People's Republic of Capitalism

[THX_1138]

Ted Koppell, arguably one of the finest journalists of the contemporary generation is currently, in his new avatar, is busy with numerous documentaries for the Discovery Channel that demonstrate some of the more irksome and intriguing phenomenon around the world (and occassionally beyond). The current segement, titled "People's Republic of Capitalism" highlights the economic interaction between China and the United States. I watched it this past night, and without spoiling it for anyone else, let me mention an intriguing conundrum: Janet, 51 works for, or rather worked for a John Deere's vendor that assembled the engines required for tractors and lawn mowers. To the uninitiated, John Deere is the world's largest manufacturer of mechanized Agricultural and Horticultural equipment, and has lately begun production in India of a small variant of its otherwise gargantuan tractors for the local market. Infact, so remarkably successful were the smaller, effecient tractors that they are now being imported from India and sold to recreational and small farmers. But i digress... one particular day, around the time Janet had spent well over 21 years of honest and sincere employment with John Deere, she was approached by her shift manager who accompanied a gentleman from China and gave her the rather omnious instructions: "show this man how you do your job". Fearing the inevitable, she refused and began to type out her resume. Today, at 51, and after 21 years of employment with John Deere, she finds herself unemployed as John Deere shut down the plant where Janet worked and moved it to China where the very same products are now manufactured for an eighth of the original cost. However, Deere still maintains several plants in the United States, and 85% of its total production is done within the American borders. However, the rational provided by John Deere for this move was that the savings it earned from a few outsourced manufacturing units help it remain competitve with its contemporaries. Janet, distraught, is still seeking employment; but in a vicious and ironic circle, she experiences little remorse in shopping at Wal Mart where virtually all the products are Chinese made! furthermore, she is not oblivious to this Catch 22 situation but she feels that as a customer, she cant feel compelled to avoid shopping at Walmart since the savings it provides in comparison to its competitors are considerable. This unique circle represents a sliver of the evolution of interaction between China and the United States. There are considerable apprehensions here of lost employment due to cheap immigrant labor, and outsourcing, and yet, during one of the worst economic times, a period of considerable tumultousness, national unemployment has hovered around 5-6% and two years ago dropped to 3%, which most economists consider as a state of "virtually no unemployment". are these concerns unsubstantiated? i dont have a definitive answer and doubt few do, but nonetheless, please do watch this documentary. It is telecast on Discovery three times a week around 10pm... the next broadcast is scheduled for later today evening. Let me know what you thought about it...

[Dhondy]

Now, that would have been a good blog entry, THX, with a bit of your own slant. You need a blog.

[Lurker]

There are considerable apprehensions here of lost employment due to cheap immigrant labor, and outsourcing, and yet, during one of the worst economic times, a period of considerable tumultousness, national unemployment has hovered around 5-6% and two years ago dropped to 3%, which most economists consider as a state of "virtually no unemployment". are these concerns unsubstantiated? i dont have a definitive answer and doubt few do, but nonetheless, please do watch this documentary.

THX. In my personal opinion the question has already been answered in your post. I am sure you have shopped at Wal Mart. I am also sure you have shopped at its competitors, say Target. Between Wal Mart and Target the latter is almost always a better place to shop. It is cleaner, the products are of better quality, the shopping cart works and even the chicks at the counter are prettier. All in all shopping at Target is always a better experience. You can also see a distinct difference in terms of shoppers at the two places. Wal Mart caters mostly to lower income levels, specially towards ethnic minorities, while Target is more a medium level joint. Point being people who can afford to pay a bit extra will shop at Target, and those who can not will go to Wal Mart. In this case Janet has to save money and so she is going to Wal Mart even though the products are flooded from China. Which obviously brings up the question - Is shopping at Wal Mart similar to big Corporations shopping in China? I say NO it is not. In the former case it is a matter of survival,meeting the ends. In case of latter it is extra savings and boosting the share value. Companies move overseas to cut costs and show extra bottomline in their profits. Nothing wrong with this approach except the profits lands only in the pocket of top management and share holders. It rarely makes it way to ordinary workers. However when the cost cutting happens it is lower rung workers that get the boot, never the top management. I mean you will hear US Airways laying off 10% of its workforce, do you ever hear US Airways laying off 10% of its Management? If Janet still has her job and makes a decent living who is to say she wont shop at Target and not Wal Mart? xxx

[Ram]

Globalization cant be one-way alone, it has to be both ways. Millions of jobs have been lost in the developing countries due to importing of foreign technology. India has little indigenous technology firms, is it because we cant start them? No, its because they cant compete with their Western competitors. The West is the biggest exporter of services in the world, like how the 'East' is the biggest exporter of man-power. The jobs that we lose by importing technology from the West, we gain by the the outsourced jobs that come to us. Its a two way traffic. If the West insists we have to remove our farming subsidies, abolish import tariffs on a variety of goods so that their cheap products can be imported in the developing world, then they must also accept the fact that the tables will be turned, when it comes to utilizing cheaper man-power in Asia. Millions of subsistance farmers have gone out of business in Asia and Africa because their produce couldnt compete with the cheap imports from America. As much as it sounds unusual, the Western countries are one the BIGGEST agricultural exporters and in every WTO round, they force developing countries to remove more of their farming subsidies and import tariffs, all in the name of 'free-trade' Besides, it is the same China ( manufacturing) and India ( services) thatsupposedly take away American jobs because companies outsouce their operations to them, that now are the reason for a large chunk of revenues of the very same American companies. Increasingly, a lion's share of the business of these companies are due to the orders from Asia. Companies like Boeing, Airbus,GE, Ctigroup, JP Morgan, Lockheed Martin, BAE, Philips now have billions of dollars worth of orders coming from Asia, which helps them make profits and stay above the red.Everytime A Kingfisher Airlines or Air Deccan make a multi-billion purchase from Boeing, it means a couple of thousand Boeing jobs are ensured for another couple of years. And lets not forget, but for Tata's purchase of Jaguar, 15,000 Jaguar and Land Rover's employees would have lost their jobs. Ford was making repeated losses from those companies and had no other company had come forward to buy them, they would have closed down both those factories. The basic point is, if the West is keen to rake in the millions from the money and orders from Asia, then they must also be prepared to face the consequences of some job losses due to outsourcing. That is the reality of the flat world we live in. If they decide to shut-shop and decide to become inward looking, then companies in Asia will beat them hands down, given their superior man-power. Also, its a big myth that outsourcing leads to job-losses in the West. Since it actually began in the late 80s, outsourcing has resulted in net-positive job creation in the US. Because of outsourcing, Western companies have been able to cut costs, be lean and effecient and invest the money they saved from that into expanding their scope. But for outsourcing, Western companies would have not have been able to compete with their Asian counter-parts and would have lost their business. To fully understand this, I suggest everyone watch the following interviews, The first one is a HardTalk interview with Narayna Murthy, where he argues about the fact of how the West has benefitted due to Globalization and outsourcing. http://news.bbc.co.uk/2/hi/programmes/hardtalk/4365082.stm - Narayana Murthy The second one is a two part interview of Azim Premji and Nandan Nilekeni by noted American journalist, Charlie Rose. [ame=http://video.google.com/videoplay?docid=8126866467017031904]Charlie Rose - Azim Premji / Nandan Nilekani[/ame] One thing's for sure though. This phenomenon of outsourcing wont last for ever. As salaries of the employess in Asia grow, it will make lesser and lesser economic sense for the Western corporations to outsource that job. I will be terribly surprised if outsourcing, as an economic phenomenon, lasts beyond 2020 or 2025.

[THX_1138]

THX. In my personal opinion the question has already been answered in your post. I am sure you have shopped at Wal Mart. I am also sure you have shopped at its competitors, say Target. Between Wal Mart and Target the latter is almost always a better place to shop. It is cleaner, the products are of better quality, the shopping cart works and even the chicks at the counter are prettier. All in all shopping at Target is always a better experience. You can also see a distinct difference in terms of shoppers at the two places. Wal Mart caters mostly to lower income levels, specially towards ethnic minorities, while Target is more a medium level joint. Point being people who can afford to pay a bit extra will shop at Target, and those who can not will go to Wal Mart. In this case Janet has to save money and so she is going to Wal Mart even though the products are flooded from China. Which obviously brings up the question - Is shopping at Wal Mart similar to big Corporations shopping in China? I say NO it is not. In the former case it is a matter of survival,meeting the ends. In case of latter it is extra savings and boosting the share value. Companies move overseas to cut costs and show extra bottomline in their profits. Nothing wrong with this approach except the profits lands only in the pocket of top management and share holders. It rarely makes it way to ordinary workers. However when the cost cutting happens it is lower rung workers that get the boot, never the top management. I mean you will hear US Airways laying off 10% of its workforce, do you ever hear US Airways laying off 10% of its Management? If Janet still has her job and makes a decent living who is to say she wont shop at Target and not Wal Mart? xxx

well the documentary made a specific mention of this: the skewed labor laws that favor the authoritative factory administration rather than the army of workers who often engage in back breaking work. they are always under scrutiny, either by dragoonian supervisors who are not hesitant of using the stick to cooerce cooperation, or the workers are under the orwellian eye of cameras, all under the ruse of "improving efficiency". Thus the savings that a corporation earns by shifting its manufacturing to china translate into massive profits for the corporation back home, not the chinese factory. for example, all ipods and iphones are made in china, and on each 60GB ipod that is sold for about 230-299 bucks, apple inc. records a profit of about $80, whereas its chinese manufacturer earns about $6 to $8. these massive profits translate into large profits, and which as you precisely indicated help boost the stock price, keeping the investors and share holders someone to be gleeful about. however, the question is, does this behavior; inevitable as it seems since we all love profits; result in an institutionalized exploitation of cheap labor abroad, loss of unspecialized labor at home, and inflated profits for coorporations, resulting in greater speculation, which further inflates their stock prices... and thus encouraging companies to use improper auditing and accounting practices to report false profits (good ole enron)? and lurker, i thought target sold chinese made goods too...??? but true, target does seem a lot more reformed as a store, though they are limited in their range of products.

[Lurker]

however, the question is, does this behavior; inevitable as it seems since we all love profits; result in an institutionalized exploitation of cheap labor abroad, loss of unspecialized labor at home, and inflated profits for coorporations, resulting in greater speculation, which further inflates their stock prices... and thus encouraging companies to use improper auditing and accounting practices to report false profits (good ole enron)?

In my opinion the new era Economics involves cheap exploitation of labor, period! This exploitation of labor can happen at home, as well as abroad, since now the Management have little obligations. Socialistic values are considered taboo and Capitalism is supposed to be the only economic mantra and so "Market decides what is right" philosphy gives clear chit to Employers who think their employees as little less than "resource"....expendable resource that is. The worst hit area is the Services industry where people are so severely exploited but the funny thing is that they are not even aware of it! If anything you talk to them about the overall impact, both at home and abroad, and they get all defensive. Let me gives you example from IT: 1) My first assignment in USA, late 90s. My USA clients were being billed 120,000 $/annum for me. I was getting paid little over 1/4th of that amount. 3/4 th was going in the pockets of my company, and this was India's number 1 company mind you. Today situation has changed but the companies still make atleast 1/2 of the money. 2) Situation in 1) has given rise of what is defined as Body Shopper phenomenon. In this you basically fall in hands of some small level companies who spend little on you and just mooch money off you. If you are lucky you will end up doing what is called 80-20 gig, where you keep the 80% of the money and 20% is kept by these parasites who will not do anything for you at all. And these body shoppers are always Indians who will screw you. 3) And if you are lucky enough to pass stage 1 and 2 you now have whatever legal status you need to join a company of your choice. Is that the end of your agnst?? Hardly. Which IT guy amongts us, in India or abroad, call say with enough confidence where he is going to be 2 years from now, let alone 5-10 years?? Projects are short, clients are shaky and even if you have oppertunities galore what it means that you essentially keep moving every 2-3 years. Look at those phenomenons closely and see how the employees are getting exploited one way or the other, both at home and abroad. I dont care which big company you work for, Infosys or Microsoft, is there any company out there that can call out aloud - Yes I have made enough money now I am going to take care of my employees, next 5 years you all would be right where you are, raise family, kids whatever. They cant, they wont. Even if they wanted to the market, the shareholders wont let them do that. This uncertainty is what really scares me. How do you plan your future when you have absolutely no clue where it is going to be? xxxx

[Guest dada_rocks]

developing countries have no qualms in dropping farm subsidy if western powers do the same.. Subsidy enjoyed by our farmers is peanuts in comparisn to american farmers subsidy benefit. Many rounds of WTO negotiation have come to stand-still over this issue...

[The Outsider]

2) Situation in 1) has given rise of what is defined as Body Shopper phenomenon. In this you basically fall in hands of some small level companies who spend little on you and just mooch money off you. If you are lucky you will end up doing what is called 80-20 gig, where you keep the 80% of the money and 20% is kept by these parasites who will not do anything for you at all. And these body shoppers are always Indians who will screw you.

That's not entirely correct - around 8% of the billing money goes into payroll generation, taxes etc. which are actual expenditures for the company involved. Moreover the company has to provide all kinds of insurances to the client as part of the contract which also cost it money and are prohibitive for an individual to purchase. And 80-20 split is by no means unfair to the consultant.

[fineleg]

In my opinion the new era Economics involves cheap exploitation of labor, period! This exploitation of labor can happen at home, as well as abroad, since now the Management have little obligations. Socialistic values are considered taboo and Capitalism is supposed to be the only economic mantra and so "Market decides what is right" philosphy gives clear chit to Employers who think their employees as little less than "resource"....expendable resource that is. The worst hit area is the Services industry where people are so severely exploited but the funny thing is that they are not even aware of it! If anything you talk to them about the overall impact, both at home and abroad, and they get all defensive. Let me gives you example from IT: 1) My first assignment in USA, late 90s. My USA clients were being billed 120,000 $/annum for me. I was getting paid little over 1/4th of that amount. 3/4 th was going in the pockets of my company, and this was India's number 1 company mind you. Today situation has changed but the companies still make atleast 1/2 of the money. 2) Situation in 1) has given rise of what is defined as Body Shopper phenomenon. In this you basically fall in hands of some small level companies who spend little on you and just mooch money off you. If you are lucky you will end up doing what is called 80-20 gig, where you keep the 80% of the money and 20% is kept by these parasites who will not do anything for you at all. And these body shoppers are always Indians who will screw you. 3) And if you are lucky enough to pass stage 1 and 2 you now have whatever legal status you need to join a company of your choice. Is that the end of your agnst?? Hardly. Which IT guy amongts us, in India or abroad, call say with enough confidence where he is going to be 2 years from now, let alone 5-10 years?? Projects are short, clients are shaky and even if you have oppertunities galore what it means that you essentially keep moving every 2-3 years. Look at those phenomenons closely and see how the employees are getting exploited one way or the other, both at home and abroad. I dont care which big company you work for, Infosys or Microsoft, is there any company out there that can call out aloud - Yes I have made enough money now I am going to take care of my employees, next 5 years you all would be right where you are, raise family, kids whatever. They cant, they wont. Even if they wanted to the market, the shareholders wont let them do that. This uncertainty is what really scares me. How do you plan your future when you have absolutely no clue where it is going to be? xxxx

I agree, Lurker - this is Fast Food mentality towards employing people now. I think someone (was it u Lurks?) who created that 'Does integrity still matter?" thread. That thread has some nice posts too. "Investing in 'building' a company" should be re-taught to folks. Not everything in this book may be apt, still some things may be worth reading: But even the better ones are declining in these values.

[THX_1138]

developing countries have no qualms in dropping farm subsidy if western powers do the same.. Subsidy enjoyed by our farmers is peanuts in comparisn to american farmers subsidy benefit. Many rounds of WTO negotiation have come to stand-still over this issue...

i honestly thing that removing far subcidies in india would be a death sentence for the substinenace farmer... unless we employ mechanization and organize farms into collectives (a bit too much like the communists manifesto and thus it is wrought with its own problmes), the government must subscidize farmers in india. it might however be beneficial to increase the level of education and vane the population away from agriculture.

[Guest dada_rocks]

THX if americans drop the farm subsidy fpor their farmers then our farmers despite follwing very traditional ways in farming can still be cost effective .. I have detailed analysis on that wiht numbers some time will dig that from my database and put the picture in perspective.. We are cost effective, despite all the bottlenecks, sans subsidy across the globe.

[THX_1138]

THX if americans drop the farm subsidy fpor their farmers then our farmers despite follwing very traditional ways in farming can still be cost effective .. I have detailed analysis on that wiht numbers some time will dig that from my database and put the picture in perspective.. We are cost effective, despite all the bottlenecks, sans subsidy across the globe.

i would like to read this... can you post it?

[triam]

Agree with shwetabh, 80-20 is actually a pretty good gig, Agree with lurker that a lot of desi consultants are screwballs who dont treat their employees with respect. Now that the agreements are out of the way, let me list out my disagreements, Exploitation of labor, has always been there, will always be there, there is nothing that is new with this wave of outsourcing etc. We can really go back to historical times to see evidences of exploitation of labor. Most of us here, wear both hats, employee and shareholder (investing our money), as an employee we want security, screw the profits etc, as an investor we want profits screw the personnel of the company where we invest. What we expect from the companies are what the companies do, so no point in blaming the companies.

[Lurker]

Most of us here' date=' wear both hats, employee and shareholder (investing our money), [b']as an employee we want security, screw the profits etc, as an investor we want profits screw the personnel of the company where we invest. What we expect from the companies are what the companies do, so no point in blaming the companies.

Thats pretty much what we are discussing Triam. The way I look at it is that almost all of us here kinda hate HallMark(card maker) and its series of "Mothers Day", "Fathers Day", "Fathers brothers nieces day" yada yada. We all loath it from the heart. At the same time if someone gave us a tip to invest in Hallmark and make millions will the bulk of us go all moralistic about it? Of course not. So yes we are greedy and it is a sign of times. More importantly this is the phenomenon of share market which I touched in earlier post. And while your point about labour exploitation is well taken it is also prudent to remember how the exploitation today has completely changed. Employers are NOT making money by cutting employees out of certain medical benefits, but often it is being done at the complete risk of employees family, work and all benefits. You look around and see for yourself. Bear Sterns, a 100 plus year old company, one of the worlds best of its kind tanks! And the amount it ultimately gets sold for (250 million dollars) is LESS than what Bear Sterns paid its 12 executive as bonus just a year before(305 million dollars). http://www.reuters.com/article/compa...34187420070221 It just doesnt add up, does it? How can senior Management be so unaccountable? Any company can technically go down the tube but how can a century old well known establishment tank like this? And it is not only Bear Sterns. In the state of US where I live two century old giants, one in Copper Mining other in House Market has been bought. In the case of former (Copper Company) it was sitting on a pile of cash(billions of dollars) and hence was bought. In the case of latter the housing market drove it in the ground. Regardless both M&A were followed by lay-offs. And a large part of these lay-offs is always to boost the share value at Nasdaq. It is almost as if layoffs is directly propotional to it. Now we can argue that ultimately it is share holders like you and me who drive the market but I would think small investors are just that, small. It is ultimately the big corporations, hedge fund managers, speculators who are not only tons of money but also driving the middle class right under the ground. xxxx PS: Finey I shall definitely check out the book. Thanks for the recommendation.

[Guest dada_rocks]

i would like to read this... can you post it?

That's on my moth-eaten laptop.. will power that up sometime.. fact is we subsidized our indusry in much bigger way by this or that tax break cheap land.. I was surprised when my brother-in-law a senior lawyer with reliance industries quoted me the price of land he is acquiring for reliance in maharashtra.. even land in my village a flood prone area is more expensive.> So I asked him why doesn't he buy some himself.. His answer was this rate is for reliance.. Nobody even cares about it contast this with 60000 crore loan waiver for farmers and song and dance against it in mainstream media.. another set of numbers this latest pay commission implentation for sentral govt employee is going to cost the exchequer 2 lakh crore every year...

[THX_1138]

That's on my moth-eaten laptop.. will power that up sometime.. fact is we subsidized our indusry in much bigger way by this or that tax break cheap land.. I was surprised when my brother-in-law a senior lawyer with reliance industries quoted me the price of land he is acquiring for reliance in maharashtra.. even land in my village a flood prone area is more expensive.> So I asked him why doesn't he buy some himself.. His answer was this rate is for reliance.. Nobody even cares about it contast this with 60000 crore loan waiver for farmers and song and dance against it in mainstream media.. another set of numbers this latest pay commission implentation for sentral govt employee is going to cost the exchequer 2 lakh crore every year...

youve lost me here... i thought we were discussing the economics of foreign subsidies for agriculture, and how if foreign subsidies were removed, removing their indian contemporaries would not be akin to throwing the indian sustenance farmer off the deep end, and how he could still compete with his more illustrious western counterparts. i dont quite follow what you meant by the reliance perspective, do explain again please.

[Lurker]

Probably unrelated to the topic at debate here but prudent news nonetheless. Freddie Mac and Fanny Mae, two of the biggest homelenders seem to be in extremely dire straits right now and how exactly they fare in next few months might decide US economy, as also world economy. The two agencies owe more money than that owed by US Govt to Social Security! We are talking of trillions of dollars here. Two things: a) Freddie Mac and Fannie May came to be this big thanks to the belligerence of their lobbying. Their simple rationale was to offer housing to everyone, even to those who simply could not afford. What this has done is - 1) Speculators(brokers, property dealers, investors) made a killing since they knew the property would be sold. 2) Banks resorted to large scale lending because they knew they could borrow from Freddie Mac and Fannie Mae. 3) Anyone who opposed came across as Anti-Housing. b) Most likely Government will have to bail these two giants out or else face a severe recession. It would be another business that is being bailed out by Government. 2 decades ago Lee Iacoca had tp present his case to Congress to borrow money for Chrysler, these days buggers seems to make money then vanish only to have Government bail them out. xxx

[Guest dada_rocks]

youve lost me here... i thought we were discussing the economics of foreign subsidies for agriculture' date=' and how if foreign subsidies were removed, removing their indian contemporaries would not be akin to throwing the indian sustenance farmer off the deep end, and how he could still compete with his more illustrious western counterparts. i dont quite follow what you meant by the reliance perspective, do explain again please.[/quote'] I was making a point of how a hue and cry is being made over pittance of subsidy thrown at farmners in india and just juxtaposed their case with other recepient of subsidiy in order to highlight the pittance nature of farm-subsidy.. In comparison western farmers are in business because they get subsidy otherwise those developing countries farmers will drive them out of business