Sunday, April 26, 2015

Scandinavia and Gender Equality

The Scandinavian countries (more precisely the Nordic countries) of Sweden, Norway, Denmark, Finland, and Iceland have been the most successful nations at eliminating hindrances to female participation in the society.  They have not just removed blockades to their advancement, they have taken positive steps to ensure equality in the ability of men and women to live autonomous lives and participate in all areas of society.  Equality between the sexes is essentially a state requirement.  It is of interest to examine what striving for this national goal has meant in practice, and it is also of interest to try to ascertain why the Nordic nations made gender equality such a high priority, and why they managed to be so successful.

Lynn Parramore produced an article for Reuters addressing the uniqueness of the Scandinavian experience: Why Scandinavian women make the rest of the world jealous.  She begins by providing some data produced by the World Economic Forum.

“The Global Gender Gap Report ranks countries based on where women have the most equal access to education and healthcare, and where they can participate most fully in the country's political and economic life.”

“According to the 2013 report, Icelandic women pretty much have it all. Their sisters in Finland, Norway, and Sweden have it pretty good, too: those countries came in second, third and fourth, respectively. Denmark is not far behind at number seven.”

“The U.S. comes in at a dismal 23rd, which is a notch down from last year. At least we're not Yemen, which is dead last out of 136 countries.”

To help make the point that things are different in Scandinavia, Parramore provides this delightful photo of a Danish member of the European Parliament at work in one of the parliament’s sessions.

Parramore proceeds to examine the reasons why the Scandinavians might have been so successful.  Before going there we will first examine the policies put in place to implement equality between genders.  While Sweden managed only a fourth-place finish, it has, perhaps, been the most aggressive nation in implementing policies that not only encourage equality, but mandate it.

The Swedish government provides a description of its goals and policies: Gender Equality in Sweden.  This article begins by equating gender equality with fairness.  This notion of fairness seems to provide the basis of and the justification for the welfare policies for which Scandinavia is so famous.  If fairness is the goal, it means that everyone must have as equal an opportunity as possible, whether rich or poor, male or female. 

Their policy objective on gender equality is provided.

“Gender equality is one of the cornerstones of modern Swedish society. The aim of Sweden’s gender equality policies is to ensure that women and men enjoy the same opportunities, rights and obligations in all areas of life.”

Note the focus on shared obligations “in all areas of life.”  To ensure compliance with its policies, the Swedish government has a Minister for Gender Equality.

Learning susceptible to state influence begins at birth.  Consequently, education and preschool childcare is critical if fairness is to be attained.  There are two concerns to be addressed.  The first is that fairness demands these be provided to everyone at comparable levels of quality and at comparable expense.  In Sweden, formal education is free up through university level.  Childcare is available to everyone at a low cost that is proportional to parental income. 

Public provision of education and childcare is critical if fairness is to be maintained.  If education is left to market forces the wealthy will always figure out a way to obtain a high priced, and better education for their children.  Private education inevitably leads to inequality of opportunity.
The second concern related to childcare and education with respect to gender equality is that the service provided must not impose cultural or educational features that might favor the potential success of one sex over the other.  This can be a quite difficult task.  If a young boy shows interest in playing with a doll, should it be taken away from him?  Should girls be encouraged to play with dolls?  If a girl wishes to engage in potentially risky activity such as climbing trees should she be discouraged from that?  If a boy falls down and begins to cry is he told to tough it out or is he embraced and comforted?  How should a girl be treated in the same situation?  Sweden worries about these things.

“Ideally, gender equality should reach and guide all levels of the Swedish educational system. Its principles are therefore increasingly being incorporated into education in Swedish preschools.”

“The aim is to give children the same opportunities in life, regardless of their gender, by using teaching methods that allow each child to grow into a unique individual. The issue of gender equality is addressed continuously throughout elementary school to prepare students for further education.”

One of Sweden’s more controversial experiments involves gender-specific language.  In Swedish hon means she and han means he.  The word hen was selected as a gender-neutral pronoun.  Should the usage of hen be encouraged?

“Advocates say hen avoids the need to refer only to one gender or to use the cumbersome inclusive form of he/she, while also opening up the language for people who might not identify themselves as either male or female, or who wish to avoid referring to themselves as one sex or the other.”

“Critics argue that the word dilutes and damages the Swedish language and leads to confusion, particularly among children. Hen is being seen increasingly on Swedish websites and in print.”

This might be seen as going a bit too far, but there is some logic to it.  How can a girl feel equal to boys if the very words she has to use to describe herself imply a lower status: female versus male, woman versus man?  Most of us were taught that in English if the gender of a person need not be specified one should use the masculine pronoun.  In other words, if the person is worth writing about it is probably a male?  Even the word “queen” has the implication that one is in charge only because a suitable male wasn’t available to be king.

Let Sweden perform these experiments for us; we obviously still have a lot to learn.

How has this quest for gender equality worked out in terms of educational outcomes?  Sweden fears it may have been too successful.

“Today, a greater proportion of women than men complete upper secondary education in Sweden, which has come to attention as a reverse gender issue. Significantly more women than men also participate in adult education. Women comprise roughly 60 per cent of all students in undergraduate university studies and almost two-thirds of all degrees are awarded to women. Equal numbers of women and men now take part in postgraduate and doctoral studies.”

Gender equality after education can be addressed by public policy applied to the workplace.  Sweden has that Minister to address any issues that might arise.  A more subtle problem arises due to the fact that the mother has traditionally been more responsible for childcare and homemaking tasks.  Since it is quite difficult to compete with males unencumbered by such responsibilities, public policy has been aimed at minimizing that unequal burden.  Providing inexpensive childcare is very helpful at allowing women to return to work as soon as they wish to after childbirth, but that is an obvious move to make.  Sweden has taken a much more aggressive move to balance responsibilities.

Perhaps the most progressive of Sweden’s gender-equality initiatives is its policy with respect to time off from work after birth of a child.  This has been a difficult problem for women in the workplace.  Maternal leave policies in the United States are unevenly available, may not include pay for the time missed, and automatically put a woman who must be absent from work at a significant disadvantage with respect to men who do not have that problem.  Sweden addressed this issue by eliminating “maternal leave” and replacing it with “parental leave.”  Both fathers and mothers are required to take time off after giving birth to a child.  The goal is to encourage fathers to share the childcare burden as equally as possible. 

“In Sweden, parents are entitled to 480 days of parental leave when a child is born or adopted. This leave can be taken by the month, week, day or even by the hour. Women still take most of the days – in 2012, men took about 24 per cent of parental leave.”

“For 390 days, the maximum parental allowance is SEK 946 (EUR 105.0, USD 137.0) a day, as of 2013. For the remaining 90 days, the daily allowance is SEK 180. Sixty days of leave are allocated specifically to each parent, and cannot be transferred to the other. In addition, one of the parents of the new-born baby gets 10 extra days of leave in connection with the birth or 20 days if they are twins.”

“Parents who share the transferable leave allowance equally get a SEK 50 daily bonus for a maximum of 270 days.”

“Adopting parents are entitled to a total of 480 days between them from the day the child comes under their care. A single parent is entitled to the full 480 days.”

Michael Booth provides more information.  Men are required to take at least two months of the allocated leave.  Salary is covered at the 80% level up to the maximum specified above.  This leave can be taken at any time until the child reaches age eight. 

How many US women would be envious of the Swedish women?  How many US men would be envious of the Swedish men?  How has this worked out?  An article in The Economist provides this assessment.

“One of the most powerful arguments in favour of splitting parental leave more equally is that it has positive ripple effects for women. Since Swedish men started to take more responsibility for child rearing, women have seen both their incomes and levels of self-reported happiness increase. Paying dads to change nappies and hang out at playgrounds, in other words, seems to benefit the whole family.”

Another indicator of gender equality is wage differential between men and women.  Sweden claims it has reduced the wage discrepancy to about 6%—so far.

“Pay differentials between men and women can largely be explained by differences in profession, sector, position, work experience and age. Some, however, cannot be explained this way and may be attributable to gender – these are called unjustified pay differentials. On average, women’s monthly salaries are 94 per cent of men’s when differences in choice of profession and sector are taken into account. Pay differentials are most pronounced in the private sector.”

And remember—Sweden only came in fourth in the assessment of gender equality.

The question yet to be answered is what is it about the Scandinavian countries that led to this dedication to equal treatment for women?  Lynn Parramore takes a shot at it.  The most compelling of her conjectures is the importance of the lack of a strong patriarchal theme in their societies.  This is attributed to turning away long ago from both military adventures and from Christianity, both of which lead to cultures of male dominance.  The countries mainly focused on their internal affairs after the Napoleonic Era.  They were Christianized much later in history than the rest of Europe and spent much less time being influenced by it.  They switched to Lutheranism at the Reformation with state churches being adopted.  Many people nominally still belong to churches—it can take an effort to extract oneself—but blithely ignore them when it comes to public policy.  Consider Sweden for which Wikipedia provides this information:

“As of 2014, about 65% of Swedish citizens are members of the Church of Sweden, compared to over 95% in 1970, and 83% in 2000.”

“Less than 4% of the Church of Sweden membership attends public worship during an average week; about 2% are regular attendees.”

“In a Eurobarometer Poll in 2010, just 18% of Swedish citizens responded that ‘they believe there is a god’….”

Parramore adds this thought:

“They tend to look at morality from a secular point of view, where there's not so much obsessive focus on sexual issues and less interest in controlling women's behavior and activities. Scandinavia's secularism decoupled sex from sin, and this worked out well for females. They came to be seen as having the right to sexual experience just like men, and reproductive freedom, too. Girls and boys learn about contraception in school (and even the pleasure of orgasms), and most cities have youth clinics where contraceptives are readily available. Women may have an abortion for any reason up to the eighteenth week (they can seek permission from the National Board of Health and Welfare after that), and the issue is not politically controversial.”

All of the major Western religions, Judaism, Christianity, and Islam, have left a legacy of male dominance and female subservience.  Most of the cultural clashes that exist in the United States can be traced back to religious and associated cultural tenets concerning the freedom of women to live their own lives as they choose.  We can never have a proper welfare state because that would mean supporting an unwed mother and her child when everyone knows that unwed mothers have sinned and must be punished—along with their children—rather than comforted.  The arguments over the right to an abortion have nothing to do with being “pro-life.”  Pro-lifers are quite willing to destroy any life other than what they presume is a living zygote, embryo, or fetus.  In particular, they are willing to let a living mother die in order to save what one day might turn into a child.  This is nothing but a brute force attempt to maintain control of women and their bodies.

God was created in the image of men.  We will bear the burden of that misconception until we also learn to ignore religion in making public policy decisions. 

One can only wonder what the world would have been like if god had been created by women instead.

Tuesday, April 21, 2015

Marriage Is In Decline, Should We Be Worried?

The probability that young people will follow a traditional path and marry at an early age has been declining over recent decades.  This is a general phenomenon across much of the developed world.  Consider this data on marriage rates provided by the OECD (Organization for Economic Cooperation and Development).

Clearly something significant is occurring.  There have been vast changes due to both social and economic evolution.  Whether these changes are viewed as positive or negative will depend on an individual’s points of view.  Changes in marriage (and divorce) rates can be both symptoms and causes of socioeconomic developments.  Evaluation of any trends must be performed within a very broad context.

An example of viewing marriage in isolation and leaping to unwarranted conclusions can be found in Carol Costello’s article for CNN: Ready for the marriage apocalypse?  She begins with this declaration:

“The marriage apocalypse may be coming. Talk to any millennial and you can envision an America virtually marriage-free, with everyone happily single.”

“I did. And I do.”

Costello relates a few conversations she has had with college students that suggest that marriage is not at the top of their list of priorities.  She seemed startled to learn that one young woman would rather spend $20,000 on a trip to Europe than on a wedding.  Costello then quotes results from a Pew Research Center report that polled people on their views on marriage.

“When asked if society is just as well off if people have priorities other than marriage and children, 50% of respondents were OK with that. And of that 50%, 66% were adults between 18 and 29.”

That quote plus the anecdotal comments she gathered indicate that the majority of young people seem more concerned with immediate issues than the long-term commitments of marriage and children.  It is not clear how that can be used to conclude that marriage is a dying institution.

Costello then turns to Scandinavia for data that might support her thesis.

“Scandinavians are just about there. According to USA Today: ‘In Norway ... 82% of couples have their first child out of wedlock. The numbers are similarly high for Sweden and Denmark. While many couples marry after having the first or second child, it's clear marriage in parts of Scandinavia is dying’."

She then includes this quote, presumably to convey the notion that the assumed death of marriage is somehow associated with Scandinavia’s high quality-of-life ranking.

“The article also points out that ‘Norway ranked first and Sweden second in the United Nations' quality-of-life survey for 2004, which rates per capita income, education levels, health care and life expectancy in measuring a nation's well-being. The USA came in eighth’."

Finally she asks this question of her readers:

“….back to that idea of a pending marriage apocalypse. Would it be so terrible if we all remained single?”

That would be a more interesting question if the data actually supported her contention that marriage is dying here, in Scandinavia, or anywhere.  Consider the chart provided at the head of this article.  The OECD data does indicate a downward trend in marriage rates for the selection of countries included, but note that Sweden (Suède) bottomed out in the late 1990s and its marriage rate has been trending upward ever since.  Note also that Sweden is the Scandinavian country most supportive of women’s equality.  If there were ever to be a place where women might decide that life would be more interesting without marriage and children, it would be Sweden.  However, it hasn’t happened there and doesn’t seem to be about to happen.

Costello discusses marriage as if the alternative is being single.  That is highly misleading.  Young men and women may be in less of a hurry to marry, but that does not necessarily mean that they are less interested in mating.  Consider this table provided by OECD on the marital status of adults in 17 different member countries.  That organization is smart enough to recognize that cohabitation is a significant factor and it must be tallied.  Some might feel uncomfortable including cohabitants in the same category as “married”, but it makes even less sense to include them as “singles.”

It would be difficult to look at this data and conclude that there are countries where marriage is dying out.  The “married” and “single” categories are unremarkable.  Differences arise in the degree to which cohabitation is an established mode of existence, and the Scandinavian countries have taken the lead in that category.

The CDC (Centers for Disease Control and Prevention) supports the National Center for Health Statistics which studies the types of relationships young people are drifting into.  It provides this chart of initial unions entered by women in the United States:

The data covers the period 1995 to 2010.  The significant trend is for more people to cohabit before marriage—almost half in recent years.  These are significant relationships that can last for years.  Some dissolve and some transition to marriage.  Some marriages dissolve and lead to cohabitation as the next union.  Nevertheless, over the time interval studied the number of true “singles” has been essentially constant.

There are a number of reasons why avoiding formal marriage, initially or indefinitely, could be viewed as advantageous by young people.  Given current socioeconomic conditions it is likely that an even greater number will choose this path in the future.  However, conditions do change and this trend could reverse.  In fact, many things could happen and predicting the future is always risky.  It is particularly risky if you don’t start with a sound understanding of the basic data.

There is a wealth of interesting and troubling information contained in the various documents referenced here.  Major changes are occurring in our society due to social and economic developments.  There may be an apocalypse in our future, but it will have nothing to do with net marriage rates.

Wednesday, April 15, 2015

Sweden’s Collective Individualism

Many people in the United States equate federal taxation with socialism.  Some of these same people will also associate taxation with communism and fascism (Nazism to be precise)—often in the same sentence.  Consequently, if asked to give an example of a socialist country—other than their own—they would tend to turn to the Nordic countries with Sweden as the most likely selection.  The Scandinavian countries would hardly qualify under the academic definition of socialism, but they are high-tax, big-government countries, and Sweden is the largest, the best-known, and the most aggressive in social experimentation.

Listening to the local political commentary in the United States might lead one to conclude that individual liberties are inhibited by government intervention in one’s life.  It is intriguing and refreshing to encounter the argument that Sweden’s often intrusive government is designed to maximize individual freedom (autonomy, to be more precise).  How can this be?

Michael Booth provides the necessary perspective in his book The Almost Nearly Perfect People: Behind the Myth of the Scandinavian Utopia.  Booth is a British writer who married a Danish woman and lives in Denmark and reports on Scandinavia.  He has provided a quick survey of the five countries he considers to be Scandinavian: Denmark, Sweden, Norway, Iceland, and Finland.  There are no great revelations to be found here if one is seeking detailed analyses of the future stability—or lack thereof—of the particular societies.  However, it is interesting, entertaining, and, occasionally, a source of startling information.  He will leave you wishing to learn more.

Booth provides this brief introduction to recent Swedish history:

“The accomplishments of twentieth-century Sweden are legion and, mostly, noble: from its rationalist, respectful secularism, to its industrial might and economic success and, of course, its compassionate, all-embracing, shining beacon of a welfare state.  For much of the last hundred years, Sweden has been seen, and has very much seen itself, as the social laboratory of the world: a heroic blond collective intent on pioneering better ways of living, abiding by higher, more modern moral codes, and writing really catchy four-minute pop songs.”

“Right now, the Swedish model has the attention of the world’s policymakers and politicians….many a moderate Western political leader has fantasized about emulating Sweden’s mixed economy and consensus-driven politics.  This serene Nordic swan always seems to achieve its goals with minimum fuss and discord: whether it be implementing progressive labor laws, orchestrating an economic recovery following a banking misadventure, or being very, very good at tennis, the Swedes never break a sweat.”

It is the size and power of the state, and its influence on individual lives that is the subject here.  Booth, with his British perspective, is troubled by what he observes.

“Everything I read about the Swedish Social Democratic government of the last century suggested an organization that was driven by one single, overarching goal: to sever the traditional, some would say natural, ties between its citizens, be they those that bound children to their parents, workers to their employers, wives to their husbands, or the elderly to their families.  Instead, individuals were encouraged—mostly by financial incentive or disincentive, but also through legislation, propaganda, and social pressure—to ‘take their place in the collective,’ as one commentator rather ominously put it, and become dependent on the government.”

Swedes who believe in their current system do not agree with this dystopian picture.  They present this description:

“….the real aim of the Swedish government was to liberate its citizens from one another, to set them free and allow them to become fully autonomous, independent entities in charge of their own destinies.  Far from being the collectivist sheep their neighbors perceive them to be….the Swedes are ‘hyper-individualists’—more so even than the Americans—and that they are ‘devoted to the pursuit of personal autonomy’.”

This has the scent of state-sponsored libertarianism.  Could there be such a thing?  What do the Swedes mean by “personal autonomy?”

The key to understanding the Swedish position is to recognize that all social, organizational, religious, or family ties generate restrictions on behavior. These restrictions can be harmful if they force a wife to remain in an unhappy marriage because of economic reasons, or if a child’s ability to attend a university and study whatever she wishes is constrained by the economic circumstances and whims of her parents, or if the elderly must depend on the good will of their children in order to be comfortable in their later years.  Women are provided with all the support they need to both work and have a family.  An extensive system of childcare allows women to make what choices they wish.  Booth suggests that this readily available day care is also a way in which children are encouraged to become less dependent on family ties and thus more autonomous.

Booth provides these quotes from various observers of the Swedish system.

“….The main objective is not to be dependent on your family, the wife shouldn’t be dependent on her husband, the children should be autonomous when they are eighteen, old people should not be dependent on their children taking care of them, and therefore to a large extent the state steps in and provides these things.”

“…the point here is not that the state is saying this is how you should live your life, but it is providing you with the support structure.  Society is unequal and people don’t have the same opportunities, but we are trying to lift everybody to the same level so they can achieve the same kind of freedom and self-realization, which only a small group could do previously.”

“The American wants the freedom to do, the Swede wants the freedom to be.”

Granting such power and influence to a government can be risky.  Not all peoples would be so willing to cooperate and negotiate consensus solutions.  Nevertheless, the assumption that all government is harmful and limits personal freedom is ridiculous.

The basic components of an efficient welfare state are the provision of free or very inexpensive education, healthcare, childcare, pensions, and an income floor.  All of these come at the cost of a high tax rate.  It was argued in Taxation, Redistribution, and Social Insurance that such high taxes can be a good investment, particularly for middle-class families, if the taxes provide that class of benefits.

Have the Scandinavians benefited from their welfare states?  Are they satisfied with their lives?  Are they happy?  Booth is dubious about surveys that tally self-reported claims of “happiness.”  Can the Scandinavians be trusted to convey satisfaction in the same way as the people of other countries?  Nevertheless, Booth admits that one Scandinavian country or another is always at the top of the list when these polls are taken.

“….to win one happiness survey may be regarded as good fortune, to win virtually every one since 1973 is convincing grounds for a definitive anthropological thesis.”

In addition, the Scandinavian countries are also on the top of the list when economic mobility is tallied.  These are places where a person born rich could end up poor, and a person born poor could end up rich.  What a concept!

And the children seem to be thriving under all that state-provided care.

“UNICEF….recently awarded Sweden more first places in its child well-being survey than any other country (Denmark and Finland were second and third)….”

Certainly, not everyone will agree, but if I could have lived my life not worrying about how my own education would be paid for, paid my taxes and not worried about how my children’s education would be paid for or about how to pay for healthcare, and not have to worry about income in retirement, I would have responded much more positively to one of those happiness surveys.  And I would have felt like I had had much more personal freedom.

Friday, April 10, 2015

The Myths of Neoliberal Economists

In his book, The Memory Chalet, Tony Judt reminisced over the history of Marxism and discussed its ability to “capture” the minds of many intellectuals who would become so enthralled with its view of historical progression that they would use the promised end to justify terrible means to attain that end.  He referred to Marxism as a secular religion.  Similar to deity-based religions, secular religions can provide a feeling of belonging to something bigger than oneself; it makes available a framework in which all things can be explained; decisions which otherwise might be difficult to make are predetermined.  The dark side of religious belief, secular or otherwise, is that it can produce goals so desirable that adherents resort to unworthy methods to reach those goals.  In one case the legions march off with God on their side, in the other, History is on their side.

Judt makes the provocative comparison between Marxism and free-market capitalism and concludes that Marxism has been superseded by another secular religion—one of which we are barely aware.

“Our contemporary faith in “the market” rigorously tracks its radical nineteenth-century doppelgänger—the unquestioning belief in necessity, progress and History.  Just as the hapless British Labour chancellor in 1929-1931, Philip Snowden, threw up his hands in the face of the Depression and declared that there was no point opposing the ineluctable laws of capitalism, so Europe’s leaders today scuttle into budgetary austerity to appease ‘the markets’.”

“But ‘the market’ like ‘dialectical materialism’—is just an abstraction: at once ultra rational (its argument trumps all) and the acme of unreason (it is not open to question).  It has its true believers—mediocre thinkers by contrast with the founding fathers, but influential withal; its fellow travelers—who might privately doubt the claims of the dogma but see no alternative to preaching it; and its victims, many of whom in the US especially….proudly proclaim the virtues of a doctrine whose benefits they will never see.”

“Above all, the thrall in which an ideology holds a people is best measured by their collective inability to imagine alternatives.  We know perfectly well that untrammeled faith in unregulated markets kills: the rigid application of what was until recently the ‘Washington consensus’ in vulnerable developing countries—with its emphasis on tight fiscal policy, privatization, low tariffs, and deregulation—has destroyed millions of livelihoods.  Meanwhile, the stringent ‘commercial terms’ on which vital pharmaceuticals are made available has drastically reduced life expectancy in many places.  But in Margaret Thatcher’s deathless phrase, ‘there is no alternative’.”

Marxism was based not on data or past history, but on a theory of how society must evolve.  Similarly, free-market capitalism also is not based on data or past history, but on a theory of how economies (and societies) must evolve.

The policies associated with the term free-market capitalism used above can also be referred to as neoliberal economic policies.  One must be careful to not confuse liberal economic policies with liberal political policies.  Liberal economics refers to free-market ideas and is inevitably promulgated by politically conservative people.  Liberal economic concepts were first formulated in response to the industrial revolution.  They included “invisible hands” and other intellectual constructs promoting the wisdom of unfettered markets.  Liberal policies were thought to have been dominant in the long period that terminated with the onset of two world wars and the Great Depression.  The period after World War II led to an era of intense government intervention as societies tried to recover from that tumultuous period.  This was a period of exceptionally high economic growth.   By around 1980, politically conservative economists campaigned to reinstate the policies presumed to have been in place in the prewar liberal years, thus they are referred to as neoliberals.  The neoliberals, in that process of becoming ascendant, managed to bring the period of high growth to an end.

Ha-Joon Chang, an economist at Cambridge University, provides a comparison between the claims of free-market capitalists and the actual history of economic development in his book Bad Samaritans: The Myth of FreeTrade and the Secret History of Capitalism.  Chang provides us with a concise version of the neoliberals’ view of economic history.

“According to this history, globalization has progressed over the last three centuries in the following way: Britain adopted free-market and free-trade policies in the 18th century, well ahead of other countries.  By the middle of the 19th century, the superiority of these policies became so obvious, thanks to Britain’s spectacular economic success, that other countries started liberalizing their trade and deregulating their domestic economies.  This liberal world order, perfected around 1870 under British hegemony, was based on laissez-faire industrial policies at home; low barriers to international flow of goods, capital and labour; and macroeconomic stability, both nationally and internationally, guaranteed by the principles of sound money (low inflation) and balanced budgets.  A period of unprecedented prosperity followed.”

Chang is gentle enough to refer to this mangling of reality as merely “misleading.”

“This history of globalization is widely accepted.  It is supposed to be the route map for policy makers in steering their countries towards prosperity.  Unfortunately, it paints a fundamentally misleading picture, distorting our understanding of where we have come from, where we are now and where we may be heading for.”

Chang identifies a particularly egregious example of how Britain practiced “free trade” in the period when it was supposedly setting the example for a period of “unprecedented prosperity.”

“This was a particularly shameful episode, even by the standards of 19th-century imperialism.  The growing British taste for tea had created a huge trade deficit with China.  In a desperate attempt to plug the gap, Britain began exporting opium produced in India to China.  The mere detail that selling opium was illegal in China could not possibly be allowed to obstruct the noble cause of balancing the books.”

When China confiscated a shipment of opium, the British declared war, defeated China, and forced it to accept a humiliating treaty (the Treaty of Nanking) that ceded Hong Kong to the British and denied it the right to set its own tariffs.  In this way free trade was introduced to China.

“The truth is that the free movement of goods, people, and money that developed under British hegemony between 1870 and 1930—the first episode of globalization—was made possible, in large part, by military might, rather than by market forces.  Apart from Britain itself, the practitioners of free trade during this period were mostly weaker countries that had been forced into, rather than had voluntarily adopted, it as a result of colonial rule or ‘unequal treaties’ (like the Nanking Treaty), which among other things, deprived them of the right to set tariffs and imposed externally determined low, flat-rate tariffs (3-5%) on them.”

The goal of British foreign policy was to create a system whereby Britain could obtain raw materials at low price from its colonies or other poor countries, convert those goods into manufactured commodities, and resell them to the same countries at a premium.  Not surprisingly Britain, and other countries that could attain similar power, entered a period of “unprecedented prosperity.”  The rest of the world didn’t do nearly as well.

Forcing a developing country into a free trade environment prematurely, as neoliberalism demands, is harmful to the long term prosperity of that country.  Developing countries, by definition, are in a position to sell only low-technology goods or raw materials.  Developed countries have advanced technologies and skills that allow them to produce more highly-valued goods.  If a country like South Korea followed neoliberal advice they would still be selling fish in hopes of earning enough to buy autos and electronics from the United States or Europe.  Chang points out that the trick to becoming a wealthy country is for a poor country to sell what it can on the open market and forego consumption of goods available on that market.  The easiest way to do this is to impose high tariffs on imports of manufactured goods.  This provides the dual purpose of limiting the flow of funds out of the country and it collects a tax that can be used to subsidize the development of more competitive technologies.  This is the path Britain and the United States followed.  They became interested in “free” trade only when they thought they were powerful enough to control some parts of the market.

“This simple but powerful principle—sacrificing the present to improve the future—is why the Americans refused to practice free trade in the 19th century.  It is why Finland did not want foreign investment until recently.  It is why the Korean government set up steel mills in the late 1960s, despite the objections of the World Bank.  It is why the Swiss did not issue patents and the Americans did not protect foreigners’ copyrights until the late 19th century.”

“It took Toyota more than 30 years of protection and subsidies to become competitive in the international car market, even at the lower end of it.  It was a good 60 years before it became one of the world’s top car makers.  It took nearly 100 years from the days of Henry VII for Britain to catch up with the Low Countries in woolen manufacturing.  It took the US 130 years to develop its economy enough to feel confident about doing away with tariffs [tariffs in the US remained at 40-50% until World War I and were the highest of any country in the world].  Without such long time horizons, Japan might still be exporting mainly silk, Britain wool and the US cotton.”

The neoliberal path to prosperity derived from this false history includes the following:

“….a country needs to privatize state-owned enterprises, maintain low inflation, reduce the size of government bureaucracy, balance the budget (if not running a surplus), liberalize trade, deregulate foreign investment, deregulate capital markets, make the currency convertible, reduce corruption and privatize pensions.”

The problem is that while no wealthy country, including Britain and the United States, utilized these policies in becoming wealthy, undeveloped and developing countries are being advised—and often forced—to follow them.

“In relation to the developing countries, the neoliberal agenda has been pushed by an alliance of rich country governments led by the US and mediated by the ‘Unholy Trinity’ of international economic organizations that they largely control—the International Monetary Fund (IMF), the World Bank and the World Trade Organisation (WTO).  The rich governments use their aid budgets and access to their home markets as carrots to induce the developing countries to adopt neo-liberal policies.  The IMF and World Bank play their part by attaching to their loans the condition that the recipient countries adopt neoliberal policies.  The WTO contributes by making trading rules that favour free trade in areas where the rich countries are stronger but not where they are weak (e.g., agriculture or textiles).”

Neoliberal economic policies were developed in wealthy countries.  Not surprisingly, they work to maintain existing wealth at the expense of robust economic development in potential competitors.

“Free trade demands that poor countries compete immediately with more advanced foreign producers, leading to the demise of firms before they can acquire new capabilities.  A liberal foreign investment policy, which allows superior foreign firms into a developing country, will, in the long run, restrict the range of capabilities accumulated in local firms, whether independent or owned by foreign companies.  Free capital markets, with their pro-cyclical herd behavior, make long-term projects vulnerable.  A high interest rate policy raises the ‘price of future’, so to speak, making long-term investment unviable.  No wonder neo-liberalism makes economic development difficult—it makes the acquisition of new productive capabilities difficult.”

Returning to the theme of neoliberlism as a secular religion, any religion—secular or otherwise—is created in order to provide an orderly framework to a disorderly world.  The creators must also derive comfort from this framework, in the sense that it justifies actions that they feel necessary to their wellbeing.  The rich-world economists who derived liberal policies and their neoliberal acolytes who continue the rote promotion of them have replaced an unpleasant history of forceful domination and unabashed rent gathering with one that attributes all that occurred—and all that will occur—to economic forces as inevitable as the laws of physics.  In other words, belief has replaced scholarly research.

And we will all suffer the consequences.  Chang provides numerous examples where acceptance of neoliberal policies by countries has limited their economic growth.  The data collected by Thomas Piketty, discussed here, is consistent with the notion that the liberal policies presumably in place prior to World War I produced a long era of low growth and ever growing inequality of wealth.  The 30 years or so after the two world wars, which might be described as a Keynesian or social democratic era, was a time of exceptional growth and decreasing inequality.  The returning dominance of neoliberal policies has again led to a period of decreasing economic growth and increasing economic inequality.  Of course there are always other things going on that might ruin a good story, but if the neoliberals can create comforting tales, then so can I.

Friday, April 3, 2015

Factory Asia: A Threat to both Poor and Wealthy Countries?

International trade has always performed as a mechanism whereby wealthy countries could take advantage of less-wealthy countries.  In the beginning, the example was set by England, a country with a worldwide distribution of colonies whose policies they controlled and a Navy that could coerce weaker countries into acceptance of disadvantageous trade agreements.  The goal was always to obtain lower-order goods at a low price so that they might be converted into higher-order merchandise that could be sold back to these countries at a premium.  This system was followed by a number of wealthy countries and worked well for them.

Just as a moral justification could be imagined by slavery’s beneficiaries, an economic justification could be conjured up to provide comfort to those benefiting from the trade situation.  The primary premise derived was that trade between two countries benefits everyone.  There was logic behind this in that a country selling raw materials to England would gain income which, in principle, could be distributed among the people of that nation.  However, the real profit was to be made in producing finished goods that required greater skill and more advanced technology.  To continue this advantageous exchange, England usually prohibited the development any of these advanced skills in its colonies.  The cementing of this inequality was expressed in a second economic premise, that of “comparative advantage,” in which it was claimed that trade works best when each partner produces the goods that they are best at producing.  In other words, undeveloped countries should continue to sell undeveloped goods to wealthy countries in order to be able to purchase developed goods from the wealthy countries.

It is not difficult to imagine that economic thinkers in wealthy countries benefiting from this economic system viewed it in a positive light.  What typically emerges from a morally embarrassing activity is an attempt to bury any immoral content.  Coercive trade policies became “free trade” policies.  Since their countries benefited and the underdeveloped countries did receive income from trade (short-term benefits rather than long-term benefits), therefore everyone benefited.  And because the level of trade was greatest when each trading partner produced what it was best at producing, the principle of comparative advantage was obviously correct.

In this way, reality was replaced by myth, and myth was elevated to economic law.  This favorable view of free trade forms one of the basic premises of the neoliberal thinking that has been ascendant in wealthy countries for the past 50 years. 

But what might happen if these economic myths become a straitjacket that imposes policies on wealthy countries that put them at a disadvantage with respect to those countries that have chosen to not believe in myths.

Japan and South Korea are two countries who became economic powerhouses by declining to accept neoliberal guidance.  They recognized that the only way to gain sufficient economic growth was to be able to produce and sell high technology products.  They depended on strong government policies aimed at developing certain key industries that would eventually allow them to manufacture products that could compete in price and quality in international markets.  This accomplished by subsidizing research and development and protecting these industries from foreign competition—often for decades.  Non-free trade made them economically strong.  China learned from these examples and accepted the role of low-cost labor-intensive manufacturer when it was offered by the wealthy countries.  Its goal was always to eventually compete with those countries who wished to take advantage of it. 

China has also become an economic powerhouse, and given its size and its ability to escape from neoliberal constraints it appears to have constructed significant long-term plans.  It seems to be positioning itself and its Asian neighbors into a network of factories and suppliers that will dominate manufacturing worldwide.  An article in The Economist, The future of Factory Asia, explores these developments.  It begins with this lede:

“Rising Chinese wages will only strengthen Asia’s hold on manufacturing”

And what is the level of “Asia’s hold on manufacturing?”

“Cheap Chinese labour has been crucial to the building of “Factory Asia”, the name given to the region’s complex of cross-border supply chains. Asia first emerged as a manufacturing power in the 1960s, when Japan began exporting electronics and consumer goods. Taiwan and South Korea followed its lead. By the 1980s Japanese firms were building plants across South-East Asia. But China’s opening up was the gamechanger. In 1990 Asia accounted for 26.5% of global manufacturing output. By 2013 this had reached 46.5%. China accounts for half of Asia’s output today. The region’s share of the global trade in intermediate inputs—the goods that are eventually pieced together into final products—rose from 14% in 2000 to 50% in 2012.”

“Today, 65% of the ingredients in goods China sells to the world are made at home, up from 40% in the mid-1990s. As domestic consumption rises, moreover, its own firms are getting better at designing the products its consumers want (think Xiaomi, China’s smartphone giant).”

Pundits claim that China’s success will lead to rising wages and make it less competitive in manufacturing.  The result is assumed to be a slowdown in economic growth as manufacturing moves to other undeveloped countries with cheaper labor.  It is further assumed that the economic “miracles” observed in Japan, South Korea, and China will then be reproduced in African countries perhaps.  That is the thinking that follows from the neoliberal belief that markets will always chose the correct solution.

But what if China and its neighbors don’t wish to depend on the fickleness of markets and wish to maintain and increase their manufacturing dominance no matter what.  Markets have demonstrated that they can arrive at better solutions than poor planning, but they have not demonstrated that they can improve on clever planning.  It was, after all, clever planning, not neoliberal myths that got them where they are today.

The point The Economist is making is that China is intent on continuing to capture ever more of the world’s manufacturing sector—and it is in a good position to do just that.  One of the consequences of moving manufacturing from domestic plants to factories in China and other parts of Asia is that the area has developed a massive supply chain that was necessary to support the manufacture.  Labor costs are no longer the dominant issue for many products; it is the ability to provide the myriad components necessary for assembly.  Apple constructs most of its items in China not because labor is cheap, but because it has a network of suppliers in Asia that cannot be reproduced now in the US.

China has no intention of losing work to lower wage countries unless it chooses to.

“Despite fast-rising wages, China’s factories are still far cheaper than their rich-world rivals. Many pay their employees just above the minimum wage, which at about $270 a month in China is less than a quarter that in America. And they are more efficient than many rivals in the developing world. McKinsey, a consultancy, found that labour productivity increased by 11% a year in China from 2007 to 2012, compared with 8% in Thailand and 7% in Indonesia. With Chinese factories just starting to pour money into automation, there is scope to improve productivity further. China became the biggest market for robots in 2013, buying 20% of all those made that year, according to the International Federation of Robotics. But it still has just 30 robots per 10,000 workers in manufacturing, compared with 323 in Japan. Foxconn, the Taiwanese firm that makes iPhones and has more than a million employees in China, says that it wants robots to complete 70% of its assembly-line work within three years.”

China has no need to control all of manufacturing.  There are advantages to moving some manufacturing to other countries, but it desires to keep those activities as close to home as possible—for both political and economic reasons.

“Hence the incipient rise of South-East Asia, which offers a big labour pool with low wages and mostly market-friendly policy environments. The average factory worker in China earns $27.50 per day, compared with $8.60 in Indonesia and $6.70 in Vietnam. Demography is another advantage: China may be ageing rapidly, but South-East Asia’s workforce is largely below the global median age of 29.7.”

Keeping production nearby will be an advantage to Chinese and other Asian consumers.

“The region’s biggest advantage over the rest of the world as production leaves China is simple: it is nearby. For all the benefits of telecommuting, geography matters, both to ensure quick shipment of goods and to let managers hop back and forth between factories. Rising Chinese consumption is particularly helpful to manufacturers located in its environs. As the purchasing power of Chinese buyers grows, the average distance travelled by consumer-goods exports is changing, depending on whether they are shipped from Asia, Europe or North America. From 2008 to 2012, the average journey length for Asian exports fell by 4.5%, while those from Europe and North America rose by 25.9% and 13.7%, respectively. That makes transportation costs cheaper for Asian factories.”

An article in the Wall Street Journal  by Charles Hutzler indicates the seriousness of China’s intent: China Banks on Sharing Wealth to Shape New Asian Order.

“In a speech to a regional forum….Mr. XI presented China as a partner willing to ‘jointly build a regional order that is more favorable to Asia and the world.’  He highlighted a new China-led infrastructure bank and other initiatives designed to leverage hundreds of billions of dollars to finance railways, ports and other development projects, and foster regional economic integration.”

If China and its Asian allies and satellites do manage to maintain their position as factory for the world, what path might other underdeveloped areas take to improve their economies?  Another comment in The Economist addresses this concern.

“They lack a large economy that can act as the nucleus of a regional grouping. The North American Free-Trade Agreement has brought Mexican firms into supply chains that criss-cross North America, but not Central and South American ones. High trade barriers mean western Europe will not help north Africa in the way that it has helped central and eastern Europe.”

“And even when places like India or sub-Saharan Africa prise production from Factory Asia’s grasp, another problem remains. Manufacturing may no longer offer the employment or income gains that it once did. In the past export-led manufacturing offered a way for large numbers of unskilled workers to move from field to factory, transforming their productivity at a stroke. Now technological advances have led to fewer workers on factory floors. China and its neighbours may have been the last countries to be able to climb up the ladder of development simply by recruiting lots of unskilled people to make things cheaply.”

Developing a manufacturing capability has always been the mechanism for economic growth and a stable economy.  It is not clear that service-based economies can provide prosperity for an undeveloped country.

Developed countries should also be concerned about the dominance of Factory Asia.  Most technical development is aimed at acquiring the ability to build something better, smarter, faster, cheaper….  To the degree that countries cede manufacturing prowess to another country, they are also ceding technical prowess to that country.  Apple made a lot of money manufacturing its gadgets in China, but in the process they provided China with the capability to manufacture competing gadgets.  China can now live without Apple, but can Apple live without China?

Short-term effects, which are all a market is aware of, can lead to long-term disasters.  We barely managed to save our automobile industry—and its deep supply chain—when neoliberals clamored to let the market dictate its death.  It is time to send believers in myths back to the sidelines and commit ourselves to some long-term planning.

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