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What Is Kaputall?

Oxford defines Kaput as "broken and useless; no longer working or effective" - similar to our unbalanced economic system. This is a page dedicated to the intersection of capitalism and social, political, and environmental problems.

Saturday, 4 May 2013

Why Economics Counts

I have been staying on top of the most recent news with respect to the collapse of the factory in Bangladesh, and I've been thinking a lot about globalisation lately because I'm reading a terrible book about it called "The World Is Flat". So far over five hundred people have been killed in the disaster is South Asia. This is truly a watershed moment in the history of labour. People are talking about this sad story and throwing blame around all over the place. I think it's great that a discussion is taking place, but I'm concerned that people are participating without understanding a lot of the basics about economics and just how important they are to world issues.

This post will be straightforward. I will outline the basic driving factors that create a situation where exploitation is so widespread. I will then describe the tools that are used by various actors to meet their economic targets. Lastly, I will take a case study that highlights the factors, the tools, and finally the effects of the so-called "race to the bottom".

The race to the bottom is all about two driving factors: higher profits and lower cost. This drive to make the most money is an economic imperative because virtually all companies are owned by shareholders. By virtue of taking on financial risk through stocks, shareholders expect greater and greater rewards. This economic imperative results in disaster frequently, especially since in some jurisdictions it is illegal for management at a company to make decisions that will cost shareholders. Often these decisions would include cutting pollution or ending exploitative practices. The economic imperatives are important, but the cultural one is just as significant. The idea that we drive for more and more profit for the sake of it is highly problematic, especially when paydays come at a great expense for the planet and for billions of people around the globe.

There are numerous tools that have assisted in the ability of corporations to make outrageous profits. I'll mention each and try to tie them together.

Free trade has left a significant mark on economies. By reducing the barriers (tariffs or bans) that either protect entire economies or sectors within them, it has allowed the comparatively strong to push its way around. Much like vulnerable individuals need to be protected from abuse, vulnerable communities, organisations, and economies also need that protection.

Outsourcing is a direct result of free trade. Taking down barriers has allowed companies the latitude to relocate exceptionally easily in search of greater and greater profits. Free trade allows capital to move freely, but not individuals. Investments (like capital through stocks) and assets (like factories) can cross national boundaries, but labour is infrequently given the same freedom. Companies have moved their centres of production to locales where labour is ridiculously inexpensive, notably Bangladesh, Mexico, and Indonesia.

Deregulation amplifies the affects of free trade and outsourcing. Companies that relocate to poor nations benefit not only from the cheap cost of labour; they also reap the reward of minimal or non-existent laws regarding unionisation, workplace safety, and working hours, among other critical problems.

Corporatism is the last large piece of this puzzle. This ideology of creating larger more powerful businesses is highly problematic in and of itself. However, the erosion of the state as a broker of fairness only exacerbates the problem. Corporations are not and never have been democracies. It's virtually impossible to imagine them becoming democratic. Money talks, and in fact it shouts. Only the stakeholders in the company have a real say (directly or indirectly) in the affairs of the organisation. This is why alternative models like worker co-operatives are so important.

The effects of all these policies is simple at first glance. The common criticism is that it depresses wages. As much as I agree with this as a basic macroeconomic complaint, I'd like to note that it's much deeper. These policies, taken as a whole, are responsible for the nearly wholesale dismantling of private sector unions, the erosion of workers rights, the lengthening of the work week, the loss in benefits, and other "privileges" or "entitlements" that the western labour movement spent decades building. These of course do not compare to the disastrous working conditions in the developing world, but they are similar in shape.

Let's use the case in Bangladesh as a measuring stick. On 24 April a factory collapsed in the city of Savar that has up until this point killed more than five hundred people. While the causes of the collapse my likely never be disclosed, the reality is that free trade, outsourcing, deregulation, and corporatism lead directly to these types of situations where profits are pursued over safety. In the time since the collapse, Loblaws has taken significant heat for its hand in manufacturing there, though they are merely one of dozens of companies with contracts at the plant.

While the controversy rages on, Loblaws turned a messy public relations situation into a golden opportunity to differentiate itself from its competitors. Immediately following the disaster Loblaws was singled out as a retailer that purchased goods from the factory. Cries for boycotts emerged nearly instantaneously. The Pope spoke out against the abuse of cheap labour in the developing world. The case that Loblaws has effectively made thus far is rather simple: they don't know what's going on in the factories, but they perform audits to make sure that minimum safety requirements are met. The chances that Loblaws did in fact know what was going on are remarkably low. The chains of command these day are long and complicated. It is highly unlikely that anyone from Loblaws ever even read an audit about it as it was likely contracted and subcontracted.

Corporate Social Responsibility entails that businesses be accountable to the communities invested in the company, not just their shareholders. It's a corporate buzzword that, in reality, holds little water. The idea is wonderful, but it effectively leads to co-optation, where businesses pay copious lip service to a cause but in effect do virtually nothing. It's important to remember that the point of Corporate Social Responsibility is merely to protect the public image of the brand in order to make more money. Loblaws has done this by pledging a small sum of money to those immediately affected and talking up the notion that regulations will change.

One of my students asked me last week if slavery still exists. I told her it is an open question, something hotly debated by academics, journalists, and businesspeople alike. It is evident that it still exists, though the degree to which it does is unquantifiable. I come down on the side that slavery is widespread, but that its new form makes it look much less exploitative and a lot more like offering hope and social mobility. It's a shame that it takes a tragedy of this calibre to force even small action.

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