A GPE perspective: World’s richest woman makes case for $2-a-day pay

The top 10 most competitive economies in the world. By: The World Economic Forum’s Global Competitiveness Report 2012-2013

Reaction to article: Lazarus, David. 2012. She’s back: World’s richest woman makes case for $2-a-day pay. Los Angeles Times, 5. September, sec. Money.

A month ago the world’s richest woman made a comment that got everyone’s attention.  Major sensationalist papers in the globe elaborated different arguments on Gina Rinehart case for a $2-a-day pay.  But putting emotions aside, what was she really talking about?  Well, she was explaining in very rough terms what globalization is about and what is the role of competition in the global political economy.

In order to understand what Ms. Rinehart referred to, it is necessary first to briefly evaluate the history of the word competitiveness. The term is historically rooted in the writings of classical economics. Its core is the theory of comparative advantage expressed by David Ricardo in 1819, in which he underlined how countries should/do compete.  Later on, the term was used by Marxist economists starting with Marx’s “Capital: A Critique of Political Economy” where he emphasized the impact of the sociopolitical environment on economic development in a global perspective, and therefore the communist idea that changing the political context should precede economic performance. Later, in 1942 the term was integrated to the role played by capitalists and entrepreneurs in the writings of Joseph Schumpeter, who stressed their creative and economic (“economic” here refers to capital as a mean of production) role as a factor of competitiveness by underlining that progress is the result of disequilibrium, which favors innovation and technological improvement.  Further, Israel Kirzner’s emphasis on the redefinition of entrepreneurship by highlighting how global competitiveness is more about the capitalist’s innovative abilities rather than just the capital accumulated and how he/she invests it.

Ms. Rinehart’s comment reflects both the impact she plays as an actor in the global sociopolitical environment and her role as a capitalist and entrepreneur capable of generating innovation and of inciting creative destruction.

A $2-a-day pay in Africa means that many capitalists and entrepreneurs as Gina Rinehart are considering the possibility of moving their investments from less competitive continents to places in which competitiveness allow them to produce at lower costs.

Unfortunately, the region Ms. Rinehart was referring to has disincentives to competitiveness and innovation.  Competitiveness is more than just lower wages and a cheap offer of labor.  By following Ricardo, Marx, Schumpeter and Kirzner in order for Africa to become competitive in global terms the regions will require also to achieve what Stéphane Garelli in the “IMD World Competitiveness Yearbook 2012” explains as the need to also A.) Create a stable and predictable legislative and administrative environment. B.) Ensure speed, transparency and accountability in the administration, as well as the ease of doing business. C.) Invest continually in developing and maintaining infrastructure both economic (road, air, telecom, etc.) and social (health, education, pension, etc.). And finally, D.) Strengthen the middle class: a key source of prosperity and long-term stability.

Ms. Rinehart’s comments were not a call for Australians to lower their wages to a $2-a-day pay since they have already achieved other of Garelli’s requirements for competitiveness. Her comments are a very clear example on how global economy works.  If African governments manage to improve the rule of law in their territories, develop infrastructure and allow for a stronger middle class then the chances that investment will move to Africa are going to be higher.  As such, economies as Australia’s should continue producing at the same efficiency rates or improve and innovate in order to avoid losing investors. Ms. Rinehart’s comment on how “her country’s mining industry couldn’t compete with nations that are willing to pay workers less than $2 a day for their sweat and labor” is as such partially truth. Australia’s economy has many other competitive assets to offer and as such do not require to compete by offering lower wages.  The country has many other competitive assets to offer for investors.  However, as time has passed since Australia’s boom in the last decades many other countries are also trying to spur competitiveness.

There is much more to be said about this topic and on how global competitiveness allows for rising standards of life and prosperity. Also there is much more to be said on how competitiveness in other regions of the world can destroy (remember Schumpeter’s work) the not-so efficient economies of other countries that have not managed to cope with a changing global economy.

Article: The Global Reserve Army of Labor and the New Imperialism

Loyalist Arms Factory
Image by Burns Library, Boston College via Flickr

I managed to read this article while having coffee today in a exquisite café in front of the Palace Museum in Weimar. It was very hard to try understanding the author’s ideas while he refuses to accept that the value of a product is the result of an objective theory of valuation done by the consumers and sellers in specific contexts. He gives for granted that labor force is the one deterministic condition behind production and trying to get his point seems quite difficult at points. Nonetheless, this is a great opportunity to understand the mainstream ideas of Karl Marx theories in regard to Globalization and what some of them call “Global Capitalism / New Imperialism”. Here’s the intro and then a link to the article via EbscoHost,

The article discusses the ways in which the growth of the global capitalist labor force has altered the imperialistic nature of global capitalism, as represented by powerful multinational corporations, by negatively affecting wages in both developing and wealthy countries. The authors rely heavily on philosopher Karl Marx’s theories on the industrial reserve army and capital accumulation, which posit that wealth accumulation will invariably lead to increased suffering for the working masses. They go on to explain the exploitative nature of global labor arbitrage, which essentially means a corporation’s benefiting from low wages in developing countries. The process of arbitrage is related to the development of massive global supply chains.
Read more: The Global Reserve Army of Labor and the New Imperialism. (AN 66933797) Academic Search Complete. FOSTER, JOHN BELLAMY; McCHESNEY, ROBERT W.; JONNA, R. JAMILMonthly Review: An Independent Socialist Magazine; 11/01/2011