Sunday, December 19, 2010

Land, Rent and Wages

"Thanks to the meritocratic ideal, multitudes were granted the opportunity to fulfill themselves. Gifted and intelligent individuals, who for centuries had been held down within an immobile, caste-like hierarchy, were now free to express their talents in a more or less level playing field. No longer were background, gender, race or age impassable obstacle to advancement. An element of justice had finally entered into the distribution of rewards." Alain de Botton. ("Status Anxiety", page 86).

The quote above, from De Botton's 2004 best-selling book, concisely expresses the basic promise of the economic, political, social, philosophical and ideological transformation in Western societies since the Industrial Revolution.

Justified or not, this belief that people get what they deserve sustained capitalism some 300 years ago, when it displaced older forms of production and social organization.

It still does to this day, being all the more cherished the more it seems distant.

This ideal is behind such common contemporary expressions and sayings as "there is no such a thing as a free-lunch", "the fair go for all", etc. When someone infringes this ideal, one says this person is a "free-rider" or a "free-loader", with all the implicit reproach that implies, and that this person "will get his/her comeuppance".

And although the change from the post-feudal regime to a capitalist one brought some degree of fulfillment to the promise, at least for a time, the idea of meritocracy always had a sting in its tail:
"But there was, inevitably, a darker side to the story for those of low status. If the successful merited their success, it necessarily followed that the failures had to merit their failure. In a meritocratic age, justice appeared to enter into the distribution of poverty as well as wealth." (De Botton, p. 96)
These considerations lead to the question: is it true that the capitalist "meritocracy" necessarily leads to rewards going to those earning them?

A beginning of an answer will be offered here. To avoid controversies, the theoretical tools used by one of the greatest early proponents of capitalism will be used in this blog.

But before proceeding, a little background is needed. While it's true that Adam Smith started the study of economics, people have written about economics long before him.


Background

During the XVIII century the predominant currents of economic thought were the Physiocrats and the Mercantilists.

Physiocracy, more active in France, extolled the virtues of agriculture. Authors in this tradition were often noblemen and landlords, owing their position and wealth to agriculture, which was the main national economic activity in France.

In Britain, although there certainly were aristocratic landlords, merchants of non-noble origin were dominant. Unsurprisingly, Mercantilism was the more active school. Authors from this school, often merchants, advocated for sustained international trade surplus. During this period England finally displaced the Netherlands as dominant maritime  trading nation.

In any case, both schools advocated for Government intervention (as tariffs, import quotas, and similar) as a mean to foster the activity of landlords and/or merchants, in the national interest, often seen as equivalent to that of the sovereign.

However, during the XVIII century, the Industrial Revolution started in Britain (a common landmark is the invention of the steam engine), and with it manufacturing, controlled largely by the British "middle-class", became increasingly the dominant productive activity. And manufacturing did not benefit from the kind of Government intervention common at the time.

Against this backdrop first Smith and then Thomas Malthus and David Ricardo studied the economy. Their departing point was a value judgement: growth was an unmitigated positive (consequentially, anything hindering growth was negative).

Ominously, Smith and especially Malthus envisaged tendencies for growth to stall in the long run.


David Ricardo

Ricardo started his professional life as a stockbroker (another illuminating profile, here). After amassing a considerable personal wealth, Ricardo retired early. Encouraged by James Mill, Ricardo dedicated his retirement time, among other things, to his economic studies.

David Ricardo

Ricardo wrote about different subjects. He is considered a proto-monetarist a la Friedman, for instance. Here only his theory of land rent will be touched.

In fact, Ricardo's theory of land rent was highly indebted to Malthus. And, although both men sustained opposed views on many things, they were close friends.

Ricardo studied rent generated in two ways:
  1. Considering that fertility varies among properties, rent was generated in the process of extending the agricultural frontier, incorporating less fertile (marginal) land;
  2. But even if all land were equally fertile, the intensification of economic activity within each given plantation would still generate rent.
The focus here will be in the first way rent can be generated. The second way, more familiar to mainstream economists, leads to "the law of diminishing marginal returns" and, although mainstream economists would deny this, is controversial.


Ricardo-Malthus land rent

Landlords earned rent from their land, by leasing it to tenants and it was the tenants who actually labored in the field.

So, imagine you want to grow "corn". Choose an arbitrary numeraire in order to compare inputs and outputs; for the present purposes, any numeraire will do.

For the same investment, you could expect that a more fertile land produced a greater gross output:


If the marginal land were to be considered a feasible alternative, the output produced should at least be able to cover investment and produce a profit:


It's easy to understand what the item "costs" means: wages, fertilizers, seeds, etc.

What are the profits? One might consider profit as the opportunity cost of the investment: say, what a term deposit for the same amount would return as interest over the investment period. If the output produced were not enough to at least cover costs and this opportunity cost, you would be better off by simply depositing your money in a bank.

As equal investment is assumed in both cases, the best land possible not only covers the same investment and its corresponding profit, but it produces a surplus, above and beyond the profit.

What is the origin of this surplus? Clearly, the differential fertility of the land, which, to use Marshall's expression, is a "gift from nature": it's due neither to the tenant nor to the landlord.

Landlords themselves do not personally add any value to the production, although they legally own the land, and, thus, are entitled to lease it and charge for its use. However, whether the landlord is the Earl of X, the Duke of Y, or the very Flying Spaghetti Monster, it doesn't affect the fertility of the land.



If you changed the property relation, then the right to charge a rent disappears: if you happened to be the owner of the land, in addition of being a "corn" grower, the surplus would be yours, even though you didn't produce it, any more than the landlord did.

Based on the previous reasoning, it becomes apparent that nobody really earns that rent: this gives a whole new meaning to the "gift of nature" expression.

However, your landlord is conventionally, legally entitled to receive rent, and, if you got a surplus, the landlord will be claiming it through a rent increase. In that case, you should be willing to pay as rent anything up to the magnitude of the surplus.

And landlords are also entitled to dispose of this revenue as they see fit, which in Smith, Malthus, and Ricardo's views usually meant non-productive extravagant personal consumption.

Ricardo and Malthus, as Smith before them, considered that this would reduce growth and, thus, was a negative. Note a subtle thing: this is a value judgement, too. Deliberately or not, consciously or not, they were putting themselves in your shoes, as a tenant and an entrepreneur.

Let's look at this situation from a different perspective. To produce the exact same output in a marginally fertile land, you would need a larger investment:


If the rate of profit is equal among all investment opportunities, your larger investment will produce a larger absolute profit than the one generated by the smaller investment required by the best land. But both profits will keep the same proportion: the equalized profit rate.

Again, the surplus makes up for the difference among both outputs.

What happens if the price of "corn" were to fall? The output evaluated at this price would not be enough to cover both costs and profit and you would not accept the deal: that land would not be cultivated. That would also diminish the rent of the best land, but would be unlikely to eliminate it entirely.
 
At the other hand, what if prices rise? Your costs (including opportunity cost, which is the equalized profit) remain the same, and you still cover them, but now there is a surplus on top of the right-hand column of the chart above (and a larger surplus on the left-hand one). The marginal land became capable of producing rent.

Note the logical sequence: price changes precede surplus/rent changes and determine their direction; this sequence contradicted the usual view at the time: rent changes determine price changes (i.e. rent as a cost). And this is important (more on this in the concluding section).

Further, falling prices reduce the area cultivated, raising prices expand this area.

Let's make a pause to evaluate the theory. You'll surely admit it's a rather clever idea.

But it's far more than clever. Let's apply Ockham's razor to it. It assumes few things (differential soil fertility as main determinant of surplus, more fertile land cultivated before less fertile land, tenants and landlords prefer more to less and an equalized rate of profit: the opportunity cost). Neither landlords nor tenants need to be incredibly sophisticated calculating devices, endowed with prodigious ability to gather and process huge amounts of information. All this is good, according to Ockham.

Further: these things can be empirically measured with ease. One would only need access to the tenants' and landlords' accounting books and price statistics.

One could object that the tenant may feel tempted to transfer the rent to the consumer. This is a potentially good objection, depending on the specifics of the situation (more on this in the concluding section)


How does the theory fare in reality? It would be outside the scope of this blog to deal with this. However, let's consider this: Ricardo did not study only agricultural production, but also mining. Readers familiar with the oil industry may find the behavior described obvious: oil prices go up, marginal oil wells are re-activated; oil prices go down, they are abandoned. This behaviour is easily explained in this framework.

Not bad for a guy who wrote about 200 years ago, and didn't use complex maths.

One could probably add that there seem to be a negative feedback loop involved, as well: marginal wells are activated, oil supply increases and oil prices fall. As oil prices fall, some marginal wells are abandoned, supply shrinks and oil prices rise, etc.



Rent, the RSPT and growth

Australian readers might associate the discussion above with the RSPT proposal that cost former PM Rudd his office. The interested reader should try to use the second and third charts above, to speculate on the effect of redistributing surplus from a super profitable mine to a less profitable one. What effect it could have had on production? Would that output be sustained or would it fluctuate over the long run? Can one understand the position of the big miners? What about the small, arguably marginal, miners?

Imagine now, as Ricardo did, that "corn" is the numeraire. Ricardo justified this on the grounds that "corn" was a required input (as seeds, for instance: capital); it could also be used to pay eventual workers (who, after all, were on subsistence wages).

In this scenario, and considered in isolation, suppressing the differentiation tenant-landlord, agriculture in fertile/rent-producing lands was a perpetual motion machine: it produced more than the inputs required.

Clearly, this was an impossibility, as Smith understood. In the long term, Smith considered that primary products would be increasingly demanded, as intermediate inputs for manufacturing and for final consumption, by a growing population. This should increase their prices and the subsistence wages paid to the working man. But this should cut profits down.

Ricardo added another channel to this: rents would increase, as seen above. But there was no warranty that increasing rent would be spent productively (as investment). 

As profits and investment fell, growth should stall: production (and industrial capitalism) couldn't grow forever.

To ameliorate this situation, Ricardo developed his views on international trade (which, together with his theory of rent, is still widely accepted today), and as an MP, actively opposed the infamous Corn Laws as a means to cut rent, among other objectives.

In using his public profile to advocate for his economic ideas (which he did quite successfully) Ricardo was hardly the first to use a public/official platform to further economic goals. However, his personal reputation as reasonable, learned and credible expert made him particularly effective. In this sense, Ricardo was also ahead of his time. But all these are a matters for an eventual future blog.


Concluding remarks: free lunches, anyone?

And what about the question: is it true that the capitalist "meritocracy" necessarily leads to rewards going to those earning them?

Clearly, not. To the extent that Ricardo's rent theory is valid, it specifically identifies one group benefiting from a "gift of nature" (i.e. not earning the reward they receive): landlords.

Perhaps the reader will object that, nowadays, farmers own the land they use. To that one could answer that farmers who own their land are likely benefiting directly from a "gift of nature", instead of the landlord of Ricardo's day.

The reader could further object that farmers, who know their business best, would be surprised by Ricardo's views and object to them as absurd. To this one could say that the farmers would be reacting like Moliere's bourgeois gentleman, who was surprised to learn that he had been speaking in prose all his life, without knowing it.

Finally, the reader may object that the decision to acquire fertile land is rewarded by the rent achieved: it showed perspicacy. To this one could reply that this may be so; however, this does not change the fact that the fertility of the land is not due to the decision of the purchasers, however perspicacious they were.

Additionally, one could argue that it does not really require that much perspicacity to realize that a fertile land is preferable to a less fertile one. That's why Ricardo assumed this ability as a given!

Further, consider small businesspeople, renting their shops. They pay rent and their relation to landlords is analogous (although not identical) to the one described: just replace "fertility" with "location".

What's more, against appearances, in general small businesspeople are not free to transfer rent to their customers and patrons: if they tried, they would probably turn customers away. So, they need to cover rent through increased sales. This was the objection raised initially on the section Ricardo-Malthus land rent, above.

But one need not stop at this level of abstraction.The key element in the landlord/tenant relation is the property of the land, as repeatedly remarked above.

Landlords, as a set of individuals, have a monopoly on land and are legally entitled to charge for its use (i.e. the rent we have studied).

Capitalists, as a class, also have a monopoly over capital and are legally entitled to charge for its use (i.e. the profit we have already found).

Land is a productive factor and, according to Ricardo, it can produce rent in excess of production costs. But labour is also a productive factor, and according to Ricardo, it produces value.


Up to this point, the parallels between land and labour, as seen through Ricardo's eyes, are strikingly obvious.

The surplus due to land's fertility was, evidently, generated by the land itself and was due to nobody (if we exclude God or the Flying Spaghetti Monster), but, in Ricardo's times, it was conventionally appropriated by the landlords.

Ricardo believes labour produces value, but labour is only rewarded by its own cost (i.e. the amount paid as wages). Does labour also generate a surplus? In which case, who appropriates it?

As mentioned above, Ricardo, wittingly or not, assumed as his the role of entrepreneur/tenant and in this role advocated for the abolition of the Corn Laws, as mentioned. That might explain why he never saw this rather evident connection, let alone investigate it.

But Marx did. To make Marx's view justice would require at least a whole blog. Thus, it will not be covered here. Suffice it to say that, just like landlords in Ricardo's times, someone could be enjoying a free-lunch, and the relation between price and surplus, that Ricardo found when considering land rent, does not apply when considering labour.

Update:
11/11/2012 I struck through a portion of the text. As written originally, I find my text was confusing and long. Hopefully, this edition shall make my meaning clearer.

Tuesday, December 7, 2010

Open letter: To Julia Gillard, re Julian Assange

As I tend to be pessimistic about human kind, I tend to value whatever signs that maybe not all is lost.

Here is one such sign:

Knee-Jerk Reactions and WikiLeaks

Even if one doesn't follow the news in detail, the subject of the moment is the WikiLeaks/Julian Assange saga.

In my experience, in this kind of situations one can easily discern two diametrically opposite stances: the Right and the Left Wing.

Basically, whatever the lefties say (either praising or deploring, as the situation might be), the right-wingers oppose furiously (deploring, if the lefties praised it, praising, if the lefties did the opposite).

Surprisingly, thus, in this occasion the reaction has been much less clear: basically, most people commenting have given some support to both WikiLeaks and Julian Assange.

Here's a sample. I chose this example deliberately: apart from a considerable number of comments (which give an idea of what the posters think about the matter), its author is known for its centre-right opinions. And yet, he manages to sound rather reasonable on this matter.

All that is good and well, to be sure.

But if you stop and observe, you notice few people actually know what Assange and WikiLeaks have done. And here is an interesting detail: the Australian media coverage of this case has been spectacularly mediocre. Compare any local medium (let's say ABC, SBS, and SMH) with Der Spiegel International Online or The Guardian.

To be fair with the 3 media chosen as Australian examples: they did not get any special information release directly from WikiLeaks, as the foreign media did. And, if anything,  their local competitors' coverage is even worse.

So what have WikiLeaks and Assange actually done? Well, to a large extent the documents released are merely a source of unnecessary embarrassment for the US Government.

But there is more to it than that. The leaks reveal that Germany, for instance, has been object of espionage by the US Government. The information gathered by the US Government appears to be of little sensitivity and was offered spontaneously by the German source (a senior staffer from the business-friendly FDP party).

However, once a source has been compromised, it could become potentially susceptible to blackmail and could be forced to provide much more sensitive information. This would explain why the FDP has moved swiftly to relieve the source of its current duties.

More troubling is the role of some senior German politicians, like former Interior Minister Wolfgang Schäuble. According to Der Spiegel:

"The Bush administration saw Schäuble as a sort of Trojan horse in Europe, a man who could help Washington achieve its goals."
It's understandable the parties affected are less than happy with the exposure given to them by the WikiLeaks leaks.

One could also understand that the US Government may feel outraged by these leaks.

It's quite possible that the German authorities might feel a little embarrassed by these leaks, too. This could be the case for other governments, explaining the knee-jerk reaction of condemnation to WikiLeaks and Julian Assange.

But one thing seems quite certain: the national interest of the Federal Republic of Germany appears to have been served by the leaks.

Friday, December 3, 2010

WikiLeaks Shut Down

According to ABC News, the WikiLeaks website was shut down. Few details are made available:

"WikiLeaks says servers in the United States have killed the site's domain name following 'mass attacks'.
The domain hosting withdrawal means the website is down worldwide. Earlier this week Amazon booted WikiLeaks from its servers."
You can try the WikiLeaks site here. When I tried (7:33 PM), it re-directed me to the WikiLeaks blog.

Frankly, I don't know much about the legislation covering the Internet. I do believe domain names are subject to copyright, as they are registered. This implies that they can be sold or leased, like any other asset. If they are similar to any other asset, they are private property.

I don't think it fits well with a Government that respects the sanctity of property rights to simply tamper with private property. If the reader is better informed, I would appreciate comments.

Notice that this could also be construed as an attack to the freedom of expression, which is granted by the US Constitution even to extremist groups, as the KKK. 

The reader will notice in the ABC News above that so far WikiLeaks has not been charged,  by the US Government, of any crime; just as Julian Assange himself has not been charged by the Swedish Government of any crime (at least, as of the date of writing this).

In any case, there is another perhaps even more troubling twist to the WikiLeaks/Julian Assange saga.

Tom Flanagan, one time adviser to Canadian Prime Minister, Stephen Harper, has publicly called for Assange's assassination:

Flanagan: "I think Assange should be assassinated, actually. (...) Maybe use a drone or something."
Voice outside screen: "Just for the record: this is tough stuff..."
Flanagan: "I am feeling very manly today..."
Commenting on the WikiLeaks website and Assange saga, The Jerusalem Post's Pinchas Landau had this to say:
Do not expect the Internet to survive as an open arena for much longer, and don’t expect the change in the sociopolitical environment to stop at the Internet.
I fear he might be right.

Friday, November 19, 2010

My Enemy's Enemy (II)

Introduction: Chile, Argentina and the Nazis

Initially, this blog was meant to provide a brief biographical profile of Walter Rauff.

However, the matter proved much more complex than expected. Even an schematic account of Rauff's life requires mentioning other names, general circumstances and historical episodes falling beyond the scope of a single blog.

For this reason, Rauff's still summary biographical profile will be split into several blogs, beginning with the present one, where a general historical setting is provided.

The previous blog in this series documented a tendency in Western bourgeoisie, “even in democratic cultures”, to find Marxism a greater abomination than Nazism. In the post-WWII era, an instance of this was the cooperation between American intelligence agencies and former Nazi Germany figures.

This is not to say that Nazi “expertise” was valuable only for American interests. It will be shown here that even the most unsuspected parties sympathized with and employed these “experts”.

What’s more, often this acceptance was not forced upon these “democratic cultures” out of an imminent fear of communism.

The journey starts in South America, making only passing references to Germany.

Argentina and Chile (*)

Chile and especially Argentina were developing along the lines of modern capitalism in the early XX century. Their economies, based on agricultural exports, attracted considerable foreign investment; additionally, Argentine capitals started light manufacturing, oil extraction and refining, while Chile had nitrate and copper mines.

Combined, increased tax revenue and a relative political stability allowed both countries to develop their capitalist class and its corresponding proletariat. 

The development of a proletariat marked the beginning of trade unions and left-wing movements, which paradoxically threatened to disturb the relative political stability needed for capitalist development.

To maintain that "political stability" a number of governments in Western democracies tended to apply a "carrot and stick" approach whenever indispensable, and an outright hard hand, when necessary.
In the US, for instance, the period immediately after the October Revolution in Russia and the end of WWI was known as the First Red Scare. It shared some significant characteristics with most cases in other countries: the fear justified or not that trade unionism in general and Marxist or social democratic movements were immediate precursors for social revolutions; the use of prejudices against foreign workers, who were supposedly specially involved in those movements; police repression against trade-unionists and left-wingers and social unrest and violence:


Step by step. New York Evening Telegram. 01/11/1919. [1]
Close the Gate. Chicago Tribune. [2]
In Argentina and Chile a similar scare manifested itself in ways perhaps more dramatic:



Some comments are in order.

That list is far from exhaustive, including only the best documented cases. (For details, see Reference, below).

In Argentina these massacres were carried out by the military/Police at one hand, and the Liga Patriótica Argentina (Argentine Patriotic League), a nationalist-Catholic vigilante militia supported by business interests. These actions were as much against the political left and trade unions, as against Jews (seen as crypto-Communists or Anarchist), foreigners, and Indians.

It is worth remarking that Marxism and Jews had been linked by right wing propaganda at least since the October Revolution in Russia. The following poster depicts the Jewish Leon Trotsky as a red demon, while at the bottom one can see the "Asian hordes of Marxism", leitmotifs that would be adopted by Nazism.
1919 Russian Civil War White propaganda poster. From Marxist Internet Archive. [3]

However, the Liga itself was never considered a strictly proto-fascist group, as they supported Presidential democracy. President Yrigoyen himself was a Radical: roughly a centre-centre left (liberal/social democrat), by current standards.

In Chile, however, President Alessandri could be considered centre-centre right (Conservative). As in Argentina, these actions were often anti-left/trade unions and anti-Indian/foreigner; but in the Seguro Obrero massacre the casualties were members of the far-right Movimiento Nacional Socialista de Chile (National Socialist Movement of Chile). In Chile the responsibility solely fell on the military.

As can be appreciated, there were groups in Government and in opposition, in both countries, with important, if partial, affinities to European Nazi-fascism. One of the clearest coincidences was their opposition to left wing ideas and trade unionism, which the Nazis themselves expressed immediately during their ascension to power with the opening of Dachau in 1933.

This, however, does not exclude the presence of groups opposing Nazi-fascism in both countries.

Politically, Marxist groups in both countries provide an example of opposition:

1938 Telegram. Hosted by Diario El Clarín. [4]

The telegram above, sent by 76 members of the lower chamber of the Chilean parliament in 26-11-1938 in protest for the Kristallnacht, reads:

"His Excellency, Mr. Adolf Hitler
Chancellor of the Reich,
Berlin.

"As members of different sectors of the Chilean Parliament and in the name of civilized life, we present our most vigorous protest for the tragic persecution of which the Jewish people in that country has been victim and we request that your Excellency make stop that state of things and re-establish the right to life and justice for the Israelites, as humanely and eloquently demanded by President Roosevelt."
Further, some Argentine researchers, without denying that sections of the Argentine dominant classes harbored sympathies for Nazi-Fascism, argue that these affinities were exaggerated by American authorities, due to their opposition to Peronism. [5]

Rauff will appear in the next blog in this series, treating with Chile and Argentina in WWII.

NOTES:
(*) The content of this section is largely based on Wikipedia and a range of other resources freely available; consequently no specific references will be given here, except those relating to the quantitative data contained in the table, which are detailed in the References section.

REFERENCES:
[1] Step by Step. Wikipedia.
[2] Close the Gate. Red Scare (1918-1921).
[3] Civil War poster: White Russian anti-Semitism. 1919. Hosted by Marxist Internet Archive in the Trotsky Photo Gallery.
[4] Telegrama de protesta al Fuhrer de Salvador Allende y otros (1938). Hosted by diario El Clarín (Chile). My translation.
[5] Estudios Interdisciplinarios de América Latina y el Caribe (EIAL) often publishes articles on related subjects:

Leonardo Senkman reviews:
Ronald Newton. The "Nazi" Menace in Argentina, 1931-1947.
Stanford, CA: Stanford University Press, 1992.
EIAL. Vol. 5:1 January - June 1994.

Leonardo Senkman. El nacionalismo y el campo liberal argentinos ante el neutralismo: 1939-1943
EIAL. Vol. 6:1 January - June 1995
Hebrew University of Jerusalem

Mario Rapoport. Argentina y la Segunda Guerra Mundial: mitos y realidades
EIAL. Vol. 6:1 January - June 1995
Universidad de Buenos Aires

I believe those images to be in the public domain. However, if such is not the case and the reader holds the rights for these images, please let me know and they will be removed or credit will be duly given, at your discretion.

Massacres:
Tragic Week. Wikipedia.
Rural workers strike, Patagonia. Wikipedia in Spanish.
Napalpí Indian reservation massacre. Wikipedia.
Santa María School massacre. Wikipedia.
Marusia massacre. Wikipedia.
Ranquil Indian reservation massacre. Wikipedia
Seguro Obrero massacre. Wikipedia.


UPDATE 1:
Reference [5] added.

Wednesday, November 10, 2010

Images and Icons

"The people have turned him [Che Guevara] into a myth, a great figure. But what has he actually achieved? Absolutely nothing"
Klaus Barbie, the Butcher of Lyon, murderer of 44 Jewish children.

Last night they were showing a doco about the iconic Che Guevara photo, taken by Cuban photographer Alberto Díaz Gutiérrez, professionally known as Alberto Korda. You know the photo:
Alberto Korda's photo
During the film, pretty much the whole political spectrum had the opportunity to  speak about Che: from his Sierra Maestra companions to Gerry Adams and Jean Paul Sartre (all of which said good things about him), to rabid anti-Communist exiles in Florida (who said bad things about him).

As the opinions were quite predictable, only two commentators made an impression in me.

One was a young American. You know the kind: young guy, early twenties (probably a student), articulate, good-looking in a slightly effete way; the kind that never had to pick fruits in Texas a single fucking day in his life. For whom “hunger”, “poverty” and “disease” are merely abstract bullshit they read about in books; that is, if he actually ever read about them, because he looked like the abstract "liberty" kind of guy. Picture a young Liberal here and you are seeing the guy.

And, boy, did he express himself properly! You know, oozing self-confidence and knowledge.

The other was from some Bolivian Indians. Let's not fool ourselves, you also know the kind, so I don’t need to waste time: they simply looked miserable. I’d be surprised they actually could read and write.  

Basically they were grateful, because for them Ernesto "Che" Guevara died trying to help them. And to show their gratitude, they pray to San Ernesto de La Higuera (Saint Ernesto of La Higuera). Some also make those kitsch saint images of him, for sale. So I guess in at least that way he does help them.
San Ernesto de La Higuera.
Frankly, I don’t know whether Che was a saint or a tyrant, a hero or a fraud. Perhaps a bit of each. Maybe he was wrong. I’m neither his advocate nor his judge. And what does my opinion matter, anyway? You, of course, are free to form your own opinion about him.

But, for me, the gratitude of those poor wretches weights infinitely more than any rational speeches memorized from a book by some American student, because it is those Bolivian Indians who, in their ignorance and naivete, in their misery, have earned the right to judge.
Bolivian girl at Che's monument, La Higuera, Bolivia.
I allowed Klaus Barbie to express his opinion about Ernesto "Che" Guevara. As Guevara never had the chance to return Barbie's regards, I'll let someone else speak about Barbie and his achievements:

"After 19 days of interrogation, they put me in a cell. They would carry by the bodies of tortured people. With the point of a boot, Barbie would turn their heads to look at their faces, and if he saw someone he believed to be a Jew, he would crush it with his heel." Lise Lesevre
"..pale eyes, extraordinarily mobile, like those of an animal in a cage". Lise Lesevre
PHOTO CREDITS:
  • Alberto Korda took the iconic photo of Che Guevara, known as "Guerrillero Heroico" opening this blog. 
  • The last photo, "Olhos Azuis" (Blue eyes) was found at WikiQuote together with the caption. Its author is Jose Rocha.
  • I believe the other photos are public domain: they had no attribution.
  • If any photo is copyrighted, please let me know and attribution will be made or the photo will be retired, at your discretion.

Thursday, October 28, 2010

My Enemy's Enemy (I)


Speculating about what could have pushed local authorities to accept the alleged presence of an Einsatzkommando in northern Finland during WWII, Finnish researcher Oula Silvennoinen stated (28-09-2008) that:

"For a large part of Europe's bourgeoisie, communism was long a much greater abomination than national socialism. The fight against communism justified almost any means possible. This anti-communism included significant potential for violence, even in democratic cultures."
It's interesting that Silvennoinen should explain the collaboration between the Finnish and Nazi-German governments in those terms, because the fight against communism has long been used to officially justify unsavoury aspects of Realpolitik by democratic nations:
"The [CIG's Samuel] Bossard Report [of 1947] marked the first time that either SSU [Strategic Services Unit] or CIG [Central Intelligence Group] had an independent opportunity to examine the operation and to question both Gehlen and Baun as well as other members of the German organization. Impressed with the anti-Communist sympathies of the Germans and the breadth of their contacts (especially with various emigre groups), the CIG representative found 'no evidence to prove that the unusual confidence that had been placed by American authorities in the German operators had been abused' ". [1](*)
The "Gehlen" mentioned above was Generalmajor Reinhard Gehlen. One of the top men in the Abwehr (Nazi Germany's Military Intelligence service, outside the SS), Gehlen and a handful of trusted staff, like Oberstleutnant Herman Baun, had been squirreling away documents and other material, as well as contacts with operatives behind Soviet lines, as bargaining chips in the scenario of an Allied victory.

 The Gehlen network and archives became commonly known as Gehlen Organization and were codenamed Operation Rusty by the American authorities.

Bossard's endorsement is noteworthy, considering that only a few months earlier (16-10-1946) CIG had reported that:
  1. The information produced was unreliable, due to the "practice of drawing broad conclusions from inadequate evidence and a strong tendency to editorialize".
  2. The whole operation wasn't cost-effective: "(…) the statement made in Operation Rusty regarding costs in the 'world intelligence market' (…) are ridiculous throughout."
  3. "One of the greater assets available to US intelligence has always been the extent to which the United States as a nation is trusted and looked up to by democratic-minded people throughout the world. Experience has proven that the best motivation for intelligence work is ideology followed by common interests and favors. The Germans, the Russians, their satellites, and to a lesser extent [the British] have employed fear, direct pressure of other types [Torture? Blackmail?], and lastly, money. With most of these factors lacking to it, Operation Rusty would appear to be dependent largely upon the last and least desirable". [2](*)
Summing things up: an organization headed and staffed by former Nazi Germany officers was put in charge, by American authorities, of counter intelligence, basically on account of the "impressive anti-Communist sympathies" that Gehlen shared with his subordinates.
And although -to the best of my knowledge- no accusation of war crime was ever levelled against Gehlen personally, his organization included much more dubious, shadowy characters such as SS-Standartenfuehrer Walther "Walter" Rauff (designer of the exhaust-gas extermination van, thought to be responsible for up to 100,000 deaths and one-time aide, and protégé of SS-Obergruppenfuehrer Reinhard Heydrich, head of RSHA and chair of the Wannsee Conference) and SS-Hauptsturmfuehrer Nikolaus "Klaus" Barbie (head of the Gestapo in Lyon, thought to be responsible for up to 4,000 deaths), with full knowledge of the American authorities and, perhaps to a lesser degree, their western Allies, including the State of Israel. (**)

In time Gehlen's organization became the BND (the Intelligence Service of the Federal Republic of Germany), headed by Gehlen since its inception in 1956, until 1968, when Gehlen retired. Later in 1947 the CIG (incorporating other American intelligence agencies, as SSU) was renamed CIA.

The next two blogs in this series will contain brief biographical profiles of Rauff and Barbie.

NOTES:
(*) Those quotes are taken verbatim from the reports, except for the remarks inside the brackets, which are mine. Although in the Introduction document the reference to the British was blacked out, the same paragraph can be read in full in Document 21.
However, Document 21 does not explain what "direct pressure of other types" means.
(**) The references to the western Allies and the State of Israel will be justified in forthcoming blogs: specifically, France in Barbie's case, and Israel in Rauff's.

REFERENCES:
The text quoted is taken verbatim from
Tamara Feinstein (edit.). The CIA and Nazi War Criminals. National Security Archive. George Washington University. 04-02-05.
[1] Op. cit. Volume 1: Introduction
[2] Op. cit. Document 21. Draft to Deputy A, Operation Rusty, 16-10-1946

Images: Wikipedia.

Sunday, October 24, 2010

Special: Hired Guns on the Cheap

Long story short: researching for a new blog on globalization and outsourcing, I came across a true gem of irony and surprising coincidences, published Sunday, September 25th 2005 on the Chilean newspaper La Nacion - Pistoleros a sueldo (mínimo). As the original text is in Spanish, this is my translation of the title and summary:

"Unknown chapters of the Chilean mercenaries in Honduras.
Hired gunmen (on minimum wages).

The untold story of the bosses, humiliating working conditions, the dangers awaiting them in Iraq and their instructors' hidden past. The aspirants to fight someone else's war may yet miss out firing upon anybody"
.

And this is my summary of the main body of La Nacion's story:

After the Honduran daily La Tribuna denounced the presence of 120 Chilean ex military being trained in the Lepaterique township as "private guards" by Your Solution Inc. (a Triple Canopy Inc. subsidiary), for their deployment in Iraq, the Honduran government denied entry to 48 further Chilean trainees.

The Lepaterique facilites were used in the 1980s by the feared Battalion 316 of the Honduran Army, specializing in counterinsurgency, torture, interrogation and psychological warfare.

From 1979 and until 1980, under the supervision of John Negroponte, at the time US Ambassador to Honduras, tens of military instructors from Argentine Army Intelligence Battalion 601, together with CIA staff, trained Honduran effectives in their fight against leftwing insurgents.

Mr. Negroponte was appointed US Ambassador to Iraq by President Bush, and served in that capacity from mid 2004 to early 2005.

Together with Blackwater and DynCorp, Triple Canopy was awarded US$ One billion to provide security to installations and diplomatic personnel in the 27 riskiest destinations around the world.

"Responsible sources estimate that at least 16% of armed foreign personnel operating in Iraq, servicing the coalition headed by the US, are private contractors. Twenty five thousand people, a true army on hire…"

Chilean "security guards" will be paid between US$ 900 and 1,300 per month. However, "the problem arises when comparing the incomes the company, for the same work, offers its American employees: between US$ 400 and 700 per day."

Chilean and Honduran staff sign a contract for one year, while American contractors sign up for 3 months, at the end of which the company pays them their return trip home.

American staffers are given private accommodation, while Latin American contractors are lodged in barracks. American staffers are given booze, unlike their Latin American colleagues.

As of September 2005, private contractors had suffered 268 casualties: the second largest number, after the US regular armed forces.
Who ever said outsourcing isn't a wonderful thing?

Related links:

Triple Canopy, Inc. - Wikipedia
John Negroponte - Wikipedia
Google translation

Wednesday, October 20, 2010

Credit Where Credit is Due

Anyone actually reading these rants has probably noticed that I can be harsh to journalists.

My father was an old journalist, when journalists were not graduates and the distinction between a journalist and a proof reader was how many years experience they had, and how popular among the bosses they were. (Dad soon became pretty unpopular, and, for diverse reasons, including lack of personal forethought, ended up his life as a proof reader, working two full-time positions).

I myself once was a proof reader in a big daily broadsheet.

I say all of this as a justification, if you will, for what I am going to say next: in my experience, journalism may have either a heroic or a mediocre side.

In other latitudes journalists often have to make a choice: either to pay a price for saying things like they are, or lead comfortable lives. And frequently, the price to be paid ranges from simply becoming unpopular, to fearing for their personal security.

And yet, often journalists choose to pay the price and to speak for those who cannot speak for themselves.

To a great extent, I write these lines to leave the written testimony that Australian journalists apparently refuse to leave: reality can be much less rosy than commonly depicted in our media.

However, these days I have found an unlikely exception in the Australian media: a young journalist who is actually willing to search deeper than official press releases and say uncomfortable things.

These are some of her pieces:

We're all worse off if the rich get richer while the poor get poorer. 20-10-10.

Home price rises mirror the city's income divide. 08-10-10.

Incomes rise in the east and set in the west. 07-10-10.

The big divide: the super rich versus struggle street. 06-10-10.

So, today, for a change, I will praise a journalist: good on you, young Ms. Jessica Irvine.

Wednesday, October 13, 2010

Dust in the Wind

"All we do
Crumbles to the ground, though we refuse to see".
 (Kansas, "Dust in the wind")


There once was a town called Gary, Indiana.

Founded by the US Steel in 1906, its population reached a peak of 178,320 (*), in 1960 and its health depended on US Steel's profits.

With greater opening to international trade, American manufacturers increasingly lost profitability and layoffs became generalized.

The unionized labour force, mostly white, migrated to areas where better employment opportunities still existed, just to find that these opportunities often disappeared.

By 2000, Gary's population had been reduced to 102,746 (*) [with 95,920 (*) estimated for 2008], predominantly black and impoverished [83.2% of the total (**)].

Paul Mason, from BBC, reports here what became of Gary, Indiana. More  images of Gary can be found at the "Gary, Indiana, Ghost Town" web page.

From an Australian perspective, Gary's fate, however tragic, may look as something remote, utterly alien, unrelated to us.

Still, this may be the shape of things to come, not only for us in Australia, but for humankind.

(*) Gary, Indiana. Wikipedia
(**) Gary City, Indiana - Fact Sheet. US Census Bureau, 2006-2008 American Community Survey.

Monday, October 4, 2010

Lies, Damn Lies and Statistics (II)

Mark Twain, it appears, is an unlimited source of quotations, even if sometimes the quotations can only be tentatively attributed to him.

Regardless, the following is a pearl of wisdom:

"If you don't read the newspaper, you're uninformed;
if you do read the newspaper, you're misinformed."

Enter Mr. Michael Pascoe, from Fairfax, resolute to prove Twain's dictum.

Commenting on the ABS report Measures of Australia's Progress, 2010 (ABS catalogue 1370.0), Mr. Pascoe declared, among other things:

"Per capita real net national disposable income grew by 2.6 per cent a year over the decade - that's the money in our collective wallets and purses;
"Our national per capita wealth (the national balance sheet, what Australia is worth divided by the number of people) increased by about 0.9 per cent a year.
"And, the real clincher against the whinging class, real average household income of low-income Australians grew by 41 per cent. The poor have become substantially better off, if the word 'richer' doesn't quite fit. Middle-income folk saw their after-inflation household income rise by a whopping 46 per cent."

Allow me to focus on these three items.

But first a note of caution: one must understand that journalists, even business journalists with long years of experience, are constrained by time: they have to abide by deadlines and are likely to have little time or inclination to fact-check the information they come across. In other words, it seems, is unreasonable to expect them to read "Explanatory notes" or any other such minutiae.

So, one may forgive Mr. Pascoe for not checking the notes referring to the third item above (the "real clincher" of 41% enrichment enjoyed by low income households).

Still, that's a shame. Had he opened just one link, he'd have seen the following note, and perhaps saved himself this rejoinder:

"The headline indicator shows a rise in the real income of low income households between 1997-98 and 2007-08, with their average real equivalised disposable household weekly income increasing by 41% over this period. However, part of this increase reflects improvements to the way income was measured from 2003-04 onwards."

Have a look at the chart below, reproduced here for your viewing pleasure.

The jump in the data, in the 2003-2004 period, reflects the "improvements" mentioned in the paragraph above. You'll also notice that the "slope" of the curve changed in that period: I suppose now Mr. Pascoe would say that the whingeing class are getting richer, faster...

That chart was in the very first page of the ABS report on Household economic wellbeing. Is that chart (together with the accompanying text) that pushed Mr. Pascoe into the display of neoliberal triumphalism, reflected in his piece.

I'm planning to write, in the not-so-distant future, about these "improvements". For now, let's just say things that were there but weren't considered income then, still are there, but are now considered as income.

Mr. Pascoe's failure to notice the caveat put there by ABS can be blamed on a lack of time, and excessive rush. That's fine: he would have had to click a couple of links to find the warnings about that data.

However, his failure to notice that wealth and income per capita (or average) measures mean diddly squat (revealed in his comments about "our collective wallets and purses" and about our "national balance sheet" increasing 0.9% per year) is simply appalling.

Here he didn't even need to click one link and read. He only had to ask his Fairfax colleague, Mr. Ross Gittins:

"Next, more attention needs to be paid to changes in the distribution of income, consumption and wealth. That's because changes in the averages of each of those things can be misleading. If, for example, much of a rise in income goes to the highest income group, it's possible that the real incomes of people on lower incomes could actually fall without this showing up in the average."

If he had checked more thoroughly the material made available by the ABS, he might even have seen the following table:


And, so as not to tire busy readers, the good folks at the ABS even provided the interpretation:

"Percentile ratios are one measure of the spread of incomes across the population. For example, the P90/P10 ratio is the ratio of income at the 90th percentile (i.e. the income level dividing the bottom 90% of the population from the top 10%) to that at the 10th percentile. In 2007-08, this ratio was 4.30, meaning that the income of households at the 90th percentile was over four times as great as the income of households at the 10th percentile. This represented an increase of 14% from 1997-98 (3.77)."

Perhaps, had Mr. Pascoe read this information, he'd have realized it's exactly what Mr. Gittins was warning against in the paragraph above!

In a future opportunity, he might want to try the website Statistics Every Writer Should Know, or even my own humble writings.

In any case, I feel perfectly justified to whinge, Mr. Pascoe, about neoliberal policies and about journalists who don't do their homework.

Observation vs deduction

What are the roles of observation and deduction in science? The following piece aims to shed some light on this issue.


A little history (I)

After thousands of years of observation, the list of known planets seemed to end with Saturn. How did this list come to be expanded?

Although dim, Uranus is visible to the naked eye and, in fact, it was observed before being identified as a planet. In 1690 John Flamsteed observed it several times. Between 1750 and 1769 Pierre Lemonnier observed it twelve times.

These earlier observers may have misidentified it as a star.

Initially William Herschel observed it on 13/03/1781 and reported it as a comet. The Astronomer Royal, whom Herschel had notified, identified it as a planet.



By 1783 Herschel himself acknowledged that Uranus was a planet.

One could say that Herschel's achievement was more related to the correct identification of Uranus' true nature and that it largely was a serendipitous event.



A little history (II)

Unlike Uranus, Neptune is essentially invisible to the naked eye.

It may have been observed through telescope by Galileo (1613), Jerome Lalande (1795) and John Herschel (1830). However, like Uranus before, it was probably mistaken for a star, and, in any case, its true nature was never communicated by its would-be discoverers.

But the histories of Neptune and Uranus are related in a more fundamental way.

After Uranus' discovery, studies were conducted to predict its orbit. But these studies suffered from a curious problem: after a while, they would become increasingly imprecise. The observations, in other words, falsified the predictions.

Discrepancies between Uranus' actual position and Alexis Bouvard's 1821 predictions could be explained in at least three ways:

(1) Perhaps gravity, at such great distances, operated in a manner slightly different to what Newton described;
(2) Maybe Bouvard's predictions were based on observations containing systematic measurement errors;
(3) A yet undiscovered planet could be perturbing Uranus' orbit.

Two researchers, John Couch Adams and Urbain Le Verrier, independently decided to pursue the third explanation.


By early 1846 both researchers had produced at least some calculations, based on Newton's gravitation; and, being finally aware of each other's work, commissioned the Greenwich and Berlin observatories, respectively, to conduct the astronomical search.



The exact content of the calculations made by Adams and Le Verrier, as well as the details of the search conducted at Greenwich and Berlin, are subject to controversy.

The fact is that on 24/09/1846, after less than an hour search, the Berlin Observatory reported the planet had been found, very near where Le Verrier had predicted.

Adams recognized Le Verrier's priority. Apparently, the most recent opinion prevailing among historians of astronomy favors Le Verrier.


Discussion

Unlike the discovery of Uranus, where serendipity played such a clear role, the discovery of Neptune was hailed as a major triumph for Newtonian physics.

By correct deduction on the basis of current knowledge, Le Verrier and Adams had produced new knowledge. The apparent inexactitude in the orbit of Uranus had been explained: it had very little to do with systematic measurement errors and nothing to do with an erroneous appreciation of gravity by Newton.

However, I would like to point to an asymmetry between knowledge acquired through observation and knowledge acquired through deduction, at one hand; at the other hand, I would like to call the attention to a failure of some views on the philosophy of science.

The existence and true nature of Uranus was established by observation. That of Neptune was also established by observation.

Whoever rightfully deserves be credited with the correct prediction of the orbit, mass and angular speed of Neptune, was only formulating a hypothesis. That's why they required the collaboration of the observatories of Greenwich and Berlin.

In this sense, there is an asymmetry between knowledge acquired through observation and that acquired through deduction: deduction is neither sufficient nor necessary to determine the reality of a phenomenon.

It's not necessary, because discovery of a phenomenon can happen at least through serendipitous events, as in Uranus' case.

It's not sufficient, because predictions and hypothesis could be wrong, even if they are validly derived from acknowledged principles.

This last point was illustrated by the searches by Greenwich and Berlin. An even better illustration, however, comes also from the history of astronomy: the Ptolemaic system. A treatment of this episode falls outside the scope of this piece.

The second point I would like to make is that an extreme understanding of Popper's falsificationism would probably have discarded Newton's gravity, on the grounds of the discrepancy between the predicted orbit of Uranus and its actual orbit.

Contrary to Popper's view, Newtonian gravity gained credibility, and rightly so, when its apparent failure was explained through a discovery of a new planetary body.

NOTE: Images and information from Wikipedia.

Tuesday, September 14, 2010

Despairing… progressively (II)


“Do not imagine, gentlemen, that in criticizing freedom of trade we have the least intention of defending the system of protection.

“One may declare oneself an enemy of the constitutional regime without declaring oneself a friend of the ancient regime.”

Karl Marx, “On the question of free trade”, speech to the Democratic Association of Brussels at its public meeting of 09/01/1848.

According to Linden, Dedrick and Kraemer (LDK henceforth), authors of the report “Innovation and Job Creation in a Global Economy: The Case of Apple’s iPod” higher profits and higher wages are the likely result of two factors acting simultaneously, namely innovation and free trade:

“To summarize, the iPod supports nearly twice as many jobs offshore as in the US, yet wages paid in the US are over twice as much as those paid overseas. (…) So it appears that innovation by a US company can benefit both the company and US workers, even if production is offshore and foreign suppliers provide most of the inputs.”
NOTE: The reader is advised to download that report.

That conclusion follows from these two tables, from the Executive Summary:


For instance, in LDK Table ES2, total compensation for US staff (US$ 783,803,828 million) more than doubles compensation for non-US staff (US$ 318,486,050 million).

Where do the data come from?
 
The question arises: where do that data, expressed with such precision, come from? After all, the authors themselves express in the methodological appendix: “The firms directly involved will not provide data, and we have found no systematic third-party source of data on employment by firm or by industry”.

This limitation is even more pressing for LDK who are dealing with data at an even greater level of disaggregation: a single product line.

Furthermore, as the figure below shows (taken from Wikipedia), Apple produces an extremely diversified line of goods, ranging from personal computers, computer peripherals, expansion cards, software, accessories and consumer electronics, directly and through contractors, all which  requiring a hard to precise workforce.
 
What’s more, LDK list 8 countries where iPod is produced (US, China, Philippines, Japan, Singapore, Korea, Thailand, and Taiwan), not necessarily in a single plant, performing different functions and being paid their own local wages.

Considering that Apple Inc. also needs to perform a series of corporate functions (R&D, marketing, software, and management) besides production, the problem of quantifying workforce and workforce compensation is formidable.

LDK approached the problem in the only manner that seems possible, given the circumstances: the data were generated by estimation, based on the number of iPod produced/revenue generated during 2006, regardless of their origin, on interviews and international production worker wages data compiled by the US Bureau of Labor Statistics.

Estimation, is easy to understand, involves a considerable amount of guess work. LDK are upfront about this: they report their methodology with considerable detail in the appendix.

Some estimates

It does not make sense to repeat their text here, and for the details, the interested reader is referred to the LDK report itself.

However, to give a flavor of the problems involved in producing their estimates, a brief outline follows, including comments on some of the assumptions used.

LDK estimated separately the number of jobs generated and wages paid.

As an example of the job generation procedure: 240 million flash memory chips were required for 30 million Nano iPods actually sold during 2006. A medium-sized factory, employing 1,200 staff, could produce that many flash memory chips (see the flash memory item, in LDK Table 1). Presumably in the US, around half a chip factory’s workforce is higher-paid staff, in management and engineering; the remaining are lower-paid production workers.

The same proportion is assumed for factories overseas: see the Korea item in LDK Table 2. This assumption seems somewhat questionable, it must be remarked, as R&D is performed entirely in the US. To put a concrete example, why would Foxconn, an iPod assembler located at Shenzhen require such a high proportion of engineering and managerial staff, if they only assemble components imported?

Regardless, the half/half distribution observed in US factories occurs under American workplace regulation for working conditions such as hours of work. Overseas, more “flexible”, labour legislation could result in different distributions.

The method described above (called “Factory Fraction Method”) is complemented by a second job generation method (“Revenue Fraction Method”), to estimate non-factory staff: in 2006, Amazon (one among other iPod retailers) sold US$ 1 billion worth of iPod, out of US$ 10,7 billion total revenue, employing 13,900 staff. Thus, LDK suggested, 1,300 Amazon equivalent-jobs were due to iPod sales.

This seems dubious and probably greatly overestimates the number of jobs created by iPod sales: to sell an iPod priced US$ 299, arguably, uses the same manpower as a much cheaper item, like a book costing US$ 10, but generates 30 times more revenue.

From LDK Table 2, one can see that up to 31% of the iPod generated jobs are classified as “retail and other non-professionals” and, thus, are quite sensitive to this assumption. Further: over 38% of those jobs are based overseas and do not benefit the American workers potentially displaced by outsourcing.

A number of assumptions are also made when estimating wages. For brevity, only one remark will be made here: “the 2006 hourly rates [used to estimate annual production worker income overseas] were annualized by assuming 2,000 paid hours per year” could be missing the mark by an order of magnitude.

At least in the case of Foxconn, The New York Times reported on 18/06/2010 that production line workers earn US$ 0.75 an hour, working up to 13-hour-long shifts, six days a week, for US$ 235 a month or US$ 2,820 a year. The yearly wage estimated by LDK is US$ 1,540.

In fact, the employee category where wage and employment numbers appear more reliable is engineering and other professionals.


Closing remarks

Researchers performing studies of this nature will inevitably make all sorts of assumptions. This is natural, unavoidable and understandable, although a great deal of prudence is required.

It is also natural, unavoidable and understandable that some of their assumptions will be questioned, as readers with different insights go through their work.

In this sense, Linden, Dedrick and Kraemer are to be praised for their effort in making their assumptions explicit.

However, if prudence is required when making assumptions, at least every bit as much is required when drawing conclusions from studies of this kind. Sadly, the conclusions drawn by Linden, Dedrick and Kraemer appear to make little allowance for these assumptions.

An example from LDK Conclusions:

“The relationship between innovation by US companies and employment in the US is more complex than phrases such as the ‘vanishing middle class’ suggest. When innovative products are designed and marketed by U.S. companies, they can create valuable jobs for American workers even if the products are manufactured offshore.”

From LDK Table ES1 is evident that little if any replacement jobs were created by iPod for production line workers left redundant by outsourcing: their very category all but disappeared and the next category where they could be readily employed (retail and other non professional), not only employs a minuscule number, at a much lower wage, but that number probably overestimates the actual number of jobs created.

It is certainly possible for younger ex production line workers to obtain qualifications that would allow them to climb up the corporate ladder. However, this requires an investment of time, effort and money, imposed upon them without their consent, which, even if they were able to undertake, would not guarantee them a better job.

But what happens to older workers, or those with personal attachments, who will not be able to start further training and qualification? And what about those workers who due to the colour of their skins, or their religion, or their place of birth cannot realistically aspire to anything better than that job and find now that it’s gone?

In sum: to the extent that those workers were once middle class, LDK own figures (however estimated) refute their conclusion.

Because of this, readers of that report should exercise caution and common sense, virtues which often seem beyond neoclassical economists or the general media.

Thus, it would not surprise that this particular Linden, Dedrick and Kraemer report (as opposed to other research carried out by these researchers) were uncritically endorsed by the openly pro-business media: after all, they cater for their readers and the corporations that advertise through them.

Against expectations, however, mainstream and business media made very little reference to this report, the only exceptions I could find were The New York Times (and its international edition, The International Herald Tribune), BusinessWeek and a few other minor publications.

In what follows, the reader will forgive me for using a more candid, personal, non-academic language; a language more suited to me, anyway, as I am not an academic.

I would have also expected a keen support, for ideological reasons, from well-known neoclassical economists. Surprisingly, only Hal Varian (who authored the The New York Times article) has mentioned this particular report, perhaps because it was not published in any academic journal, either.

A query on Google Scholar with the string “Innovation and Job Creation in a Global Economy” returned two results: a working paper housed at SSM and a French language paper, both of which seem critical to LDK conclusion.

Well known mainstream economists like Paul Krugman, who once proclaimed that globalization had no negative effect on lower income Americans, have recanted since and now not only admit they were wrong, but also explain why.

What’s really surprising and disappointing is that a self described progressive like Prof. Mitchell has embraced this myth, not taking even the time to evaluate the report. And let’s be crystal clear on this: it doesn’t take a rocket scientist to find those warts.

It’s this readiness to accept reforms affecting other people’s lives, without question, that troubles me.

A few days ago, I saw a quote attributed to Keynes that seems appropriate here. Talking about the reasons of the triumph of economic orthodoxy, Keynes is reported to have said:

“That it [economic orthodoxy] could explain much social injustice and apparent cruelty as an inevitable incident in the scheme of progress, [with] the attempt to change such things as likely on the whole to do more harm than good, commended it to authority. That it afforded a measure of justification to the free activities of the individual capitalist,  attracted to it the support of the dominant social force behind authority.”

As a working class Australian, the reader will forgive me if I’m less than enthusiastic about Apple shareholders making big bucks on the misery of American or Chinese workers, because I can see myself, and the likes of me, following in their steps.

Neither am I excited about Apple’s management team doing well: for all I care, they could all go to hell. And they might yet go there, if you believe anything the report says.

But something positive came out of this: as a working class Australian, I’ve learned a lesson. We, the working class, the only we that includes me, are really alone. The Australian progressive intelligentsia is a myth, not too different from the Yowie and the Tassie tiger.

PS: The text appears to contain some typos. An example is the US Total compensation in LDK Table ES2, where the value shown does not correspond to the sum of the staff categories (see yellow cell in the Table presented at the beginning of this post and compare it to their version). Likewise, the figures cited in the text (under LDK Table 4) do not correspond to those shown in LDK Table ES2.