Are we all in this together?

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by David Malone

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 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 and 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.

 

David Malone is the author of the book Debt Generation. You can read and listen to excerpts from his book here: http://www.debtgeneration.org/index.php