Tag Archives: #money

The divided subject of labor market

17. IX 2017

It’s a shame that the only thing a man can do for eight hours a day is work. He can’t eat for eight hours; he can’t drink for eight hours; he can’t make love for eight hours. The only thing a man can do for eight hours is work (William Faulkner)

For the first time since the advent of industrial age, new technology is destroying more jobs than it is able to remobilize. Productivity and employment have begun to diverge from each other since the last years of the 20th century – productivity accelerates while employment decelerates. This is the new reality. While good for profits, this is becoming a major setback for labor, a source of positive feedback in the system and a destabilizing force for the entire economy and society. The profit maximization equation can no longer be satisfied: The recipient of wages (and social benefits) is expected to perform an impossible task of supporting increasing consumption, which accounts for an ever growing fraction of GDP, while being paid less in an environment of rising living costs. Credit, which had been conceived as the magic bullet aimed at bridging this imbalance, has turned to be another source of positive feedback leading to unsustainable borrowing and balance sheet crisis from which it is difficult to engineer economic and social recovery.

Work is at a crossing point of history, going through a significant transformation, second since industrial age, with profound economic and social implications. Both new technology and credit, together with dismantling of the welfare state, have been the drivers of surplus labor and erosion of demand. It is becoming clear that we need less labor to produce the same output and that further rise in growth is conceivable without a rise in employment and wages. Work has become the biggest bubble which is about to burst. This is the limit where economic and social rationalities collide. Disappearance of work in work based societies is no longer only an economic issue, but a wider social and political problem and a crisis of the entire system of values.

Work alone

A priori, there is nothing appealing about wage work. It is all about the employers; they set the rules, workers comply[1]. Work is generally an unpleasant task, something we rather would not do. It goes against our nature and conflicts with our free will. Unlike work for subsistence, which we (most of the times reluctantly) do, wage work is an outcome of a voluntary optimization process. Workers effectively agree to surrender a portion of their free time in exchange for salaries.

When seen from the modern perspective, work defines our social identity. It is a gift to society and our contribution to the project “better future”, a sacrifice we are willing to make for collective wellbeing. Work is viewed as our moral duty, social obligation and the road to personal success. However, work as we know it today is a relatively recent phenomenon. For example, in Ancient Greece freedom was exclusively located in the political realm and necessity was a prepolitical phenomenon. Those who had to work were slaves to necessity considered incapable of making ethical decisions, and therefore, not part of political life[2].

The modern notion of labor appeared with the advent of manufacturing capitalism. From the modern perspective, production was not governed by economic rationality. The objective was to work as much as it takes to earn a wage necessary for subsistence rather than earn beyond that by working as much as possible. The economic rationalization of labor was a major novelty at the time. It presented a radical subversion of the way of life. In order to overcome workers’ unwillingness to work long hours, factory owners had to pay them meager wages, which forced the former to put in long hours every day of the week in order to earn enough to survive. Labor became part of reality distinct form everyday life. However, in the course of time, with development of industrial society, work became the Siamese twin of life.

Technology and labor in postindustrial age

While in pre-industrial societies innovation and competition were strictly prohibited, postindustrial age, in contrast, is characterized by its addiction to innovation.

Innovation has turned out as a major trigger of a reinforcing mechanism of economic exhaustion. The primary reason is that innovation is a source of rent — prices are no longer commensurate with production costs, but contain a scarcity premium. Profit centers always compete in terms of their capacity to innovate. Higher output leads to more investment in innovations which lead to new technologies, which means higher output and even more innovations. However, technology reduces need for labor and so the workers have to work for lower wages, which reduces labor costs of production and increases output, which means more investment into new technologies, which further reduces the need for labor and lowers wages further. This process continues until it exhausts itself and there is no more room for labor.

When labor is scarce, workers have some bargaining power – they could refuse to work and the producers are willing to make concessions to workers. As long as profit margins are high, there will be money for everyone. Problems begin when margins begin to compress. Cost cutting eliminates jobs either through automation or relocation to regions with cheap labor or forces the workers to accept lower wages. As a consequence of innovation, work ceases to be the main productive force and wages the main production cost. Output is produced more by capital than by labor, and labor gradually loses bargaining power as its choices become reducible to dilemma between poorer working conditions and unemployment.

As a consequence of these developments we have had tree major trends that emerged in the past decades: Decline of wages, reduction of government spending (a.k.a. dismantling of the welfare state), and continued rise of consumption as a fraction of GDP (currently near 70%). Over time they have created cumulative imbalances and dead-end conditions, which have resulted in the 2008 crisis and conditions where further recovery from the crisis is becoming increasingly more difficult to engineer. These trends define the current landscape. Any attempt at change becomes a source of positive feedback that only destabilizes things further.

Devalorization of labor and the new standard of subsistence

Credit is another source of positive feedback. Low wages force more reliance on credit which causes higher living costs (more liabilities and less money for subsistence), so more people have to work (e.g. not just the head of the household, but their partners, kids….), and they have to work longer hours which further increases labor surplus and forces lower wages and amplify reliance on credit which increases living costs further. Servicing debt becomes the main liability, which further undermines bargaining power of the workers. This continues until debt becomes a burden than can no longer be born.

In some sense, we are being pulled back towards early industrial age. In those days, the unwillingness to work beyond subsistence had caused employers to pay lower wages to force workers to work long hours in order to earn for their basic needs. Labor market was inefficient: Demand for labor was high, but workers were reluctant to work. Early industrial era worker had a limited capacity to desire and the opportunity of earning more was less attractive than that of working less. Salaries had to be low to force people to work hard in order to earn for subsistence.

Although, the end result (low wages) coincides with the current predicament, the causality chain is different. Late 20th century economies grow only if people consume beyond their needs. The ability to desire – the consumer libido — has to be maintained systematically and that mechanism has to be incorporated into ideology as work ethics and wage work to become closely associated with social status. With pressure to maximize profits, and therefore limit wages, this program could only be achieved if wage recipients continued to borrow more and more, especially if their liabilities continue to grow. For that, they need jobs, but jobs do not pay. So, they have to work harder, put in longer hours, to be able to survive. Unlike early industrial age when scarcity of labor was the dominant factor, in post-industrial economies, supply of labor continue to climb together with costs of living high.

Preindustrial concept of “enough”, which in the early days defied economic rationality, gained new life in the light of postindustrial developments. Its meaning is now being redefined by credit. The problem is no longer the individual attitude towards work, but the collective response to the cumulative effects of excess rationality. Credit redefines what subsistence means. It is a conversion factor from desires to needs. As seen from the workers’ side, the effect of increased efficiency of production, brought about by technology, is offset by credit. It naturally extends what our needs are and sets a new standard of subsistence and determines how much we have to earn for survival. Contrary to the economic dogma and cults of free market ideology, competition has led to suboptimal outcome for labor. Despite all technological advances, there has not been a commensurate decrease in working hours.

Work won’t be revolutionized, it will be auctioned

The objective of profit centers is to make money and, if they happen to create jobs, that is good, but not necessary if it negatively affects their profitability. Keeping this as priority for the future, changes of the labor force would have to be made accordingly. Some contours of the fragmented labor force are already beginning to show along these lines of adjustment. The assembly line has colonized a wide range of jobs. With the rise of cognitive economy and de-emphasis of material production, workers are divided into four main categories: Inventors of ideas and desires, educators (responsible for reproduction of labor), salesmen of products and producers of desires, and routine laborers[3]. We could refer to them metaphorically as over the counter or OTC (first three) and exchange jobs (the last one). OTC jobs can never be made generic; they always carry some unique component of personal skills that cannot be fully automated. Routine laborers, on the other hand, require no particular social skills. They are an extension of assembly line workers, but in a wider context that includes technical and intellectual skills. They are always replaceable and therefore treated as expandable.

Extrapolation of the current trends leads to a limit where workers become a shadow category. They no longer exist, only their time does, always ready to engage in exchange for a temporary salary. In that environment, the next step towards improving the efficiency of transaction between capital and labor are job auctions. A finite term, e.g. 2000-hour or zero-hour, job would be offered in an auction and given to the lowest bidder. Profit centers would face high flexibility at expense of labor force whose bargaining power could decrease further. The labor force would be self-trained and offer high-level skills on an increasingly precarious landscape. Those with superior skills could demand additional accommodation that could smooth their consumption across periods without jobs, which could create a need for intermediaries, job brokers who have stables of workers with standardized skills on whose behalf they bid for part time jobs.

Added flexibility of employers eliminates pressure to have a long-term view and strategy. Instead, there is a sequence of short-term tactical positions with an ability to quickly adjust labor costs to different market conditions. If this is indeed the case, it could create a reinforcing mechanism where their output trails the economy and never completely recovers or rebounds. Disappearance of permanent jobs would have a dramatic impact on credit market. It would increase urge to save more and would affect ability of long-term borrowing, with direct impact on housing market, education, consumption, etc. and, therefore, adverse effects on economic growth.

In the extreme, demand for labor completely disappears — everyone works for himself. This is the most radical social transformation from society of workers to society of employers. The ultimate irony is people employ themselves but end up working long hours and paying themselves poorly.

Coda

Work is gradually emerging as the biggest hoax in the history of humankind. We have come a long way from the early days of capitalism where its basic antagonism was defined by the dynamics of capital and labor. It is reduction of life to work, and not capitalist exploitation, what makes work alienating. This particular aspect is what has led to the rapid dead end. In taking work as a given, we have depoliticized it, or removed it from the realm of political critique. Wage work continues to be accepted as the primary mechanism for income distribution, as an ethical obligation, and as a means of defining others and ourselves as social and political subjects[4]. There is an urgency to emancipate ourselves form work. Crisis of work is signaling also a crisis of imagination. We cannot imagine postwork society. This is the biggest problem.

[1] “Work is a paid activity, performed on behalf of a third party, to achieve goals we have not set for ourselves, according to procedures and schedules laid by the persons paying our wages.” (Andre Görz, Critique of Economic Reason, Verso 1989)

[2] ibid.

[3] Richard Sennett, The Corrosion of Character: The Personal Consequences of Work in the New Capitalism (New York: W. W. Norton & Co., 1998 )

[4] Kathi Weeks, The Problem with Work, Duke University Press (2011)

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The great redistribution and the biopolitical penetration of the American brain

13.V 2017

Wealth is inherently empowering and motivating; poverty is neither [Jonathan A. Winters].

Rising inequality is not the result of economical rationality and neither is it only a function of erosion of empathy or moral fiber (although the latter is its sine qua non). It is rather a direct reflection of redistributive policies that have helped the richest get richer. On the other hand, poverty by itself neither motivates nor provides a core set of common interests for the poor the way wealth does for the rich. The presence of wealth focuses the political attention of the rich on wealth defense; its absence has no parallel effect on the poor[1].

Inequality has always been a topic in public discourse. However, after the 2008 financial crisis, the destruction of wealth on a massive scale awakened much larger segments of society to the reality that they were unable to finance the lifestyles they had previously enjoyed. Response to the crisis has been articulated through an unprecedented injection of “easy money”. But, this money was hoarded by capital and did not filter down to labor. Rather than serving the collective interest in financing general economic progress, “easy money” turned into the extraction of resources from increasingly impoverished societies. The case of airlines industry presents an illustrative example of this mechanism. Even as the price of fuel collapsed, little of that benefit was passed on to consumers or airlines’ employees: Air travel is as uncomfortable as ever, ticket prices have gone up and none of the profits resulted in higher wages of the airlines employees. Most of the “easy money” has been used to reinforce their monopolistic power.

Democracy requires commonality, inequality undermines it. The democratic process was originally conceived as a way to peacefully resolve economic disputes between people who share common values, either cultural, religious, or in terms of lifestyles or visions of the future. When inequality reaches the critical point, the bonding tissue that keeps society together begins to tear and democracy becomes compromised. In the absence of commonality disputes can no longer have peaceful resolve. Instead, the resolution occurs through negotiation or war. As electoral democracy alone can no longer safeguard the economic interests of the many people from American oligarchs, economic initiatives are no longer effective. A quest for social change takes center stage and a search for a new equilibrium is set in motion.

Social stability defines equilibrium. Social transformations, therefore, represent a change of equilibrium. They are always disruptive and have the appearance of discontinuous processes. Economic changes always take place against a particular social backdrop: When a social equilibrium is reached, society stabilizes allowing the economics to set in. The subsequent economic developments are typically linear – small departures always revert back to the equilibrium — restorative forces overpower those that destabilize the system.

2008 was a paradigm shift not only for economics but for the entire way of empirical approach to reality, which has laid the foundation of rationality and has dominated the Western thought. The crisis has set in motion a social change – the system has begun to search for a new equilibrium, announcing the end of 500 years of history. And, as history is getting unwound, the repositioning in the oligarchic space is taking the center stage. There is no left or right any more. The only meaningful distinction that reflect the type of oligarchic redistribution and its re-functioning is their emancipatory or regressive orientation.

The mindfuck

Where there is inequality of estates, there must be inequality of power. (James Harrington)

Oligarchy rests on the concentration of material power, democracy on the dispersion of non-material power. The American political economy is both an oligarchy and a democracy — a distinctive fusion of equality and inequality. Civil oligarchies represent the most significant political innovation, never seen in history before the creation of the modern state. As a characterization of the Western (predominantly American) political system, civil oligarchy is the result of a shotgun marriage of two contradictory concepts, brokered by an interesting play of numbers: The vast majority of citizens exert very little concerted material power in politics, but a small number of individuals each have at their disposal the resources it would take tens of thousands of their fellow citizens acting in sustained coordination to match[2]. The two groups stand in constant opposition — their conflict never disappears, but defines the driving force behind the underlying sociopolitical dynamics. It pushes all other themes out and becomes the main axiom of the political economy. This disparity of numbers forces a continuation of underlying antagonisms until one side declares victory. As a result, the political process loses its connection with democracy.

The reconciliation of oligarchy and democracy requires a Hegelian Aufhebung, a non-linear logical maneuver whereby the resolution of the inner contradiction is suspended until the concept is completed during synthesis — abolition of the Real to realize the Idea.

Oligarchs represent individuals endowed with enormous wealth which both empowers and exposes them to threats. In America, they constitute only a fraction of one percent of the population and have at their disposal material “voting” power that is hundreds, and in some cases tens of thousands, of times that of the average citizen. To understand the power multiplier, which reflects the underlying wealth differential, one should think of wealth as an instrument that enhances the persuasive power and influence of an individual. For example, being able to convince poor people to vote against their direct interests and in favor of the oligarchs, and to convert these things into laws and tax codes – the essence of the Republican Southern Strategy program as outlined by Lee Atwater — requires considerable resources and access to media, religious and secular institutions, lobbyist and a variety of political consultants that only money can bring. Mind-fuck is an essential ingredient for the functioning of civil oligarchies; without it, they could not persist.

The Material Power Index (MPI) is a way of quantifying the disparity of democratic participation. MPI assigns a base value of one to the average material power position of Americans across the bottom 90 percent of the population. The weakest American oligarchs have between 125 and 200 times the material power of an average citizen. Oligarchs at the very top of American society have an MPI just over 10,000, which happen to approximate the MPI of Roman senators relative to their society of slaves and farmers[3]. This has gone even more extreme after the 2010 Citizens United ruling. In this way oligarchs can legitimate their position with all of their power and influence, without resorting to force – which time and again has proven to be an expensive and fragile tool of stability.

It is not very difficult to see haw a handful of super rich oligarchs can tip the scales of any election. According to 2007 data, the 400 richest Americans have an MPI in excess of 10,000; these 400 top oligarchs have the “voting power” of four million people. Outside of this group, the average MPI of the 1/100th of a percent of the top earning taxpayers (who own about 2% of all American wealth), about 15,000 people, is around 1000. This means that 1/100th percent of the population had the “voting power” of 20 million. This is a significant fraction of the voting population (about 130 million in the 2016 US elections). Normally, elections are most often won within 1-2 million margin. Therefore, a victory can be achieved by attracting 100-200 top oligarchs.

Synthesis: Oligarchies as new cognitive coordinates

The essence of oligarchy within democracy rests on the near-veto power oligarchs retain on threats to concentrated wealth. The wealth protection instinct has been one of the strongest sociopolitical forces in human history. Although the attitude towards all kinds of inequality like slavery, racial and gender exclusions had been revised in the past, the same cannot be said for wealth inequality. The resistance against radical redistribution of wealth has been remarkably robust and resilient across a variety of political systems, from dictatorships, monarchies, peasant societies, to post-industrial formations and democracies[4].

As an approach to the problematics of comparative politics, oligarchy as the politics of wealth defense emerges as a better candidate for a unifying framework than the traditional framework based on assumptions that the dominant dimension of a country’s political actions is geographically conditioned. The oligarchic landscape defines new cognitive coordinates necessary for understanding current geopolitical developments. A variety of complex socio-political configurations and their transformations gain instant clarity and simple intuitive interpretation when seen from the point of view of oligarchic redistribution and repositioning.

The mechanism and logic behind this is relatively simple. Oligarchy should be understood as the politics of wealth defense. Outside of the context of wealth defense, different oligarchs can, and generally do, have vastly different agendas (e.g. democrats vs. republicans in the USA, pro-choice vs. pro-life, Tesla vs. Uber, or Bill Gates vs. the Koch brothers). However, they are all united in one common goal – their wealth preservation. This explains why one single common driver alone captures such a wide diversity of developments that sometimes, on the surface, appear to have no logical or rational connections.

[1]  Jeffrey A. Winters, Oligarchy, Cambridge (2011)

[2] ibid.

[3] ibid.

[4] ibid.

A commodity like no other

10. IV 2016

While imposing the globalization of agriculture on the Third World economies, developed countries are taking a great care to maintain their own food self-sufficiency. The West has never abandoned this policy and with systematic financial support for their own farmers (in Europe, this support accounts for more than half of the entire European budget), it is blatantly violating the free-market economy rules it is trying to impose globally. In this process, many countries are kept in a state of postcolonial dependence and are becoming increasingly vulnerable to market fluctuations (e.g. starvation in Haiti and Ethiopia as a consequence of higher prices of corn due to biofuel usage).

The following three examples give a sample of strategies that have been employed in the past. The methods range from outright bullying in the global markets, to stalling tactics when it comes to financial aid measures.

1) The bulk of the economy of the African county of Mali is based on two commodities, cotton in the south and cattle in the north. Mali produces top quality cotton. However, it can not compete on the global markets because the financial support of the US government to its own cotton farmers exceeds more than the entire state budget of Mali. The cattle industry suffers a similar handicap as the European Union’s subsidy for every single cow (around 500 Euros) is higher than GDP per capita of Mali.

2) West has been continuously pressuring African countries into dropping government subsidies for fertilizers, improved seed… Without subsidy, agriculture could no sustain itself based on the domestic market alone. In that way, the western pressures opened the way for the best land to be used for export crops ruining these countries’ capacity to be self-sufficient in food production. This led to integration of local agriculture into global economy: as more domestic crops were exported, countries had to rely increasingly on imported food while farmers thrown off their land were forced into slums, where the only work available was in outsourced sweatshops.

3) To put things into perspective in terms of scale, priorities and timing, compare $700bn spent on stabilization of the banking system in the US with $22bn pledged (by the rich nations) to help develop poorer nations’ agriculture, out of which only 1/10th ($2.2bn) has been made available so far.

The circle of postcolonial dependence is closing again

Systematic extension of these strategies is spreading globally with large international companies (from Korea, Saudi Arabia etc.) leasing long-term arable land in undeveloped areas. By investing in infrastructure, these companies will create jobs for the locals and, at the same time, secure the consumers for their products as they will spend that money on “imported” food farmed on their own land. The proponents of the new world order use this part to argue that the lack of food is in itself and indicator of progress, since people in fast developing third-world countries earn more and so can afford to eat more. However, this new demand causes withdrawal of supply from millions in the countries lacking such fast growth.

Unlike other commodities whose abundance or scarcity can be converted into quality of life upgrade or downgrade, basic resources like food, water and energy are a matter of survival whose absence at some point could have irreversible effects on the entire economy. The list of products and services which, like food, are not commodities like others extends further including defense, the environment as such, culture, education, health etc. Substantial fluctuations and otherwise normal market uncertainties in prices of these resources can not be tolerated and decisions regarding their accessibility can not be left to the market. By extension of this argument, the free market should be left to rule only inessential products (toys, cosmetics, clothing,…).

From production to rent economy and the growing scarcity premium of the basic resources

We are approaching a global state in which the potential scarcity of basic resources like energy, water and food, would become the determining factor in international politics. A proper approach to these problems can not be addressed as a short-term issue. It is unlikely to be handled by any regulations, but rather with a long-term agenda in mind and out of the realm of free-market economy.

With the advancement of technology, the production costs are likely to continue to decline, but the price of basic resources (like other technology related products) need not  decline in tune with production costs (e.g. the price of oil does not reflect its production costs). Rather, the economy in this area will evolve from production to rent based. The consumers of the basic resources (in this case the entire planet) are likely to pay a rent premium to the owners of these resources and this scarcity premium is likely to continue to grow due to their diminishing supply.