Vol.6 No.21, 14 June 2006

World Economic Forum's Predictable Outcomes

Margaret Legum

This article was published in the Business Report on Wednesday, 6 June. Follow the link below.


My friend Grace recently engaged a security firm to send one guard to her home from 6 pm to 6 am each night. She paid the firm R14,000 a month. We all now know that the guard himself was paid between R1,050 and R1,300 a month, regardless of hours worked. Nice profit.

The security company – or at least its interests – were represented at the World Economic Forum (WEF) which inhabited the high luxury of the Convention Centre last week. The government was there in force - the WEF brings governments and business together. But the security guard was neither present nor represented.

Does that matter? Poverty was high on the agenda even though poor people were not there.

It matters because there is no such thing as impartial advise to governments. The security company’s profits are in direct opposition to the interests of its employees. It can get away with paying such wages for the simple reason that high unemployment creates a buyers market for workers: destitute people will accept anything. The fact of different power levels makes nonsense of the free marketeers’ slogan that wages are a bargain freely entered into by both sides.

This obvious point is, strangely, often ignored by economic analysts and reporters. Thus our media routinely calls upon economists who work for large business, especially the financial sector, to comment on events and situations in which they have a direct interest. As though the manager of the Springboks were asked to comment impartially on the conditions in which a match should be played in which his team was involved.

Who gets what for doing what is the core of economics. Economics is essentially about the outcome of differential power. It is about the strength that different interests in an economy can exert. A Forum representing business is perfectly legitimate, as are the interests it represents. But it is not impartial in advising governments how they should create policy.

For example, the WEF concluded, as reported in the media, that aid had little or no role to play in the elimination of poverty. What should take its place is more investment by the large sources of capital. Countries seeking to end poverty should create easy and profitable conditions for business. Well they would say that, wouldn’t they? (As Mandy Rice-Jones famously said when an adulterous lover denied his involvement with her)

Their position sounds fine, although it is hardly new. It is based on a number of falsehoods. The first is that easier conditions for business – less regulation, more profit, flexible labour conditions – diminish poverty. They do not; they systematically expand the amount and proportion of wealth at the top.

That business advise has been applied worldwide for three decades, during which inequality has expanded relentlessly, profits have soared, and poverty has widened and deepened. Destitute people apart, more people who used to earn well have now become ‘working poor’ – earning less than they need for basics; more have resorted to the informal economy including crime; educational and health standards have fallen worldwide; and the rich have expanded their wealth exponentially. China and India are quoted as exceptions – as the ‘Asian Tigers’ were before they crashed – but although they have more employment they also have more destitute people.

The reason is simple, and goes back to relative power. If you apply this prescription to all countries, you play them off against each other, obliging them to give you (business) larger and larger slices of the cake. And if you give business profits larger slices, you reduce the slices for everyone else. It seems amazing that we still believe this prescription.

The second is that only private business can address unemployment. Again that prescription is contradicted by both theory and evidence on the ground. Business stays in
business only while it makes profits; that means reducing labour in favour of capital. Worldwide, business’s success has been in proportion to its use of technology. The fact is that only governments can seriously address unemployment.

Try to imagine the effect of the following. After the business news in the media – giving details of the share prices and profits of listed companies, and leaving an impression of rising prosperity - an equal time were given to statistics about poor people: how many without work and/or without income, the wages paid to casual labourers, numbers of people living on the streets and children going to school without eating, the average temperature in shacks, the population that day of street children, the length of queues and extent of crowding in public services, including hospitals and clinics, buses and trains, prisons and offices of social workers, how many people has their services cut off; and how many died that day from what causes and in what conditions.

Would such a daily dose of detail change our attitude to the poverty we all know is around us? Would we insist that the WEF be balanced by an equally well financed and publicized shindig in which government took the advise of poor people and those who represent them? Poor people are now so numerous that their only hope of equalizing their power as employees is through force or if government comes down on their side. Instead, business gets a much bigger hearing from government than people offering pro-poor prescriptions.

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© South African New Economics Network 2006. Page generated at 17:17; 24 September 2006