Are we really all in this together?

Are we all in this together?  Well only in the sense that in a drive-by shooting the killer, victim and gun are all in it together – just on different ends of it.  Same with our recovery. We’re all in it, but one man’s efficiency saving, is another’s unemployment.
Eurostat, the European agency which gathers and monitors economic data across the EU has just released  a study on what it calls “International Sourcing”.
What is “International Sourcing”?  It’s the free flow of capital in its off-shoring jobs and investment guise.  When Capital feels free to leave a country where the workers cost more than they do in a poorer one, so do the jobs.  That’s Off-shoring.
What I find interesting is that the results of this survey and an earlier one to which this one is the follow up, speak directly to the claims that the Free Market and Globalization help us all and that “We’re all in this together”.
“Trust us we’re financial experts and even though we caused this mess, only we know how to fix things and get us all on the road to recovery” is what our silicone smile leaders assure us.  Should we?
What the study says to me, is, no.  We trust them at our peril because we are most definitely NOT all in this together, the Free Market is NOT going to help us all  and we are not all collectively on the road to recovery. The very richest are on a private high road to recovering all their briefly imperilled wealth and power, but the vast bulk of us are being herded back on the same path of witless acceptance of debt  and impoverishment heading towards another even bigger cliff than the one we just fell down.
The first study, published in 2006, jazzily entitled ”International sourcing statistics,  begins,
“The continuous globalization of the economy has pushed many enterprises to adopt international sourcing as a business model….” 
So straight out of the gate it is made clear that it is globalization, as insisted upon by Free Market advocates, that is driving off-shoring as a “business model”. The ideological apologia and bent of Eurostat itself is then made clear when the authors of the report state, as an article of faith which may not be questioned,
Although sourcing abroad can result in the loss of domestic jobs, it can also improve an enterprise’s competitiveness, and hence both secure existing jobs and create new ones.
Translation – off-shoring will always mean job losses. But while ordinary people may become poorer as a result of losing their jobs, the company will be more profitable.  And if the company does become more profitable, then those who still have their job, might keep it (that’s the “secure existing jobs” bit) – for now- but WON’T get a pay raise – because that would lower competitiveness and certainly lead to consideration of further off-shoring – while those who own the company WILL get richer.  And then the totally spurious and without any evidence to back it up sop to any ordinary readers who might have strayed in and had a read – “and create new ones.”  Evidence please?  The evidence of the survey itself, and the just released follow up survey after it, clearly shows that companies do not plough the savings made by off-shoring jobs, back in to jobs back home, but increase their investment in their new found pool of cheaper labour.
Let’s look at the UK and Ireland as examples.
 Another study done before the crash , this one by Forfas, Ireland’s national policy advisor for enterprise  Under the Department of Enterprise looked at another variant of off-shoring, this one called ODI (Outward Direct Investment). ODI is buying a foreign company or building your own foreign subsidiary. Either way its still off-shoring investment and jobs. Just more jargon to hide the ugly fact.
The importance of ODI as a phenomenon can also be seen when compared with trade flows. While trade flows have increased strongly in the period 1970 – 2004, they have been surpassed by the increase in ODI flows…  (P.386)
Global ODI flows increased by 29 per cent to €916 billion in 2005, which was on the back of an increase of 27 per cent in 2004.  (P.386) 
Irish firms are investing more abroad than ever before….Ireland was a net investor abroad in 2004 for the first time.  (P.391)
Some of this was Irish banks buying subsidiaries in Eastern Europe. But would it, did it, as claimed by the Eurostat study, lead to safeguarding of jobs and the creation of more at home? No, it won’t.
“Ireland’s experience is consistent with the investment development path theory, which predicts that ODI from successful economies will increase as their firms increasingly seek overseas markets”  (P.391)
Off-shoring capital and jobs leads, according to ‘development path theory’, to… more off-shoring of capital and jobs.
A rough translation of ‘development path theory’ – once workers at home have worked hard to make the company successful, the owners will thank them by sacking them in preference for workers in a poorer country who will do the same work for less.  After which a consultant or academic will study the firm’s actions and declare it a model of entrepreneurial best practice, further proof of the ‘efficiency’ of the free Market and further proof, if any were needed, that Ireland is booming. 
Back to the Eurostat study. Of the countries surveyed, the UK and Ireland off-shored more jobs than any other.
Is it a surprise that the countries most associated with the ‘miracle’ of the free market were also those who off-shored the most jobs?
Nearly 60 % of the Irish and UK enterprises surveyed off-shored jobs. Is that being all in it together?
The Forfas ODI made it even clearer,
“the average Irish firm with investments abroad employed 97 workers in their Irish operations, with employment in subsidiaries outside of Ireland averaging 147. Virtually all sectors employed more workers in their overseas subsidiaries than they did in Ireland.”  (P.393)
Then the clincher from Eurostat – what was the main reason for off-shoring?   Now the approved answer for why a company off-shores jobs is that it is simply seeking “greater efficiency” or  ”trying to gain access to new markets’. While what Eurostat actually found was that,
“During 2001-2006 in the 12 countries, the main motivation among the surveyed enterprises that internationally sourced services, was the ‘reduction of labour costs’.”  
45% of the businesses admitted it was all about getting cheaper workers.
Off-shoring is a central part of Free market economics. Proponents talk about safeguarding jobs but what they mean is their jobs, not yours.  And THAT is the TRUTH about Free Market Capitalism and Globalization. We all know that ‘efficiency savings’ are just a corporate and government euphemism for cutting salaries and cutting jobs.  On a global scale it is simply about transferring jobs to wherever people are poorer and the government of that country can guarantee its people will not get  any ideas above their station.

In 2006 for Western European nations like Ireland and the UK that was most often Eastern Europe. But what about now, now that “we’re all in this together?”

Well the Eurostat new study brings us right up to date, 2011.  The study is called “Global Value Chains – international sourcing to China and India”, and it begins by informing us that global value chains and international sourcing are “well known concepts”. As if that should encourage us to accept them as therefore natural and right.
Funny how the more an ideology impoverishes those it touches, the more it is dressed up in “well known concepts”. Anyway…
What was the stand out conclusion of the study?
“By far the most important motive for sourcing to China and India is to cut costs”. 

So we’re still busy ‘gaining efficiency’ but now we’re gaining it by off-shoring jobs to China and India. Apparently East Europeans weren’t quite poor and efficient enough.

The study also showed that, “Overall Ireland and Denmark have the largest share of firms that have sourced to Asia”
“Furthermore, the functions which manufacturing companies source to China are mainly their core production … This pattern confirms that the main motivation for sourcing to China is to cut costs rather than to gain access to new markets.”
How much are companies ‘saving’ by firing their workers at home? The Forfas study concluded,
“Numerous reports suggest that firms can make savings of between 20 to 50 per cent when they offshore in regions such as Asia (See McKinsey, 2004 and Agrawel, and Farrell, 2003). Labour costs make up a significant proportion of these savings, with large wage differentials between developed and developing countries at almost all skill levels (See Boston Consulting Group, 2005 and McKinsey, 2004).”  (P.394)
And it is not just low level manufacturing, but R&D, and other “knowledge intensive activities” that are being out-sourced and off-shored.  Isn’t it time we asked what this leaves back home?
Capital, jobs, skills and future development for the entire ‘home nation’,  all off-shored for the sake of greater short term profits.  It is not, as is often claimed by Free Market apologists, that people here in Europe can’t do or won’t do the jobs. It is that they are not being given the chance,  because the jobs have gone to people who will do the jobs for a wage that it is not possible to survive upon here in the West.  Our impoverishment is being engineered and driven by the “Free Market”. The skill base of our nations is being off-shored.
Given that these are all pro-free market studies I have quoted from, what do their conclusions and findings tell about about the globally free market future into which we are being marched? In a word – unemployment. If we obediently follow those who insist on globalism and unregulated Free Markets we are NOT going to have jobs.
Will our governments protect us from rising unemployment? Here are some quote and figures from Eurostat, on unemployment.
During the boom years, in Ireland, unemployment hovered around 4.5-5% from 1999 onward, until 2008 when it rose to 6.3% and then jumped in 2009 to 11.6  and now stands at 13.7% . Given what you now know about Overseas Direct Investment, International Sourcing, Global Value Chains and Efficiency Savings, do you think this off-shoring and unemployment trend is going to continue or are we all going to get jobs in the banks?
The reality is, our leaders have nothing for us but a haze of empty, pathetic, pious blather in the form of  endless but empty initiatives, guidelines and strategies. From the same Eurostat publication on unemployment :
There’s the European Employment Strategy and the Integrated Employment Guidelines – the latter “encourages members to”,
- work with renewed endeavour to build employment pathways for young people 
- take action to increase female participation
There are also guidelines
- to ensure that by 2010 every unemployed person is offered a job
 - to work towards 25% of the long-term unemployed participating in training, retraining, work practice,      
And if that doesn’t make you weep, there is also, ‘An agenda for New Skills and Jobs’ and ‘Youth on the Move’ which will have,
“a range of policies, including proposals aimed at education and training institutions, or measures for the creation of a (work) environment conducive to higher activity rates and higher labour productivity.”
As the jobs go to poorer countries we will be left in a wasteland of old bank debts we are trying to pay off by earning a pittance shuffling useless and demeaning bits of euro blather from desk to desk in a charade of ‘recovering’ while we die on our feet.

19 Responses to Are we really all in this together?

  1. The MacPuddock. March 29, 2011 at 12:21 pm #

    Powerful commentary. Good work. Much appreciated.
    You're are getting down into the details, where the devils lurk.
    The prospects for improvements don't look good however. I hear nothing of any substance from the mainstream politicians. We have seen this process go on for years now.

  2. myopia March 29, 2011 at 12:32 pm #

    I see the term "Free market" as a distraction. A better term is "Crony Capitalism". Because of the corpocracy that many western "democracies" have become GloboCorps have been allowed to practice global arbitrage on wages, the environment and health and safety. There is no free market when the market is rigged.

  3. Golem XIV - Thoughts March 29, 2011 at 1:07 pm #

    myopia,

    You're right, Crony Capitalism is certainly a much more accurate term.

  4. StevieFinn March 29, 2011 at 2:52 pm #

    I thought I would put up some information which relates to my experince working for a successful & profitable giftware manufacturing company in Ireland. I moved to Ireland to escape the devastation caused by out-sourcing in the Pottery industry in Stoke-on-Trent, to be able to continue my career as a giftware designer. After a period of about 5 yrs, encouraged by the Celtic Tiger, with Bertie Ahern's & Enterprise Irelands support, this company started out-sourcing from China. This led to the loss of 60 jobs. The Crystal companies in Ireland did the same, resulting in the loss of many thousands of jobs. I am putting this up in sections because I had written it all out & then the damn thing didn't work.

  5. StevieFinn March 29, 2011 at 3:00 pm #

    I travelled over to China with my then boss & learnt a lot about the process of importing from China. A culture shock to see a huge queue of peasants waiting outside the factory for employment. The factory resembled an ants nest where the workers lived for 24hrs a day segregated into male/female dormitories.

  6. StevieFinn March 29, 2011 at 3:18 pm #

    Here is a little exercise in costings & the scale of the out-sourcing logistics :-

    1 40ft container equals 2,560 sq ft. Imagine a crystal vase all nicely packaged for the retailer in a 12" cube box. Taking away the space for pallets it should be possible to pack into this container say 2,000 items. Let's say the wholesale price of this vase is £30.00 & it costs the importer £10.00 to import. ( This is from my experience a high estimate) that leaves £20.00 gross profit = £40,000 for the load.

    The container ship can carry up to 10,000 containers, so if we assume that the vases make up the average value of a container, (some would obviously be of less value but items such as playstations would be higher). That means the ship is possibly carrying 400 hundred million pounds of profit.

  7. StevieFinn March 29, 2011 at 3:27 pm #

    At the time I was involved in this a container cost about £3,600. So the shippers would presumably make 36 million pounds, before costs, however because of the downturn these costs have fallen dramatically. I think that oil prices would have to increase very dramatically to effect this business. These ships can take up to 3 mths in transit. A lot of companies were caught out by this when the recession hit.

  8. StevieFinn March 29, 2011 at 3:39 pm #

    The vase when it arrives labelled "Made in Ireland" will leave the distribution centre, be placed in a giftware shop, say in Killarney with jigs & reels playing in the background to keep it company.

    Small companies can share containers, more expensive but still highly profitable. If you need capital for this, the banks are more likely to help, cause they know it;s more profitable & a lot less hassle than making things yourself.

    Here is an excellent link that gives some idea of the scale of this enterprise, it's about the ghost ships parked in backwaters due to a drop in demand caused by the global downturn & Korean trouble with their ship building.

    http://www.dailymail.co.uk/home/moslive/article-1212013/Revealed-The-ghost-fleet-recession-anchored-just-east-Singapore.html

  9. brucibaby March 29, 2011 at 3:40 pm #

    How about sinking one or two of those container boats?

  10. Golem XIV - Thoughts March 29, 2011 at 4:14 pm #

    StevieFinn,

    It's great when you can make something theoretical, suddenly concete and personal. Thank you. Would you drop me an email?

  11. 46Martman March 30, 2011 at 9:09 am #

    Your headline 'Are we really all in this together?'
    seemed apt.
    After reading Andrew Clark's article.
    'BarCap knows whats wrong: a namby – pamby wlfare state'

    He reported that Hans-Jörg Rudloff, The veteran German banker, who chairs Barclays' investment banking business, said : -
    "We have provided living standards for our populations that are unheard of, which no one ever thought would be possible, for the past 50 years. People do not want to give up these living standards. Populations are not ready to voluntarily discipline themselves in more work, less rewards and less security."

    I was particularly incensed by the word WE. Which I took to infer that they (the Bankers) were responsible for the past 50yrs standards of living and had nothing to do with the hard work of anybody else.
    Banking and particular Investment Banking as recently brought the worlds economy to the brink of ruin and know it would appear we have need to stop being namby pambyed, work harder and longer.
    Meanwhile they continue on as before with barely a heartbeat in between.
    I would suggest they put their house in order before suggesting what we do with ours.

    The article continued to say:
    A Barclays spokesman swiftly swung into damage limitation mode: "These comments have been taken out of context and do not represent the views of Hans-Jörg Rudloff or Barclays."
    Well now we know what some of our banking friends think. Its out fault and we need to change our ways. They of course need to do nothing.

  12. Golem XIV - Thoughts March 30, 2011 at 11:51 am #

    This is from – David Lloyd
    (For some reason the system keeps stopping him posting comments)

    Good to know why you have been so quiet Golem, it looks like you've been doing some excellent forensic work :)

    For better or worse, the globalisation genie is out of the bottle. We're seeing some of the positive effects of a more open world in places like Egypt already. I don't see any way that we can turn back the clock to the time of tariffs and quota's. We can't win that argument, as your article points out it has been institutionalised and become an article of faith.

    If we want to find a solution to this problem I think we need to globalise the standards of employment, environmental protection, animal welfare and product safety we expect in Europe. The solution is not to force the Chinese peasant back in to the field, it's to leverage our status as import markets to give them a decent wage and working conditions. Something like what we have in the West.

    We need to propose new standards to trade that even the most cold hearted exponent of free trade will not be able to argue against. All we need to say is that we expect imported products to have been produced under conditions which we would consider reasonable in the West.

    I can see two arguments which will be advanced against such a proposal. Firstly, that it will be impracticable to enforce. Secondly, that it is none of our business to demand other countries have the same labour standards as us.

    On the first argument I think we can keep the system simple and not aim for perfection. Simply demand that the stated country or region of manufacture implement a minimum wage and humane labour laws. Then make sure the country of origin is accurate. Once the system has been in place for a while it can gradually be pushed further back down the production chain by demanding that an ever greater fraction of the component parts also come from certified countries or regions.

    The second argument is winnable by asking whether the free marketeer believes we should accept the use of child labour or slave labour. If they say no (which they must to retain any credibility) then point out that they simply have a different threshold at which they consider a labour contract to be unacceptable and that it is up to the democratic majority in the importer country to decide what level of exploitation is acceptable in imported goods, not them.

  13. Golem XIV - Thoughts March 30, 2011 at 11:56 am #

    Hello David Lloyd,

    I really am most sorry that the system keeps blocking you. I will as you suggest, migrate teh blog to a better system. Any suggestions anybody? WordPress?

    As for your points I find I agree with them. I am vehemently opposed to teh Free Market Globalizing project. I reject its articles of faith because it is a poisonous and inhumane faith.

    What you suggest could work but not through the present organs of international finance and commerce such as the WT, World Bank or IMF.

    I think this is a discussion we should take further.

  14. Dana March 30, 2011 at 3:23 pm #

    Golem / David, I think you'd find WordPress to be much more satisfying than Blogger. WordPress does tend to konk out on occasion [rarely for more than 15-20 mins], but the options for managing a blog and comments are far greater and better designed, there, than chez Blogger.

    The question that came to mind was the potential difficulty in moving blog data from Blogger to WordPress, something I've not had to do. Well, it appears that it's not such a daunting problem as that.

    As a newcomer to this blog, I'd like to take the opportunity to say how stimulating and instructive your blog is. Your posts address questions about finance, the present crisis in particular, that have nagged me for years and, while I've encountered few convincing sources that would enable me to grasp underlying, core issues in finance, I succumbed to the pessimism and sense of ineluctability that's served bankers so well, for centuries.

    Hat tip to the numerous, knowledgeable readers who contribute, here, too.

    Great place.

    Cheers.

  15. Golem XIV - Thoughts March 30, 2011 at 4:00 pm #

    Dana,

    thank you for your kind words. This has become a really good place thanks to the always thoughtful contributions of those who come here. Like you, I am gratefull to them.

    And thank you especially for the recommendation about WordPress. I will try to move. I promise. David Lloyd will surely never forgive me otherwise.

  16. Fungus FitzJuggler III March 31, 2011 at 6:49 am #

    The UK demonstrations are a portent and show awakening. The bankers are losing their way. In a capitalistic society, where wealth is evident and scarcity must be artificially created, the day of the banker is over.

    They fear it and are working against it, but they are damned by the greed shown by reduction of interest rates to near zero. Their lackeys in economics are busy hiding their vulnerability, but Steve Keen and Morgan Kelly show what they know!

    The depression will be bad but survivable. Just remember that all but clearing banking is unnecessary. Pension funds can advance mortgage monies directly.

  17. fullyfledged March 31, 2011 at 1:15 pm #

    http://www.politico.ie/crisisjam/7383-pay-your-taxes-or-shut-your-mouths

    Similar sentiments….

  18. Golem XIV - Thoughts March 31, 2011 at 1:30 pm #

    fullyfledged,

    thanks for the link. Similar indeed. Minister for public serveice reform?? Why not call it Minister for making people work for less or firing them, and be done with it?

  19. counterfeitculture March 31, 2011 at 10:35 pm #

    Hi Golem,

    Apologies if I've overlooked it but I don't think you've had anything to say about the protests in London over the weekend and I was curious about your thoughts. Given that, as you suggested in TDG, the bailouts have crippled our ability to have a welfare state, is there any point in protesting against the cuts? If not, what would be a more meaningful cause for civil disobedience?

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