Even those amongst us who think they see the world through clear ideologies must occasionally step back for a reality check. How are we doing compared to what we ought to be doing given our rhetoric? One case of this concerns free trade; since the 1980s the world seems to have been moving progressively towards the complete breakdown of trade barriers but two of the leaders in this movement, The USA and Australia are only now in the process of finalising a free trade agreement. If it were such a good idea, why did it take so long?
The best kind of reality check throws us into new waters, ones where our carefully rehearsed cliches are of no use to us. I want to put to you a question that I’ve been puzzling about for a while now. Not only do I not know what I think; I don’t know what my government would want me to think. (Perhaps they’d just prefer I didn’t ask the question.)
First a bit of essential stage setting. The Western World, to the extent that it can agree on anything, seems pretty much in agreement on two things. First, at the political level, democracy is the best mode of government. Second, at the economic level, capitalism is the best way to organise the world’s economy. Furthermore, the capitalism that is supposed to be good for us is internationalised capitalism, a capitalism that allows everyone to compete with everyone else on a level playing field. Or so the rhetoric goes. On the other hand, this tendency to want to break down economic barriers to free trade is not matched by tendency to want to break down political barriers between nations; if anything the physical boundaries between countries are being policed harder than ever and the anxiety over systematic encroachment is greater than ever.
Economic globablisation never called for a breakdown in each country’s right to legislate to control business as it sees fit, at least not that I’m aware of. What it did call for was the removal of barriers to the free movement of capital across borders. This meant three things. Companies were to be multinational—they could do business in any environment they chose. Second, they were to be free to be owned by anybody who could afford to buy them—they weren’t tied forever to their place of birth. Third, companies were to be allowed free movement of aspects of production across borders—if it was cheaper to move a certain production stage offshore that’s where it went. So money, business and jobs can go where they like.
Contrast this with labour. Can people freely move from one part of the world to another in search of the best deal? Of course they can’t. I don’t think this has anything to do with the fact that people might be moving from undemocratic countries to democratic countries. If the whole world were democratised, I think we would still protect our borders.
Now for my question. Is this difference really ideologically coherent? On the one hand, is it really in the spirit of globalised capitalism to prevent the free movement of labour across political boundaries? The flip side of the same coin is this. If it is a democratic right to protect our geographical boundaries rigidly from people encroachment, why isn’t it a democratic right for us to protect the flow of money across boundaries in whatever way suits us, regardless of whether or not capitalists like it? Can anybody spell out a clear ideological rationale for this odd double standard?
Great question! I think we were both writing on related subjects at the same time. I just posted comments about how capitalism hasn’t lived up to it’s promises on the sticky political thread. I’ve got to sleep now, but I will be watching this thread closely. Brilliant!
reminds me of why classical laissez faire is also one-sided: “Let entrepreneurs do whatever they want. Laborers? NOPE. No freedom to organize for YOU.”
It might pay to take a look at the European Union. It started life in the 1950s as the Steel Union between France and Germany, then became the European Economic Community (basically a free trade zone, with no tarrifs imposed between member states), then the European Community, and finally the European Union. The names are irrellevant, of course, except to show the aspirations and to show that free trade was the first step. The free movement of labor is considered a big part of it now, and today, people in European Union countries are issued “European” passports. They are free to live and work in any of the member states. There are no longer intra-European border controls, and just as member states may not restrict the flow of goods into their countries, they may not restrict the flow of labor. (There are some transition rules governing the new member states.) Of course that freedom stops at the border of the EU. The interesting point is, though, that free movement of labor is apparently considered as much a staple of a free market as the movement of money or goods.
Just as an aside: The free movement of corporations is coming harder in Europe, and there is a current struggle in the courts and parliaments over a business’ ability to incorporate whereever it wants and operate whereever it wants (the point being to take advantage of most desirable corporate-law rules and lowest tax rates, of course).
Right. This is interesting. I suppose I overlooked it because I see the EU as a sort of super state for the purposes for which it was formed and nobody has suggested that labour not be free to move within states. The fact that the freedom of labour to move at will stops at the border or the EU suggests to me that this is an expedient to make all the participating countries more economically competitive and not a move towards globalised freedom. Still this does offer a model of sorts. It would be interesting to study which groups welcomed union and which opposed it. It would also be interesting to see just how much the opposition centred on the idea that national sovereignty was at stake and with it meaningful democracy. I know this stuff was being hotly debated when I left England about 20 years ago but I haven’t kept up with the details except that I am surprised at how far things have been allowed to go.
I find it fascinating to what extent we are beginning to take the EU for granted and how normal it has become to consider France, Germany, England, etc. a unit inside which goods and labor should (of course) move freely.
The fact that the freedom of labour to move at will stops at the border or the EU suggests to me that this is an expedient to make all the participating countries more economically competitive and not a move towards globalised freedom. Still this does offer a model of sorts. It would be interesting to study which groups welcomed union and which opposed it. It would also be interesting to see just how much the opposition centred on the idea that national sovereignty was at stake and with it meaningful democracy.
A big issue, of course. How much sovereignty may a nation cede to the EU and still protect its citizens and liberty? This has come up in practically every European country and the general approach seems to be that national constitutions with their democratic institutions and civil liberties act as backstops: As long as the EU remains within the ambit of fundamental enlightened, Western liberties and protections, the member states are free to cede (more and more) aspects of their sovereignty. This concern over sovereignty is one of the reasons why there will be national referenda and why the European constitution provides for a right to secede.
On the broader issue of free markets for capital or for labor: I don’t think there is a theoretical basis in economics for distinguishing between the two. (There may be a basis some place else, including some very ugly places.) If you take, for example, the US imposing illegal steel tariffs (as they did a few years ago), to protect steel workers in Pennsylvania, you may very well imagine the steel worker in Africa or Asia asking: Why am I being put out of work to keep the steelworker in Pennsylvania on the job? Why is his job more important than mine? It’s not an easy question to answer.
(The US has in the meantime revoked the steel tariffs (late 2003), btw, after a conviction before the WTO and threats of retaliation from Europe and Asia.)
It is an interesting set of questions, but I think the basic premises are skewed, if not fatally flawed. The questions do not factor in the huge risks in investing large amounts of capital in far away lands. Many of the risks do not seem apparent today because of the relatively stable governments and policies over the past few decades. The risks associated with a change in government or policy can be 100%. The questions also do not factor in the severe restrictions on foreign ownership and control in many countries. The money can flow in, but it must be done according to local rules and the local pipers must be paid. Often times the money can not be easily taken out, if at all. In my mind, it is at an minimum a rhetorical simplication, if not an outright illusion, how easily capital moves.
As for free movements of labor and people, this is a hot button issue in American border states. The Mexican government gives money to support this issue. Virtually all elected Mexican politicians call for open borders so there is a great deal of ideological support on this issue. On the other side of the border, American politicians are reluctant to take steps towards effective controls. In practice there is a great deal of freedom of movement, despite what the written laws are.
What is at work is market forces. The invisible hand of the market usually trumps ideology. The current state is not the result of some secret world plan, or evil plot. It is a consequence of the large amounts of available educated labor (primarily in India and China), and the capital intensive nature of modern economies. This means capital is more in demand and most countries/regions/states are much more willing to take on more capital than more labor.
This view is a little naive, the “risks” are very different than what you suggest. Consider what John Perkins has to say on the subject. He worked for years as chief economist at an international consulting firm in Boston called Chas. T. Main and is the author of a book I’m currently reading called, “Confessions of an Economic Hit Man.” John’s book reveals how the U.S. became the world’s largest superpower: by forcing developing countries into debt.
Over the past 30 to 40 years, we economic hit men have created the largest global empire in the history of the world. And we do this, typically – well, there are many ways to do it, but a typical one is that we identify a third-world country that has resources that we covet. And often these days that’s oil, or might be the canal in the case of Panama.
In any case, we go to that third-world country and we arrange a huge loan from the international lending community; usually the World Bank leads that process. So, let’s say we give this third-world country a loan of $1 billion. One of the conditions of that loan is that the majority of it, roughly 90 percent, comes back to the United States to one of our big corporations, the Bechtels, the Halliburtons. And those corporations build in this third-world country large power plants, highways, ports, or industrial parks – big infrastructure projects that basically serve the very rich. The poor people in those countries and the middle class suffer; they don’t benefit from these loans, they don’t benefit from the projects. In fact, often their social services have to be severely curtailed in the process of paying off the debt.
Now what also happens is that this third-world country then is saddled with a huge debt that it can’t possibly repay. For example, today, Ecuador. Ecuador’s foreign debt, as a result of the economic hit men, is equal to roughly 50 percent of its national budget. It cannot possibly repay this debt, as is the case with so many third-world countries.
So, now we go back to those countries and say, look, you borrowed all this money from us, and you owe us this money, you can’t repay your debts, so give our oil companies your oil at very cheap costs. And in the case of many of these countries, Ecuador is a good example here, that means destroying their rain forests and destroying their indigenous cultures. That’s what we’re doing today around the world, and we’ve been doing it since the end of World War II. It has been building up over time until today where it’s really reached mammoth proportions where we control most of the resources of the world. – > John Perkins, from an > interview on Democracy Now
I think this risk has been factored in. It’s risky (for the capitalist) when his or her money crosses a border. It’s risky (for the worker) when his or her body crosses a border. Absent an argument for asymmetry, to play up one risk, that to the capitalist, would give it undue prominence over the risk to the worker. They are essentially the same risk. After the move, one’s livelihood is in the hands of people one knows less well. Actually the worker often takes a bigger risk. The capitalist might put money into ventures in different places; the worker has only one body and has to choose where to locate it.
I didn’t say that capital moves easily; what I said was that complete freedom of movement is an ideal we were sold. Countries like the USA and Australia are striving to at least appear to be aiming to achieve this ideal. But freedom of movement of labour is not part of the same ideology. So I’m not at all sure what I am failing to ‘factor in’ here.
It’s a hot issue here too. Illegal immigration absolutely freaks out our government and they rightly think that draconian treatment of even genuine refugees will be electorally popular. I’m trying to understand why.
This is itself a bit of ideology, which isn’t to say that it might not turn out to be true. (My question wasn’t rhetorical.) Some people would claim to have met some of the people who own that hand. In a democracy, the hand of the market, if there really is such a thing, can be prevented from doing much that it might want to do. It can’t smuggle cheap unskilled labour into Australia easily for one thing.
This level of abstraction reintroduces Chicago school mystification I was at pains to sidestep and takes the sting out of the human questions I was asking. I’d bet that countless millions of people in developing countries would move to developed countries tomorrow if given the chance. In a democracy we are led to think that we have more control over our destinies than this picture allows. When we are told how little control we really have, ‘economics’ gets blamed, as though its laws were as inevitable as the laws of physics. What I am pointing to is an asymmetry in the rules under which we are prepared to let the market operate. And I’m asking why.
This is all too much for me, but I have the ideal solution: statehood for all.
We (the USA, that is) could start with US territories, like Puerto Rico, then maybe the English-speaking provinces of Canada. As various countries or regions meet whatever requirements we come up with (lots of good English speakers, not so many of those weird religions, some minimun GNP), they would be admitted as states. Once there is only one country–the United States of America–everything will be perfect.
More seriously, the problem seems to be the desire for cheap labor, combined with a reluctance to take any responsibility for how that labor is treated.
I’m as far from being a Marxist as anyone, but I keep going back to good ol’ Chairman Mao’s assertion that the major capitalist countries have only been able to stop (more or less) expoiting their workers by moving the exploitation to other countries. His prediction was that as the standard of living rises in these labor pools, we will have to move on to others, but will eventually run out. This really does seem to be happening. Remember when Taiwan and Korea were the source of cheap goods (and post-WW2 Japan before them)? Now both of those countries are beginning to outsource to China, Sri Lanka, Indonesia, etc. My wife’s cousin in Taiwan has a factory in China because, “Taiwanese don’t want to work hard for a little money anymore. They all want to buy cars and nice clothes.” My daughter-in-law imports goods made in a Korean factory in China. (Mao must be spinning in his grave to see Chinese labor being used to prop up captialist economies.)
When we start seeing Sri Lankan companies building factories in Botswana, we may be getting close to the end of the game.
Imagine that the entire world ecomony leveled out to match that of the US. Then we can just look at an isolated US for clues. Could the US economy survive with its current average standard of living with no outsourcing, no importing, and no exporting? Is there a way to keep the cost of goods and services from constantly racing ahead of income? That is, can we all live at the level that we desire on what we all produce?
It seems to me that this is largely a question of efficiency. I don’t know enough about economics to say much about that. I do have a feeling that we tend to over-value administration compared with other forms of labor. I suspect that lots of executives are way overpaid compared to their actual contribution to the bottom line. It’s great that some people can become super-rich–unless this accumulation of wealth leads to the destruction of the economy, in which case everybody loses, even the super-rich.
How this relates to capitalism is: How much value does my investment in a company produce? I own x shares of stock in Exxon (inherited, not purchased). I get a percentage of the profits each quarter. Does my mother’s original investment of the purchase price of those shares continue to generate any of the value of the company in the same way that the Exxon CEO (even if he’s vastly overpaid) or an oil field worker does? Or, am I now just a parasite on the process?
The answer is so clear, I am surprised that no one else has mentioned it, given the level of intelligence and education on Chiff. The primary ideology for limiting the movement of labor (people) is one of the oldest–tribalism. People that are from a different tribe are not welcome.
To make it much more down to earth think of it in terms of rental housing. A person buys property, hires a manager to oversee repairs and leases, and rents it out. Is the owner a parasite on the process? Does the property manager and maintenance people deserve all the rent? If the owner dies and the next generation inherits it, is that new person a parasite?
In the equity market there is a level of abstraction that makes it more difficult. One of the greatest booms in equities was the railroad building era. That is a business most people can understand, but the principles apply to many other businesses. Say a railroad wants to expand or even begin operations as a new company. Instead of borrowing money, they go to investment bankers and float an offering of shares. The money raised would be used to lay track, buy locomotives and cars, hire staff. The shares represent ownership in the company. In the first example the purchaser owns the real estate, but rarely will one person own all the shares (what was the point of the offering then?).
Under the American system that ownership can be passed on to future generations. What would happen to value of the shares if they were ceded back to the company or the government when the first owner dies? What would happen to the value of real estate if the same were true?
Thanks Darwin, and belatedly Bill, for at least having a go. Even if I was right not to find much to agree with in what Bill wrote, that hardly leaves me better off, does it? I didn’t think that he had an answer but, by my own admission, neither do I.
One thing I do agree with that Bill said is that it isn’t appropriate to look for grand conspiracies. I’d really like a fairly straightforward, honest and ideologically clear and coherent answer if one is available. I don’t have to believe the ideology; I just want to understand it. If the search for an answer just keeps leading back to something suspiciously conspiratorial, we might be forced to adopt a view like this, but I’ll go there only as a last resort. That there might be an element of sleaze in the birth of Reagonite and Thatcherite supply-side economic theory would hardly be surprising—the head honcho of the Chicago stock exchange and the real inventor of the futures market admits paying Milton Friedman to publish a paper launching the idea, presumably as his own. There’s something odd about an academic economist asking to be paid to publish a brilliant idea, not his own, handed to him on a silver platter. I should be so lucky.
That is a feature of capitalism as we now know it. But wouldn’t that have been achievable in even more cost effective ways, at least in theory, by letting the cheap labour come to you rather than taking the risks (which Bill identified) in going to it? So, although I agree with you, I still don’t have an answer to my puzzle.
There really might be a vital clue in here but I’m having a bit of trouble in separating out the elements. Although it isn’t quite the same thing, this aspect of capitalism is like the assumption that the world economy is always capable of growing. I have serious misgivings about this assumption and very serious concerns about what will happen if it proves false, even if it doesn’t stop growing in my lifetime.
Again, however, I don’t see why a capitalist would have a preference for going to the sources of cheap labour over letting them come to him or her. Again, given the points made by Bill about the risks involved in taking operations off shore, I would expect them to prefer the latter. So why haven’t they been advocating it?
This afternoon, I asked a graduate student of mine from Botswana if this is already happening. He said that it is. White South Africans are coming in looking for cheap labour as well as educated elites from Ghana and Nigeria. I asked him how long Botswanans would tolerate sweat-shop wages and he predicted that they would tolerate them no longer than five years. I’d have guessed ten.
Obviously something’s got to give. I think we will have to think long and hard about what that should be. If we value our freedoms and our culture it would, I think, be a disaster to let market forces be the sole determinant of what gives. But debating this issue openly and before the fact—and when else could we debate it effectively?—might well involve our owning up to some fairly painful home truths about how we got to where we are.
Without going into details, I’m optimistic that there are fair and not horribly painful possible solutions; I’m pessimistic that these will be amongst the options we will be presented with by politicians and the press.
I think this trend—the new managerialism—is the single greatest threat to capitalism and I am staggered that the owners of capital have tolerated it. CEOs get paid multi-million dollar packages and get performance bonuses as soon as they turn a profit, regardless of the effects on the firm five years down the track when they are usually long gone and no longer accountable. Failed CEOs get multi-million dollar severence payouts … for failing (?). This sort of money just might be appropriate were these people high risk gamblers. They aren’t. They get paid huge salaries and payouts even if they are abject failures.
The only justification I’ve seen for these obscene salary packages is that they are calculated on the basis of what a good executive earns the company. This is a farcical distortion. To be sure someone might negotiate say a 20 million dollar contract. But the company only profits from the contract if it fulfils its part of the bargain and that requires coordination all the way down the line to the lowest production worker. The team as a whole fulfils the contract and earns the profit and not simply the person who negotiates and signs off on the deal. If any essential link in the chain fails to perform the profit is not forthcoming. That bonus should go to the team.
No, you’re not a parasite in my opinion, although the people who manage the company quite probably are. I’m not anti-capitalist. But I do want a form of capitalism that works into the future, values justice for all stake holders, is environmentally sustainable, and is answerable to informed democratic wishes concerning the role and relative importance of material wealth in our lives. In short, I want money to be the slave of the people and not people to be slaves to money.
That’s enough for now. I might speculate on how to understand my puzzle a bit later but I’d welcome more comment before I attempt that. Clue: there is tension between free market captitalist ideals and democratic ideals that requires compromise. If you disagree, please weigh in.
That’s part of the answer I think as to why it has never been proposed by politicians. But that wasn’t quite my question; at least it wasn’t the whole of it. It doesn’t explain why economists have never numbered it amongst their (perhaps unattainable) ideals. Few economists pretend that their perfect market will ever actually be realised but that doesn’t mean they don’t agitate for moves towards what they regard as perfection. Nor do they tire of telling us how the ideally rational agent would make decisions.
Another limitation of this—as the whole story mind—is that tribalists would be as suspicious of things like foreign ownership as of foreign influxes of labour. But we are being asked to accept the former as inevitable while the latter is right off the agenda in most places. Why this selective tribalism and the appeal to economics to explain why we should abandon tribalist attitudes to capital but not to labour?
I think the main problem with capitalism is that it encourages corperations to seek the lowest cost of production so they can gain the highest margin of profit. This has a very negative effect in the fact it underminds the “proletariat” on a global layer and each drop of wages/benefits has an impact on a global lever. For the life of me I can’t understand why Bernie Ebbers needs to make so much money and the lengths he (as a symbol)
is willing to go thru to get it.
As for rationalizing the double standard I can’t give you the answer. You could try to CEO of Exxon-Mobile. I hear he is a nice guy. :roll:
Bloom, that shows you why the EU is on the way up and we are on the way down. But does the EU restrict jobs from leaving the EU or are the corperations allowed to move to Mexico and Asia as they do in the US?
It’s been done in the past, and I think I’ve heard some talk about doing it again. Are you familiar with [u]the Bracero Program[/u]?
The lettuce fields around Salinas are alway full of legal alien workers, mostly from Mexico. And my house and all the others in our neighborhood were built by mostly legal aliens. The same seems to be true of Texas. How many of those people are considered to be real immigrants, I don’t know.
And, of course, some do it in the form of hiring illegal aliens.
I think one of the problems with bringing in temporary workers is that the society that they live in has to take some responsibility for their welfare. They need food, lodging, medical treatment, etc. If we allow families to come in, we have to educate their kids. We wouldn’t feel right about having ill-treated, underpaid near slaves here in the US, but if they live in Equador or Yemen, it’s not our problem.
The US has another odd little problem that doesn’t seem to affect most countries. If a child is born in the US, it is automatically a citizen. In contrast, in Japan there are Koreans who were born in Japan, and whose parents were born in Japan, and who still are not eligible for citizenship. (This is how it was up into the 1980s. I think it may have changed somewhat by now, but I’m not sure how.)
The tribalism Bill pointed out makes lots of people resentful of this kind of citizen. Racism plays a part, too. I mentioned “Bracero hunting” in the sticky thread. I’ve got a feeling that if it were white Canadians that were being brought in, you wouldn’t see as much opposition as you do now.
I think that organized labor might be a factor, also. If the labor unions can’t organize the foreign labor, then it’s in direct competition with “native” labor. Even unorganized labor wouldn’t like it much. I can imagine if I were looking for a programming job, but everyone was bringing in programmers from India. I might be a little peeved about that. If instead companies use outsourcing, it sort of covers over the details, so it’s harder to get upset about it (as long as you don’t watch that darned Lou Dobbs on CNN, who keeps harping on this).
When they needed a Window version of my iData application, Casady & Greene twice hired independent US programmers, and twice those programmers failed to carry the job to completion. After that, C&G went to a Ukrainian-based company and got it done relatively quickly and efficiently. I’m not sure how much cheaper it was than the American guys would have been. I suspect, in fact, that the Americans would have done it for less, but maybe that’s because they weren’t all that competent to begin with. I don’t think C&G ever thought of hiring a US company to do the job.
Interesting idea of management as parasites. Take my example of a new railroad trying to sell shares to raise funds to lay track and begin operations. The routes available are one factor, but other than that, the track record and skill of the management team are what potential investors have to go on.
There aren’t many famous railroad managers these days, but take a hypothetical new computer company trying to raise capital. If someone of the stature of Steve Jobs or Bill Gates signs on to the team, potential investors are much more likely to put up their money than if a no-name with no track record is heading up the project, no matter how sound the business plan.
Good management can add a great deal of value. In my opinion, it is usually what separates good companies from also-rans. In the long term, good managers have good relations with their workers. Poor management is almost a guarantee of a poor return for the investor, and a poor environment for the workers. There are anecdotal exceptions, and many cases where managers do well in the short term by treating workers shabbily at the expense of the long term.
It may not be fair, but a change in top management often has a significant effect of the value of a company. This is real life, not theory, not ideology. If the market saw them as parasites, this would not happen. It doesn’t mean that Wombat’s theory is wrong, but the marketplace does not share that view.
Whatever happened to the three legged stool of management-capital-labor? All three parts are supposed to be equally important. Unfortunately for workers there is an overabundance of labor in many regions. In my opinion, there is also a scarcity of good, ethical and efficient managers. Many public companies are paying up trying to find the few gems. Unfortunately, paying top managers more hasn’t raised the quality (again my opinion).
On why cheap labor isn’t brought in, it certainly was in the old days. Sweatshops where workers were paid by the piece and earned well under the minimum wage were extremely common. However, in the U. S., work rules, safety regulations, workers-compensation, and the like have made them a relic of the past. Another factor for less regulated economies, is that if enough cheap labor is brought in, there is a real of danger of civil unrest and political instability.
As to why tribalists accept foreign ownership and investment, they don’t really accept the former. There are many hoops a foreign investor must jump through, even in cases such as Toyota setting up a plant in the U. S. There is also the factor that rabid tribalists see assets on their soil, as belonging to them, no matter what the rule of law or the deeds say. So they are happy to see the money flow in, because they see local assets as belonging to them, and are sure they will be theirs at the end of the day.
Again, the free movement of capital is often an illusion. What kind of luck do you think a Japanese investment bank would have trying to raise money to invest in China given the current political climate? What are the chances that Japanese assets in China will be frozen or seized in the next 20 years? Would a rational investor want to take on that risk without a huge potential reward?
As a footnote, Mexico prohibits foreign ownership of private property, only leases are allowed.
First a bit of essential stage setting. The Western World, to the extent that it can agree on anything, seems pretty much in agreement on two things… Second, at the economic level, capitalism is the best way to organise the world’s economy.
I gotta object to this assumption. Unfettered capitalism is most certainly not the preferred model of anyone. When it has been tried, it careens toward disaster much faster than even communism.
What gets called “capitalism” these days is really a mixed economy, blending capitalism and socialism in varying proportions. Yes, even in the US.
