Monday, August 17, 2015

Retrenchments and the clash of titans

Forging a new understanding between adversaries.

We should be in the middle of a strike season but this has clearly been overwhelmed by what is rapidly becoming a lay-off crisis. While we are heading for a multi-party summit on the issue (see report here) it may be worth reminding ourselves of the inexorable forces confronting us and the need to bury old paradigms.

Involvement by government, organised labour or even employers, either through more controls, mineral license bullying, implied nationalisation, strike threats, exchange rate manipulations, incurring bigger company losses, or disguising inefficiencies through trade barriers, will ultimately have little sustainable effect, perhaps even make matters worse.

Jobs are not created or sustained by governments, companies, capital or labour but by responding to demand reflecting people’s needs and wants. And while there is a mesmerising attraction to the idea of a pure, omnipotent, trustworthy and ultimately benign force that guides transactional correctness, there is a deeper context that cannot be ignored.

A maxim I have often used says “markets are perfect; they will perfectly reflect all our imperfections.” It is dealing with those imperfections that we get stuck in a quagmire of much academic drivel, rhetoric, labels, slogans and populist babble that in itself just drags us deeper into that bog. In the end it is a matter of trust. What or who do we trust more: governments or private enterprise; laws or unfettered competition? And then to what extent?

Whatever we do, we cannot ignore the inexorable and mighty dynamism of markets – that force which gives expression to individual needs, wants, fears, hopes and dreams. It is also the arena where we can create meaning in our lives, where we can express our contribution to others and receive rewards to sustain that contribution. Things start going awry when that arena is seen as an exploitable resource exclusively for self-enrichment and minimum contribution for maximum gain – whether by plutocrats or governments. This destroys the ideal of having markets as unregimented as possible.

Time and again and throughout history we have learned at our peril that trying to ignore market forces, control or manipulate them, comes at a huge price. Demand always remains supreme and the ultimate master. When people want less oil, wells will dry up; when they want fewer commodities, mines will close; when we no longer eat beef, cattle will become displays in a few zoos. And with them will fade into oblivion those thousands of enterprises that rely on them; that serve them. And with them, thousands of jobs.

Stripped of all hypotheses, that is what is confronting our mining, steel and other industries. It makes tragically comical the political and other sideshows of militant arguments either for profit, wage or societal maximum gain. It is sad to see the constant repetition and escalation of labour militancy, falling back on 19th century refrains at a time when faltering demand is causing massive lay-offs.

While some may baulk at the concept of a “war” between labour and capital, there is a stand-off nevertheless. Much of our economic thinking has been based on the supremacy of capital, its revered position as creator of jobs and generator of wealth and prosperity. This thinking expediently ignores the distinction between enterprise and capital, and the important precept that enterprise leads and finance follows. It is in the development of enterprise in response to demand that a partnership can and should be forged between them, moving away from a stance of mutual exploitation.

In a narrow sense of a clash between the titans of capital and labour, the former will always win. It is flexible, mobile and for most part disturbingly aloof to and often individually unaccountable for the consequences of its actions. Organised labour on the other hand is rigid, relatively immobile and enslaved to remuneration or debt. The simple reality is that in a volatile world, inflexible things are the first to break.

In a broader sense, the very battleground that these titans are engaged on are those classic market forces that can quake the earth and reduce them to ashes. When capital has succeeded in reducing labour to a minimum either through financial shenanigans, technology or centralisation of economic power, where will it get the demand from for its products and services? The 21st century monetary aberration of exponentially creating huge amounts of wealth through investment in non-productive assets and into a blocked funnel favouring a few individuals, must also come to an end. May that bubble not burst in my time!

There may be some hope if we toss all of the economic theory that we have clung to over last few decades, especially fanatical adherence to “isms”, and carve a new path that recognises people and individuals and not simply theories and abstracts. Labour and capital have to extricate themselves from self-destructive confrontation; adopt principles of common purpose and common fate at an individual and company level, and prioritise job retention far above job creation and ahead of wage and short term profit maximisation.

Organised labour’s refrain of pointing to the good times and historic profits to support its argument for higher pay is disingenuous at best. If the argument is to have any weight, then they have to accept what is staring them in the face – fortune sharing that adjusts rewards for all to weather storms in bad times and benefit from the good times.

This means linking more directly individual labour rewards to those supreme market forces. Differentiation can be guided by the supply and demand for skills and qualifications, but the rewards themselves have to be linked directly to value added or the wealth created, which is the measured contribution the enterprise has made to others. I have mooted this suggestion on several occasions. (See article here.)

A fundamental principle of free enterprise that will always endure is that tangible wealth can never be sustainably created out of nothing. It has to be based on service to the other.

If all role players can refocus their attention to that, there may be hope for a new economic path in South Africa. If not, it is that principle that will come back to bite us.

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