Being Poor

I grew up with Thatcherism as the dominant political force. That meant regular booms and busts. But there were always jobs available, in London and the south at least. At the bottom of the ladder, admittedly. But there were jobs. Today? There are graduates unable to get jobs in Poundland. They’re over qualified. But they can’t get a job in the industry they are qualified for. They’ve no experience. That’s the problem when employment runs so high – employers have a large field to pick from, and there’s plenty of qualified, experienced candidates.

But I’m stunned at the lack of jobs even in the supermarkets. I haven’t seen a vacancy at the local Waitrose for a year. A nearby Sainsburys hasn’t had many openings to offer. Life is tough. It’s probably going to get tougher. A couple of years ago I discussed the European economy with one of my students. I was of the opinion that Greece would leave the Euro, sooner or later. I still think so. It will be later, rather than sooner, as it happens. But that possibly now means soon. What will happen then is anyone’s guess. I’m sure the world will continue to turn. Just with fewer jobs.

There are similar issues in Mexico. Although like all things Mexican, there are differences. For a start, Mexican employers are more likely to shut out candidates over a certain age, particularly females. Which means if you can’t get a job in your career when you’re young, you’re in trouble.  It’s a sad situation. Unlike healthcare, housing, food and water, I don’t believe everyone has an automatic right to a job. I believe in a mixed economy which provides a basic safety net, not an outright socialist economy.

The problem for governments is that it’s difficult to provide those basic safety nets without having a healthy proportion of the population in work. And for the long term success of the economy, it’s important to get young, qualified people into the work they are trained to do. What solutions can be found? The Spanish have managed to reduce the proportion of unemployed youth. Now everyone is unemployed. The former Malaysian leader Mahathir Mohamad (a living example of how genius and madness are so closely related, perhaps) recently suggested that the people of Europe simply have to adjust to being poor. Because they are poor. He probably has a point. The people of Greece disagree with this assessment. So will the peoples of all the other Euro nations. But reality and dreams have never been happy bed fellows.

Mexico has a key advantage to the UK here. Mexicans are used to being poor*. There’s much less of an adjustment to be made. And the Mexican economy is at least growing. There are, in the UK, vast areas of the UK, particularly up north, which are economic wastelands. Borderline Third World. And I use the word Third World rather than the more popular ‘Developing World’ tag, because there is nothing about some of these places that is developing. Mexico is developing. Parts of northern England are declining, stagnating, neglected. It’s all very sad.

* it’s a sweeping generalisation, I know.

21 Comments

  • The higher energy costs rise, the more expensive it becomes to transport goods halfway across the world. This really began to affect the calculus on local vs distant production in 2008 with the spike in oil prices. However, it is an issue that continues to simmer on the back burner, and likely will push production closer to home over time as energy costs inevitably rise further.

    Gary, you bring up a good point about industrial wastelands which I did not address. Such things (and unemployment) did not exist until the industrial revolution. But since then, it has been a near-constant problem in many places. With regard to the North of England, there’s a very interesting analysis of this issue in a book that came out at the end of 2009, “The Lords of Finance:The Bankers Who Broke the World.” The main topic of this book is the financial history of the inter-war period (WWI and II), but it notes that Great Britain’s determination to remain on the gold standard while everyone else was devaluing killed the industrial north. What is particularly fascinating to me (and tragic at the same time) is that the North of England never recovered from this economic injury that occurred nearly 100 years ago.

    But I think the key to avoiding that kind of industrial or post-industrial wasteland is a big investment in education and training so that the workforce can adapt to the times.

    Also, you really cannot equate plunder with trade. Trade is free and voluntary. Spain gained its wealth through plunder of Mexico and other places. Once the gold ran out, there was nothing there. The UK in contrast gained and retained its weath through industry and trade. And the prosperous places that I think of that are open to trade would include Hong Kong, Singapore, the USA, the Netherlands (historically as well as now), the UK, and similar places. And I also think the converse is true. Can we think of a prosperous, closed society? Maybe an oil exporter, but I would argue that is an exception or special case.

    And to answer dianecp above, the USA exports aircraft, jet engines, agricultural products, software, coal, movies, music, integrated circuits, armaments, nuclear power technology, automobiles, machine tools, power generation equipment, medical devices, medicines, biotechnology, computer equipment, razors and razor blades, cleaning products, personal care products, and a ton of other things I can’t think of. We also have a lot of companies which make products locally (outside the USA) but sell them under American brands, companies like Proctor and Gamble, Colgate, etc. This idea that the USA has nothing to sell abroad, while fashionable, is completely wrong.

    Saludos,

    Kim G
    Boston, MA

    • Just a couple of points to the above. Firstly, I also value education and see it as a means of change and renewal. But it cannot alone provide the infrastructure and momentum needed. This, I guess, brings the video I posted in the first place into focus. It’s been an issue in Mexico for a long, long time. Money has a way of accumulating around money, and where there is none, there often remains none. That’s one reason why London remains as it does, and the industries within the capital stay where they are. It’s a cycle which may be hard to break.It’s a cycle that needs to be broken though, unless we decide to accept the indefinite stagnation of towns and cities as being ok.

      Also, and as unpatriotic as it may seem, the UK started it’s accumulation of wealth through the same sort of plunder as the Spanish. Even today you can go on tours through Liverpool, Glasgow, Manchester and London and see the architectural rewards of the slave trade. There are guides detailing the buildings to look out for. Failing the possession of one of these guides, pick the first tourist guide you see. The tours are pretty similar.

      The slave trade was eventually outlawed, but slavery continued in one form or another, by one name or another, within the boundaries of the British Empire up until the 60’s. Yes, the UK set up a massive and enriching global trade network. No, it wasn’t free. Nor was it sustainable if (and when) a moral bound governance was permitted.

      Kim, and others – I’ve really enjoyed the conversation. Not all of my questions have been answered, but then I don’t think there are necessarily any answers to some of them. And I’ve learned plenty.

  • I hear that some manufacturing is returning to the US. That off-shoring does not work all that well if you need to deliver products on time. Transportation and timely delivery are becoming key factors on where products are made. I was part of the flow of manufacturing in Mexico and many factory moved across the border. Many hoped skipped and jumped to China and the Pacific Rim countries. These continue to move to cheap labor countries. The good news is that it becoming less and less profitable to manufacture away from you main markets. But any improvements on the job picture really depend on where you live. I now live in Mexico and our economy is improving, that is for sure, but where I live we are dependent on tourism and right now that sucks!

    • The economy in the US sure is doing a whole load better than in Europe. Although us northern Europeans have baggage in the south of Europe.

      I think Mexico is in an excellent position to profit from the changing global economy. Providing the global economy doesn’t get flushed down the swanney….

  • Tata owns my old firm, an Indian outfit, they got it in a package that contained a bunch of European steel firms. We were just the extra cheese on the pizza The money people in India and parts of the Far East are doing well. At least they are investing in plant and material, the Brits when they owned it never spent a dime and took a forth of a billion out in cash flow over ten years. If a firm wants to sell here, things that we need and want, then pay our government a tax for doing so. Ether the payroll tax or the import tax but make them equal or your just putting the shaft to your own citizens .I like practical and simple in my tax policy.
    norm
    north shore of ohio
    where we have a fine red sunrise out the retired steelworker’s office window this morning.

    • Tata seem to be doing a good job as stewards of Jaguar and Land Rover/Range Rover. Better than the last British owners managed. Although it’s been a while since they had British owners.

  • …historically, the economies most open to trade have also been the richest…

    Like I said earlier though, the rich economies who were most open to trade did so with their trading partners at the wrong end of a gun barrel. How rich would the Spanish Empire have been without America’s gold and silver? How rich would the British Empire have been without slaves, spices, textiles and opium ‘traded’ in the Caribbean and Far East?

    None of this refutes the key elements of the debate though.

    As far as pollution goes, it’s a bit rich for us to tell the developing world to stop a process that we’ve already finished. I’m all right Jack…

    And I don’t think (I assume!) that anyone is promoting post war Indian policy, or even current North Korean policy, as the way to go. I am reasonably aware of the internal social and economic difficulties that China faces. Interesting times are ahead.

    But none of this provides an answer for the industrial wastelands that have been left behind by the global march of capitalism. Money has no morals. So if we have to look elsewhere for a solution, where to look? The statistics of the bigger picture are impressive, but like I said, of no consolation to those left behind.

  • Kwallek brings up a very good point about environmental degradation. Whether you pay to avoid it, or create it and suffer, it is implicit in the cost of goods that might create it. Should we only trade with people who respect our own standards with regard to the environment? Labor standards? Other things? Or should countries be free to pollute within their own borders? I realize that some pollution crosses borders, mostly air pollution, but also that carried by rivers. I am personally in favor of sustainability, i.e., economic activity which doesn’t destroy the earth or the quality of life it provides. However, I’m not sure a reasonable international trade system can imposed that on the participants. Further, that argument does nothing to refute comparative advantage. Though none of us would likely want to go this route, the willingness to suffer massive pollution is a comparative advantage economically speaking. But it’s also true that the biggest polluting countries are those whose governments (frequently authoritarian or communist) are unresponsive to the needs of their people. China and Russia/USSR are the poster children for that.

    With regard to “ivory tower” vs real world, historically, the economies most open to trade have also been the richest, and that continues today. In contrast, countries which pursued policies of import substitution have mostly suffered. So India, which had the most aggressive post-war policy of import substitution, created an economy where by the early 90’s, you could (after a several year wait) purchase a car with all the latest technological benefits of 1951. This import substitution policy pushed the economy to the brink of collapse, and India spent much of the 90’s liberalizing their economy. That liberalization unleashed the growth you see today. So autarky is not the answer.

    With regard to some countries subsidizing production of certain things, this is ultimately unsustainable. So in the example of steel, if some country wants to sell us steel below the cost of production, we should be jumping for joy. In this case, the seller is the loser, not the buyer. Same goes for inefficient allocation of capital. The Chinese currently allocate capital to create employment, not to maximize the returns on that capital. That strategy will ultimately undermine their economy, and the signs are already there. If you’re curious, you can read up on the debts the provinces have racked up for projects that will never service the debts, or all the real estate development that has been undertaken to create buildings and entire cities that are now empty.

    Sure, there will be some collateral damage to the economies that trade with such places, but emulating them is not the answer.

    Kim G
    Boston, MA
    Where we hope the real-world examples help the argument.

  • You all ought to go and read up on international trade because all of your deep convictions are completely wrong. Trade benefits both sides or it wouldn’t happen. Also, under the WTO (formerly GATT), member countries may not impose special tariffs on imports; they are harmonized across countries. Yes, there are non-tariff barriers that countries set up, but those have varying effectiveness.

    Second, all the big first-world countries are the biggest exporters. Yes, some are also the biggest importers, but the point holds. The USA is still the #1 or #2 exporter. And the least free international trade markets are those that would benefit really poor economies the most. For example international trade in sugar is among the most restricted of any product in the world. All major countries put tariffs on its import and protect domestic producers, despite the fact that places like Haiti, Mexico and Brazil could produce the stuff much cheaper. And by the way, if you are against international trade, do you think Norway should produce all its own coffee? It could, with grow lights and greenhouses, but the resulting product would be EXTRAORDINARILY expensive. Would people be willing to drink such expensive coffee? Should Saudi Arabia grow its own rice? Apples? (Which need cold weather.)

    Also, consider this. Wage rates in places like Mississippi and the north of England are WAY lower than they are in place like New York or London. So why don’t all the jobs simply migrate to Mississippi or the north of England?

    Why, if I can do everything faster and more accurately than my secretary do I have a secretary at all? Hint: David Ricardo called this “comparative advantage.” The basic point is that my secretary’s opportunity cost of doing certain tasks is lower than my own.

    So yes, it’s popular to bash free trade, but that is not what ails the world. What ails the world is far more complex and has to do with changing demographic patterns, declining resources, and the general inability of Western governments politicians to charge as much in taxes as their constituents want in services. Aging populations are only going to make these problems worse in the future.

    Blaming China is easy, but it’s wrong.

    Kim G
    Boston, MA
    Where we believe that the easy answer often isn’t the right one.

    • I went to school and learned about comparative advantage and thought at the time that it was a good theory and then I went out into the world where we make things that will hurt your foot if you drop them. I found that the real world and the theory world did not match up. CA would be a good thing for all but for human nature, we all like to play the system, to cheat, think the tax code and how hard folks try to play the tax rules. The same human nature comes to play when we get into trade, everyone cheats, so make it simple, tax imports at a rate that equals what an employer has to pay in payroll taxes to make things and leave it at that. The payroll tax is a good tax, let it work for us as a bottom line number for our trade policy. I remember that the section on Comparative Advantage started with “all things being equal” meaning the rules, that is not going to ever be the case.

      When I worked in the steel industry, our labor cost as a package was 18% of cost. We could have worked for free, every person from the CEO down to the lady pushing a broom and we could not have matched the price of steel made in some eastern countries. Why? We paid market rates for our investment capital, we took care of our waste in a legal manner, (gasp!) we had rules dealing with a worker’s well being, the drop it on your toe thing . The current capital investment project at that mill is a new waste treatment plant, to replace a 30 year old plant that is wore out and outdated, at a cost of over 20 million dollars. 350 souls work in that factory, you do the math. Everyone of those people will have to be productive enough to pay off that plant in the next ten years. I’m sure the owners, let alone the workers, would have rather put in a new state-of-the-art rolling mill but the rules are what they are to make things in the US.

      We were a private company. How can any industrial concern win in a contest with another concern that has the might and power of a dictatorship at its back, “comparative advantage” my undamaged foot. I live in the real world, not some textbook land of, would not that be nice?

      News from the rust belt to the ivory tower of Boston: Take care Kim, we are all in this together. I need you as much as you need me.

    • I’m not convinced (historically speaking anyway – although that still has an influence today) that trade always benefits both sides – an awful lot of ‘trade’ has occurred with one side staring down the wrong end of a gun barrel. But I do agree that things have moved on in modern times, positively, a good deal. This is a slight digression from the point at hand.

      I do see the big picture. The sheer scale of poverty reduction in China (particularly) and elsewhere in Asia is staggering. As much as we bleat about ‘poverty’ in the UK, the net effects on the other side of the world outweigh our ‘suffering’. We harp on at developing nations who are ripping out their forests – we’d cut 90% of our forests down a century or more ago. We complain at the the pollution being produced in China – we still pump out more than our fair share of it, and would be pumping out more of it had we not shifted the dirty stuff out east. As much as we berate govts for allowing our jobs to go out east, we did ‘steal’ many of the world’s manufacturing jobs in the first place. Historically, China (and India) has been the leading global manufacturer for 95% of the last several thousand years.

      Our governments have to make policy in line with the ‘big picture’. Isolationism isn’t an option. But our governments are also responsible for their electorate. And the big picture is no consolation to the people of Sheffield who’ve seen their steel industry destroyed. Nor to the Welsh, who’ve lost their mining industry. Nor the Northern Irish who used to have a ship building industry. Nor those in Birmingham who used to be a world leader in car exports. Etc. The fact is that we in the UK import products that we were making right here just a few years/decades ago, at a cost of hundreds of thousands/millions of skilled jobs*. The fact is that massive parts of the country have turned into economic wastelands, that some think tanks believe should no longer receive investment, and that their decline should just be managed. Comparative advantage, globalisation and the function of the free market explain why this is so. But they don’t help those stuck there.

      Whilst I can’t think of anything more effective than protectionism, that’s not to say I advocate it. That’s simply because I can’t think of any other political course of action which could be taken that would alleviate some of these issues. You’d argue that protectionism would make things worse, especially long term. I wouldn’t argue with you. It’s too complicated for my brain. I see no simple solution.

      Your last points about what really ails the world are all true, especially from a longer term point of view. But the current issues cause pain too, in the here and now. My main concerns with the bigger picture though are that the jobs we’re losing are at the cost of limited resources. The destruction of ecological environments. The enslavement of people. The lack of respect for copyright – I know, sounds a bit funny coming from me. But a pirate DVD is small fry compared to the mass production of fake (and often dangerous) medicines and consumer cosmetics etc.

      And this isn’t being done in an entirely free market – the Chinese are manipulating their currency to their own advantage. As I understand it. Although I confess, on this point my brain has even less info stored than on the other issues. I’d like to hear your PoV on that. But anyway, that’s why I’d prefer to see an Environment Tax. Which would be horrible to implement. But I’m not in power, nor likely to be, so noble but impractical ideological pipe dreams work just as well here.

      Also, I’m aware that this is one of my most rambling posts (and comments) ever. And that I’ve over used apostrophes to make a point. And that I have a * back there which needs to be accounted for….

      *I know – a lot of those industries self destructed, without any help from the Chinese. I still believe making stuff is good. The Germans manage it.

  • Ah, economics. It’s not called The Dismal Science for nothing. Capitalism is essentially an anarchtic economic system. Ups and downs are inherent in it. The best that can be done is a good safety net. IMO.

    • I agree. Any political ideology that’s imposed/implemented will trash society. I like the capitalism that brings out the best qualities that us humans possess. I like it to be mixed with a little socialism that checks the worst qualities that we possess.

  • We gave the 3rd world a leg up with our open trade policies of the last 30 years. We sold our birthright for cheap consumer goods. We got what we paid for. The total number of souls in the world that have it better today because of the 1st world’s policy of open trade is considerable, this is not a bad thing. We in the 1st world as a whole are poorer than we were 30 years ago but are still rich compared to a person living in the highlands of Guatemala.
    My children are highly educated people and are having a hard time finding jobs of any kind.
    Policy is the problem and will be the cure, it is going to piss off those who decided years ago to manufacture off shore for the higher margins that come with making things in places where you can dump your crud in the air and rivers with no regard for the landscape. The low wages are just the gravy. Trade policy is the cause of our problems.

    • I agree with every word. Although I have reservations with your first and last sentence. Everything in between is spot on!

      That we gave them a ‘leg up’ is incidental. We were exploiting their cheap labour and lax regulations. Western economies just didn’t seem to realise that we were being exploited right back, with interest. All the biggest, richest empires have one thing in common. They made stuff. Lots of stuff. It isn’t tough to see where in the world that the next empires are rising.

      Trade policy. Post WW2 we introduced women to the workforce…that made quite an impact to economic growth. When that ran our, we borrowed. That’s also run out now. Capitalism (or at least the form of capitalism that has been employed for the last few hundred years) works best when there is someone to exploit or pillage. We’re running out of victims. Trade is a symptom, but maybe not entirely the cause.

      • Simple changes to trade policy would help: a 40-50% tax on importing a car to China equals a similar tax on in coming goods from there. It gets ugly quick and it will be our carpetbagging manufacturing people like Apple who will weep the most. I would tax imports at the same rate as the employment tax. The people killing us in the market,tax all goods coming into their countries at at least their standard employment tax rates. A person down the street employing a local’s labor is taxed at a higher rate that the same person employing a person’s labor off shore. We have to be out of our minds.

        • Some interesting points. There are some different ways at looking at this, and I’m not sure which one is most relevant.

          One of the principal reasons there’s such a wealth gap between east and west is due to our exploitation of their markets. The British and American Empires weren’t founded on domestic trade. You could look at the current trade imbalance as a process where things are evened out. That this process includes us exploiting ourselves is almost an ironic side issue.

          From a global point of view, and for true supporters of capitalism, the current status quo is fine. There are pains. That is an inherent, indeed a requirement, of capitalism.

          From a domestic point of view, the imbalance is self defeating and destructive. I can’t think of anything more effective in the short term other than protectionist policies.

          I’ve long believed that VAT and other duties should simply be replaced with an environment tax. Rates based on the necessity, damage and logistics of the product. It would serve many purposes, including ones you mention. Best of all, it would probably benefit Mexico hugely!

  • We are a lot poorer in retirement than during our working years (when as you mention there were jobs for the taking). Of course poor is relative – or is it?

    One of my favorite lyrics and thoughts about life is, “Freedom is another word for having nothing else to lose.” Believe it!

    • Being poor is very relative. It’s difficult to quantify. No one likes being poor. It’s not a happy situation. The poorest people I’ve seen were in Sri Lanka. The ones I met only had two things to their name. Food and water. And they are amongst the happiest people I’ve met. Go figure.

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