#business finance

Bank of Canada’s Poloz might be spooked by an unnatural economy: Don Pittis – Business – CBC News

~ Roger JG Albert

Many Canadians with high debt loads fear the potential impact of interest rate hikes. Given some strange factors in the economy, it’s difficult to predict when the next hike might come.

Source: Bank of Canada’s Poloz might be spooked by an unnatural economy: Don Pittis – Business – CBC News

This is a pretty bizarre story. Pettis reports that Stephen Poloz, the Bank of Canada chief, says his usual models for figuring out what’s going on in the Canadian economy aren’t doing the job anymore. The economy, he argues, is behaving strangely.

Well, I don’t think ‘the economy’ is behaving strangely at all. In fact there is no such thing as the self-contained ‘Canadian Economy’ any more that there is such a thing as exclusive Canadian weather. The problem Poloz is having is that his models have never worked and will not work in the future either. His models are based on the country, Canada, as the basic unit of analysis when in fact, global finance capital should be considered the basic unit of analysis.

Not all of them, but most countries are beholden to global finance capital. Veblen would call politicians and the likes of Stephen Poloz “Guardians of the Vested Interests”. There is very little left of national sovereignty. Harold Innis argued in the late 1940s that Canada only had sovereignty for about 6 months in 1926 when the British and American empires were almost equally influential north of the 49th parallel. Since then it’s been downhill.

More important, the shift to globally based production makes a mockery out of the notion of ‘Canadian’ manufacturing.  Corporations based in the West have transformed Chinese society (and many others in the so-called Third World)  by moving most of their productive capacity there. The Chinese have gotten jobs, certainly, but also killer pollution. We, in fact, have exported jobs and pollution. We should be proud of ourselves. Of course, it could be no other way and we, as ordinary citizens, are not to blame. It’s almost impossible to figure out what’s really going on out there but we get the odd hint now and again from the mainstream media, although they are focussed on scandal and misbehaviour like tax evasion rather than on the real story.

The course of history is pretty much fixed: globalization has been in the works for centuries and will end with the complete integration of the globe’s economic power. It’s getting to the point where national governments are becoming a major fetter to the process of the expansion of finance capital and will be soon in a position where they won’t even be able to pretend that they have any control over their own economic lives. Their currencies are objects of speculation with traders making billions guessing on which currency will go up relative to others. Their ‘trading’ relations are increasingly governed by international bodies like the World Bank, the World Trade Organization and other multinational agreements. One example of how silly the situation: when General Motors moves a  car from Brampton, Ontario to some place in Michigan, the economists call that international trade. Who’s leading who around by the nose here?

Of course Canada has stagnant wages and low inflation. There is a growing divide between labour’s productive capacity, including knowledge and training, and the needs of business and industry. Labour is not ready for the new global economy and, frankly, governments don’t give a shit because if corporations need cheap labour they know where to find it, and it won’t be in Canada. Jobs in Canada are increasingly precarious, often short term, without benefits and job security. There are a few people driving around in Mercedes’ and BMWs, but most people are sucking air driving their Toyotas they bought on credit over 7 years, and just hanging in there hoping things don’t change too radically, too quickly.

People are strung out on personal debt. Yet Poloz says the economy is doing just great. Poloz and his counterparts all over the world need new economic models, ones that are global is scope and focussed on capital accumulation and concentration if they want to understand anything about what’s going on. Statistics Canada, like all national statistical agencies, is seriously behind the times too, collecting national statistics. A long time ago Harold Innis told a gathering of his colleagues that it was about time that they (e.g., social scientists, economists, political economists, and historians as well as the statisticians at Stats Can) ceased allowing national governments to lead them around by the nose. I’m not holding my breath waiting for this to happen. There are some good international agencies collecting statistics, but unfortunately they have to rely on national agencies like Stats Canada. We need a real, global agency that can follow the bouncing buck wherever it leads.

So Poloz should go trick or treating. A big bag of Nestlé’s chocolates might tell him more about what’s going on than his outdated models of how the world works.

Of course, the situation is not as simple as I’ve laid it out here. The complexity of the global economy has got to challenge the best computer modelling software that exists.This is just a teaser. I haven’t even mentioned export processing zones. Fortunately, there are scholars out there trying to figure things out. Bill Carroll at UVic is one of them. He’s working on corporate supply chains. We need more Bill Carrolls. Enough for now.

 

Engineers thwarted by business men.

~ Roger JG Albert

I’ve been rereading Thorstein Veblen. What a character he was. He came from a family of Norwegian immigrants living in Minnesota. He refused to say when he was born but we know he died in California in 1929. He studied at various American universities including Cornell and Yale and settled first at the University of Chicago to teach economics, economic history and related fields in the late 19th century. I’m not writing a biographical note here so if you want more details on the life of this amazingly intelligent but difficult man, just google his name.

The book that secured Veblen’s public notoriety and reputation is The Theory of the Leisure Class. It’s a compendium of commentary on the mores and institutions of the United States in the late 19th and early 20th centuries. It’s available free online. Once you become familiar with his unusual use of language, he makes for a very entertaining and enlightening read. His chapters Pecuniary Emulation, Conspicuous Consumption, Conspicuous Leisure, and Dress as an Expression of the Pecuniary Culture are a classic dissection of the institutions that affect us all daily. He lays bare where our wants, needs, desires, and dreams come from. His conclusion is that they come from our ‘pecuniary’ culture. Pecuniary means relating to or consisting of money. For Veblen, our money culture and it’s predominant ruling class of ‘captains of finance’ determine how we see and act in the world. They are the preeminent institutions of our world.*

Now, and finally addressing the title of this post, Veblen was particularly interested in parsing out the various components of the economic institutions that dominate our lives. In his book The Engineers and the Price System, available as a Kindle book, he argues that business men, particularly investment bankers and financiers in general, not your run-of-the-mill corner store operator, farmer, or forestry contractor, are constantly at odds with the engineers that actually run industry. For Veblen and most economists  business and industry are two separate things. We often conflate them today. In our world business dominates industry but it doesn’t have to be that way and, of course, it wasn’t always that way. In feudal Europe, the manorial lord drove industry, not the incipient mercantile class.

Industry, for Veblen, does not mean only the factory system and machine production, it means all the physical activities in which humans engage to produce what they need and want as well as the knowledge needed to do so. He concludes that in our world business finance curtails industrial production (particularly commodity production) as a means of increasing or maintaining profit levels. This is easily observable, but it seems strange to think this is true for some people.

For Veblen, profit making often requires the curtailment of supply. Producing as much and as fast as possible, efficiently and effectively, is the aim of engineering. This imperative constantly goes against the business need to make profit where curtailment of production can ensure prices remain high. These ideas, of course, are not revolutionary, and they are behind Canada’s supply management policies regarding poultry, eggs, milk, doctors, and lawyers.

For a good example of how engineers are thwarted by financial interests, one just has to look at how urban infrastructures are built and maintained. Let’s take Courtenay for example. It’s a smallish city on the east coast of Vancouver island, typical in every way. It has the requisite shopping malls, hospital, schools, service businesses and residential neighbourhoods. Now, the municipal government is made up of elected officials, management staff and workers. The elected officials represent pecuniary interests although they claim to represent all city residents. The management staff includes civil engineers, urban planners and the like. If decisions about where to build streets, what they would look like, the materials used in their construction, etc., were left to the engineers, the city would look entirely different than it does. The monetary interests constantly impose cost restrictions on the engineers with the result that street design, urban planning and related activities, are a hodgepodge of compromise including irritating merge lanes and intersections, inadequate bridge structures and neglected maintenance that leaves many roads a hazard to drive on. However we think about it, engineers are systematically constrained by the vested interests represented by elected officials. Of course, not all elected officials see themselves as representing the vested financial interests, but if they didn’t follow the policies imposed on them by the provincial government with regard to fiscal ‘responsibility’, they would soon be removed from office. And, of course, there must be some oversight of the work of the engineers. The point Veblen makes is that the oversight is the prerogative of business interests in the name of maximizing profit, and not for creating the greatest good for the greatest number of people, in this case, the residents of Courtenay.

By the way, Veblen is off the mark when it comes to the role of engineers in a potential overthrow of the ‘kept classes’, but he wasn’t beyond speculating on the way the pecuniary culture would come to an end. I have to reread his book Imperial Germany to determine what his views are on globalization, but that’s my next Veblen read. Karl Marx was very conscious of globalization and, for him, the end of the capitalist domination of industry and production was predicated on the advanced globalization of capital accumulation. Veblen wrote extensively about Marx and admired his materialist historical method. He did have reservations about Marx’s work, but that will be for another blog post.

 

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For Veblen institution means a ‘crystallized’ habit of thought or life, crystallized meaning that they are spread throughout society so as to be essentially unquestioned by most people.