Weick:
>>Growth did not, as Douthwaite appears to imply, stagnate because of a
>>lack of effective demand, but because, in the euphoria of the boom,
>>bad investments were made. And it was not only foreign capital that
>>bailed out. Domestic capital also did so.
Davis:
>The "bad investments" were bad in part because they created
>capacity in excess of demand.
Weick:
But isn't this just another way of saying they were bad investments? - i.e.,
they produced things no one wanted, so they went belly up. Where there is
intense competition, excess capacity does not last long. If too many bad
investments and unrepayable loans have been made, and if investor
expectations have been raised higher than the market will support, it may
take something as big as the Asian meltdown to bring things back to reality.
What appears to have happened in Asia is that an initially sound growth
process turned into a bubble that could not be sustained. The bubble has
collapsed, but I would be willing to bet that what was sound is still there.
Weick:
>>I would also take some issue with Douthwaite's points about why wages
>>are falling. In Canada wages have been stagnant since the late 1970s.
>>A reason often cited is that the growth of productivity began to slow
>>at about that time. Prior to about 1975, both productivity and wages
>>grew rapidly. Why the stagnation since? In my opinion, the least
>>likely reasons are the export of capital or free trade, and one likely
>>reason is that all of the work required to rebuild a war-devastated
>>world had come to an end. Europe had not only been rebuilt, it had
>>become a modernized competitor in world markets.
Davis:
>Real wages have been declining in north america since the early
>70's. I believe that true reason is ideological. If productivity is
>defined as output per unit of work (in some ways a very perverse
>definition) it is obvious that it has not slowed at all or the massive
>layoffs of the last 15 years could not have been made without drastic
>production cuts. In many industries (e.g. forestry) output has grown
>steadily even as jobs were slashed. Until the early 70's, unions
>dominated the labor scene. From that time, the idea that adequate wages
>were "anti-competitive" and "greedy" began to take root. There was much
>that was undesirable in the union model, but providing adequate wages
>was good for both social equity and for economic growth.
Weick:
I don't see what ideology has to do with it. Labour has always been the
highest component of business costs, and we have always had innovations
aimed at cutting costs by displacing labour. During recent decades, the
business world has become more competitive and the rate of labour
displacement has probably accelerated. Inventions such as the microchip
have played a large role in this, but they are by no means the first thing
to have displaced labour. Consider the impact, in its time, of Henry Ford's
assembly line.
And one shouldn't overlook social change. A couple of years ago I did some
arithmetic on changes in labour force participation. I found that the
participation rate for men had not changed very much since the 1970s, but
the rate for women had risen dramatically. It is not only machines that have
displaced men in the workforce, women have too. In Canada, and probably most
advanced countries, at least part of the growth of unemployment can be
accounted for by the increase in female participation - i.e. by social
change. And, yes, women have entered the labour force because families need
double incomes, but that is not the only reason.
When I say that the rate of increase of the productivity of Canadian labour
has declined, I mean on average. (Actually, the decline is not my discovery.
The Economic Council of Canada pointed to it when it was still around.) The
productivity of specialized labour has undoubtedly increased. Such labour
is able to fetch a good salary, and is still very much in demand. It is less
specialized or unspecialized labour that has taken a big hit. This is the
kind of labour that comprised much of the union movement a few decades ago.
With the decline of its importance in the economy, the political clout of
unions has also declined.
I would be hard pressed to believe that people are really any more greedy
now than they were a few decades ago. I would however agree that today's
greed is a little more obvious and perhaps rapacious. The economic world has
become a more competitive place. The pie is not growing very fast and there
are more people fighting for it.
Davis:
>By the 80's the ideology of capitalistic greed was not only tolerated
>but glorified. Workers who wanted a living wage were greedy, but
>"investors" were just accumiulatring wealth so it coiuld "trickle
>down". In the 3rd world, the colonial tradition of converting the land
>on which the people had always subsisted to specialized export crops
>accelerated, driving more and more people off the land to cities or
>maquilladoras where they were desperate enough to work in appalling
>conditions for almost nothing. (Megaprojects of the sort to which the
>World Bank was addicted fostered and abetted this process.)
>Corporations then used the threat and often the reality of moving their
>facilities to places with low wages and few environmantal controls to
>force wages down. This is all as Douthwaite rightly says. Unlike Henry
>Ford, they forgot that products can be sold only to people who have
>enough money to buy them.
Weick:
Hmmm. I must admit I have limited experience of all this. I would point out
again that there are many different kinds of investment. I know that it has
become fashionable to kick the World Bank around and perhaps it deserves it.
But when I studied economics many years ago, it was quite in order to think
that a way of developing poor countries was by building big dams and other
infrastructure which would then allow industrialization to take place. In
hindsight, this may not have been the best way of going about it.
And, from our perspective, it seems terribly wrong to have the poor of India
make Nike shoes for rich world yuppies. But I do wonder how the people who
are making those shoes feel. Have we ever stopped to ask them why they why
they are doing it, or what their alternatives are? I know that it may not be
politically correct to think this, but they do vote with their feet by going
to work every day.
When I was in Sao Paulo, Brazil, last year, I met some of the people that
had been driven off the land. Most of them had not been displaced by
specialized export crops. They had in fact been brought to Brazil as slaves
during the 19th Century to work on a specialized crop, namely coffee.
However, during the past half century, the vast majority of them had been
displaced by cost-reducing machinery, and so they flocked to the cities or
to the Amazon Basin. Drought had also played a role in displacing them.
Whether or not they were better off in the cities is something I do not
know. I believe many felt they were, but others may not have.
Davis:
>The global monopoly game has led to unprecedented inequality, with
>the vast majority of the wealth concentrated in a few hands. This
>leaves the rest of us with not much money with which to buy their
>products. Consumer debt is very high. I would have thought that was
>obvious. And those who believe that the rich countries can dodge the
>depression embracing the world (even without the Y2K event) are as
>ostrich-like as the venerated economists who declared in the summer of
>1929 that stock market cycles wwere a thing of the past.
Weick:
I think one would have to do a country by country review before one could
conclude that there is a depression embracing the world. The situation in
Asia is still bad, but perhaps not as desperate as it was a year ago. Russia
is in terrible shape, but for very different reasons. Western Europe is not,
to the best of my knowledge, depressed. Nor are some of the countries of
eastern Europe. Parts of Africa do not have what one would call an economy,
while other parts are not doing too badly. The situation is very mixed; some
ups, some downs, many uncertains.
>>While I disagree with Douthwaite's reasons for needing it, I do not in
>>general disagree with the kind of world he thinks we need. Indeed, we
>>need a less wasteful world, one that husbands non-renewable resources
>>and makes far greater use of renewables a more sustainable world.
>>But I do not believe in the efficacy of making, to quote Douthwaite,
>>"a dash towards sustainability". Something as cumbersome as the
>>economic world is probably not capable of dashing. If it tried, the
>>result might be either falling over or hitting a wall.
Davis:
>We "dashed" pretty quickly towards environmental degradation,
>species extinction,and inequity during the past 20 years, and I think
>the wall is right now looming ahead of us. I will be very surprised if
>the world does not look very different by this time next year, let
>alone two years from now.
Weick:
I think that what you have said in the above paragraph is a major part of
the problem. What I fear most right now is the vast tide of pessimism which
has washed over the world. For some reason, people are expecting enormous,
catastrophic change. My elderly aunt, a very religious person, expects
Christ to return momentarily and cleanse the world of sin (there go Toronto
and Vancouver!). Many postings on the Internet indicate an almost morbid
fear of collapse and chaos. In my opinion, it is in this state of mind that
the real danger lies. It could bring us to a standstill, mortally afraid to
move out of fear of our own shadows. And, yes, I do recognize there are real
problems. But to deal with them we need reason, not overwhelming angst.
Ed Weick
