Saturday, August 21, 2010

Life and debt

Via Will and John comes this talk to the RSA by, and this interview with, David Harvey. Both seem particularly pertinent as I sit here in a country that is experiencing a severe economic downturn before returning to one that appears to be locking itself into a masochistic political economy, perhaps showing that, after all, corporal punishment in public schools did do them some harm.

What I liked about this talk is that Harvey is keen to break away from the idea being peddled, not least by some Greeks themselves, that the current financial crisis here is the result of cultural failings. Though the Greek state is hardly a model of efficiency and effectiveness, Harvey looks beyond this to systemic economic factors and, in doing so, challenges many of the other conventional explanations of the crisis.

His main argument is that this is not a series of crises, but a single one that keeps cropping up in different countries across the globe. It is located in the central contradiction of neo-liberal economics. The search for high profits to drive growth derives, at least partially, from the reduction of labour costs, mainly through eroding the power of labour in the market place, thereby adversely affecting the level of demand. So, with earnings stagnant, growth and consumption was maintained through the injection of credit and the invention of ever more complex new financial products to sustain that credit. Thus, when the bubble burst, the crisis appeared to be a problem of indebtedness, easily susceptible to moral arguments about spendthrifts, rather than one rooted in declining real wages - a classic crisis of under-consumption.

Harvey is a Marxist, though certainly not a dogmatic one, but the theory of under-consumption is not solely a Marxist theory. For example, here is the mutualist anarchist, Pierre-Joseph Proudhon, writing in 1846 about the displacement of labour through mechanisation.
What a system is that which leads a business man to think with delight that society will soon be able to dispense with men! Machinery has delivered capital from the oppression of labor! That is exactly as if the cabinet should undertake to deliver the treasury from the oppression of the taxpayers. Fool! Though the workmen cost you something, they are your customers: what will you do with your products, when, driven away by you, they shall consume them no longer? Thus machinery, after crushing the workmen, is not slow in dealing employers a counter blow; for, if production excludes consumption, it is soon obliged to stop itself...
Proudhon was reiterating the views that were also to be found in early liberalism, especially amongst radicals. You can find concerns about under-consumption in Adam Smith, though one of the most persistent and obsessive liberal economists to warn of the dangers was Charles Sismondi (1773-1842).

And this is what interests me, early liberal economics certainly contained some orthodox thinkers such as Jean-Baptiste Say, but much writing is hedged with caution and caveats, whilst radical liberals were overtly critical of orthodoxy and made what they saw as the right of the workers to the full value of their labour central to their thinking. This spawned a whole range of political ideas, not just socialism, but radical liberalism, individualism, co-operation, mutualism and anarchism as well. With the revival of neo-liberalism in the latter part of the Twentieth Century, that critical liberal tradition was ignored and a new, utterly-self confident, version of corporate driven, turbo-capitalism emerged, claiming, somewhat dubiously, to be the true heir of classical liberalism.

If Harvey is right, and certainly the main empirical planks of the argument are all there, then the resolution of a crisis brought about by inadequate purchasing power in the economy through a policy designed to lower that purchasing power further seems hardly wise. From here in Greece, the signs are not good and even the bond markets seem to be opposed to human sacrifice. All of which highlights the increasing interest in the benefits of equality as well as the maintenance of living standards for the many, rather than the massive enrichment of the few.


Will said...

US matches Indian outsourcing costs

By James Lamont in New Delhi and Joe Leahy in Mumbai

Published: August 17 2010 19:12 | Last updated: August 17 2010 21:44

Some outsourcing jobs are becoming as cheap to fill in the US as they are in India, according to the head of the country’s largest business process outsourcing company.

More FT video

High unemployment levels have driven down wages for some low-skilled outsourcing services in some parts of the US, particularly among the Hispanic population.

At the same time, wages in India’s outsourcing sector have risen by 10 per cent this year and senior outsourcing managers based in the country command salaries above global averages.

Pramod Bhasin, the chief executive of Genpact, said his company expected to treble its workforce in the US over the next two years, from about 1,500 employees now.

“We need to be very aware [of what’s available] as people [in the US] are open to working at home and working at lower salaries than they were used to,” said Mr Bhasin. “We can hire some seasoned executives with experience in the US for less money.”

The narrowing of the traditional cost advantage is also spurring other Indian outsourcers to hire more staff outside India.

Wipro, the Bangalore-based IT outsourcing company, started to recruit workers in Europe, the Middle East and Africa during the global economic downturn. Suresh Vaswani, joint chief executive of Wipro Technologies, forecasts that half of his company’s overseas workforce will be non-Indians in two years, from the current 39 per cent.

India is still expected to retain the overall cost advantage, particularly in more sophisticated software outsourcing.

Observers say that while the cost of some senior positions may have equalised with the US and certain call centre services may be more cost-effective to set up in depressed areas of the US, this phenomenon may not outlast the US downturn.

Even after a tripling in numbers, Genpact’s US workforce would still be only about a ninth of its total staff. The former in-house outsourcing unit of US multinational General Electric has operations in Chicago, Pennsylvania, Tennessee and New York.

The move to expand operations in the US also comes as protectionist rhetoric against outsourcers rises in Washington. Last week, Charles Schumer, a US senator, described Indian IT outsourcing companies unflatteringly as “chop shops”, a term referring to places where stolen cars are dismantled for their parts.

Mr Bhasin said Indian outsourcers needed to be more sympathetic to the deep economic woes in the US, not least because US business had helped India’s outsourcing industry “piggy-back” on its success.

Will said...

Past a certain point, capital cannot realize, socially, the gains in productivity that it creates through competition. It lives from the privatization of profit and the socialization of costs.

Capital needs to be overthrown. It needs annihilating. Certain human biological entities also need doing away with in that process but we can talk about who and when at the point where the scum and cunTs can be usefully identified. Until then -- let us make plans.

Will said...

Study challenges ‘progressive’ Budget claim

George Osborne plans to slash departmental spending to a proportion of gross domestic product last seen in the year that Labour came to power.

But in his emergency Budget in June, the chancellor pledged that poorer groups would be shielded from the worst effects: “Overall, everyone will pay something, but the people at the bottom of the income scale will pay proportionally less than the people at the top. It is a progressive Budget.”

If Mr Osborne makes his proposed cuts of 25 per cent to non-protected departments, he may struggle to keep his promise.

Research by Professor John Hills, head of the Centre for Economic Performance at the London School of Economics, has shown how cash poured into public spending in the decade to 2007 offset rising income inequality.

Real income in the poorest one-tenth of society rose twice as quickly during this period as a result of the boost to health, education and other services – the biggest increase for any group.

Households in the bottom one-fifth of society have more than twice as much spent on them by the state as the top fifth.

About half of that is because low-income groups contain more children and older people, who make greater use of social services. But poor groups receive about 50 per cent more social services spending than the top fifth of households.

The effect is likely to have increased in the past decade, and been more redistributive, as the government slanted directing more spending towards particularly deprived areas.

“It is very hard for cuts to be ‘progressive’,” said Prof Hills.

He estimates that if spending cuts of £1,000 a household a year were made across public services, it would represent about 10 per cent of the income of the poorest and 1 per cent of that of the richest fifth. In fact, the cuts the government is proposing are almost three times that.

By contrast, he estimates that raising £1,000 through tax increases takes 3.4 per cent off the final incomes of the poorest fifth and 3.7 per cent off the richest.

“The choice between general tax increases and general spending cuts has huge distributional effects,” said Prof Hills. “It is rather hard to see how one can make huge spending cuts and still describe the Budget as progressive.”

Will said...

Real scum.

John said...

Only just found this now, Peter. Thanks very much for the link and for the references.