On some determinants of the level, growth and quality of employment

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On some determinants of the level, growth and
quality of employment
2
Unemployment under capitalism

• Unlike the marginalist theory that posited or
  assumed that full employment was the norm under
  capitalism, Marx, Kalecki and Keynes argued that
  unemployment was the norm rather the exception
  under capitalism.
• There were two major areas of difference between
  Marx and Kalecki on the one hand and Keynes on
  the other
• 1. The formulation of the reasons why
  unemployment was the norm rather than the
  exception.
• 2. The assessment of the ability of capitalism to
  resolve this problem through state action.

3
Similarities on the issue

• Critique of J. B. Says Law
• Keynes Says Law, that the aggregate demand
  price of output as a whole is equal to its
  aggregate supply price for all volumes of output,
  is equivalent to the proposition that there is no
  obstacle to full employment. If, however, this is
  not the true law relating the aggregate demand
  and supply functions, there is a vitally
  important chapter of economic theory which
  remains to be written and without which all
  discussions concerning the volume of aggregate
  employment are futile.

4
Similarities on the issue

• Marx Nothing can be more childish than the
  dogma, that because every sale is a purchase and
  every purchase a sale, therefore the circulation
  of commodities necessarily implies an equilibrium
  of sales and purchases.
• Though capitalists could, in times of depression,
  invest to expand production they will not do so
  because there is no inducement to do so in the
  form of the prior prospect of selling the
  resulting production at an adequate profit. Idea
  captured by the concepts of hoarding (or
  liquidity preference in Keynes).
• Problem aggravated by the atomistic decision
  making typical of capitalist societies with
  private ownership.

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Difference Keynes on the possibility of full
employment

• Autonomous government expenditure that is not
  driven by the inducement to invest can be
  undertaken so as to serve as a countercyclical
  stimulus driving demand and growth.
• Such expenditure not constrained by current
  income because
• It expands production and tax revenues
• Governments (unlike firms and households) have
  the right to raise taxes to cover the interest
  and amortisation commitments associated with
  debt.
• Government action such as a reduction in interest
  rates can encourage private investment and revive
  expenditure and growth.

6
Marx on persistent unemployment

• Structural determinants of unemployment which
  work back on aggregate demand
• Because of of competition, capitalists are always
  seeking to reduce costs of production by
  utilising labour-displacing machinery or other
  means of securing the same output with less
  labour, thus continuously creating unemployment
• Capitalism needs an industrial reserve army
  both in order to discipline labour and keep wages
  down to a level which makes production
  profitable.
• As the system tends to full-employment, real
  wages rise, product wages increase and profits
  are squeezed, resulting in a cutback in
  investment that slows growth in output AND
  employment.

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Is near-full employment more likely than not?

• Keynes Yes
• If the state and capital can be persuaded to act
  in the best interests of the system
• Marx and Kalecki No
• Unemployment and inequality squeeze consumption
  in the lower income groupsa tendency that is not
  necessarily compensated by investment and upper
  income group demand (Rosa Luxemberg, the extreme
  view)
• Capitalists respond to rising employment early
  once the lessons have been learnt

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Features of classical industrialization

• Outlay on labour or the wage bill was kept to the
  minimum possible in order to maximize profits,
  through the extensive exploitation of labour
  that raises absolute surplus value by the
  lengthening of the working day or the widespread
  use of the underpaid labour of women and
  children.
• Shift to intensive methods of labour
  exploitation involving a rise in relative surplus
  value through a two routes a reduction in
  necessary labour, ensured by reducing the cost of
  wage-goods (in which colonial exploitation played
  a major role) and a rise in labour productivity
  through the substitution of machinery for living
  labour.
• Thus unemployment, segmented labour markets and
  poor labouring conditions seemed to tally with
  what Marx and Kalecki conceptualised.

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The export of unemployment

• Early industrializers partly overcame the problem
  of growing unemployment inherent in their
  capitalist growth and technical change by
  exporting their unemployment abroad
• The most direct form of export of unemployment
  was the physical migration of population
• Second, unemployment was exported by
  industrializing countries like Britain, for
  example, through the flooding the subjugated
  already populous tropical colonies with its
  cotton textiles and other manufactured goods
  under discriminating commercial policy
• Third, unemployment was exported by the
  imperialist country through a more complex route
  in which tropical colonies were made to finance
  capital exports by the imperialist power

10
The Golden Age

• However, these features came to be seen as
  exceptional during the Golden Age between the
  Second World War and the 1970s.
• The experience, with the Great Depression and the
  New Deal, the influence of Keynesianism, the need
  for reconstruction and development in order
  to avoid another World War and to combat the
  socialist threat encouraged a shift to state
  spending and the welfare state that seemed to
  make recessions and depressions phenomena of a
  past gone by.

11
The defeat of Keynesianism

• Once the productivity spin-offs of war-related
  defence research had worn off and falling
  unemployment and the dole increased working class
  power and the real wage rate, wages rose relative
  to prices. Product wages fell and profits were
  squeezed. The age of New Paradigmreasonable
  growth, low inflation and low unemploymentwas
  over.
• The profits squeeze and the crisis paved the way
  for a backlash against Keynesianism. Shift to a
  fake monetarism, involving fiscal conservatism
  and the substitution of debt finance private
  expenditure for debt financed public expenditure
  to stimulate growth.
• Periodic crises followed. Resolution of the
  crises sought through austerity for the majority
  and support for a minority of firms and agents.
  Damaging impact on labour markets.

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Relevance for the UDCs

• Capitalist expansion and colonialism as the
  pre-Keynesian solution to periodic crises
  affected them both in terms of the level of
  accumulation and the structural features of their
  economies.
• Colonial extraction that allowed for the import
  of cheap raw materials and wage goods and kept
  down raw material costs and wage rates to
  moderate inflation not an option.
• No singificant possibility of exporting
  unemployment.

13
Impact through agriculture

• Reproduction of backward forms of production
  forms and consolidation of land monopoly.
• Reinforcement of extra economic systems of
  domination and coercion and of patriarchy
• Land monopoly results in institutional barriers
  to land-augmenting investments that constrain
  growth in output and marketable surpluses from
  agriculture.
• Two implications
• Limited growth of mass market for manufactures
• Binding supply side constraint on availability of
  essential wage goods.

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The irrelevance of Keynesianism

• One view, Keynesianism irrelevant to developing
  countries since they are supply constrained
  systems. Debt financed expenditures would not
  provoke trigger quantity adjustments in the form
  of increases in output, but price adjustment that
  lead to inflation.
• Second view builds on this to argue that since,
  beyond a point, governments are sensitive to
  the erosion of real wages due to inflation,
  public expenditures automatically contract,
  undermining the Keynesian countercyclical
  response.

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Implications

• Unless institutional reform (land redistribution
  and cooperativisation or socialisation) is
  adopted in UDCs, the problem of the unemployment
  characteristic of capitalism is like to be more
  intense. So would be the problem of clearing the
  backlog of the unemployed.
• A huge reserve army and the reproduction of
  backwardness intensifies the adverse impact of
  non-market forms of coercion such as caste,
  community hierarchies and patriarchy on wages and
  the conditions of labour on the degree of
  exploitation.

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The specificity of Post-Revolution, pre-Reform
China

• The experience in post-Revolution China different
  from that in post-Independence India (for
  example) for three, among other, reasons
• China adopted a system with almost no private
  ownership making it a supply-constrained rather
  than a demand-constrained system.
• China implemented radical land reforms
• Employment guaranteed
• The wage level and productivity increase were of
  course a problem

17
China post-Reform

• Unemployment and underemployment return as
  problems with rural reform, public enterprise
  restructuring and relaxation of rules on labour
  movement.
• Problem partly addressed by the administratively
  supported investment-driven strategy.
• Incremental demand for labour also driven by the
  mercantilist, export-prioritising strategy and
  the internal income effects it has.
• In the early stages employment conditions worse
  because of lax labour regulation and Chinas own
  version of forms of non-market coercion.

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Technology and unemployment

• Since reforms open economic borders as part of
  the export effort, the adverse effect of
  integration on employment growth felt.
• Imports adversely affect domestic production and
  employment
• With recent date technologies imported from
  abroad, labour productivity rises and the
  responsiveness of employment to output growth
  falls.
• Years of high GDP growth with persisting
  unemployment and a highly segmented labour
  market, with a highly exploitative component.

19
The situation now

• Indications that China has reached the Lewis
  turning point, having exhausted its inexhaustible
  reserve at a constant low wage. Does that mean
  that an external-demand driven transition of the
  South Korean kind is possible?
• Rising wages could undermine export
  competitiveness.
• Investment rates are increasingly proving
  unsustainable because of the debt overhang.
• This requires shifting to an internal
  demand-driven, consumption- and wage-led
  strategy.
• But with China increasingly a private-enterprise
  economy would the profit squeeze hurt investment
  further making the transition difficult?

20
The Indian case

• Crisis in India far more severe. Attempt to
  pursue a supply-side, investment-goods driven
  strategy without implementing land reforms leads
  to inflation and the post-1960s secular
  stagnation.
• Partially successful effort in the 1980s to
  resolve the impasse by relying on external debt
  ends with the balance of payments crisis.
• Shift to a typical neoliberal strategy
  implemented with the degree of gradualism
  inevitable in a quasi-federal democracy.
  Acceleration since 1990s.

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India-specific problems 1

• Export success post-reform restricted largely to
  IT and IT-enabled services. India fails to emerge
  as a manufactured exporter based either on the
  prowess of a restructured domestic industry or on
  the inflow of relocative foreign capital.
• Growth substantially services-led
• Moreover, even services export sector
  characterised by a low elasticity of employment
  with respect to output
• Growth rate till 2003 not very different from
  earlier, so problem of un- and under-unemployment
  worsens.

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India-specific problems 2

• Reform in India (unlike in China) associated with
  a gradual shift away from proactive fiscal
  policies with high capital expenditures for two
  reasons
• Emphasis on tax forbearance
• Emphasis on fiscal deficit reduction in the name
  of fiscal consolidation
• Induces a contractionary bias into the system
  that further constraints growth
• This tendency strengthened by the growing
  presence of foreign finance in the domestic
  economy

23
Temporary reprieve

• Increased capital inflows results in huge
  infusion of liquidity into the system
• Sharp rise in credit-deposit ratio from 20-22
  average during 19990s to 56 per cent by 2012
• Debt financed consumption and investment boom
• But largely driving capital intensive demand so
  employment fall-out not significant.
• Signs that the process, like that in the 1980s,
  not sustainable.

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Implications

• The level of un- and underemployment low and the
  quality of employment deteriorates
• Reform and services-led growth encourages
  outsourcing, implying the formal sector
  intrusion into those segments of labour markets
  that are characterised by non-market forms of
  coercion
• Worst kinds of labour market features persist and
  intensify.

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An explanatory note

• The argument here is NOT that is and when an
  economy reaches a state of near full-employment
  historically evolved discrimination based on
  non-economic characteristics would end, even in
  the labour market.
• Rather, the argument is that so long as
  unemployment and a large labour reserve are
  realities, social systems of discrimination would
  be used to segment labour markets and resort to
  discriminatory practices in search of profits.