"When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals.
We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues"

( JM Keynes, "Economic Possibilities for our Granchildren" 1930 )

Monday, January 30, 2012

We Are All Marxian Now

As the crisis  goes on, it becomes evident that the European “Fiscal Austerity “ was just the foreplay. The real game ahead is "Competitiveness " ( especially in the Southern  periphery countries).

Fiscal Austerity is an accepted dogma in Europe and its implementation   is already depressing demand (ex. Spain unemployment to 22+%) . “Competiveness” is the private dimension  of a restrictive economic policy with its support for  wage cuts as a prerequisite to restore balance in the Continent (with the obivious implications on consumption and demand). However many economists, including some who dissapprove the Public Austerity policy, support the wage reduction policy as a substitute for "internal devaluation" in order to restore the economic European balance.

Lets see a few quotes

Diverging competitiveness among EU nations: Constraining wages is the key Mickey  Levy , Chief Economist of Bank Of America
“..The policy implications (for Europe EF)  are clear. Realigning real wages with productivity in Greece, Italy, Portugal, and other EU nations is as important, if not more important, than required fiscal austerity. However, this will be easier said than done.” 

Interview with W. Buiter City´s Chief Economist
“ The only thing Spain can do is radical reforms, a more flexible labour market and much lower real labour cost”. These are the clear terms   expressed by Mr Willem Buiter, City`s Chief Economist   about the reality of the Spanish economy, on which he openly speaks about in pessimist terms..."   (Translated from “El Mundo January 29th 2012)   

The message is clear: “Realignment,” “Reform” "Lower labour costs" with the objective to gain Competiveness. This is a serious challenge : we are not dealing with  a proposal  coming from an interested part (such as employers) which can dismissed as a "Class warfare" statement. The proposal carries the seal of professional, neutral  economists  and as such should be analyzed with analytical tools .
First comment : The analytic  focus on labour ALONE is deeply wrong from a 21-century economic perspective ( it is RIGHT from a Marxist perspective... we´ll deal with that later ) .  Past Economists like 19 century D. Ricardo developed the concept that prices (the basis for competitiveness, as in the end you compete with prices and costs) are the sum of   production factors. Back to Econ 101? 

 Labour+ Capital (Earning included) + Land= Cost  

 Therefore those who claim that the Spanish economy (in our case) is not competitive should present a comprehensive analysis of the cost and efficiency of ALL production factors. Otherwise, it is a partial and misleading analysis.

Second Objection :  Even if we maintain the  focus on labour, the actual figures simply do not corroborate the conclusion of our  Economist. Lets have a look on figures taken from the OECD statistic database  (2010)

  Million  Euros
Work Force
Overall Labor  Compensation
   Million   Euros
( GDP / Workforce)
   k Euros 
Average Wage
(Labor Compensation / Workforce) 

 k Euros

As can be seen from the table, the German average worker is more productive than his Spanish counterpart by 14%, but he also earns more, app. 20% more. In other words, if comparing the labour component, the Spanish employee can be competitive with the German worker, and she got a 6% edge on  cost level. So how it comes that Germany is considered more competitive than Spain?   

First of all, we should analyze the relations between both the countries and the rest of th world . Second, we just analyzed the labour component in price, so  in order to get a comprehensive picture we must add Capital (and Rent) . The result might be that the Spanish problem is a too high CAPITAL return in comparison to its productivity and not Labor. 

This is the big TABOO nobody wants to deal with , as it is always easier to accuse the working people for being non productive or earning too much (which in our case fits with racist stereotypes…) . 

Least and not last:  The assessment which considers labour as the main cost generator (as the above economist do) , THE real engine behind values, and  as such THE “key to competiveness” is nothing new to the Economic analysis. . As a matter of fact this is an updates version of the “Labour Theory of Value”, the 19th century idea developed up to its most “pure” level by  …Karl Marx!.

The idea that Labour is the sole value generator of the commodities (including Capital) became under Marx’s   hands a tremendous analytical tool he used to develop a deep social criticism. I doubt that this is the intention of the Wage Cut advocates, but in a certain way they could claim that after decades of ideological debates, WE ARE ALL MARXIAN NOW.    

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