Category Archives: economy

Should We Ban Imports from Countries that Violate Human Rights?

As jobs continue to disappear in the industrialized world, many blame technology. They are partially right. However, there is another culprit: delocalization. Most of our products are now manufactured in developing countries, where human resources are substantially cheaper. This allows us to have greater purchasing power, since we can acquire goods that would otherwise be prohibitively expensive, were they made at home. That’s the story they tell us, anyway.

However, all this talk of cheap products being beneficial for the working class is deluded at best and an outright, deliberate lie at worst. The working class is disappearing precisely because of this: all of those jobs have left and been turned into precarious, nefarious ones in countries that would allow this. The people who relied on these jobs have gone on to unemployment or a lower-quality, lower-pay position. How do I know it is lower pay? The answer is straightforward: as jobs get outsourced to developing countries, there is less demand for workers, whereas offer stays the same. Hence, less pay. Also, the data shows I’m right (see below).MiddleClassGraphs_web_21

So yes, we can afford an iPhone, but not because it is made in China. If it wasn’t made in China but in the US and every single manufacturing job that’s been outsourced had stayed in the US, you would be paying more for your phone, but you’d have a considerably higher salary. Don’t be fooled: outsourcing only has one beneficiary. I’ll give you a clue:  it is not the working class.

There’s something baffling about the whole outsourcing conundrum. If I have a company in, say, Spain, and I offer salaries under the minimum wage, with no social security, I will go to jail. The reason I’ll go to jail is what I’ll be doing is against the law; it’s against the law because it’s considered immoral. However, I can start a subsidiary of my company in China and do exactly that, but to Chinese people. In fact, I can be even more brutal and, if I’m lucky and have friends within the Party, get away with polluting, exploiting and pretty much whatever tickles my fancy. Why do the laws of my country allow me to do this? Beats me. I thought human beings were the same everywhere; apparently, I was wrong. Spanish people don’t want to be exploited? Never mind! I’ll go to China and find someone who does.

The fact that a Spanish company (or a Chinese company that exports to the West) can do this puts companies who do the right thing at a disadvantage. Now, before we go into why good companies are at a disadvantage, let’s focus on what I mean when I say “the right thing.” To me, it is a combination of:

  1. Offering decent wages.
  2. Having reasonable working hours.
  3. Providing social security coverage and/or insurance.
  4. Not abusing their workers verbally or physically.
  5. Other common-sensical stuff I’m sure I don’t need to add here, like maternity leaves, etc.

    English: Wind power plants in Xinjiang, China ...

    English: Wind power plants in Xinjiang, China (Photo credit: Wikipedia)

Now to why good companies are at a disadvantage. Let’s see: if I have a company that makes some product and wants to compete with the rest, I have a choice. I can either act immorally (exploiting workers in developing countries with working conditions that would be inadmissible in the West) and have a competitive edge; I can also act morally and lose it, since my products will be more expensive than those of the competition.

But careful! This does not happen because companies are evil: this happens because our laws are made in such a way that they pretty much enforce this behavior.

(Of course, let’s not be naïve. If we have the laws we have, it’s because they’ve been lobbied for by companies. So probably they didn’t have a drive to not be evil in the first place. Like Eric Schmidt said when confronted with his Google’s questionable tax-evasion practices: “we are proudly capitalistic. I’m not confused about this.” Apparently, for Schmidt “capitalism” means not paying the taxes that allow roads, hospitals and schools to be built.)

English: Eric Schmidt, Executive Chairman of G...

Way to go, Eric. (Photo credit: Wikipedia)

This situation was, until now, quite beneficial for Western companies. Only now they’re starting to realize it may not have been such a great idea. The Chinese, apparently, weren’t content with being exploited: they started creating their own businesses, using every single tactic from their Western counterparts and harboring the good will of their government, which enables them compete in even more favorable circumstances. This has resulted in the almost complete control of the telecommunication infrastructure market by Huawei, for example, which has strong ties to the Chinese government. Suddenly, Western companies are losing the edge.

This situation could be easily averted, though. It would be as simple as banning imports from countries which do not respect human rights or, at least, taxing them severely, so that employing people in sub-human conditions would stop being a good business decision. This way, manufacturing would go back to the West and jobs would be recovered. At this time of economic uncertainty, they’re sorely needed.

What would be reasonable conditions for lifting the ban/taxes and establishing a free market zone? Equal labor laws. It makes sense to have toll-free circulation of goods between countries with the same standard of living which treat their workers similarly. It doesn’t make sense to give the countries which do the wrong thing an unfair advantage. The recent attack against social welfare in Europe can be seen as the logical consequence of this: if countries like China do better, precisely because their workers are less protected, it seems logical to follow their steps in order to grow as fast as the Asian giant.

But this is a terrible idea: it aims to level the playing field to the lowest possible conditions. Shouldn’t be doing the opposite? Shouldn’t we be leveling the playing field so that all workers, Chinese included, had better conditions? Aren’t we going backwards? Who, exactly, benefits from this? I would argue not even the Chinese do. If China was not allowed to export to Europe unless it had better labor laws (and human rights, since we’re at it) the pressure on the government to make some changes would be huge, especially with the growing middle class and the amount of companies which depend on exports to the West in order to survive. This law would not only benefit workers in the West, but workers everywhere, by forcing their countries to treat them right or be left out of the free market zone.

Someone may question the economic viability of this. I would reply that this is not an economic argument: this is a moral argument. Companies should not be allowed to treat their workers unfairly. If they do, they shouldn’t be allowed to sell their goods, regardless of the benefits this may have for the economy. The economy, let’s not forget, is the people. And if the people cannot lead a dignified life, then the stock market can rise as high as it wants to. It won’t make a lick of a difference.

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Do We Really Need to Work?

Unemployment has been on the rise lately, pretty much anywhere. We could attribute this to the economic crisis, but economies (except for some parts of Europe) have been growing. Even those parts of Europe which haven’t been growing have shown an increase in unemployment that does not mirror the decrease in GDP.

On the other hands, jobs are getting worse and less well-paid. Small companies are closing down and being substituted by big conglomerates. University graduates see themselves working for a meager pay on low-qualification positions.

So what is going on?

Technology. Technology is going on.

Quarterly Gross Domestic Product (year-on-year...

Quarterly Gross Domestic Product (year-on-year growth in real GDP) and Unemployment Rate (simple monthly average) (Photo credit: Wikipedia)

When the first machines entered the workplace, workers were promised this would lead to less working hours: after all, the machine would do the work for them! Technology would substitute human labor, so that people could devote their time to bettering themselves by contemplating the great questions. In this new paradise, robots would play the role of slaves in the classic world, whereas workers would be the new patricians.

This obviously has not happened. Even though automatization and optimization are at an all-time high and getting higher, workers still work long hours. In fact, if anything we now work more than we did before. The purchasing power of individuals has, at the same time, been decreasing for the last three decades. Some blame this on liberalization; some, on technology; some, on the fall of the USSR. I don’t know enough to have an opinion on the matter, though it is likely that it was a combination of the three.

Some people argue that automatization creates as many jobs as it destroys or more. This is of course a fallacy, one through which it is easy to see. The IKEA example is perfect: a small number of individuals produce huge amounts of furniture for the whole world, thus driving costs down. A significant fraction of the other furniture manufacturers go down. Jobs have been lost, without question. Not only that: the quality of the jobs has decreased. Working in a supermarket is not the same as owning a small food business. Not only the income is less, but the type tasks performed are a lot more automatic and less rewarding. Of course, with enough automatization even supermarket employees will be replaced. This is already happening in Japan. This will create jobs for whoever makes the virtual shop assistant and destroy a lot more.manufacturing

So we live in a bit of a paradox: our planet is producing more than it has ever produced, while people are getting poorer. Automatization makes some people very rich, while the others are kicked to the curb. As jobs get scarce, demand sinks and offer soars, we are only going to see more of this tendency: an impoverished middle class (if any) and a thriving upper class.

So where does the problem lie exactly? Our economy is doing fine, in the sense that we have the ability to produce more goods than we could possibly need. The problem lies in the need for jobs in a society were jobs are going to become progressively obsolete. And this tendency cannot do anything but continue: in twenty to thirty years, a lot more professions will disappear in the midst of virtualization and automatization. There will come a time when the great majority of the world’s population will be jobless. We will then either starve to death by the scores or realize we need a change.

The change, though, seems obvious. The problem is that technology makes jobs obsolete. So what we should do is get rid of jobs. Of most jobs, anyway. We make more than enough to sustain everybody – and I mean everybody – on the planet. Why don’t we? We could grant each person a minimum wage or a certain share of commodities (a house, food, electricity) which would be updated each year, as a function of the economic output. If people wanted more, they could work: either by starting a company or by learning a skill that hadn’t been made obsolete yet. Things could even work as in old-fashioned capitalism; with the difference that people would have their basic needs covered. Having all this available free time would produce entrepreneurs by the thousands and create vast amounts of wealth. It would also ensure people don’t accept undignified jobs just to be able to eat. It would make our countries safer, since nobody would have a need to steal in order to survive. It would make our society fairer and more relaxed. It would make people less stressed and give everyone a feeling of safety. It would ensure people pursue their passions instead of focusing on having enough to get through the day.

.jobs -- Cut To The Chase

.jobs — Cut To The Chase (Photo credit: Wikipedia)

How would this be funded? Through taxes, of course. Or maybe the government could buy participations in its economy’s major companies and use the profits to feed its citizens. There are many ways this could be done, but of course it won’t be, because of the usual reasons. As long as we have a middle class, ideas like this will not be enforced. People do not want to be taxed.

However, I am confident this will happen, sooner or later. Not because people will suddenly see the light; not because the rich and powerful will decide to care about those less fortunate. No: it will happen because, if things continue the way they are, we will inevitably see such a spectacular rise in unemployment and poverty that the vast majority of the world’s population will be poor. It’s the only possible outcome, given the pace of technological advancement and the law of offer and demand. When that happens, we won’t have to convince the middle class: there won’t be any left.

Could we decide to do something before collapse? I personally don’t think so. By looking at the history of humankind, things have to get unbearably bad before they get better. So we will keep riding the wave of automatization and capitalism, oblivious to the cliff at the end, coming up with a hack after another until the inevitable crash. Millions of people will starve to death; violent revolutions will ensue.

A couple of old, bitter people will say “I told you so.”

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Is Perpetual Economic Growth Possible?

Perpetual growth has become one of the mantras of our society. We have to keep growing: otherwise, there is a “crisis.” People lose their job; poverty spreads. Havoc breaks out until we start growing again.

Some people have argued this is not sustainable: if we keep growing indefinitely, sooner or later we will use up more resources than the Earth can replenish and we will destroy the planet. I wish to argue the opposite: namely, that perpetual economic growth is possible without destroying our planet. So let’s get started.

It is a well-known fact that an economy has to grow by at least 2% in order to keep employment rates stable. If an economy grows below that mark, jobs are destroyed. This is a direct consequence of technology: efficiency grows, and so does production, without having to hire more people. If our factory produces the same as last year with improved technology, it means this technology has been used to replace people who used to have jobs. Only if we increase production is there room for the same amount of workers.

That paints a grim picture: continuous growth is impossible because resources are finite; growth of less than 2% leads to unemployment. We have the perfect scenario for a crash of epic proportions.

Gross domestic product growth in the advanced ...

Gross domestic product growth in the advanced economies, accumulated for the periods 1990 – 1999 and 1990 – 2006. (Photo credit: Wikipedia)

However, this time technology comes to the rescue. Yes: the same technology that forces to grow by 2% or lose jobs will get us out of our predicament.

They key word here is virtualization. What I mean by this is most of our goods have been virtualized: they are not things anymore, but chunks of information. Where is that piece of furniture you kept for your CDs? Gone, I presume, along with the now-unnecessary CDs. Your home libraries will go the same way soon, if they haven’t already: they’ve been replaced by a tiny device and an Internet connection. Those products don’t have to be made anymore, in the sense that they don’t have to be produced as things. Yes, the music has to be recorded, but that’s it. All you’re using up is energy. You’re not using up stuff.

The tendency towards virtualization will, eventually, encompass most of what we know. Without getting into science-fiction scenarios where even we are virtualized, living as uploads in a virtual environment which takes less and less energy to run, we can already see some of the coming trends now. Ubiquitous 3D printers, for example, will allow us to download designs for all kinds of everyday items. We could be making our own car at home (I’m not joking: a 3D-printed car was invented recently, which doesn’t break since it doesn’t rust) and paying only for the design. We could even travel from home, using a combination of virtual reality and drones. And yes, drones are not science fiction anymore: there’s thousands of aficionados making them in their garage as we speak. Another virtualization is, for example, sex: as virtual reality becomes better, simulated sex will become the norm and prostitution will – hopefully – become obsolete.

The Cave Automatic Virtual Environment at EVL,...

The Cave Automatic Virtual Environment at EVL, University of Illinois at Chicago. (Photo credit: Wikipedia)

All this virtualization leads to the use of less and less material, while producing the same amount of monetary gains. That is, what counts as ownership or wealth is being transformed gradually into the existence of certain streams of data associated with your digital persona. A person who owns a million downloads from iTunes, for example, is a millionaire (at 1$ per song) but, at the same time, has nothing physical to show for it.

So virtual goods are cheap to produce but still have a relatively high monetary value. And virtual goods are easy to make: you just need some creativity and a computer. All that “manufacturing” counts as wealth. The more people learn to use new technologies, the more they produce something with them, the more wealth a nation has. Since there is no limit to the amount of data we can store (there  is, but it gets updated every year) this growth does not have to stop.

Another advantage of virtual goods is that they’re getting cheaper to store and run. The continuous evolution of computers makes the energy expenditure per bit decrease every year, which allows to produce more and more data (wealth) without an increase in energy use. Again, we see how growth can continue indefinitely without running out of resources.

Most successful companies nowadays lead in virtual goods. Google, for example, sells virtual space for placing virtual ads, using all the data it gathers from its product (us); Facebook does pretty much the same. Only Apple deals mainly in physical goods, though it may be argued that what Apple really sells is intangible design.

Image representing Google as depicted in Crunc...

Image via CrunchBase

Now, I am aware that this virtualization is far from having completely happened. Furthermore, we need devices to run all those products and those devices have to be manufactured. However, as bandwidth increases, we’ll be able to make do with less and less powerful devices, since most processing will be done on the server side. When this happens, hardware updates will happen in the company side, whereas users will just have to pay for software updates, again another virtual product. Also, I must add that we don’t need to stop producing: we can keep producing, as long as we do so in a sustainable way. What I claim is that we can keep producing in a sustainable way, while growing indefinitely, thanks to virtualization.

Finally, this new age of virtualization has seen the rise of a new kind of good that may be enjoyed for free. This has never happened before. We live in a world where a substantial fraction of the population contributes, without any monetary gain, to the well-being of the rest by providing content – writing, music, art – that can be enjoyed by others, free of charge. Whereas before people had to pay to read, people can now go online and start perusing blogs, one after another. It’s quite remarkable, really. And one of the reasons we may still have some hope for the future.

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