Some good news for social justice comes from Asia and Latin America

politics | Dec 25, 2012 | By Angus Sibley


"It is by freeing ourselves from neoliberalism and embracing a new kind of Keynesianism, that we shall be able to escape from the prison of the triangular crisis [social, financial and ecological]."  from Une économie écologique pour sortir de la crise in Politis, October/November 2008, by Susan George. She is a Franco-American essayist, novelist and alternative economist.
Productivity reinvented
For a hundred years we have focused on the productivity of work... now we are going to have to focus on the productivity of natural materials. So says Romain Lavault, a senior executive of the French company DELMIA.1
He is not alone. The economist Jeremy Rivkin has recently published La troisième révolution industrielle,2 in which he puts forward the same idea: Business success will soon have more to do with management of energy costs than with management of labour costs.
If they are right, a change of attitudes is in sight. We may hope to see less obsession with cutting back labour costs wherever possible, thus adding to our already ridiculously high unemployment rates. Instead, we should make it our priority to save energy - improving energy productivity, thus polluting our environment less, reducing the risk of disastrous climatic change, and cutting our dependance on troublesome territories east of Suez.
If we increase labour productivity, we reduce employment, except in periods of strong economic growth. By contrast, to increase energy productivity, we must increase employment. The French Agence de l'Environnement (Ademe) estimates that energy consumption in French buildings can and should be reduced by three-quarters by 2050. That will call for a huge amount of work to install better insulation, more efficient heating and cooling systems, equipment that uses less energy.
The idea that we must strive for productivity of material resources rather than productivity of labour is not new. You may have noticed that I introduced it on this site in February 2006, and if you care to read or re-read that little piece, you will see that I was not the first to mention it. However, so far, those of us who have argued against the obsessive pursuit of ever higher labour productivity (getting the same amount of production out of ever fewer workers)  have not had much of a hearing. Organisations of all kinds still persist in trying to improve their efficiency by trimming customer service, automating everything possible, demanding more effort from each worker.  
Scarcely a year ago, the euro-haters who are so prevalent in the world of Anglo-Saxon economics, business and finance were telling us that obviously Spain could not stay in the eurozone, because Spanish businesses were "hopelessly uncompetitive" with those in the heart of Europe. Now, however, we hear that some Spanish industries have become so competitive that they pose a serious challenge to French business.  
They have achieved this by drastically cutting back their costs, in particular their labour costs, with the result that Spain currently has a preposterous unemployment rate of more than 25%. Will we French have to cut back our labour costs still further, increasing our own unemployment rate, which is already far too high at 10%, in order to stay competitive with our Spanish neighbours? This is a game at which nobody can win.
Just as labour productivity means achieving the same output with smaller payrolls, and energy productivity means achieving the same output with less energy, we can also enhance the productivity of raw materials in general. We can aim to utilise 100% of the potential life of a material, as Romain Lavault puts it. This can be done by recycling, at which some French industries are already past masters; it is said that champagne bottles are now made 95% with recycled glass. 
Another way is to make things that last for decades, rather than having to be replaced every few years. The Scottish firm Barrie Knitwear, a cashmere house that dates from 1903 and is now owned by Chanel, still uses knitting machines that are more than fifty years old; and these often perform better than the new ones according to managing director Jim Carrie.3 Equipment like that needs to be repaired, overhauled or upgraded from time to time, and that is very good for Western industry. Even if your refrigerator was made in the Far East, you can hardly send it back there for repair; the work will have to be done here; it is non-delocalisable, to use an ugly word with a reassuring meaning.
A change of heart at the IMF
For many years the International Monetary Fund has been a staunch defender of free-market principles. It has essentially followed the 'universalist' view, shared by classical, neoclassical and Austrian economists. On this view, economics is governed by fundamental 'laws of nature', or even laws of God, that are the same always and everywhere. These natural or divine laws are said to dictate that anyone, anywhere in the world, must be free to agree any deal one fancies with anyone else.
If one accepts this universalist economic philosophy, it follows that all barriers to the movement of goods or of capital are forbidden. Freedom for worldwide trade and cross-border capital transactions is obligatory. The economist  Charles Wyplosz has even stated that protectionism is one of the rare things that I can describe as an absolute evil.4 
So, any restrictions on capital movements that may happen to exist, whatever their practical raison d'être, are unacceptable remnants of the bad old days of tightly regulated (but perhaps happier) economies. Such restrictions have to go. Speculative traders must be free to 'attack' any country whose policies they do not like, by withdrawing capital from it, rapidly and in huge quantities.
However, in an IMF staff paper, The Liberalization and Management of Capital Flows (14th November 2012), the experts have propounded a 'heresy'. They admit that free capital movements can be harmful, even destructive: large capital inflows may contribute to an unsustainable expansion of credit, generate asset price bubbles and consequently increase financial fragility; and they acknowledge the risk of abrupt reversal of such inflows: empirical evidence shows that such reversals, known as 'sudden stops'...have an adverse effect on domestic economies.
O dear! Empirical evidence! These IMF heretics are doing exactly what Ludwig von Mises said economists should never do. Instead of relying on theory and ideology, they are learning directly from history!
The executive directors of the IMF have reviewed this paper and have agreed that there should be no presumption...that full liberalisation is an appropriate goal for all countries at all times. They recognise the need, in some circumstances, for capital flow management.
There you are! At least within the highly influential IMF, the carapace of free-market dogma has cracked at last, under the strain of painful experience. It has taken a long time and a lot of pain. Nonetheless, this  is excellent news.
Asians favour the welfare state  
We hear all too often the complaint that costly European welfare states make it impossible for us to compete with the dynamic emerging economies with their low wages and absence of social welfare schemes. According to the neoliberals, we ought to get rid of those socialist impedimenta. To stay competitive with the Chinese, the Indians, the Brazilians and others, we should revert to the conditions of the good old nineteenth century, when  workers were self-reliant and entrepreneurs were not burdened with the exorbitant costs of social security.
Yet it seems that this kind of thinking is more widespread in the West than in the developing countries, where people know from painful recent experience the disadvantages of the Dickensian way of life. For today, our main Asian and South American competitors are developing their own systems of social protection.5
That is clearly good news for the peoples of those countries; and for us too. For it means that the age of rock-bottom overseas costs, which have been the motive for so many delocalisations and so much industrial decline in our countries, is beginning at last to draw to a close. 
Spero columnist Angus Sibley is the author of The 'poisoned spring' of economic libertarianism (PAX ROMANA, 2011). See Equilibrium-Economicum
1 Anne Rodier et al., Verdir l'appareil productif in Le Monde Eco et Entreprise
11 December 2012. DELMIA, part of the Dassault group, is a company specialising in numerical fabrication and production techniques. 
2 Jeremy Rivkin, La Troisième Révolution industrielle (Les liens qui libèrent, Paris, 2012).
3  Nicole Vulser, Chanel mise sur des maisons au précieux savoir faire in Le Monde,
11 December 2012. 
4 Charles Wyplosz, Les pays les plus ouverts aux échanges croissent mieux que les autres in Le Monde, 17 June 2011.
5 Sylvie Kauffmann, Ces pays émergents qui jouent l'Etat-providence in Le Monde
11 December 2012.



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