Capitalism Under Fire - Again

Capitalism Under Fire – Again

Strikes in France this week centered on the major American company, Caterpillar, which is threatening to cut a substantial number of workers from its workforce in France despite earning more than $3.5 billion in profits in 2008. The French workers are rightfully upset at the company for reducing their workforce in the face of such gains, but in the company’s defense, they are acting rationally in the capitalist model. 2009 began with major losses for the construction industry worldwide, meaning demand for the heavy machinery that Caterpillar provides will likely slow down substantially this year. To prevent a loss, the company is streamlining its workforce, especially in areas where labor costs are high, like France. The company did offer to compromise with the workers if they agreed to work more hours in the workweek, but as might be expected from previous negotiations with French workers, their union refused. Thus, the dilemma in the French town of échirolles is a reflection of what is happening in many parts of the world – capitalist-driven companies are taking cover from a worsening global economy, and workers are grasping for help as their downfall becomes imminent. What will be interesting to see in this case is how well the French social system will cushion the fall for the workers.

http://www.nytimes.com/2009/04/17/world/europe/17strike.html?_r=1&ref=world

Kevin Fandl

According to a recent article from the Economist, the informal economy in developed countries (and likely in developing countries as well) may be one of the only sectors that is growing. This makes sense as people are relocated from their formal jobs to alternative mechanisms of income-generating activity. With a small informal economy in most developed countries, the increase may be negligible and largely ignored by policymakers. But this may be indicative of what we are likely to see in developing countries, where informal economies reach as high as 80% of the entire active workforce. Weak regulation and enforcement may lead an even larger number of workers to seek shelter in informal activity, despite its often lower wages, riskier working conditions, lack of stability, and inability to secure state benefits. This will be a more serious problem worth examining.

[From the Economist, April 5, 2009]

At least one part of the economy is growing. Sadly it is the wrong
part.

"WE USED to be recession-proof. No more. You
can't blame it all on the Justice Department," laments Uncle Junior in "The
Sopranos". Life may be hard for fictitious television mobsters such as Tony
Soprano, a self-styled "waste-management consultant", but in other parts of the
black economy, business is alive and well. As pressures bear down on profits,
restaurateurs become street vendors, shopkeepers become stallholders, and as for
work permits at the building site,
fuhgedaboudit!

The shadow economy is just about
the only part of the economy that may be growing. According to Friedrich
Schneider, a professor at the Johannes Kepler University of Linz and one of the
world's experts on the topic, that would mark a turnaround in its fortunes after
nearly a decade of decline. He has estimated the value-added of the shadow
economy in 21 of the 30 OECD countries. On average, it was equivalent to 16.8%
of GDP in 1999. By 2008 that figure had fallen to 13.3%. This year he forecasts
it will rise to 13.8%. Mr Schneider's calculations do not include activities
which are illegal in themselves.

In spite of its
size, the shadow economy's elusive character frustrates easy attempts to measure
it. Simply asking people has obvious shortcomings.
Tax-compliance data can be
used and discrepancies in national income and expenditure accounts give a sense
of what is going on in between the formal and informal sectors. Sometimes
employment data can be revealing. Last month, registered unemployment in Poland
was reported to have risen from 9.5% in December to 10.5% in January, but a
survey found that actual unemployment, excluding workers in the grey economy,
had only edged higher. A week later Polish labour unions decried the continued
influx of cheap unregulated labour from farther
east.

Yet another way to gauge its size is to
look at electricity demand, which moves roughly in step with economic activity.
If it is high and official GDP low, the informal economy is probably
flourishing. Most experts, however, use a mixture of more advanced methods.
Since cash is the lifeblood of the informal economy, it is possible to look at
cash demand in bank data and tease out the proportion of cash holdings which
cannot be explained by other factors.

According to Mr Schneider, who uses a combination of two even more complicated statistical methods, the size of the underground economy is equivalent to less than 8% of GDP in the United States, whereas in Greece it reaches 25% and in Italy 22%. In Italy, of course, the Mafia still makes out handsomely. That's one firm that
doesn't have a cash problem.

Kevin Fandl