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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?
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.

The relationship between community social templates, resource utilisation and constantly escalating productive and consumptive demands

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.

Loss of subsistence resources

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.

Free Markets, invaded environments, and snowballing production and consumption

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.

The emergence of welfarism: Social Costs are Production Costs

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.

Capitalism and Parasitism

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.

The triumph of neoliberalism

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.

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.


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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End Notes

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)
Cropping for European markets - click to expand
[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.

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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