Labor as a Commodity - II

There are certain assumptions central to viewing labor as a commodity. Incidentally labor here refers to managerial and non-managerial work. Some of these assumptions are:

1. Labor will behave like other commodities.
2. The type of work does not matter.

Lets examine the first of these assumptions. A crucial underlying premise underlying the idea that labor is a commodity is that it will behave like other commodities. Generally speaking, the price and availability of commodities depends on the interaction of demand and supply leavened by the availability of substitutes which in turn are influenced by the same interaction of demand and supply. If the price of a commodity goes up, then its supply can be ramped up relatively quickly. Similarly if the price goes down, then its supply can be decreased relatively quickly. The same argument holds true on the demand side.

This is the case for all commodities except labor. In the short term, the supply of labor is essentially fixed. No matter how high the price may go, the demand for labor will increase only gradually and over a long horizon. This is specially true of technical and professional work. It takes time, effort and money to train a professional. Furthermore, in order to maintain a level of knowledge of a certain profession in a society, a sufficient number of people have to undergo training in that profession. Otherwise the requisite skills will be lost at a societal level as older members of the profession retire and are not replaced. It is certainly not the case that a society can ignore a profession and not train people in it and then quickly ramp up production as demand increases. Once the older members retire or die, there will be an increasing shortage of the required skills which will not be easily replaced.

There is another problem that occurs if labor is treated as a commodity. This is a serious problem that has largely been ignored. Advanced economies require steady input of people into professional services. Research and development are essential for the long term growth of economies. Research is never done in isolation. It builds up on previous work and is increasingly collaborative. However, collaboration requires a critical mass of people knowledgeable in a particular area. Without this critical mass, research is severely hampered. One of the reasons why developing countries lag so seriously with respect to developed countries in research is that the former do not have this critical mass of professionals. However people will only enter a profession if they see future prospects in it. but of they don't enter, then the profession is more likely to be shifted to areas where there is this critical mass mentioned above. Thus a vicious cycle sets in through which an economy can lose needed skills in a very short time - generally speaking no longer than a couple of generations.

So labor does not behave like other commodities. Treating it as if it does has serious repercussions to an economy. These are repercussions that affect the long term growth rate. It should be noted that doing this often increases profitability in the short term, sometimes dramatically so. But this growth comes at a serious long term cost.

Labor as a Commodity

Is labor a commodity or not? Is it just a factor of production or is it something more? This question goes into the heart of the type of society that we have built and are building. Treating labor as a commodity means treating people as commodities. A key point to be remembered about commodities is that they are meant to be used and then discarded. In other words, commodities are either transformed from one state to another or they are consumed either physically or otherwise. When people are treated as commodities, then this implies that they are to be used and then discarded.

For about 50 or so years, there was an unspoken compact between companies and their workforce. This compact meant that workers (and I include both managerial and non-managerial staff in this category) could expect to rise fairly steadily up the hierarchy partially depending on performance and ability criteria and also see a concomitant increase in wages received. This compact is one of the reasons behind the rise of the middle class first in the developed world and then in other parts of the world as well. This middle class is extremely important for the modern capitalist system as it is one of the main drivers of growth in an economy. The middle class is the largest buyer of goods and services in virtually all categories. It is also a bulwark against social unrest. It gives hope to lower income people that they will be able to join its ranks one day.

However, now the compact which helped to create this most important class of people is broken. Companies increasingly treat labor as just one more input to consider. Under such circumstances,what matters is the price at which the commodity is available. Capitalists have an inherent interest in lowering the cost of all input including labor to the maximum extent possible. This is a primary logic behind outsourcing. This is also a reason behind pressure to reduce wages - pressure that is largely supported by economists. There are also some underlying assumptions behind this treatment. The basic assumption is that labor as a commodity will act like other commodities in terms of demand and supply. Another assumption is that the type of work does not really matter. Labor is interchangeable as far as the type of work is concerned in the sense that anyone can be plugged into any type of work at any time anywhere at any price (or in normal parlance pay scale). How far these and other such types of assumptions are true will be examined in later posts.

On Work

For most people, the work that they do is a strongly defining identity. In their minds, their work is a validation of their existence. This thinking is reinforced when people are viewed through the prism of consumerism. This view reduces people into objects and separates them according to their ability to buy. Not only that, it induces people to start viewing themselves as objects. This has several consequences.

One is that people are treated like any other input in the economic calculations of managers. In this environment, profit considerations become paramount and social aspects of work are downplayed and steadily ignored. Thus companies have no hesitation in relocating factories regardless of the impact on the local workforce. Second is that automation becomes easier to justify and implement. People and machines can be treated as being interchangeable. Thus over time the nature of the work changes. A third consequence is that since the job that a person does helps to a large extent to define his identity, when that job disappears, the affected person is left groping in the dark without any guiding light. Society too defines a person's worth on his ability to buy things and this ability is severely hampered by the loss of a job. A fourth and consequent effect is that people are rendered passive in the face of what seem to be overwhelming changes. Most people expect to work in a company and to a very large extent, we are conditioned to this expectation by the strong focus on job growth figures.

These consequences affect all types of work regardless of whether it is blue collar or white collar, labor or managerial, manual or knowledge based. How these consequences are playing out and what can be the form of work in the future will be explored in subsequent posts.

Related articles

• Humans Buy Products Like Dogs Piss on Fire Hydrants (sebastianmarshall.com)
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Who Speaks For The Unborn?

We all love our children. We pamper them, protect them, care for them, worry about them and we tend to keep on doing this right into old age. We want the best for our children and lavish stuff on them that we did not get ourselves. But what about our children's children and their children and their children and so on? Who speaks for the unborn?

This is an important question to ponder. Our descendants yet unborn will inherit a world and a society that will be a reflection of the decisions that we make today. What kind of a living standard will they enjoy depends entirely on us. Will they be able to enjoy nature as we have enjoyed it? Will they have the type of resources that we are using? Answering these and similar questions will determine how we behave in the world in the time allotted to us. Are we caretakers or masters?

So far, we have answered in the latter. We are behaving as if we are masters of the world. The rate and the manner in which consume resources, it is as though we think there will be no future generations. Actually those waiting for the rapture to occur do think in this manner! Masters use available resources as they see fit. The double tragedy is that even the renewable resources are being consumed with such wild abandon that large number of these are under the threat of extinction.

Commoditizing Life - II

The trend of treating people primarily as consumers is now reaching all spheres of our existence. From cradle to grave, we are wrapped in a cocoon of commercialism that affects not only how we view our world, but also how we view ourselves and our relationships. In a sense, this can be considered as a natural outcome of the relentless pursuit of ever increasing profits that is the current economic and societal paradigm. Once the low hanging fruit has been taken, companies are forced to penetrate ever deeper into people's lives and thoughts in order to produce the profit that is expected nay demanded from them.

It can be argued that the current paradigm has vastly increased our living standards. Not only that our knowledge of the world and its interactions is much greater than it ever was. Does it really matter if there is a side effect of commoditizing our lives? I believe it does. When we treat all aspects of our lives as economic transactions, we end up with a distorted view of the world and our place in it. All our actions and our decision become tainted with an economic and ultimately selfish perspective. This thinking has permeated our societies to such an extent that all income groups and all ages are now affected by it.

Consider that parents often bargain with their children to persuade them to study. Why should that be the case? Why should a child be offered a present as a reward for doing something that he/she should be doing regardless? This same child when grown up would expect all actions to have comparable rewards regardless of context. Take another example: our friendships. There is a whole concept of "networking" which is done with a view to obtaining commercial benefits. In a limited context, this is fine. But advocates of networking strongly recommend doing this at all times with everyone. In this view, our friends should be chosen keeping in mind how we can benefit from the relationship. The recommendation is that if we don't see any commercial benefit with a particular friendship, then dump the friend. Even close relationships like marriage is not immune to this warped point of view. To a considerable extent, marriage is now thought of as largely an economic contract. What am I gaining out of this marriage? What reward am I getting? What is the cost? This is an economic and market based thinking. We are so used to being treated as commodities that we do not regard such views in other spheres strange. I think that part of the upsurge in divorces and single parent households can be attributed to this type of thinking.

When life is a commodity, then our self worth becomes strongly tied to this point of view. The mania for branding everything in sight illustrates this. For example, there is a whole move to brand cities and nations. Does this make any sense? Is a city or a country a product to be used and then discarded? What about our personal selves? Is any one of us inferior to say Richard Branson? Is he inherently superior just because he has more money? What kind of thinking is this? Should we dump a friend just because we think he/she is no longer of any use to us? What kind of a person are we if we do that?

A world that is governed on purely commercial considerations will not be a nice place to live in. It does not matter what your status in life or income may be. If you are rich, you will be afraid for your wealth. If you are poor, you will be desperate to acquire it. If you are in the middle, you will be afraid of falling below and scrabbling to get above. We will be living in an unstable environment with rampant competition for resources. Already we are seeing the effects of this even though the process is partially done. Global warming, pollution, crime, anxiety; these are all symptoms of a world where life is becoming a commodity. Such a world is definitely not one to bequeath to future generations.

Commoditizing Life

Over the last 30 years or so, the market system has been encroaching on spheres of life that earlier were thought to lie outside it. This encroachment comes at a large cost to the various cultures around the world for markets have a massive homogenizing effect. When McDonald opens a shop in a city and proceeds to drive out local eating outlets, the end result is less choice, less variety and a more homogenous and in many respects more dead cityscape. When English becomes necessary for survival, then local languages start to disappear. A whole way of thinking then vanishes and is replaced by a more homogenous type of thinking.

This is an effect of commoditizing life. Companies have a strong interest in encouraging this process because this way they can start charging for things they could not touch before. This process also plays a role in encouraging materialism. A few examples to illustrate. Kidneys for sale. The very fact that there is a market for kidneys means we have commoditized an essential part of our body. How about wombs for rent? Women are available who are willing to rent out their wombs. We have given a nice name to this: surrogate motherhood. A lovely sounding name for selling your body.

The Role of Finance - III

The financial sector by its ability to create money is in a unique position to dictate which sectors get capital and which do not. This calculation is done on the basis of maximizing returns to the finance sector ignoring the larger needs of the economy. Apart from banks, stock, commodity and private exchanges have played a major role in this process. Once a company undergoes an IPO, the secondary market takes over and people in this market are basically trying to earn rental income. The stock market is supposed to play a role in efficiently allocating capital to needed sectors. What is the secondary market supposed to do? A similar argument goes for commodity exchanges.

Another problem with the financial sector is that it encourages a quantitative style of thinking. Risk is an integral part of finance. The projects that are lent money are not guaranteed to be successful. This risk needs to be measured in some fashion. The financial sector has come up with innovative measurement techniques for doing the same. Unfortunately, these techniques often have many assumptions embedded in them and not many people are aware of these. As a result, these techniques are used in an inappropriate fashion which results in an increase in systemic risk making the entire economy more volatile and fragile. Numbers are seductive. It is only too easy to look at a number and believe that it adequately captures a complex reality.

Debt is an integral feature of the financial system. Fractional reserve banking works by creating debt. History has shown that unless the level of debt (and the level of the associated interest) is controlled, there comes a time when the financial sector starts driving out other sectors. When that happens, the entire economy becomes susceptible to sudden shocks. When the globe becomes interconnected through high speed communication links, a shock in one part of the system gets transmitted to all other parts in the blink of an eye. In this fashion too, the financial system ends up weakening the overall system.

Finance also plays an important if largely unacknowledged role in fomenting environmental troubles. The problem again lies with quantitative assessments of risk and reward specifically the concept of time value of money. If a dollar today is more valuable than a dollar tomorrow, then it makes sense to take advantage of resources today even if in the long run the end result will be massive losses. If you cut down tree cover today because the lumber is more valuable today, then you will end up with soil erosion down the road which will result in far greater systemic losses.

Another factor: transparency is critical for the efficient and proper working of any financial system. However, in the recent past, there has been a major decrease in transparency of the workings of major financial firms. This has resulted in risks becoming hidden from view. In the end, we saw what happened in 2007 - 2008. The entire financial system seized up because there was no transparency.

The financial system today is broken. The existing paradigm has led us into a cul-de-sac out of which we can barely glimpse an exit. Staying in this situation is simply not an option. Some sort of a financial system is required to mobilize capital and deliver it where it is needed in an efficient and cost effective manner. The critical question today is what should replace the current paradigm?

Related articles

• Is the financial sector bad for Britain? (liberalconspiracy.org)
• Is The Financial Sector Gobbling Up The U.S.' Would-Be Entrepreneurs? (forbes.com)
• Has the Growth of the Financial Sector Harmed the Economy? (outsidethebeltway.com)
• How to crash an economy - some monetary parables (betternature.wordpress.com)