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Sunday, June 01, 2003

Surfs Down

More from the Asian front, this time despatches from 'our man in Singapore' Eddie Lee. The economy situation doesn't look any too brilliant, and the third year of recession is on its way. Singapore is Asia's third oldest country, might there be any connection between this fact and the growth difficulty? Obviously for employment to be maintained or grow the services sector needs to expand, but for this to happen domestic consumption needs to rise. This seems to be the Achilles heal of the Asian development model. It also seems that the expansion of Asian consumption is the key to the dollar/US trade deficit imbalance as Andy Xie was arguing last week. On the domestic services front, as Eddie notes, most of the jobs come in the low-qualified unskilled areas, and here there is another mismatch between the rising educational expectations of the smaller number of children we are having and the kind of work - especially tending old people - which is being created.

The solution here, whether actively pursued (virtually nowhere) or passively 'tolerated', seems to lie along the highroad of immigration. Paul Krugman has asked the interesting question: "why hasn't indentured servitude made a comeback in the modern era". I've a sneaky feeling that his interest in this topic may not be unrelated to the projected 'relative personpower shortage' there will be in the developed world in the coming decades, and thus the potential for shifting relative factor values. My own instincts are that Paul is barking up the wrong tree here if you want to think about the world as we know it (you need Schumpeter - and creative destruction - as well as Keynes, and you need to get to grips with the 'hard problems' of non-linearities as well as the partial equilibrium stuff. En fin, you need to do something about the 'balance sheet effects' of embedded capital in a situation of global over-capacity and accelerating technical change. the idea of 'potential output' may be useful as a rule of thumb guide, but it becomes deeply flawed - for the above mentioned creative destruction reasons - when you want a richer more dynamically oriented analysis: the type of analysis for which neo-classical economics is relatively poorly equipped). But there may be another kind of world which is being produced right under our noses. My former teacher Karl Popper famously used to confuse students by setting them an exercise. 'Observe' he would say: of course the bemused students didn't know what to do. This is the famous 'hermeneutic' circle, you need a knowledge object to work on before you can go to work. So what is the knowledge object which -like Poe's purloined letter - is sitting there on the mantlepiece, awaiting discovery.

The best way to start looking for it might be by going back to the problem of "indentured servitude", and asking why is this not being re-inevted. You see, my response would be to say that it already has. It already has due to the the existence of what is called 'undocumented labour'. This is a strange anomally since it is precisely the absence of documentation which creates the servitude, and the servitude is based on an oral rather than a written contract, enforced either by some fairly nasty looking people, or by the permanent threat of recourse to official judicial procedures. It is a really strange irony this which leads our democratic 'rule of law' to become the infrastructural underpinning for the most extensive abuse of 'wage labour' since the time of feudalism.

I first started thinking about things in this way after a chat with Margy, Bonobo's Sofia-based anthropologist. Regular readers will know we've been having some difficulties with the Bulgarian e-mail filters, and that the problem may relate to our use of the term 'locutorio' or call-centre (this is the place where the illegals send the money home). Now Margy asked me what I new about Bularia's Tsar (you see how I went straight to Krugman in my head) Simeone. Well the interesting detail is that he spent a good part of his exile in Madrid, his wife is Spanish, as are his four children. Now I don't think I'll make explicit what should be clear implicity, I value my health too much. The second little pearl that I got from Margy was her question: do you have a market in your village? Well I was slow, and didn't understand, I think I was thinking about all those nice Provençal village markets my wife so loves. No, she came back, a slave market. And my mind was suddenly down in Andalusia, in Almeria and El Ejido, with the images of all those migrants waiting on street corners for the 'jefe' to arrive and select the meat he needs for the day. I was born in Liverpool, and can still remember the humiliating rituals associated with casual labour (from Ireland, of course) on the docks. And then I thought of slave-slav, and a very interesting piece by the much under-valued Ronnie Findlay. The point here is that Findlay stresses the importance for the evolution of the European economy of the 'white' slave trade, of Slavs via the Netherlands down to Andalucia and North Africa. And then two little neurones suddenly fired-off together. History in a certain sense is repeating itself, only it's tragedy both times, no comedy here. The indenturing system is in fact the nation state with limited legal right to movement. In parallel with this is an enormous modern 'slaving' system, which officially speaking does not exist (nor is its existence treated in any neo-classical model that I've ever seen).

So whole countries are literally converted into 'people farms'. Remember some countries only have one known source of export earnings: their children. Pakistan and Ecuador immediately come to mind, but there are of course others. In the Philipines the topic is taken so seriously that the ministry of labour has a special department to handle 'migrant labour'. Then there are the new countries from the East, the slav/slaves, or the undocumented Kurds in Syria (they have no legal status at all!). Well you can see where all this goes. Indentured labour has just been re-invented (if it ever died out) and on a massive and unprecedented scale. The consequence: a reduction in the relative price of unskilled labour (and incidentally one more reason why deflation is coming). This labour needs to move freely and legally. It is strange how all our ideologues are strangely quiet on one topic where market mechanisms really could work against vested interests. Wage levels would regulate the movement of free people, and equilibrate an unbalanced world. But as Paul says, oh never mind.

So finally, to come back to our starting point. What has all this to do with Singapore? well, I don't know for sure that I am right (and I am sure that Eddie will soon put me straight if I'm not), but my guess is that Spore is just too well regulated (the land where you can't eat chewing gum), so the potential for the mass introduction of immigrants just isn't there.

Domestic economy holds key to jobs
By Eddie Lee

SINGAPORE'S manufacturing output fell unexpectedly by five per cent last month. The war in Iraq probably had something to do with it. But it was unexpected to observers because up until last month, manufacturing output had actually been recovering well. Average growth of manufacturing output from the third quarter of last year to the first quarter of this year was 10.6 per cent, an impressive turnaround from a 10.5-per-cent drop in 2001. Growth in manufacturing output was driven by a 15.5-per-cent rise in non-oil domestic exports. Obviously, the sudden dip sparked concerns that the economy is headed for a double dip as the manufacturing sector is generally regarded as the main engine of growth for the economy.Yet, important as the manufacturing sector remains to economic growth, its significance as a barometer of health for the economy has receded.

It is also why headline economic data seems so detached from everyday experience. Rising export growth doesn't seem to get reflected in an improvement in economic well-being. The reason is that job prospects are what matters to the man in the street. The manufacturing sector, however, is not very good at creating jobs. Despite double-digit growth in manufacturing output in the past nine months, the economy still suffered a net loss of 28,300 jobs over the same period. Growth in today's manufacturing sector just isn't sparking the kind of job creation it used to. In 1999, when manufacturing output rose an average of 12.6 per cent during the first nine months of recovery, there was a net creation of 4,500 jobs in the economy. Even then, this paled in comparison with the 1986 recovery, when an average 13-per-cent growth was enough to drive a net gain of 11,000 jobs in the economy.

It's not that the current unemployment is inflated by a mismatch between jobs and workers. According to the Ministry of Manpower, the job-vacancy rate is now at its lowest in over 10 years. There were nearly four unemployed for every vacancy in the final quarter of last year. There just aren't many jobs around. A reason for the current dilemma is somewhat paradoxical. We have become terribly successful at what we do, making physical goods like electronic components and peripherals. But, increasingly, jobs that grow over time are things we don't do so well. Where it's harder to raise productivity because it requires the intangible - the human touch, like services.

By its very nature, innovative and capital-intensive sectors don't create many jobs. Industries that achieve rapid productivity growth tend to lose jobs, not gain them. And as our manufacturing output and employment data suggests, it's a trend that is growing. Where a task can be automated, jobs can be replaced. This is not a trend that is unique to Singapore. Nor is it unique to the current environment. In 1990, Mr Lois Plunkert of the United States Bureau of Labour Statistics observed the shrinking share of employment in the US manufacturing sector, even as manufacturing output maintained its share of the economy.He noted that after the 1983 recession, 'industry began to take on a leaner look. In an effort to compete in a worldwide market, many factories were modernised during the 1980s, with more and better machines enhancing workers' output'.

So where does a growing labour force find work? Well, even as we become efficient at producing manufacturing goods, it takes as many people to serve a meal or to cut hair as it always did. Actually it requires more, a woman friend tells me. It used to take one person to cut hair in the past; now it takes several: one to trim, one to shampoo, and one to serve tea. Now, that's service for you.Indeed, a far larger portion of the economy employs local labour to provide services for local consumption. When the boom in technology exports drove Singapore's economic growth back in 1990-1997, the manufacturing sector still shed a net 10,000 jobs. The bulk of employment was created in the services sector, particularly in finance, insurance, real estate, business and personal services. There was a net creation of 211,528 jobs. It absorbed two-thirds of the growth in the labour force for the same period.

To be sure, not all services are for local consumption. Singapore's development as a financial centre began back in the late 1960s. There is now a large and diversified group of local and foreign financial institutions offering a wide range of financial products and services for the international market. Indeed, there is a growing tendency towards globalisation in services as well. Aviva, the world's seventh-largest insurance group, announced plans earlier this year to cut jobs in Europe to open a call centre in India. But there's a part that remains inherently localised. This is the people-oriented service component, like social services, personal services, and elderly and health care. These, after all, are the truly difficult tasks that we cannot put into a computer code and automate.

Economist Paul Krugman once pointed out that 'when you look at the economies of modern cities, what you see is a process of localisation: a steadily rising share of the work force produces services that are sold only within that same metropolitan area. 'This process of localisation explains what would otherwise seem a paradox about the world economy: the fact that international trade is not much bigger now as a share of world output than it was a century ago.' Or in Singapore's case, the fact that despite the apparent growth of electronics exports and the international stature of the nation's financial sector, exports of goods and services account for no larger a share than which existed in 1960. Just over half of overall demand.

So even as the demands of the global economy require that the export sector specialise in capital-intensive production, more people will be looking for localised service jobs.This is not to deny that the export sector in Singapore continues to determine the general direction of the economy. The economy still remains vulnerable to a slump in the global electronics industry. But the importance of service-sector jobs simply means that the domestic economy retains its significance even in today's global village. And right now, export growth or not, the domestic economy is in a funk.
Source: Straits Times

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