Wednesday, September 5, 2012

Who is "Us", Exactly?

I've always wondered why economic pundits have such a, to me, alien outlook on reality.

However, thanks to one of Tim Colebatch's latest pieces, I think I had a kind of an epiphany: it's a matter of pronouns!

Commenting on Victorian Treasurer Kim Wells' presentation on the economic perspectives for Victoria, Colebatch says:
"But Asia's growth also brings opportunities. Wells noted that Victorian firms also gain from the mining boom, and was one of many to highlight the potential for our agricultural, manufacturing, tourism and knowledge industries to service the growing demand from Asia's middle class, for quality food, goods and services.
"The problem is that to reap that benefit, we must regain the competitiveness the high dollar took away. If we can't change the dollar, we will have to make dramatic changes to workplace productivity and relative labour costs." (See here)
Observe carefully what Colebatch says: "Victorian firms also gain from the mining boom". Notice the pronoun: "they". They also gain from the mining boom.

But note, now: "We must regain competitiveness". The pronoun changed; it's no longer "they", now it's "we".

A second case: "We will have to make dramatic changes to workplace productivity".

So, it is the firms who gain, but it is us who pay the price for the adjustments required.


The reader may be objecting right now: "Okay, I think I get your point. But firms are only abstract entities. They are formed by people, by us. When Colebatch/Wells say 'firms also gain from the mining boom', they're really saying 'the people who work for them also gain from the mining boom'. So, there is indeed a cost to be paid by us, but the gain comes back to us, too."


I don't think that's quite right but, for the sake of the argument, let's assume it for now: people lose with the changes in the economy, but people also gain from those changes. One thing compensates for the other: tit-for-tat. There may be even a net gain, to be measured somehow.

So, who are the "people who work for" the firms, who are "also gaining from the mining boom"?

Let's answer with Colebatch's own example: "Victoria used to be Australia's manufacturing capital; that's gone, as hundreds of textile, clothing and other factories shut their doors". The people who used to work for these industries aren't winning anything; they're net losers.

According to Colebatch, this is where the net winners are: "Our construction workforce has doubled, as has the workforce in cafes, hotels and restaurants".

So, those who lost (say, manufacturing workers) do not necessarily wind up compensated (say, become construction workers). Losses and gains are not equally distributed.

But, there's more: in reality, what these "winners" gained doesn't necessarily compensate what the losers lost. The winners won largely casual, temp, part-time, minimum wage jobs: shitty jobs; the losers lost permanent, full-time, relatively well paid jobs. Not much of a gain for the "winners". It's unlikely there was a net gain, while a net loss seems likely.


But I said that the objection wasn't quite right. One cannot think of firms as simply shorthand for "the people who work for them". A firm also belongs to concrete people.

When "firms gain from the mining boom", the firms' owners benefit. So, to those who lost big time, and those "winners" who won a crappy prize, we need to add a third group: the firms' owners. And they won without paying anything for it.

So, within Victoria, there's a group of people "gaining from the mining boom". The others paid the costs for those gains and got at most a partial and unequally distributed compensation.

It is this reality that those pronouns hide.


During the last 6 years, we see that story, writ large for Australia, reflected in this colourful chart coming from the latest Statistical Bulletin produced by the Library of the Parliament of Australia:

The Bulletin says this: "The wages share [seasonally adjusted] peaked at around 63 per cent in 1974 while the profit share bottomed at just over 15 per cent at the same time". (See here)

Observe a peculiarity with that chart: when profits decrease, wages increase and viceversa, when wages decrease, profits increase. If there were no other reason, simple arithmetic means that what bosses get comes at the expenses of workers (and viceversa). But here I provided a simple mechanism, beyond simple arithmetic, that explains how this transfer takes place. [*]

Similar wage data, starting now in 1962-62 is in the much less attractive chart produced by the ABS (5204.0 - Australian System of National Accounts, 2010-11 - Analysis of Results, here):

Compensation of employees (COE) as share of GDP (government excluded)

[*] Paragraph added, at the suggestion of a reader, after the post was published. Thanks PK.

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