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"It is better to be drunk with loss and to beat the ground, than to let the deeper things gradually escape."

- I. Compton-Burnett, letter to Francis King (1969)

"Cynical realism – it is the intelligent man’s best excuse for doing nothing in an intolerable situation."

- Aldous Huxley, "Time Must Have a Stop"

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Friday, 9 January 2004

Topic: The Economy

The Brave New World: "While workers are necessary, and so have to be kept alive, they have no hope of any better treatment since they are infinitely available, replaceable, and generally interchangeable."
Really. That's a fact, Jack!

Job growth pretty much came halt in December, the Bureau of Labor Statistics reported today, as thousands of people disappeared from the officially recorded labor force rather than keep looking for work. They gave up. Most forecasters thought that December would be a breakthrough month for job creation, given the strengthening economy. But instead of the 150,000 new jobs they had on average expected, there were only 1,000. Not good.

The unemployment rate dropped to 5.7 percent from 5.9 percent in November, but that was mainly because so many people chose not to look for work, a requirement to be counted as unemployed. It seems that in December, 309,000 working-age men and women who would normally be job-hunting either left the labor force or did not bother to enter it in search of work, according to the labor bureau.

Oh yeah, then the government lowered by more than a third its estimate of the number of jobs created in November and October. Instead of an increase of 143,000 jobs in those months, the revised figure was 94,000. Oops.

But the Gross Domestic Product (GDP) grew an unusual 8.2 percent in the third quarter and is expected to have closed out the year with another three months of solid expansion. Corporate profits are soaring, up twenty-two percent or so. Productivity - the dollar output per unit of work - is growing by leaps and bounds. Business is doing just fine. This is a recovery.

And the lay-off announcements keep coming, and the announcements of large bocks of jobs being eliminated by having the work done in India or the Philippines or wherever.

More here is being done with less, or with labor from distant places at one tenth the cost.

The recovery is being accomplished by stretching the labor force as thin as possible, by depressing wages (easy to do when there are ten people who want your job if you bitch too much), and by having the work done offshore when at all possible.

This is quite understandable. If I have a business making widgets I want to make them at the lowest possible cost and sell them at the highest possible price. That's where my profit lies. If I can stretch what expensive domestic labor I simply must use as far as possible at the lowest possible cost, and then offload big blocks of labor costs to foreign workers at one tenth the cost, then I can offer a fine product at a wonderfully low price. And fine products at low prices help everyone.

Actually, I have no problem with that. It makes good business sense.

The problem is all these folks with no jobs who cannot buy my products. Damn.

And the jobs are never coming back. How did this come to be?

I found an interesting discussion of the problem here:
The Price Of Globalization
William Pfaff, The International Herald Tribune, Saturday, January 10, 2004

Pfaff sets up the conflict this way:
The jobless recovery in the American economy, weakly echoed in Europe, reinforces complaints in all the Western industrial countries that employers and stockholders enrich themselves while workers' wages fall or remain static. Defenders of free trade irritably reply that outsourced jobs will be replaced by those demanding higher skills, and that workers should go out and retrain themselves.
Yep, a knee-jerk reaction each way. The rich capitalist owners are unfairly exploiting the workers? Well, the workers should make themselves useful and relevant again. Retrain. Yeah, yeah.

Pfaff points out that one could argue that capital, technology, ideas and jobs now "all enjoy unprecedented mobility." It's workers that lack mobility. Nearly all the work performed in modern industry can be outsourced globally.

It's a matter of freed trade.

But is exporting jobs free trade?
Actually, this is free trade. It is free trade as theoretically envisaged by the 18th century economist David Ricardo, stripped of the economic, social and political constraints that for two centuries kept trade from functioning the way Ricardo expected.

He said that states should exploit their comparative advantages in resources or manufacturing. Trading in those complementary advantages would produce reciprocal gain. It's win-win - as Ricardo would not have said.

This is a relatively simple-minded theory, but in practice it has generally worked out, if not to the advantage of all concerned.
Okay, fine. Then how come so many of us are getting screwed over and unable to find work?

Here's the deal:
... Ricardo had a second theory, which he called the "iron law of wages." You do not hear much about the iron law, in part because you wouldn't want to hear about it, and also because experience has seemed to prove it untrue. But times are changing.

The iron law of wages is also simple and logical. It says that wages will tend to stabilize at or about subsistence level. That seemed inevitable to Ricardo, since while workers are necessary, and so have to be kept alive, they have no hope of any better treatment since they are infinitely available, replaceable, and generally interchangeable.
Ah, that's the problem. Previously the pool of available labor was limited - a matter of geography. Now, for the first time in history, thanks to modern computer networking and telephony, we really do have "infinitely available" labor, world-wide, twenty-four hours a day. This IS new.

Yes, Ricardo's wage theory had seemed untrue. The supply of competent workers in a given place was not unlimited; neither workers nor industry were perfectly mobile, and labor demonstrated in the last two centuries that it could mobilize and defend itself. This "iron law of wages" would function only if the supply of labor is infinite and totally mobile.

And now we pretty much have that. Globalizaton.

Pfaff argues that globalization is "removing the constraints imposed in the past by societies possessing institutions, legislation, and the political will to protect workers."

Yep, any labor movement is screwed:
Labor today has almost entirely lost power in the places where it once possessed it. Western Europe provides limited and unrepresentative exceptions: Germany with its national unions, and the civil service unions in France. In both countries unions survive because of political rather than economic factors.

Until recently, the complaint that industry benefited from free trade but workers did not was conventionally treated as special pleading by unions and the left. At best, this was said to be a problem of lagging interaction between the unmistakably positive results of trade for business and industry, and the advantages for workers that - according to the abstract model - must ineluctably follow.
Hey! Wake up! Business is great, and getting better. We do have "unmistakably positive results" - look at the profits piling up.

But nothing is going to "ineluctably follow" for workers.

Technology has made the labor pool nearly infinite. Ricardo's law of wages, his "wage theory," finally comes into play. And it isn't pretty.

So what to do?

Best to own a business - be a capitalist - and not to work for one.

Posted by Alan at 20:39 PST | Post Comment | Permalink
Updated: Friday, 9 January 2004 22:30 PST home

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