the changed economic fortunes of the West were a consequence of the 1930s
reforms.
The booming economic conditions in Western countries during the
1950s were driven by:
- the need to replace and upgrade infrastructure after
the 2nd World War;
- a housing boom as troops returning from war married,
had families and required accommodation;
- the need to develop all the education, health and
other social infrastructure required by the 'baby boom' which accompanied this;
- the ongoing demands stimulated by the Korean War;
- the rapidly expanding purchasing power of workers
living in a boom economic period;
- and all the requirements of the emerging superpower
'cold war'.
During the 1960s and 1970s, those same nations experienced
long-run economic problems as the overheated economies of the fifties led to
productive overcapacity.
The world experienced an oil crisis in the early 1970s, largely
driven by the emergence of The Organisation of Petroleum Exporting Countries
(OPEC) as the first major cartel of oil producing countries. This, coupled with
the economic difficulties which emerged during the 1960s, led economists and
other interested parties 69 to claim that the economic woes of the West
were the result of 'protectionist policies' which should be dismantled.
To combat the evils of protectionism, Western economic
activities should be 'globalised'. Trade should be 'freed' from parochial
constraints. As the World Trade Organisation statement of purpose would later
explain,
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.
(WTO)
Western nations, with faltering economies, began to take such
advice seriously and a number of Western countries lowered tariff barriers to
selected Third World countries. The most immediate consequence was the
relocation of labour-intensive production to Third World countries and the
importation of cheap low-wage products into First World countries by companies
already established in Western countries.
Jorge Nef (1995) explained a few of the major consequences of
this shift clearly:
… [I]mport dependency … 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.…
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. 70
The lowering of tariff barriers did not empower either
governments or people in Third World countries. It merely opened them to
exploitation by First World companies. Marjorie Mbilinyi (1994) described
African experience during this period,
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)
First World companies rapidly became 'transnational' and
exploited the newly accessible differential between production costs in Western
and non-Western countries to greatly expand profits and market share.
The 'balance of payments crisis' which has been a major cause of
concern in Western countries over the past thirty 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. From the late 1970s, Western governments began to make such
changes 71.
Economic experts giving advice in these matters seemed unaware
of the social welfare differentials between Western and Third World countries.
They seem to have accepted, unreservedly, that such considerations should not be
taken into account in moves toward the internationalisation of economic
activity.72
Economic Efficiency and the Virtues of De-Regulation
Economics focuses on 'the economy' as a self-existent,
independent environment subject to its own laws and constraints 73. In the process of producing
and distributing goods and services, it generates income for the community
through the economic interactions of 'real' and 'artificial' 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' 74. 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 explained of
international tariff negotiations through the 1980s:
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 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 18th and 19th 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 has been made, with no apparent awareness of its absurdity, in relation
to the social welfare costs of labour.
As Samuels and Shaffer claimed in 1982, 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)
All that deregulation does is move the incurred costs from the
'economic environment' to other 'social' environments. By doing this, those
costs are no longer 'economic' costs and are, therefore, irrelevant to economic
enterprise. So it can be argued that "one should not require business to take
responsibility for 'community' costs".
At the risk of belabouring the point — regulation is the process
of expanding economic responsibilities beyond a narrowly confined 'economic
environment' to include other community responsibilities. Deregulation is the
removal of those other responsibilities from economic consideration. The
question posed in considering regulation and deregulation is:
Does the economy exist independently of the community or is it
the means by which the community ensures the supply of all its material needs
and wants?
Economic Activity as Non-Social Activity
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.75 'The economy'
becomes an environment which is separate from, and not responsible to, the
community which sustains it.
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.
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 76.
If, however, government backs out of economic regulation,
competition in the marketplace will lower prices, improve products and allow for
the accumulation of profits. This will encourage 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-oriented 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, similarly, played an important part in
the economic policies of Presidents Clinton and (in practice, through Senate
activity)Obama.
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 from the 1960s
onward could be attributed to 'government interference' in the marketplace. The
'gains' made through the liberalisation of international trade seemed to be
obvious.
Globalisation Lowers Prices, Frees Investment — We're all Better Off!!
By the late 1970s, people in Western countries were beginning to
benefit from the lower-priced imported goods produced in 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 resulted in increasing unemployment among
low-skilled workers.
The effect was rapidly disguised, in Western nations, by
altering the definition of employment to include all people who 'did any work at
all for pay or profit'. This redefinition of employment for statistical purposes
has been perpetuated since that time 77. The U. S. Bureau of Labor Statistics gives
the current definition of employment,
…people are considered employed if they did any work at all for
pay or profit during the survey week. This includes all part-time and temporary
work, as well as regular full-time, year-round employment.
(USBLS 2010)
Even one hour of paid work in a week now qualifies an individual
for definition as 'employed'. The definition has been completely divorced from
any consideration of a 'living income'. The relation between 'employment
statistics' and living standards was broken, allowing for the disguised growth
of a low paid, marginalised workforce in Western countries.
A Reuter's summary of a forthcoming report by Lambert, Henly and
Haley-Lock (2010) entitled Managers' Strategies for Balancing Business
Requirements with Employees' Needs, provides a glimpse into the situation
in 2010,
The United States workforce, battered by an economic slowdown,
now includes a record number of workers who are involuntarily working part-time
due to reduced hours or the inability to find a full-time job.…
Hourly workers — the majority of the wage and salary workforce —
are especially susceptible to reduced, irregular and fluctuating hours, and the
myriad of challenges associated with them….
The Census Bureau uses the term for those who work less than 35
hours a week because they could not find a full-time job or those who work
reduced hours due to "slack demand." In November 2009, 9.2 million workers fell
in this category, the highest level in recorded history.
Other recessions also have seen an increase in involuntary
part-time workers, [Lambert] said. For example, the labor market added 1.5
million involuntary part-time workers between 1981 and 1982 for a total of 6.8
million workers, surging up again to add 2.3 million between 1992 and 1993 for a
total of 6.7 million workers.
"I think it is important to underscore that employment has become
increasingly precarious over the past 30 years, not just during recessionary
periods, due to structural changes in the economy, reductions in labor
protections and evolving employer practices that pass risk from the market onto
workers," Lambert said. "The current recession highlights these insecurities,
bringing much-needed attention to the plight of disadvantaged workers who are
struggling to keep their jobs as well as maintain sufficient hours to make ends
meet.
The problems faced by hourly, low-level workers are unlikely to
go away when the economy fully recovers."
In good times and bad, employers frequently use "just-in-time"
scheduling practices — setting hourly workers' schedules with limited advance
notice to accommodate fluctuating demand — as a means of maintaining a tight
link between labor costs and demand.
Unpredictable schedules not only make it harder for workers to
determine their incomes, they also make it hard to plan for childcare and family
life, Henly said.
"Unpredictable work schedules can translate into instability in
family routines and practices, placing additional burdens on already strapped
and busy families, their caregivers and extended family members," she
said.
(Reuter's 31 Aug. 2010 'Hourly workforce carries burden during
recession')
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. This displaced employees with
cost-saving machinery, taking advantage of the new technological innovations
which have accompanied the continuing computerisation of the First World. This,
in turn, incidentally, avoided 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 oriented 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 and rapidly expanding international bond, stock/share 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.
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 thirty years all the above
strategies have been utilised by businesses seeking an advantage in the
marketplace.
From the late 1970s, Western governments, at the instigation of
'economic experts', strongly encouraged the internationalisation of home-grown
businesses, providing tax and other incentives to such expansion. Successful
companies were 'transnational'.
Most companies initially moved their labour-intensive operations
'off-shore', to take advantage of labour costs in countries where perceived
needs were lower and no social welfare component was built into industrial
costs. In the process they argued for further lowering of tariff and quota
barriers to facilitate this 'internationalisation' of economic activity.
Many of the Western-based firms which did not move to low-wage
regions, altered their focuses and forms of organisation, reducing their
reliance on wage labour through automating production. Others, 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 78.
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.
Kukowski and Boulton (1995) described 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'" was, of course, disingenuous. Typically, the
problem-solving skills required in the new plants required a level of expertise
beyond that held by manual labourers. The numbers of such people in a fully
automated plant, as Kukowski and Boulton showed, was far smaller than required
in a non-automated factory.
Not only did low-skilled workers find their jobs under
threat by these moves, increasing numbers of skilled workers found that their
positions had disappeared as automated processes displaced 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.
Just-In-Time and Total-Quality-Control: Let's be flexible!
The new catchcry of industry, taken up and echoed by First World
government, educational, health and other institutions became 'flexibility'. As
a Report to the Alberta Government on new economic practices in the 1990s
explained:
Human resource consultants Olmsted and Smith said that:
With much of foreign competitors' 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) claimed, Fordist industrial organisation was
now most usually employed in the remaining labour-intensive industries. Those
which had moved to new technologies usually also moved to new forms of
organisation.
These often included the networking of small, closely
interlinked companies or company divisions, usually controlled by a 'parent'
company, each of which took responsibility for production of a particular
product component; accepted responsibility for 'managing' their workforces; and
could be manipulated to minimise costs when their product component was in lower
demand (insulating the parent company from such activity).
The new organisation of production, often called Just-In-Time
(JIT) production processes, coupled with Total-Quality-Control (TQC) systems of
surveillance, emphasised direct worker responsibility for the quality of output,
coupled with direct accountability to authorities for performance.
The term 'just in time' referred to the relationship which was
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. It also has 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, resulted in a shift of
investment in industry away from low-wage countries and back into major markets.
It emphasised the development of a skilled, versatile, mobile
and yet expendable labour force which could rapidly respond to changes in market
preferences, rather than a workforce which supplied 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 capitalised on the high
(but disguised) 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, 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 operated. Their responsibilities related to ensuring 'economic
efficiency', not to contribution to the quality of life of those they employed.
Many businesses, since the 1990s, have become international
organisations, geared to exploiting temporary markets wherever they arise and
geared, equally, to the economically efficient use of all inputs, including
labour 79.
In the 21st century the new employment arrangements
have become common-place. This has led to a euphemisation of the term 'temporary
workers'. They are now 'the contingent workforce', an established, central focus
in 'human resource management' 80.
The move to temporary employment was also a move toward
increasing stress amongst employees. Since any downturn in company performance
resulted in the layoff of temporary staff, those who were in this category
— or those who felt that they were next in line to be reduced to temporary
status — felt a constant sense of insecurity. They were driven to perform by the
fear that if they were seen as less than totally committed to improved
performance they would 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.
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.
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
81.
In this far more flexible era of production, what firms needed
was 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 could relocate production closer to markets.
Many companies relocated in Western countries or in maquiladoras
on the borders of major markets. In consonance with this return to high-wage
areas, there were concerted political campaigns aimed at lowering or removing
the residual social welfare components of industrial costs in Western countries.
And then We Deregulated Finances and Currencies!
Concurrently with this move to JIT and TQC processes, all over
the world there were insistent demands for fiscal and financial deregulation. It
was claimed that this would both facilitate the 'internationalisation' of
productive enterprises, taking advantage of 'cost anomalies' in different parts
of the world; and enable a 'healthy' 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.
these provided more lucrative options for investors than developing alternative
forms of productive enterprise. As Susan Strange 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 three 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 almost
obsessively 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 (and sometimes barely
relevant) government activity.
'Entrepreneurs', since the 1980s, are not 'industrialists' but
players in international currency, bond and stock trading and experts in
financial manipulation 82. They know a great deal more about Wall
Street possibilities than about new productive enterprise 83.
Things have not improved in the 21st century.
Movements in share and currency values usually have little to do with the world
of productive enterprise. They are all-too-often driven by wild and fanciful
speculations of 'expert commentators', self-interested predictions of predators
in the 'marketplace of finances', and fanciful tales spun by purveyors of
21st century snakeoil 84.
Transient Benefits of Globalisation
Effectively, in the short-term, what the removal of tariff
barriers in the 1980s 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.
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.
That, of course, 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 neoliberal
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-pays' 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 85.
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.
Public-Private Partnership: We need to 'Stimulate' Private enterprise
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 argued 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 governments
had expanded governmental services beyond the capacity of their economies to
absorb the associated costs 86. 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';
- 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 neoliberal arguments,
rather than economic enterprises contributing to government social welfare
expenditures, the emphasis was reversed. Government should provide stimulus to
private enterprise.
Mitchell and Manning (1991) explained:
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 OECD, UN, World Bank and IMF provided policy direction
to those Third World countries.]
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 neoliberal direction in the 1980s and 1990s, the 'public-sector'
provided 'incentives' to private enterprise, believing that such stimulation of
industry was needed to ensure a growth in employment and therefore increased
social welfare.
At the same time, the social welfare costs of the past became
illegitimate imposts which made productive enterprises uncompetitive and so cost
jobs.
Social welfare imposts were, according to the new logic of the
1990s, counterproductive. Instead of promoting social welfare they created
unemployment and consequent social misery.
By sleight of hand, social welfare demands made of economic
enterprises were considered irresponsible, but the tapping of public resources
by private enterprises was considered socially responsible.
Private businesses were now competing with businesses which were
able to tap the resources of countries where no social welfare component was
included in production. So, Western enterprises should be compensated by
government for any continuing residual social welfare costs associated with
production.
Only in this way could governments ensure that enterprises based
within their territories were able to compete 'on a level playing field' with
those based in Third World territories where they not only had few, if any,
social welfare imposts, but were also publicly subsidised through a range of
'incentives' in order to ensure that they remained in the territory 87.
Conclusion
 Rather than creating costs, both regulation
and deregulation shift them… Regulation and deregulation each consists of lower
costs for one party and higher costs for the other.
(Samuels &
Shaffer 1982, p. 467)
`Well! I've often seen a cat without a
grin,' thought Alice; `but a grin without a cat! It's the most curious thing I
ever saw in my life!'
(Lewis Carroll Alice's Adventures in
Wonderland)
Economic and financial activity have been globalised and public
debt in Western countries has become a major concern:
The health care model in Canada is
delivered through a publicly-funded system where many go to their doctor's
office and show them a health card. But in this day and age of deficits, debt
and costs, can Canada still afford this system?
The Canadian federal government’s public debt stands at more
than $526.7 billion and maintains a budget deficit of approximately $57 billion.
Most provinces across the country are also attempting to sustain deficits, such
as Ontario, which is running a $22 billion deficit.
(Rising costs, deficits could force Canada to revise heath
system Andrew Moran, Toronto Headlines Examiner, June 2nd 2010)
It is important to bear in mind the
definition of unsustainability: it is a circumstance when, regardless of the
sovereign's efforts, debt relative to GDP (and therefore debt servicing relative
to GDP) will grow indefinitely. In those circumstances, the economic net present
value of the sovereign's debt is less than the face value of the debt; moreover,
it will likely continue to fall until a restructuring is undertaken and growth
resumes.
(Sovereign Debt Restructuring:Messy or Messier? Anne
Krueger, January 4, 2003, International Monetary Fund, Washington, D.C.)
Greece reached agreement with the
International Monetary Fund (IMF), the European Commission, and the European
Central Bank (ECB) on a focused program to stabilize its economy, become more
competitive, and restore market confidence with the support of a €110 billion
(about $145 billion) financing package.…
Greece faces a dual challenge. It has a severe fiscal problem
with deficits and public debt that are too high; and it has a competitiveness
problem. Both need to be addressed for Greece to be placed on a path of recovery
and growth.
First, the government’s finances must be sustainable. That
requires reducing the fiscal deficit and placing the debt-to-GDP ratio on a
downward trajectory. Since wages and social benefits constitute 75 percent of
total (non-interest) public spending, public wage and pension bills—which have
grown dramatically in recent years—have to be reduced. There is hardly any other
room for maneuver in terms of fiscal consolidation.
Second, the economy needs to be more competitive. This means
pro-growth policies and reforms to modernize the economy and open up
opportunities for all. It also means that costs must be controlled and inflation
reduced so that Greece can regain price competitiveness.
(Europe and IMF Agree €110 Billion Financing Plan With
Greece, IMF Survey online, May 02, 2010)
Mr. Olli Rehn, European Union Commissioner,
and Mr. Dominique Strauss-Kahn, Managing Director of the International Monetary
Fund (IMF), issued the following joint statement on Greece today:
"We strongly support the economic program announced today by the
Government of Greece. The steps being taken, while difficult, are necessary to
restore confidence in the Greek economy and to secure a better future for the
Greek people. The program is unprecedented in the scope of the national effort
required, as well as in the scale of the financial support-- €110 billion--being
provided by euro area countries and IMF. We are confident that Greece will rise
to the challenge and succeed.
“We recognize that the program demands great sacrifice from the
Greek people and, given the serious situation facing their country, it cannot be
expected to turn the economy around overnight. A sustained, multi-year effort
will be needed to bring down Greece's debt and spur competitiveness. If
implemented effectively--and we believe it will be--the program will lead to a
more dynamic economy that will deliver the growth, jobs , and prosperity that
Greece needs in the future.
“We believe that the program is the right thing to do to put the
economy back on track. Importantly, the authorities' have also designed their
program with fairness in mind so as to protect the poorest and most vulnerable,
and ask for a fair sharing of the burden across Greek society. That is the right
thing to do as well.
“To be successful, the program will require a national commitment
that goes beyond political party lines. The support from European countries, the
European Commission and the European Central Bank, and the IMF demonstrates a
very high level of external commitment --and attests to the goodwill for Greece
from the international community. Our collective effort will also contribute to
the stability of the euro and will benefit all of Europe.”
(Press Release No.10/177, IMF Managing Director Dominique
Strauss-Kahn, May 2, 2010)
The removal of social costs from production costs in Western
economies has produced its inevitable consequence. Sovereign debt has grown
steadily over the past thirty years as governments have gone into deficit to
cover those costs. In the past three years, as governments have been required
both to provide rescue packages for banking systems and 'stimulate' their
economies to avoid or minimise recesssion, that debt has blown out.
Nations which, prior to 2008, were largely coping with the costs
of scaled down versions of earlier public social welfare costs, now find
themselves with unsustainable debt. Another crisis similar to that of 2008 would
introduce many of them to structural adjustment programs similar to that
currently being implemented in Greece.
Western nations are beginning to understand what 'structural
adjustment' really means in a globalised neoliberal world. They just did not
take the problems seriously when Third World countries complained about the
effects of such programs over the past thirty years.
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.
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.
In subordinating their interests and populations to the
globalised market place, Western peoples have sacrificed the regulatory
'protections' established after the 1929 crash. It will be extraordinarily
difficult to re-establish such protections.
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1 Well — one of them anyway!
2 David Sanger of the New York Times described the
scene in 1997,
BY the time they make it from the airport to the hotel,
first-time visitors to the ''tiger economies'' of Southeast Asia almost all
blurt out the same question: Where did all the money come from?
In Kuala Lumpur, the Malaysians are putting the finishing
touches on the world's tallest twin towers, and the national car, the Proton,
competes for space with Mercedes on the streets below. Bangkok, once known as
the Venice of Asia for its tree-lined canals, has filled every watery inch with
concrete to support office towers that stretch into the polluted mist. Even the
Philippines, once Asia's basket case, finally has its act together.
So the financial crisis that has shaken the region in recent
weeks -- huge currency devaluations, the International Monetary Fund sweeping in
to prop up the Philippines and virtually take over the central bank of Thailand
-- naturally raises the question of how much of this phenomenal growth is a
chimera. Are the tigers just large house cats? Have they caught Japan disease,
letting their banks get ahead of their brains, lending money with abandon for
multibillion-dollar projects no one needed?
(David Sanger, New York Times August 3, 1997)
3 These 'experts' seem to suffer from a disorder
common in the realm of economics: idiot-savantism. The blinkers they wear seem
to exclude awareness of wider implications of their formulations and
predictions.
4 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.
Among the major problems of these programs is the
presumption by World Bank officials that fiscal and financial processes should
be deregulated; that countries should be reorganised to fit seamlessly into the
'global economy' and can readily be refashioned to Western neoliberal economic
understandings and forms of organisation and practice. See Ideology and Reality for more on this.
5 See Why 'Third World'? for an explanation of the use of this
term
6 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.…
The financial crisis in Asia was in many ways very different
from others. For example, earlier in the 1990s, both Mexico and Argentina
suffered financial crises, largely stemming from their unsustainably high budget
deficits and soaring inflation. By contrast, in most of the affected Asian
countries, during the years leading up to the crisis, growth in economic
activity was strong, inflation was relatively tame, investment was robust, and,
with their budgets in surplus, their fiscal houses appeared to be in order.
Indeed, these countries had enjoyed extraordinarily fast growth
for decades. As their success grew, the international community encouraged them
to open their economies to foreign capital and to liberalize their financial
sectors, and there was movement in that direction beginning in the late 1980s.
With freer capital markets and fewer distortions in the financial sector,
foreign capital flooded in, typically as short-term loans to banks; by 1996,
capital inflows had grown to $93 billion.
How, then, did 1997 become the year of the “sudden stop” in East
Asia—that is, the year that foreign investors not only stopped flooding these
countries with capital, but, in fact, reversed course and pulled capital out, in
a dramatic way, as $93 billion of inflows became over $12 billion of outflows?
…
In spite of the risky lending practices that prevailed before
the crisis, foreign investors poured money into these countries at record rates.
Their willingness to do so appears to have stemmed in part from a second area of
vulnerability—a perception that the governments of these nations stood ready to
intervene to forestall bank failures.
[Accessed 9th May 2010]
7
The following is an excerpt from the history of the first 50 years of the
FDIC:
While the agency has grown and modified its operations in
response to changing economic conditions and shifts in the banking environment,
the mission of the FDIC over the past five decades has remained unchanged: to
insure bank deposits and reduce the economic disruptions caused by bank
failures.
At the time of its adoption in 1933, deposit insurance had a
record of experiments at the state level extending back to 1829. New York was
the first of 14 states that adopted plans, over a period from 1829 to 1917, to
insure or guarantee bank deposits or other obligations that served as currency.
The purposes of the various state insurance plans were similar:
to protect communities from the economic disruptions caused by bank failures;
and to protect depositors against losses. In the majority of cases the insurance
plans eventually proved unworkable. By early 1930, the last of these plans had
ceased operations.
A total of 150 proposals for deposit insurance or guaranty were
made in Congress between 1886 and 1933. Many of these proposals were prompted by
financial crises, though none was as severe as the crisis that developed in the
early 1930s. The events of that period finally convinced the general public that
measures of a national scope were needed to alleviate the disruptions caused by
bank failures.
From the stock market crash in the fall of 1929 to the end of
1933, about 9,000 banks suspended operations, resulting in losses to depositors
of about $1.3 billion. The closure of 4,000 banks in the first few months of
1933, and the panic that accompanied these suspensions, led President Roosevelt
to declare a bank holiday on March 6, 1933. The financial system was on the
verge of collapse, and both the manufacturing and agricultural sectors were
operating at a fraction of capacity.
(FDIC
1984)
8 In an article entitled 'Labor Unions in the United
States' he summed up the post-1st World War experience:
Helped by a sharp post-war economic contraction, employers and
state officials ruthlessly drove back the radical threat, purging their
workforce of known union activists and easily absorbing futile strikes during a
period of rising unemployment.…
In Austria, France, Germany, and the United States, labor unrest
contributed to the election of conservative governments…
The 1920s was an especially dark period for organized labor in
the United States where weaknesses visible before World War I became critical
failures. Labor's opponents used fear of Communism to foment a post-war red
scare that targeted union activists for police and vigilante violence.
Hundreds of foreign-born activists were deported, and mobs led
by the American Legion and the Ku Klux Klan broke up union meetings and
destroyed union offices (see, for example, Frank, 1994: 104-5).
Judges added law to the campaign against unions. Ignoring the
intent of the Clayton Anti-Trust Act 96(1914) they used anti-trust law and
injunctions against unions, forbidding activists from picketing or publicizing
disputes, holding signs, or even enrolling new union members.
Employers competed for their workers' allegiance, offering
paternalist welfare programs and systems of employee representation as
substitutes for independent unions. They sought to build a nonunion industrial
relations system around welfare capitalism (Cohen, 1990)….
After the promises of the war years, the defeat of postwar union
drives in mass production industries like steel and meatpacking inaugurated a
decade of union stagnation and decline. Membership fell by a third between 1920
and 1924.
Unions survived only in the older trades where employment was
usually declining. By 1924, they were almost completely eliminated from the
dynamic industries of the second industrial revolution: including steel,
automobiles, consumer electronics, chemicals and rubber manufacture.
(Friedman 2008)
As the following description outlines,
unionisation came under strong challenge following the First World War:
The revolutionary trade union activism of the Industrial Workers
of the World (IWW) began to challenge the reactionary “craft union” traditions
of the American Federation of Labour (AFL).
The US joined the First World War in 1917. The AFL fought to
dampen down struggle in order to maintain “social peace”.
Dissent or protest against the war was banned under new laws.
Socialist and union leaders were hounded and imprisoned.
But the Russian Revolution that year also had a huge impact in
the US. Strikes and revolt broke out across the country.
Employers and government feared the spread of revolution. The
IWW and the left were attacked as Bolsheviks. Conservative politicians demanded
that the state suppress all resistance.
In 1919 a dispute by shipyard workers in Seattle grew into a
tremendous city-wide general strike of 60,000 workers as 110 local unions struck
in solidarity.
The mayor responded by arming the police and encouraging
vigilantes to attack the strike. IWW and Socialist Party headquarters were
raided and their leaders arrested.
National papers screamed about the threat of revolution in
Seattle. Within a few days, the strike was defeated.
A strike by steel workers for union recognition in September
1919 proved to be a turning point. The US Steel Corporation refused to negotiate
and 400,000 workers across 50 towns in ten states walked out.
They were met with violent reaction. Meetings were outlawed and
groups of more than three people were broken up.
Martial law was declared in Gary, Indiana, and 26 union
organisers and strikers were murdered at the hands of company police in
Pennsylvania.
The steel strike nevertheless managed to hold out for over three
months in the face of sustained attack. But its eventual defeat in January 1920
was a massive blow for the workers’ movement.
After the steel strike the “red scare” escalated. The IWW fell
victim to repression – and to its own political weaknesses.
Its orientation on the new workforce often led it to abandon the
“native” skilled working class, which allowed the AFL to drive a wedge into
potential class unity.
Crucially, the IWW’s rejection of political parties meant it did
not have a strategy for gaining political power or for confronting the
state.
The war spurred industrial production, and its expansion
continued through the 1920s.
The “Roaring 1920s” were symbolised by the motor car, the
telephone and the hedonism of the rich as described by novelists such as F Scott
Fitzgerald.
Republican presidents Warren Harding and Calvin Coolidge
presided over a period of intense repression of dissent and the enrichment of
the few.
J Edgar Hoover’s Bureau of Investigation, the forerunner of
today’s FBI, collected information that led to thousands of suspected radicals
being imprisoned or deported.
Repression was savage. A miners’ strike in West Virginia in 1921
became an armed uprising known as the “Battle of Blair Mountain”. Bosses and
state officials worked together, arranging aircraft to drop pipe bombs and tear
gas on workers and their families.
There were race riots in Chicago and St Louis as returning
soldiers competed for jobs with the many black workers from the South who had
migrated north to work in the war industries.
The American Legion was founded to carry out anti-communist
propaganda and vigilante violence.
Reaction cleared the way for a massive employers’ offensive as
unions were smashed across the country.
The combination of an economic boom and a labour movement in
retreat saw unionisation collapse from five million in 1920 to 3.5 million in
1923.
Employers launched the “American Plan”, which combined patriotic
propaganda with company welfare plans and social activities to drum loyalty in
their workforces.
“Yellow dog” contracts were pushed through, which made workers
promise never to join a union. Radicals were blacklisted and could not work.
Meanwhile, the richest 1 percent of the population held a
staggering 48 percent of the country’s wealth into their hands.
The 1920s was a decade of defeat for US workers.
(The 1920s
were a decade of defeat for working people)
9 The decade would see women's suffrage in the United
States and elsewhere in the Western world.
10
Employees were provided with commodities or paid in company tokens which were
redeemable in company stores. Wikipedia has an excellent description of the
system:
While this system had long existed in many parts of the world,
it became widespread in the eighteenth and nineteenth centuries, as
industrialisation left many poor, unskilled workers without other means to
support themselves and their families. The practice has been widely criticised
as exploitative and similar in effect to slavery, and has been outlawed in many
parts of the world. Variations of the truck system have existed worldwide, and
are known by various names.
The practice is ostensibly one of a free and legal exchange,
whereby an employer would offer something of value (typically goods, food, or
housing) in exchange for labor, with the result being the same as if the laborer
had been paid money and then spent the money on these necessities. The word
truck came into the English language within this context, from the French
troquer, meaning 'exchange' or 'barter'. A truck system differs from
this kind of open barter or payment in kind system by creating or taking
advantage of a closed economic system in which workers have little or no
opportunity to choose other work arrangements, and can easily become so indebted
to their employers that they are unable to leave the system legally. The popular
song "Sixteen Tons" dramatizes this scenario, with the narrator telling Saint
Peter (who would welcome him to Heaven upon his death) "...I can't go; I owe my
soul to the company store."
(Wikipedia 2010)
11 The following letter from an English youth named
Richard Frethorne who was indentured to the Virginia Company, written to his
parents in 1623, gives a vivid picture of the kinds of conditions experienced by
indentured labourers,
Loveing and kind father and mother my most humble duty
remembered to you hopeing in God of your good health, as I my selfe am at the
makeing hereof, this is to let you understand that I your Child am in a most
heavie Case by reason of the nature of the Country is such that it Causeth much
sicknes [including scurvy and "the bloody flux"] … and when wee are sicke there
is nothing to comfort us; for since I came out of the ship, I never at anie
thing but pease, and loblollie (that is water gruell)[.] as for deare or venison
I never saw anie since I came into this land there is indeed some foule, but Wee
are not allowed to goe, and get yt, but must Worke hard both earelie, and late
for a messe of water gruell, and a mouthfull of bread, and beife[.] a mouthfull
of bread for a pennie loafe must serve for 4 men which is most pitifull if you
did knowe as much as I, when people crie out day, and night, Oh that they were
in England without their lymbes and would not care to loose anie lymbe to bee in
England againe, yea though they beg from doore to doore.…
I have nothing at all, no not a shirt to my backe, but two
Ragges nor no Clothes, but one poore suite, nor but one paire of shooes, but one
paire of stockins, but one Capp, but two bands, my Cloke is stollen by one of my
owne fellowes, and to his dying hower would not tell mee what he did with it
[although some friends saw the "fellowe" buy butter and beef from a ship,
probably purchased with Frethorne's cloak]. … but I am not halfe a quarter so
strong as I was in England, and all is for want of victualls, for I doe protest
unto you, that I have eaten more in a day at home than I have allowed me here
for a Weeke.…
O that you did see may daylie and hourelie sighes, grones, and
teares, and thumpes that I afford mine owne brest, and rue and Curse the time of
my birth with holy Job. I thought no head had beene able to hold so much water
as hath and doth dailie flow from mine eyes.
(Richard Frethorne, "Letter to
his Parents, March 20, April 2, 3, 1623," in The Records of the Virginia
Company of London, vol. IV, ed. Susan M. Kingsbury.)
12 In a blog post sub-titled 'Welfare capitalism is
dying. We're going to miss it', Daniel Gross has provided an excellent
summary of the emergence of welfare capitalism in the early 20th century:
Welfare capitalism is a term used by historians and economists
to define the distinctive style of capitalism that emerged in the 20th century.
Until the turn of the 20th century, fringe benefits, insurance, retirement
plans, and health benefits—the perks we have come to define as essential to
employment—simply didn't exist. Employers had compensated employees solely with
wages.
But that changed with the onset of industrial capitalism. In
Europe, governments responded to industrialism by developing state-run systems
of unemployment insurance, health care, and pensions. But—in yet another example
for American exceptionalism—the private sector took the lead in the United
States. After the age of the robber barons and various bitter strikes,
forward-looking companies began to take action on their own. They were
influenced by a range of factors: noblesse oblige, paternalism, and the emerging
fields of industrial psychology and human resource management.
Henry Ford led the way. In January 1914, Ford Motor Co.
instituted the $5 day. Over the next several years, Ford took steps to ensure
that its employees remained healthy, loyal, and above all, efficient. It opened
an infirmary and established the "Sociological Department" to both keep tabs on
and look after the welfare of its workers. In 1922, Ford cut the work week from
six days to five.
In the roaring 1920s, when other highly profitable companies
began to emulate Ford, welfare capitalism began in earnest. Companies built
cafeterias and health clinics, sponsored baseball and bowling leagues, and
granted days off for the opening of deer season. Corning Glass Works began
providing health insurance in 1923. The same year, U.S. Steel slashed its
workday from 12 hours to eight. In 1927, International Harvester began offering
two-week paid vacations. All this was all done without government mandates and
largely without the influence of unions.
Welfare capitalism proved a phenomenal success—socially,
economically, and politically. America's industrial complex was ultimately
unionized, but with relatively little upheaval. Even with the rise of the
welfare state in the '30s, corporations continued to assume responsibility for
the well-being of their employees. It was part of a grand bargain between labor,
capital, and government that allowed for remarkable growth, innovation, and
rising standards of living for decades. It also served as a bulwark against
socialism. By endowing labor with dignity, welfare capitalists made industrial
work a ticket to the middle class.
But just as the New Deal Coalition started to fray in the 1960s,
so too did welfare capitalism. American businesses—and workers—increasingly
began to face competition from all over. They began to have difficulty competing
with companies from countries where more robust welfare states bore the burden
of providing pensions and health insurance (like Germany and Japan). They began
to have difficulty competing with low-wage competitors in countries where
welfare capitalism had yet to take hold, like Mexico, China, and India. And they
began to face competition from newer domestic companies that never bought into
the ideas of welfare capitalism.
In the 1920s, competitive pressures led companies to become more
paternalistic to unskilled workers. But now, the pressure is all in the other
direction. With each passing year, more and more retailers have to compete with
Wal-Mart, and more and more manufacturers have to compete with China. Even
enlightened employers like Starbucks can't ever hope to offer the sort of
programs that International Harvester and Ford did back in the 1920s. And so
welfare capitalism is slipping away. Health care insurance has increasingly
become decoupled from work. According to this Kaiser Family Foundation study, 61
percent of workers are covered by employers' health insurance, down from 65
percent in 2001. And pension plans, which guaranteed a retirement income to
employees, are being replaced by 401(Ks), which offer no such certainties.
13 These became beliefs which have been perpetuated
amongst employers, right wing political organisations and conservative middle
and working class people to the present.
Of course, the strong growth in urban wages was
primarily due to Hoover's rapid growth of the money supply — which led to the
explosion in speculative investment and consequent financial collapse.
The lowering of the prices of manufactured
consumables was a consequence of both the assembly-line organisation and
electrification of industry, driven by wartime necessity. Once productive
enterprise was refocused to peace-time needs, this resulted in mass production
of cheap consumer goods.
The welfare capitalism of the period was funded by
the boom conditions. Once those conditions collapsed, so did welfare
capitalism.
A very similar fall in the price of consumer goods
occurred during the globalisation of labour-intensive production in the 1980s.
As production moved to low-wage areas, the costs of consumables manufacturing
dropped. This was quickly reflected, through competition, in retail prices in
Western countries.
Even without any increase in wages, Western people
found themselves able to afford previously luxury goods. It seemed in the 1980s
that deregulation had indeed resulted in prosperity — free markets obviously
worked!
14 The Wall Street collapse of 2008 is merely the
latest in a long line of burst capitalist bubbles. See 'When the Bubble
burst, all of England wound up broke. (South Sea Bubble)' by Robert
Wernick (1989) for a description of the 1720 collapse of The South Sea Company
and subsequent collapse of credit in Britain. As Wernick described,
At the beginning of September 1720, South Sea stock sagged to
Bp830, then to 750, to 575, to 370. By the end of the month it stood at Bp180.
Blunt's nephew Charles cut his throat with a razor. Blunt himself —Sir John, as
he was now—narrowly escaped with his life when an angry speculator tried to
shoot him down in the street. He had taken the precaution of selling out all his
stock near the high in August,
The collapse of the South Sea stock led to a collapse of all
credit. By October it was clear that a financial crisis had erupted in England.
No one wanted paper anymore. The real estate market collapsed. Unemployment,
especially in the luxury trades, spread. So did bankruptcies. The government
fell.
Everyone who had had any dealings with the South Sea Company,
and that meant almost everyone of consequence in Great Britain, was in a rage
and a financial fix.
15 Economists have a wonderful talent for
mystifying the mundane and coining euphemisms. Instead of 'printing money' we
now have 'quantitative easing'!
16 The following table from the U. S. Bureau of the
Census (1975) shows the extent of the unemployment problem during the decade of
the 1930s.
17 This, too, is a consequence of the rhetoric of
the 1920s and 1930s. The gutting of union power in the early 1920s was largely
claimed to be not a move against labour but a move against socialist revolution.
As Friedman (2008) explained,
Labor's opponents used fear of Communism to foment a post-war
red scare that targeted union activists for police and vigilante violence.
Opposition to the New Deal was couched in very
similar terms. Even from within the Democratic Party, opposition was expressed
in these terms. A Wikipedia entry on the American Liberty League explains
it:
The American Liberty League was an American pressure group
formed in 1934 by conservative Democrats to oppose the liberalism of President
Franklin D. Roosevelt's New Deal. The League stated that it would work to
"defend and uphold the Constitution" and to "foster the right to work, earn,
save and acquire property." In its opinion, the Roosevelt Administration was
leading the U.S. toward socialism, bankruptcy and dictatorship.
(Wikipedia 2010)
18 Of course this is illusory. The vast bulk of
Western legislation relates to economic issues of one kind or another, primarily
spelling out 'legitimate' and 'illegitimate' forms of organisation, behaviour
and intent. Once one learns the maze, the rules appear invisible.
19 See The Discovery of Natural Man for more on this.
20 For a discussion of the summum bonum see
In Search of the 'Greatest Good'.
21 It would seem that, logically, contrary to
common practice among US conservative evangelical Christians, evangelical
Christians should reject the relevance of Aquinas' logic for the market place.
Since most forms of Christianity hold that human
nature was warped through 'The Fall' in the Garden of Eden, the expression of
unredeemed human nature should not produce the summum bonum.
Those who rely on the metaphysical presumption that the expression of
uninhibited human nature will produce the summum bonum must be assuming
either that human beings are redeemed through the market place or that
unredeemed human nature has not been warped.
22 I must confess that the ease with which political
opportunists are able to reinvent history (even the history of six months
earlier) and then successfully convince Western electorates of the 'truth' of
their fables bemuses me. It must, surely, reflect on the quality of our
educational institutions that people can so easily be misled.
23 See Natural Law and Perfecton for the origin of the western
European belief that human beings have a duty to discover 'natural law' through
understanding the 'nature' of human beings and to live by that inbuilt law once
discovered.
24 see Social Exchange Theory for more on this.
Of course, these presumptions are highly
questionable and open to challenge. However, even accepting the premises, the
presumption that uninhibited individualistic competitive activity as expressed
in the marketplace will result in social good requires a remarkable leap of
faith. There seems to be no evidence from history that this is so (see The Working Poor). see Neoliberalism for more.
25 see Subsistence and status for more on this.
26 see Reciprocity and Exchange for more on this.
27 or of the means for obtaining these — through
accumulating money or resources which can directly or indirectly be converted
into cash income.
28 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 and consumers
in Western communities.
29 See Teaching The Poor to Work; Teaching 'The Native' to work for more on this.
30 One wonders how Thomas More would have described
the consequences of the sub-prime mortgage fiasco in the US.
And, of course, that other Thomas — Jefferson. If
he could write of late 18th century Western Europe that,
…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)
how would he have described the past three years,
from 2007, in Western nations?
31 See Alienation of Property
32 See Emergence of commodified relationships in western Europe
As 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)
33 See The Virtuous Capitalist, The Poor and the Wasteland for more
on this.
34
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
35 The text is as follows:
We rarely hear, it has been said, of the combinations of
masters, though frequently of those of workmen. But whoever imagines, upon this
account, that masters rarely combine, is as ignorant of the world as of the
subject. Masters are always and everywhere in a sort of tacit, but constant and
uniform combination, not to raise the wages of labour above their actual rate.
To violate this combination is everywhere a most unpopular
action, and a sort of reproach to a master among his neighbours and equals. We
seldom, indeed, hear of this combination, because it is the usual, and one may
say, the natural state of things, which nobody ever hears of.
Masters, too, sometimes enter into particular combinations to
sink the wages of labour even below this rate. These are always conducted with
the utmost silence and secrecy, till the moment of execution, and when the
workmen yield, as they sometimes do, without resistance, though severely felt by
them, they are never heard of by other people.
Such combinations, however, are frequently resisted by a
contrary defensive combination of the workmen; who sometimes too, without any
provocation of this kind, combine of their own accord to raise the price of
their labour.
Their usual pretences are, sometimes the high price of
provisions; sometimes the great profit which their masters make by their work.
But whether their combinations be offensive or defensive, they are always
abundantly heard of.
In order to bring the point to a speedy decision, they have
always recourse to the loudest clamour, and sometimes to the most shocking
violence and outrage. They are desperate, and act with the folly and
extravagance of desperate men, who must either starve, or frighten their masters
into an immediate compliance with their demands.
The masters upon these occasions are just as clamorous upon the
other side, and never cease to call aloud for the assistance of the civil
magistrate, and the rigorous execution of those laws which have been enacted
with so much severity against the combinations of servants, labourers, and
journeymen.
(1776, pp.84-5)
36 See The alienation of property and stress on legally bounded
confrontation for more on this.
37
See What shall we do with The Poor? for more on this.
38 See Colonial Labour Practices for more on this
39 See Subsistence and status; Teaching The Natives to Work for more on this. For an
excellent, illustrated summary of the mono-agricultural reorganisation of the
African continent see:
Colonialism and Africa's Integration into the Global Economy
Primary Revenue
Generating Products During Colonial Era
(Click for access to larger online
map)
[accessed 10 May
2010]
Also Victoria Tauli-Corpuz and Parshuram Tamang
(2007 (MSWord Document)) for 'the impact of commercial tree
plantations and monocropping on indigenous peoples’ lands and communities'.
40 See Enter the Europeans for more on this.
41 Since Western Europe had expanded into the
world and now directly controlled more than 80% of the earth's surface, the
available workforce in Western Europe was significantly reduced by the expansion
of the armed forces and colonial administrations they required to ensure their
control. This made labour scarce and gave workers' organisations increasing
power to negotiate wages and conditions.
42 We must, of
course, remember what this term refers to in economic parlance. It refers to the
removal of social restrictions on the exploitation of labour and the
deregulation of competitive exchange.
43 Huxley described a number of the presumptions of
'free marketeers' in the latter part of the 19th century:
… the Education Act is only one of a number of pieces of
legislation to which they object on principle; and they include under like
condemnation
- the Vaccination Act, the Contagious Diseases Act, and all other
sanitary Acts;
- all attempts on the part of the State to prevent adulteration,
or to regulate injurious trades;
- all legislative interference with anything that bears directly
or indirectly on commerce, such as shipping, harbours, railways, roads,
cab-fares, and the carriage of letters;
- and all attempts to promote the spread of knowledge by the
establishment of teaching bodies, examining bodies, libraries, or museums, or by
the sending out of scientific expeditions;
- all endeavours to advance art by the establishment of schools
of design, or picture galleries; or by spending money upon an architectural
public building when a brick box would answer the purpose.
According to their views, not a shilling of public money must be
bestowed upon a public park or pleasure ground; not sixpence upon the relief of
starvation, or the cure of disease.
Those who hold these views support them by two lines of
argument.
They enforce them deductively by arguing from an assumed axiom,
that the State has no right to do anything but protect its subjects from
aggression. The State is simply a policeman, and its duty is neither more nor
less than to prevent robbery and murder and enforce contracts. It is not to
promote good, nor even to do anything to prevent evil, except by the enforcement
of penalties upon those who have been guilty of obvious and tangible assault
upon purses or persons. And, according to this view, the proper form of
government is neither a monarchy, an aristocracy, nor a democracy, but an
astynomocracy, or police government.
On the other hand, these views are supported a
posteriori, by an induction from observation, which professes to show that
whatever is done by a Government beyond these negative limits, is not only sure
to be done badly, but to be done much worse than private enterprise would have
done the same thing.
(1893, p. 258-9)
44 While production expanded during the period,
consumption, which required an expanding base of consumers, lagged. This
resulted in a period of readjustment as wages increased and people's needs and
wants grew with their increasing purchasing power. In the lag-time, the
economies of Western Europe experienced a period of over-production and
consequent slow-down.
45 Robert Steinfeld (2007) described the legal
developments affecting union activity in the 1870s,
An initial attempt at a new "settlement" was made by a Liberal
government in 1871, which passed the "Trade Union Act" to accord legal
recognition to unions, and the Criminal Law Amendment Act to loosen criminal
restrictions on collective activity. But union officials reacted with hostility
to certain aspects of the Criminal Law Amendment Act. Its clause on picketing,
in particular, became especially controversial. And the courts proceeded to
inflame this situation by basing a criminal prosecution for conspiracy on a
group violation of the Master and Servant act.
In 1875 a Conservative government, which had recently replaced
the Liberal government in an electoral upset, implemented a more stable
"settlement" that endured for a number of decades.
The new "settlement" was effected by the passage of two new
pieces of legislation, the "Employers and Workmen Act," which eliminated
criminal penalties for breaches of employment contracts in most cases, and the
"Conspiracy and Protection of Property Act," which repealed the Criminal Law
Amendment Act, revised the controversial picketing clause, and completely
removed trade disputes between employers and workmen from the reach of the
common law of criminal conspiracy.
This legislation bestowed on unions broad freedoms (and greater
power) to conduct the economic struggle for life in capitalist
society.
(2007, p. 663)
46 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.
47
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.
48 See And… No Charity! for more on this.
49 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.
50 Free marketeers and those who believe 'that
government is best which governs least' have vehemently opposed the inclusion of
social costs as part of the base costs of production. However, there seems no
logical reason why they should not be included. Such an inclusion does not
herald the arrival of 'socialism'. The economy remains in private
hands.
Social costs are of the same order as all other
costs of extraction and processing borne by business. Once built into cost
structures they become invisible and the economy continues as before.
I well remember the panic which ensued in Western
countries with the first massive oil price increases of the early 1970s. Many
were the dire predictions of imminent economic collapse and long-term damage.
Yet, within three years of the rise, the new, unavoidable costs of petroleum
based products became built into the economies of the world through a period of
rapid inflation. Once that settled, everything proceeded as before.
The major effect of an inclusion of social costs
into the base price of production is that the circulation of money through the
society becomes far more broadly based. The economy becomes less insulated from
the rest of social organisation and activity.
It seems that this is what perturbs free market
promoters. They sense that 'the economy' is no longer being kept separate from
other social environments and instinctively react to protect their primary
ideological understandings. (See Ideology and Reality for more on this.)
51
See Private Enterprise for more on this.
52 While there
are many problems in a Marxist understanding of reality (not least being its
rather naïve social evolutionary model), neo-Marxists have developed a clear
explanation of the relation between capitalist and co-existing forms of
community organisation and activity.
In Marxist terms, pre-capitalist 'modes of
production' supported the new capitalist 'mode of production'.
Workers from non-capitalist communities had all
their social welfare needs met by the non-capitalist community from which they
came (including family, old age and subsistence support and various needs of the
communities within which they lived). This allowed businesses to exclude the
non-employment needs of workers and the social requirements of the communities
within which they operated in their calculation of production costs.
As those non-capitalist modes were eroded and
displaced by capitalism, businesses rejected community demands for inclusion of
their welfare and other costs as part of the costs of production.
They did not see themselves as intrinsic to the
community within which they existed, as its means of supplying community needs
and wants. They considered themselves external to it, living alongside it, and
in competition with it as a supplier of the labour they employed.
Prominent community leaders were, almost
inevitably, also prominent capitalists. In their felt need to keep business
costs from rising, they accepted this separation of the economic environment
from the community in which it was placed. This led to a constantly diminishing
community capacity to ensure the social welfare of its members.
53 see Ideology and Reality for more on this.
54 See The Economy: A New Evironment for more on this.
55 Economic activity assumes a bedrock of costs
which must, always, inescapably, be included in production costs. In a drive to
profit, businesses will always attempt to reduce these inescapable costs.
Unfortunately, given the history of the relationship between capitalist activity
and medieval communities, businesses have always seen social costs as externally
imposed, avoidable costs.
With the formalisation of economics in the
18th century, it became increasingly philosophically possible to
argue that economic activity could be insulated from activity in other social
'environments' (see The Economy as a Separate Environment for more on this). This
justified businesses in continuing to consider social costs as externally
imposed, avoidable costs.
56 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.
In the light of the somewhat absurd insistence by
many inhabitants in the United States that this amounts to 'socialism', the
obvious needs to be restated.
Inclusion of social costs in the costs of
production is not socialism! Economic ownership and management remains
in private hands. One could privatise every responsibility of government and yet
have social costs built into the basic costs of production. I apologise for this
reiteration of the obvious!
57 Since the mid 1970s this 'protectionism' has
been blamed by neoliberal commentators for most of the economic problems facing
businesses, since it made business 'internationally uncompetitive'.
Of course, that was precisely the point of the
legislation. The argument for 'international competitiveness' was, in fact, an
argument for the removal of social costs as basic production costs.
58 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.
59 See The History of the FDIC for more on this.
60 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
61 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.
62 Unfortunately, costs related to maintaining the
integrity of the environment from which raw materials are extracted have usually
also been excluded from consideration. The environmental deterioration has
far-too-often been 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'.
It 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 People and Recognised Environments).
63 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.
64
As we observed elsewhere, under capitalism, the logic of the marketplace
effectively emasculates (or spays) morality. It also guts 'society' and
inclusive, caring communities.
Just as the end result of Aquinas' model was the
secularisation of western European populations, so the end result of Adam
Smith's model has been the dismembering of society and self-interested
individualisation of populations (see The Economy: A New Environment for more on this).
65 See The Growth in Third World Debt for more on this.
66 Oxfam International has recently claimed that:
Across the world, impoverished countries are being forced to
repay debts far bigger than original loans, instead of spending precious cash on
essentials like schools and hospitals.
Bangladesh, for example, has to make crippling debt repayments,
when it desperately needs to use money to pay for better health care and
education – especially for the 50 million Bangladeshis who survive on under a
dollar a day.
(Debt and Aid, Oxfam International)
The United Nations Development Programme, in a
Policy Note on Heavily Indebted Poor Countries (HIPC) in 2003 claimed:
There are 42 HIPC countries — 34 in Sub-Saharan Africa, 4 in
Latin America, 3 in East Asia and 1 in the Middle East. Thirty-one of them are
among the 59 countries identified as priority countries in the 2003 Human
Development Report…
Countries with unsustainable external debt are those whose 'net
present value' of external debt exceeds 150 per cent of the export revenues…
The World Bank has identified severely indebted low-income
countries (SILIC) as countries whose 'net present value' of external debt is
higher than 220 per cent of exports and/or more than 80 per cent of gross
national income.
At the end of 2001 (latest year for which data are available),
the SILIC countries not included in the HIPC list include Indonesia, Kyrgyz
Republic, Moldova, Nigeria, Pakistan and Tajikistan. Jubilee Research claims
that there is arbitrariness to the picking of countries for inclusion in the
HIPC list.
(The Heavily Indebted Poor Countries Initiative, UNDP Policy
Note October 2003)
67 See
Import Substitution in Third World Countries for more on
this.
68
Like genies in bottles, it's so much easier to deregulate than to regulate! The
recent attempts to re-regulate banking and investment practicies in a globalised
economic world show how difficult it is to coordinate legislation and
re-establish any genuinely effective controls.
69 Groups committed to laissez faire
economics or more simply to getting back to the way things were in the 1920s.
These groups had long sought effective arguments for the dismantling of the
'welfare state' and reestablishment of 1920s economic conditions.
70 The consequences of this relocation of labour
intensive industry have been rather different than initially anticipated by the
experts. Jorge Nef explained some of the associated problems of this move to
relocate labour intensive industry to low-wage countries:
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)
71 A
UN Food and Agriculture Organisation (FAO) report described some of the problems
in Third world countries and a few of the reasons why Western nations lowered
protectionist barriers:
The reality of global interdependence was called to the
attention of policy-makers by the oil crises of 1973 and 1979 and the debt
crises [in 3rd World countries] of the 1980s.The debt problem, not
yet resolved despite numerous debt relief and reduction initiatives, has
deleterious implications for food security.
Debt-servicing obligations reduce the ability to import food, as
well as other items that could increase domestic food production and
consumption, and constrain resources for development and social welfare. The
most recommended cure consisted of macroeconomic stabilization, enacting
structural reforms (liberalization and privatization) and an increasing emphasis
on international trade.
A combination of policies, inter alia, reforming exchange rates,
privatizing state-owned enterprises, reducing the public payroll and public
spending generally, dampening inflation and cutting subsidies, was employed.
In the process of adjustment the inward-oriented
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)
72 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)
73
See The Economy: A New Environment for more on this.
74
Economic efficiency arguments are usually based on a presumption of the
separation of an economic environment from other 'social' environments. The
'welfare' generated through economic activity is assumed to be a consequence of
activity within this insulated environment. The definition of economic
efficiency is usually spelt out as the:
Situation in which (with the given state of technology) it is
impossible to generate a larger welfare total from the available resources. In
other words, the situation where some people cannot be made better-off by
reallocating the resources or goods, without making others worse-off. Also
called allocative efficiency, it indicates that a "just the right balance
between pain and gain" has been achieved.
(see Economic Efficiency)
This 'balance between pain and gain' is usually
explained through reference to the Pareto Optimum: "Conditions under
which the state of economic efficiency (where no one can be made better off by
making someone worse off) occurs."
Any move to build a welfare component into cost
structures is regarded as a move to economic inefficiency.
All this is based, of course, on a presumption
that human beings are all, at heart, pre-social, independent, self-interested,
self-promoting, competitive and acquisitive beings, intent on conserving and
expanding their possessions and furthering their own well-being and
independence, if necessary, at the expense of others around them (see Independent individualism).
The real issue in considering social welfare,
however, is not the equitable reallocation of resources within the economy (the
Pareto Optimum), but the expansion of the circulation of money. Either
circulation is limited to activity within 'the economy' (a strict neoliberal
approach) or it is expanded to include community requirements.
75 This has
been clearly demonstrated in the shift in taxation towards income and away from
business through the last thirty years in Western countries. 'User Pays'
taxation schemes, including
- moves to lower business tax rates (consumption taxes have
usually been removed from business costs);
- toward flat personal income tax rates;
- and to broad based 'consumption' taxes such as 'value added'
(VAT) and 'goods and services' (GST) tax regimes
all focus on individualising social costs,
shifting 'social welfare' costs to personal incomes and advantaging those who
are economically successful.
76 This naïve view of the difference between
'politics' and 'economics' assumes that special interest groups do not form and
sustain themselves and each other in economic activity. This is something which
Adam Smith readily acknowledged two hundred and fifty years ago,
We rarely hear, it has been said, of the combinations of
masters, though frequently of those of workmen. But whoever imagines, upon this
account, that masters rarely combine, is as ignorant of the world as of the
subject. Masters are always and everywhere in a sort of tacit, but constant and
uniform combination, not to raise the wages of labour above their actual rate.
To violate this combination is everywhere a most unpopular action, and a sort of
reproach to a master among his neighbours and equals.
We seldom, indeed, hear of this combination, because it is the
usual, and one may say, the natural state of things, which nobody ever hears
of.
(1776, pp. 84-5)
77 For this reason, and others, one needs to be very
careful about comparisons in unemployment rates in different periods. The
definition of unemployment in the post-1980 period varies from the definition
used in the 1920s and 30s.
78 James Mittleman described the scene:
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)
79 As the Alberta Labour Report explained:
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)
80 The following is one of dozens of similar
explanations of the activities of businesses which manage the contingent
workforce requirements of other companies:
Procuring and managing your contingent workforce (temporary
workers, contractors and consultants) needn’t be costly and time consuming.
In this increasingly complex and regulated world, some things
seem daunting. …We have been designing, deploying and managing complex
multi-location, multi-geography, multi-worker category, Contingent Workforce
Sourcing & Management Programmes for over a decade.
Our approach
It might not be surprising to learn that AMS
solutions are ever-evolving and are bespoke for each client, carefully taking
into consideration your short, medium and long term needs and desired
outcomes.
For some it’s a one-off health-check to assess and assure their
existing model, recommending changes and highlighting areas of risk. For others,
it’s a multi-geographic, online enablement of their entire non-permanent
workforce, introducing visibility, control, efficiency where required and
regulatory compliance for peace of mind.
To compliment our bespoke approach there are some elements we
never ever compromise on - risk and compliance are at the core of those.
Our approach to tenure management, co-employment risks,
contractual protection for our clients and workers, liability and insurance
levels, legislative compliance, background checking and screening is
unwavering.
These elements are core to our proposition, are shared between
our clients and via AMS’s network of Global Customer Service Centres, are
replicable and repeatable which delivers certainty and assurance to all AMS's
clients
(Alexander Mann Solutions)
81 In such a climate, as Sewell and Wilkinson
described of a British factory in the early 1990s:
… 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)
82 Summing up the 1980s, Strange concluded:
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)
83 As Robert Guttman 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-oriented 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)
84
The following excerpt from George Soros' self-promoting book The Crash of
2008, gives a picture of what happens when speculators, presuming public
underwriting of their 'commercial paper', are left to their own devices:
The bankruptcy of Lehman Brothers on Monday, September 15, 2008,
was a game-changing event. As I have noted, until then, whenever the financial
system came close to a breakdown, the authorities intervened. This time they did
not. The consequences were disastrous. CDSs (credit default swaps) went through
the roof, and American International Group (AIG), which carried a large short
position in CDSs, was facing imminent default. By the next day, Tuesday,
Treasury Secretary Henry Paulson had to reverse himself and come to the rescue
of AIG, albeit on extremely punitive terms. But worse was to come. Lehman was
one of the main market-makers in commercial paper and a major issuer. An
independent money market fund held Lehman paper, and, since it had no deep
pocket to turn to, it had to “break the buck”—stop redeeming its shares at par.
This caused panic among depositors, and by Thursday a run on money market funds
was in full swing. The panic spread to the stock market. The Federal Reserve had
to extend a guarantee to all money market funds, short selling of financial
stocks was suspended, and the Treasury announced a $700 billion rescue package
for the banking system. This provided some temporary relief to the stock
market.
(Soros 2009 p. 161)
85 By the early 1980s, neoliberals were able to point
to the early consequences of their policies in Thatcher's Britain. This resulted
in a large number of converts, including politicians who had come out of the
labour movement.
They seemed not to understand the income
redistribution and threat to government welfare programs implied in the changes.
In Australia, the move to deregulation in the
1980s was undertaken by the Labor government under Bob Hawke — who had come out
of the labour movement. He had been president of the Australian Council of Trade
Unions (ACTU) for ten years before moving into parliament and becoming prime
minister of Australia.
86 Since welfare costs had been excluded from basic
production costs, this was an inevitable consequence of neoliberal policies.
87 See Transnational Companies in the Third World for more on
this.
96 See Clayton AntiTrust Act for the text of the Act
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