The Dull Compulsion of the Economic (#11)

A series of blog entries by D&S collective member Larry Peterson.

With all the turmoil on the markets over the past week, a bit of attention has been diverted from the labor unrest taking place in France. Last Thursday, transport, electricity and gas unions led a one-day strike against the new Sarkozy government’s attempts to pare back so-called “special regimes” for public sector pensions. These arrangements allow workers in these sectors to retire at a much lower age than is the norm in the private sphere, as well as other privileges not generally available to other workers. Though the response of other unions was enthusiastic (teachers and others joined in, and the electricity workers actually switched off the power going to Sarkozy’s own private residence), many commentators were quick to discourage any comparison to the mass strikes of 1996, which toppled the government at the time. Today’s strikes, crowed The Economist (“Sarkozy’s Bad Week,” October 20th), are “not justified ” according to a poll in Le Figaro. The same poll reported 59% as saying that the unions were defending their special interests, not protecting social benefits in general. The public has thus shifted against the strikers, and now sees the pension perks as unfair. Such a switch should give Mr. Sarkozy the popular support he needs to stick to his guns.”

But there may be more here than just “the last gasp of a union movement that faces a changed political outlook in France” (The Economist again). The Financial Times, in its coverage of the strike (“French Strikers Test Sarkozy,” October 18th), quoted a teacher marching in Paris who said that Sarkozy was “trying to pit private sector workers who do not have special pension privileges against those who do. Even if this does not directly concern us, we have to show our solidarity. If not, the government will just keep increasing the number of years we have to work.” Her remarks, noted the FT, amplified those of union leader Bernard Thibault, who expressed the belief that workers throughout the economy were being made the scapegoats for the France’s economic troubles. This is a sentiment that has been growing in France. As I wrote during the strikes of March, 2006, workers in France are becoming “resistant to gamble away any security they still enjoy every time the bosses and politicians can point to a nonperforming economic indicator.” And though I have been critical of U.S. unions’ tunnel vision in their quest to secure their retirees’ benefits (ceasing to call for the same benefits and pay for new workers, so as to ensure older ones and retirees are paid off, etc.)—benefits that were, after all, were promised by employers themselves—it is equally important not to let governments and employers divide the labor movement with talk of exclusion and privileges. And a timely article in the Guardian tells us why.

In his piece “The Slow Death of the Real Job is Pulling Us Apart” (The Guardian, October 19th), columnist John Harris shows that in Britain—so often considered a model for France regarding labor market reforms—the issue is not whether or not a privileged group of workers is sapping the energy of the economy by wasting its resources and denying others both opportunity and security; instead, all workers are feeling downward pressure on their living standards as protections are eroded. He says: “a few months ago I spoke to a manufacturing employee from the West Midlands who works in a factory producing car parts. Three years ago, the bosses began the recruitment of a new kind of worker. A dwindling number of long-standing staff were on 11 [pounds] an hour; the new arrivals—many of whom barely knew what they were doing—worked 12 hour days for 4 [pounds] an hour less, had none of the usual entitlements to paid holidays or sick leave, and were seemingly arriving and leaving through a revolving door. Within 18 months, for every “core” worker, there were two supplied by the agencies, many of whom were from Poland, Cameroon or Senegal. The walls were quickly smattered with racist graffiti and the level of scrap increased fast. Under union pressure, the company relented and proposed a scheme whereby long-standing agency workers could eventually join the accredited workforce, and, in its wake, the rancorous atmosphere began to improve.”

But one settlement does not mean the overall trend is any rosier. Accordingly, Harris goes on: “these people were lucky. Trade unionists cite no end of altogether bleaker case studies: three-tier workplaces in which indigenous British employees sit precariously at the top, flimsily employed Poles come further down, and thoroughly casualized Hungarians and Slovakians are left fighting at the bottom…On the stories go: meat-processing workers in Monmouthshire threatened with redundancy unless they downgraded to agency terms, and then fired.”

But it is a comment that Harris makes before embarking on this pitiful recital that I think is useful to cite in opposition to the Sarkozys and all the others who attempt to pit workers at each others throats (for increasingly paltry spoils). For, as the British workforce is in fact being segmented—not so much by any privileges that might accrue to them as mere protection from blatant, and often-times illegal exploitation on account of their status as full citizens (protection which is itself eroded as wage pressure continues to be brought on them by the growing employment of those with less protection, thereby lessening native workers’ wage-bargaining position, and, eventually, even employability) with more access to the law courts, media or publicity, what are the politicians talking about? Harris provides a withering answer: the political class is “blithely yakking about ‘rising expectations,’ while millions of people’s hopes are plummeting at speed.” Now this is truly an example of division and special interests workers should pay attention to.

The Dull Compulsion of the Economic (#10)

A series of blog entries by D&S collective member Larry Peterson.

The Nobel Prize in economics was awarded Monday to three Americans (one Russian-born) for their work on “Mechanism-Design Theory.” The three, Leonid Hurwicz, Eric Maskin and Roger Myerson, developed sophisticated mathematical models derived from game theory in an attempt to reveal rules and conditions under which scarce resources can be optimally put to use or divided when each person bidding for a share has an incentive to conceal how much s/he is actually willing to pay for that share, (by concealing this price, other bidders will be misled about the actual demand, and tend to make their own bids lower in turn, resulting in lower sale prices). Accordingly, the actual costs of employing the resource will have to fall on others. Mechanism-Design theory is, then, an attempt to articulate what types of rules will rectify this mismatch. Although set in the context of an auction, many claim the theory’s insights can be used to design econmic policies and even innovations: for example, it can suggest ways liberalization of labor markets may be countered by re-distributive tax policies favoring the less-well off to get those benefiting from either exclusively to negotiate and compromise; and eBay seems to be a business innovation, with its clever bargaining checks and balances, that looks a lot like Mechanism-Design theory. Democratic elections themselves, according to proponents of the theory, may sometimes fall within the theory’s explanatory power.

What are we on the left to think of all this? Personally, I had never heard of any of the three (and I follow these things as much as any layman can) before the announcement, and I have no doubt that the mathematics involved are way, way beyond my capacity to remotely understand, never mind evaluate. Still, I think there are three points for non-specialists to ponder. First and foremost, the theory doesn’t seem to offer room for any capacity for participants to change their own preferences, or even process of preference-formation as their participation in the decision-making process deepens (and they learn more about the other participants, and what their common interests might be). All the participants seem forever bound by the incentive to conceal their estimates of worth in attempts to get a bargain; no other motivations matter, or emerge from the nature of the interaction itself. This may be the case when we’re talking about auctions; but it tells us little—in most cases, one hopes—when we try to construct a democratic workplace, say.

On a more positive note, the eldest of the three, Hurwicz, was influenced by the socialist-calculation debate of the mid-twentieth century, and, influenced by Friedrich von Hayek and Ludwig von Mises, provided criticisms of Oskar Lange and others on the socialist side. What’s important here is for us to recall that socialism in its “actually-existing” form all too readily pursued the abolition of scarcity by wastefully and even dangerously employing limited resources, especially of the natural and environmental, but also of the human variety. Within this context, maybe we could revisit the debate in attempts to reimagine how socialist production could–and must—become environmentally sustainable, and what the most pressing problems in this quest might turn out to be.

Finally, it is interesting to juxtapose the work of the three with Naomi Klein’s new book The Shock Doctrine: The Rise of Disaster Capitalism (which I haven’t read yet, but I have read several reviews, and I saw Klein speak recently). Klein states that neoliberal reforms championed by another Nobel laureate, Milton Friedman (1976), have often been adopted under circumstances in which visible—often overwhelming—opposition to them is rendered ineffective by some sort of catastrophe: a war, a military coup, an economic panic, even a natural disaster. Only with the opposition shocked into silence will elites be able to impose such unpopular reforms, whose costs tend to be borne overwhelmingly by the less-well-off majority. The three laureates, as we have seen, tend to finesse this issue somewhat: they claim that they want to reveal ways whereby optimal solutions emerge from markets and democratic elections, not after the latter have failed; they want to keep all sides negotiating, rather than simply forcing the will of one faction on the other(s). But it’s hard to see how a theory that is so complicated that, as one practitioner (Hans-Peter Gruener of the German weekly Der Spiegel, whose interview provided me with most of the background for this blog entry) put it, it requires two full lectures for economics students to begin to understand it, can allay the fears of the sort of actual hard-hitting impositions of neoliberal policies that have actually come to pass, as Klein documents.