Saturday, April 17, 2010

Human beings: get them while they are cheap

Commodities, derided for decades as unimportant, have become scarce resources, to be guarded and managed with the utmost care. Conversely human labor and skill, on the basis of which the glories of human civilization were built, is entering into a state of gigantic glut.  Martin Hutchinson - Prudent Bear
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The quote at the top of this is the world's political bottom line.

Today this glut of human beings includes highly skilled, trained and educated human beings, not just the hewers of wood and drawers of water that have always made up Marx's "reserve army of labor".

I should quickly add that the author of the quote is anything but a Marxist.

Martin Hutchinson is a former international merchant banker, with a first class Honors degree from Trinity College in Cambridge and a Master of Business Administration from Harvard Business School. He writes a weekly column called "The Bear's Lair" in a web called Prudent Bear. I read him regularly because, in my opinion, he writes well and he has interesting and provocative ideas. He is a very classical economist: very conservative in the old, pre-Reagan use of the word.

Let me quote him at more length:
Overall, rapid economic development has thrust commodities from a position of glut into a position of relative scarcity. Conversely, the emergence of modern telecoms, the globalization of markets and the increasing wealth and education levels of billions in China, India and elsewhere, has transferred human labor, even skilled human labor, from a position of relative scarcity into a position of glut. That’s not surprising – when the number of full participants in the global economy quadruples from 700 million to 3 billion over a period of less than 20 years, those participants are likely to face an over-supply problem. It’s also not unusual – as Thomas Malthus would have told you in 1798, the periods when human labor is worth more than bare subsistence have historically been few and far between.
( ...) In summary, in today’s world, commodities have become scarce and labor has become commoditized, unless fenced in by artificial restraints. With the global supply of commodities finite, this problem can only worsen if population is allowed to continue growing. A world with 10 billion people, all able to compete on an equal basis in a globalized labor market and desiring commodity-intensive modern mechanical marvels, would be a world of ever-increasing scarcity and impoverishment, besides its adverse environmental effects. Hence population reduction programs, aiming to reduce global population to a level at which labor once more becomes more valuable than commodities, should be given the highest priority at a global level. Otherwise, with the labor supply unlimited and the skills supply nearly so, and commodities supply relatively restricted, the only wealthy people will be those who own mines or oil wells.
I find it interesting that there seems to be a clear convergence between the view of the future of a very classic conservative economist and a classic Marxist reading of of it. Both see the "increasing immiseration of the proletariat" and the only real difference that I can see between them is that the Marxist would believe and hope that this will lead to a revolution and the classic conservative, at some point, probably fears that it will.

Certainly this is a different message than the one given by globalization's cheerleaders like Thomas Friedman, or intellectually more respectable folk such as Keynesians Paul Krugman, and Robert Reich.

I cannot imagine any of the aforementioned having such a sweepingly pessimistic view of where the world is heading as Hutchinson does. They might see grave dangers in global warming, but probably they would see new, "green" industries as solving climate change and unemployment too. I have to admit that I find myself more in tune with Hutchinson on this.

Keynes, who is probably the one chiefly responsible for an American boomer like me having had a prosperous childhood in the 50s and 60s, was a self-confessed bourgeois, someone who wanted to save capitalism and his upper-middle class place in it by tinkering with the system, not scrapping it. His tinkering worked very well for my generation, certainly much better than the Friedman to Thatcher to Reagan to Greenspan to ruin, that we have just been living through.

Since I am not an economist, since I am someone who, without a pocket calculator, is helpless when confronted with even the simplest arithmetic... you might ask... I should ask myself... On what exactly to I base this preference?

The way I get there without crunching any numbers is through an effort of imagination, seeing the world as a shrinking whole, without economic frontiers with everyone jammed together, where prices can be instantly compared, where anything that can be digitized, ideas, numbers, words, images, films, blueprints, intellectual property of almost any sort which can be copied endlessly for next to no money and increasingly melts into something like air. Air which is something that I'm sure they would have always liked to charge for, make into a commodity, but have never found a way to.

A world of staggering complexity and speed, without past or future, only an overpoweringly universal, pressing, simultaneous present.

In this world there wanders a creature who for most of his hundred million years of existence was a drop in the ocean of nature, a being who  throughout most of his saga wandered naked in the company of small groups of relatives and friends, merely reaching out his hands to reap nature's generosity. A gregarious, sensitive, labile creature of intense empathy and interest in his fellow's doings, whose ability to speak empowered cooperation in hunting and accumulating knowledge and memories, who for most of his species' existence has owned nothing that he couldn't carry in his two hands.

This is the creature that confronts today's world of artifice and oppression.

We have to look at humanity as a continuum starting from Lucy the Australopithecus afarensis right up to today to see the blinding truth of Rousseau's dictum, "Man was born free, and he is everywhere in chains."

I agree with Hutchinson's bleak view essentially because I think that humanity is going to have a its nature as an animal. Like those performing dogs you see in the circus: wearing a hat and glasses and tottering along on its back legs, dreaming of a fire plug. DS


Forensic economist said...

A while back the Economist gave the opinion that since capital is highly mobile, more so than labor, it will be easier to tax labor than capital. If the large capitalist can move his factory easily, countries will compete on low tax on capital. Labor is still less mobile than capital(though much more than it was). Therefore expect more taxes on wages rather than assets or profits. We have certainly been heading in that direction in the US.

Reich wrote a column not long ago saying that more immigration is needed to bail out Social security. So there are benefits from globalization.

Eso said...

Thanks for the link to Hutchinson.

I wonder what those highly schooled unemployed could do for Latvia, which has seen nearly 200,000 relatively low educated folks out-migrate to England, Ireland, etc. We need some in-migration, but of such people who would get the IMF off our backs, and get us back to our economic feet without deforesting Latvia--the forest practically our only commodity.

David Seaton's Newslinks said...

Cheer up! All those billions of people are going to need toothpicks and toilet paper. Forests are a great resource.

Anonymous said...

Seems to me that our very own George W. Bush had an Mba from Harvard, so I wouldn't put too much into such credentials.

Three factors control total GDP, labor, capital, and technology. As a huge explosion in labor, think opencourseware, i.e. the virtual equivalent of a free ivy league education for nothing, will allow the creation in myriad new technologies, this is hardly an unmitigated bust, what will happen is that mankind will find more ways to eke more benefit out of fewer raw materials; instead of sending vinyl LPs from the states to the rest of the world, we now download mp3s with a higher quality for less money in less time. Many more such ingenious boons now stand to be developed.

Forensic economist said...

More thoughts on the taxes and the need for labor --

High income individuals are more likely to either shelter their income (ie call it return on capital, which is taxed lower than wage income in the US) or simply move - go into tax exile as it used to be called. So tax burden will fall increasingly on lower income people.

Of course, land is not mobile and could be taxed more heavily. However, what makes land valuable - the factory or office building on it - can be built anywhere. Not to mention that property owners have strong lobbyists - eg in California, a side effect of freezing of all property taxes was that the relative share of property taxes shifted over time from commercial to residential property.

On virtual ivy league education -

The benefits of a college degree aren't so much the facts learned in college, but that the credential as a signal to a prospective employer that 1) you are from a family that can spend a significant amount of money and 2) you are able to sit still for four years. The value of an Ivy league degree is that the university screened you so the employer doesn't have to. Same remarks apply to high school. The textbooks are the same in most colleges, no matter what the prestige of the college. Someone who drops out after three years does not make 3/4 of someone who gets a degree. In high school someone who drops out and returns to get a general equivalency diploma has earnings prospects no better than the drop out who never returns; presumably the GED should say to the employer that his knowledge is equivalent to the high school graduate, but employers don't treat it that way.

By the way there is a continual debate among labor economist on the return to education. The pro deregulation/free market types would say that since it is known that there is a return on your investment in education, if you choose not to get an education it is your choice and you are owed nothing. I and a lot of others say that if the return to education is the return to a signal you are in the elite and not for the knowledge you have gained, there is more of a role for the government in helping the non-elites.

While there are always a few who can invent a new technology in the proverbial garage - Jobs and Wozniak come to mind - most new technology takes enough capital to develop that it will be developed (if not invented) by a major corporation.