On your Marx, get set…

Many people would ask me about my name. There are two versions- both accurate- but depending on my mood, I will tell one or the other. The version that concerns today’s post answers the question “what was my parents’ inspiration?” to choose such name for their firstborn.

Most wouldn’t be able to guess because honestly I don’t give any vibe or any clue about it. But a friend who recently reconnected with me was able to! Jamaica (now that is a beautiful name, don’t you think?), a former Political Science student from the University of the Philippines was unbelieving when she inquired whether I was truly named after mathematician and philosopher- the owner of one of the most magnificent brains ever to have analyzed facts- Karl Marx.

A big shout out to my friend Jam, for giving me that unique “high”! Nobody really thinks of identifying me with Herr Marx when they see me…

Introduction

During freshman in college, I was 100% sure that I’d shift to another course as soon as the year ends. I simply wasn’t “feeling” B.S. Economics and felt it was not for me (where B.S. started to not mean Bachelor of Science). The first semester only convinced me that I didn’t even want to learn how to think like them Microeconomists or Macroeconomists.

Come second semester, and I entered into this class “International Economics I”. I sat down in the fourth row, prepared to take notes, poised to comfortably listen to whatever monologue the professor had to say. To my surprise, he asked the whole classroom, “What do you think is the biggest problem of the world today?” Many people said, “Poverty”, “Hunger”, “Inequality”. When my turn came I said,  “American imperialism”. Huh. The class suddenly went silent, all eyes turned on me and there were a few uncomfortable chuckles. The professor smiled and proceeded to listen to the rest of the class’ opinions.

It turned out that the professor is a hard-core Marxist. In fact, he complied with the class curriculum using a purely Marxist analysis of international economics. My eyes have never been so widely opened as that time. It was that class, that professor and the alternate way to analyze the economy that made me want to finish the degree.

I don’t claim to be a Marxist, because truth be told Marxism is a lifestyle.*

What I do claim though, is that I am content understanding how things stand- knowing where I stand. I am satisfied knowing that I possess the tools with which to counterbalance any information fed to me; and that there is another way to see, think, analyze and to react.

On Poverty and Inequality

The standard lesson taught to me and my peers since childhood is that poverty is “bad”, “unfair” and “must be defeated”. Along these lines, the subject of inequality would arise while wistful looks and stares could be caught among students. Needless to say, I grew up believing that poverty can be defeated and that inequality could be eradicated.

However as a grown-up, Professor Arrizabalo turned my head towards another reality (some of my peers were also able to do so, others were too busy surviving to see) and made me see that in a capitalist system- yes, the one we are thriving in- poverty and inequality are necessary conditions for the system to operate. And it all starts with the everyday task of going to work.

A Toxic Relationship

Perhaps the most applicable lesson from Marx in the 21st century are his reflections on the relationship between the Capitalists and the Workers.

In a very summed-up description: the Capitalist possesses the means of production and hires the Worker to transform them to goods (and services) to be traded. During the production process, the Capitalist incurs in production costs consisting of procuring materials and the Worker’s labor (whose cost is the wage). However, this wage does not equal the value of the good or service Worker has produced; it is less, although in principle it is enough for his maintenance and the perpetuation of other Workers (minimum wages).

Technically, the wage is paid according to a day’s work. Let us suppose that it takes 6 hours to produce a certain good (or service) whose price is equivalent to the Worker’s minimum wage. In this case, the Capitalist will pay what is due to the Worker, will sell the product and will receive the same amount he has spent to produce it. Profit is something unheard of in this case.

Logic says that if this were to be true, there would be no incentive for the Capitalist to enter (and preserve) this kind of relationship.

Therefore, the Capitalist extends the working hours of the Worker to 6 hours more (12 hours in total) in such a way that the value of the finished product is that of 12 hours’ work. However, the Worker does not receive the amount equivalent to the extension of working hours. At the end of the day, he will still be paid what was 6 hours’ worth of wages. With this method, the Capitalist will be able to sell a product with higher value without having to pay for the said increment. In fact, he gets to keep that increment for himself.

Engels wrote:

“Let us assume that these means of subsistence represent six hours of labour-time daily. Our incipient capitalist, who… hires a labourer, consequently pays this labourer the full value of his day’s labour-power if he pays him a sum of money which also represents six hours of labour. And as soon as the labourer has worked six hours in the employment of the incipient capitalist, he has fully reimbursed the latter for his outlay… But so far the money would not have been converted into capital, it would not have produced any surplus-value… The fact that only six hours’ labour is necessary to keep the labourer alive for twenty-four hours, does not in any way prevent him from working twelve hours out of the twenty-four. The value of the labour-power, and the value which that labour-power creates in the labour-process, are two different magnitudes. The owner of the money has paid the value of a day’s labour-power; his, therefore, is the use of it for a day — a whole day’s labour…

On our assumption, therefore, the labourer each day costs the owner of money the value of the product of six hours’ labour, but he hands over to him each day the value of the product of twelve hours’ labour. The difference in favour of the owner of the money is six hours of unpaid surplus-labour, a surplus-product for which he does not pay and in which six hours’ labour is embodied. The trick has been performed. Surplus-value has been produced; money has been converted into capital.”

– Anti-Dühring by Frederick Engels 1877

The remaining value- that is, the difference between the newly-incremented value of merchandise created by the worker minus his wage is the Surplus Value. Once the product is out in the market at a given price, such price minus the cost of materials minus wages is what we know as Profit.

In a few words: there is the Capitalist’s need to develop Capital through Profits and the Worker’s requirement for Wages to sustain himself by the sale of his Labor (labor power) for as long as he lives.

It is easy to sense that the above-mentioned relationship is not one between equals. A short and simplified analysis could help figure this out:

(1) Price of a product = cost of materials  + wages + profit

                                                   27                =            21        +        3         +        3

Should we follow the above assumption regarding the number hours’ labor:

(Where 1 day of labor= 3 units of wage)

Price of a product= 27 units

cost of materials= 21 units

wages= 3 units

profit= 3 units

We have said that it is the acquisition of profit which motivates the Capitalists to enter in a transaction with the Worker, so we will simply transform the equation for an easier viewing (by subtracting cost of raw materials and wages on both sides of the equation):

(2) Profit = Price of a product – cost of materials – wages

                                             3       =      27          –      1         –           3

In this new equation, it’s easier to see how Profits are inversely related to Wages. Wherein, an increase in Wages would undoubtedly mean a decrease in Profits.

Now it is clearer where the interest of the Capitalist lies, and that is to increase profits as much as possible. More particularly, the system requires an ongoing and never-ceasing increase of the capital’s growth rate in detriment of the workers’ salaries (wages). This case satisfies the condition of inequality.

At the same time, this naturally creates and aggravates situations of poverty. In many industries (like in textile, hardware assembly or certain services) capitalists are capable of localizing and hiring the lowest-paid workers to maximize their profits. On one hand, some workers lose their jobs because of this change; on the other hand the newly hired workers become the fresh army of laborers to be exploited. Yet even then, capitalists will still find ways to squeeze workers of their meager earnings.

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Image courtesy of: http://thedailyjournalist.com

The Few Who are Them and the Many Who are Us

The world is full of wonders, but one of its greatest oddities could be the fact that the capitalists who are so few in relation to the workers, have become so powerful.

If we consider the Fortune 500 list, we come to the conclusion that there are only 500 of them in the whole planet, and around 7,461,087,270** of the rest of us. Roughly 500 people hold in their hands the means of production with which they convince the rest of us that we can prosper and progress not only for ourselves but for the generations that would come after us. How did this come to be?

An explanation we could all relate to is that capitalists are able to maintain their power because the workers lack unity among themselves. Such division has been made possible through competition. Just as the capitalist is in competition with the worker due to their opposing interests (profit acquisition versus raise in wages), so are the different types of workers placed face to face one another, defending their varied interests.

Competition also brings about inequality within the ranks of the working class, likewise generating and exacerbating poverty in both its absolute and relative terms.***

Try to remember how specializations in different areas of work have surged in the past decades:

  1. There are not only engineering courses, but also technical ones which offer a more practical approach to a subject.
  2. Within engineering courses: computer engineering and financial engineering have sprouted as new necessary courses
  3. There are not only Economists but Business Administration graduates, Business Analysts, specialists in Actuary sciences, and so forth…
  4. The outsourcing of certain services (accounting, legal, debt collection, client service, invoicing, data mining, etc…) by big companies to find the most cost-effective formula.
  5. … and many others.

The specialization of the working class (referred to in Economics as the “division of labor”) obviously hones different sorts of talents and capabilities according to a specific area of concentration. As a consequence of having unique skills and capacities, salaries also differ not only when comparing one area to another (for instance, informatics versus tourism); but even in the same industry salaries widely vary across levels and niches (like in the financial industry).

As we are but humans, our interests lie in the continuous betterment of our own situation and in maintaining the attained status. We do this not only for us, but for our children and our children’s children. This is why we find it hard to break away from the chains (some of them golden, some of them platinum) of capital. Because honestly, what could we do?

Additionally, it must be added that the power of the capitalists was the result of a historical and social affirmation of their political standing. It took some time, but the capitalists have finally secured its position as the ruling class and it doesn’t seem to be willing to relinquish the title any time soon.

The Communist Manifesto states, ” The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations.” Such an end signified the beginning of their conquest for control and power.

The “constant revolutionizing of production” (before through machinery and in modern times through information), the continuous market expansion and the discovery of cheaper sources of raw materials (through better transport systems)… these undertakings were accompanied by the possession and centralization of means of production, markets and territories which have aided the capitalists to establish themselves as well as their principles and their values in the four corners of the world. This is how we have adopted the capitalist mode of production; not only “we” as in those who constitute the society, but also “we” as those who take part in politics and policies.

And so it goes, “Each step in the development of the bourgeoisie (capitalist class) was accompanied by a corresponding political advance of that class… The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie.”

Now returning to the previous question, it may be better to be straightforward and argue that so few capitalists hold so much power because so many (if not all of us) have come to depend on them. Accordingly, this dependency can be projected towards international relations where poorer countries depend on the rich ones for their livelihood, for “protection” and even for “aid”.

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Image courtesy of: http://quotesgram.com

Conclusions

In my university, Marx was considered as belonging to the heterodox school of thought. His ideas were so unorthodox that if anybody wanted to learn his method of analysis, either they would have to get lucky to have a Marxist teacher or choose the elective subject entitled “Marxist Analysis of the Global Economy”. If a supposedly progressive institution marginalized such breakthrough in Socio-Historic-Economic analysis, it would be effortless to imagine how the rest of the society reacts before such an idea (with fingers crossed, perhaps after more than 10 years the curriculum has changed and has paved way for diversity).

Writer L. Genova said that “Reality depends on perspective, on what is paid attention to”. In the case of Marx, he paid close attention to the human beings and their development. Better said, he probed on the factors causing hindrance to human development under the capitalistic regime. His theories are far from being axioms, but they are part of the universe of realities in the domain of Economics as experienced by its main characters- the human beings.

As of the moment, we may not be witnessing the revolution that the Communist Manifesto has called out for. However, we have been granted a lens through which we could see the world differently. Hopefully, we could use this new vision to gradually move forward with better understanding and a greater awareness of the consequences laid before us.

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Image courtesy of: https://twitter.com/openmindschool

 

*Did you know that Marxists speak differently? I believe that in their aim to change/revolutionize the society, they have turned their backs to the standard language because (and this is a personal view) even the historical evolution of the modern language has led to this capitalist society. Therefore, all those who wish to participate in the revolution, would have to change their way of living including the way they speak.

**Actual data at the time of writing.

***Absolute poverty is determined according to a poverty threshold. That is, the minimum amount of resources (typically income) needed for a person to survive. Relative poverty on the other hand places the subject (the poor) within the social, cultural, political and economic context of his habitat. The best example for this is when we say that to be poor in Amsterdam is not the same as being poor in New Delhi.

-The End-

Glossary:

Capitalists (Bourgeois)- The class…  who in all advanced countries are in almost exclusive possession of the means of subsistence and those means (machines, factories, workshops, etc.) by which these means of subsistence are produced.

Profit- The difference between: the price at which a product has been sold minus the costs with which the product has been generated.

Worker- The class of the completely propertyless, who are compelled to sell their labour to the first class, the bourgeois, simply to obtain from them in return their means of subsistence. Since the parties to this trading in labour are not equal, but the bourgeois have the advantage, the propertyless must submit to the bad conditions laid down by the bourgeois.

Labor- the commodity sold by the Worker to the Capitalist in exchange for a wage

Wage- the amount of money which the capitalist pays for a certain period of work or for a certain amount of work. In short, this is the price of labor (or labor-power).

Sources:

  1. https://www.marxists.org
  2. “The Relevance of Marxism Today: Interview with Michael A. Lebowitz”, by Zhuo Mingliang, MR Zine, available at: http://mrzine.monthlyreview.org/2013/lebowitz210313.html
  3. http://www.worldometers.info/
  4. http://www.differencebetween.com/difference-between-policy-and-vs-politics/

A Letter to My 20-Year Old (young) Self

Dear me (*wink*),

I come from the future, from almost twelve years ahead to tell you that one of your ambitions will come true- the one you would least expect to happen. But it is one that you truly deserve because you worked (would work? will have worked?) hard for it- money, time and effort were patiently set aside for this dream to come true.

Let me warn you though, that contrary to what you believe there will be no signs of good omen to let you know it is about to happen. No, there will be no big band playing your favorite music nor will there be fireworks to accompany the scenario. An SMS and you losing your way to a restaurant will be the only prelude to the fulfillment of this wish.

Since you have always been a lover of spoilers, let me humor you…

You see, on June 2nd 2016 you will be meeting two very nice girls from where you used to work. One of them, S (one of the prettiest, friendliest and most outgoing persons you’ll know) would be the one to initiate the meet up and the other friend, J (a lovely redhead, your first ever Russian-speaking Parisian friend and one of the most dependable people you’ll meet) would also confirm her attendance.

Are you freaking out yet? Wait until you hear the rest:

The three of you will meet at a very nice and affordable Korean restaurant on the 12th “district”. You will start the conversation by asking how the other is doing, but you will not be speaking in English, nor in Spanish. No! And nooooo not Visayan, you nerd… You, my dear geeky self, will be speaking confidently and perkily in French! Yes! French, and in Paris, of all places!

So there you go! and yes, I confirm that what I have just told you is not a delusion: you will have friends, these friends will want to spend time with you “just because”, you will be speaking French, it will happen in Paris and the feeling you will have will be greater than fleeting happiness. You will feel both blessed and peaceful at the same time. Blessed because you have found such beautiful people to share with (and practice your French with!) and peaceful because you will be able to tick that thing off your bucket list.

I’m sorry to say, though: you won’t be dressed in haute couture, this will not take place in a Michelin-starred restaurant and you will not be holding a slim cigarette while sipping on champagne. But you will talk about your son and husband (oopss… sorry! I didn’t mean to spill that…), summer plans, politics at work, the job market and even the human digestive system! And you will eat a perfectly fried fish with plum wine. And you will be at peace. That is a promise.

So girl, get up that couch and stop moping because your future looks good. I understand that none of these is believable right now because all you could think about are passing your exams, going back to the Philippines, forgetting what’s-his-name and maybe getting yourself a tattoo. I wish I could deliver the punchline and say “Ha! gotcha, just kiddiiiiiiing….!!”. But it’s not going to happen because these will all come true.

I know, I know… 12 years is such a long time for a dream to come true. Things happen for a reason, you know? And another promise: time will fly past you like a flock of migrating birds. You won’t even notice anything until it’s gone. So listen to an older, wiser you and take every chance that life gives you to be happy. Pay attention because within every moment, a dream might be on its way to becoming a reality.

Take care!

Yours truly,

Almost 32 year-old me

How I see Economic Inequality (2)

The worst form of inequality is to try to make unequal things equal.

– Aristotle

Image courtesy of: http://www.alternet.org/

Following the first of a two-part entry, this concluding post incorporates a more analytic perspective. The following cites the order with which it is structured: (I) the materials I read back in my early 20’s, (II) the measurement tool that I learned to use, (III) my most favored argument during debates and of course, (IV) a short and entertaining exercise for those curious to know how their incomes stand when compared to other people in their country. Parts I-III are some of the means which have helped me write the first part. I do hope this will be as interesting for you as it was, and still is, for me.

Note: if the amount of text is discouraging you and the mean-looking formula is too much, don’t feel bad! But at least scroll down to the “IV. FUN TIME!” section and see how your income compares to that of others in your country.

I. Words from the wise

I’ve searched some of the most famous quotes from social scientists whose works have been widely used in discussions about income inequality. The authors alluded to are not the only ones relevant to the topic, but they are the ones I could salvage from my memory (I especially recommend “The Animal Farm” by George Orwell- it is highly entertaining due to its likeness to life and very educational, too!):

“Wherever there is great property there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many. The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions.”

– Adam Smith, Wealth of the Nations

“Does inequality in the distribution of income increase or decrease in the course of a country’s economic growth?”

– Simon Kuznets, Economic Growth and Income Inequality

“Of all the costs imposed on our society by the top 1 percent, perhaps the greatest is this: the erosion of our sense of identity in which fair play, equality of opportunity, and a sense of community are so important.”

― Joseph E. Stiglitz, The Price of Inequality: How Today’s Divided Society Endangers Our Future

“The raw fact is that every successful example of economic development this past century – every case of a poor nation that worked its way up to a more or less decent, or at least dramatically better, standard of living – has taken place via globalization, that is, by producing for the world market rather than trying for self-sufficiency.”

– Paul Krugman, The Unraveling

“A house may be large or small; as long as the neighboring houses are likewise small, it satisfies all social requirement for a residence. But let there arise next to the little house a palace, and the little house shrinks to a hut. The little house now makes it clear that its inmate has no social position at all to maintain, or but a very insignificant one; and however high it may shoot up in the course of civilization, if the neighboring palace rises in equal or even in greater measure, the occupant of the relatively little house will always find himself more uncomfortable, more dissatisfied, more cramped within his four walls.”

– Karl Marx, Wage Labour and Capital

“All animals are equal, but some animals are more equal than others.”

– Georgre Orwell, Animal Farm

II. The Gini Coefficient

No study in the field of economics is considered “complete” if there’s no measurement involved. In this case, the most commonly used measure of inequality (income, wealth or consumption) is the Gini Coefficient.

(When I realized this in relation to economic inequality, I couldn’t help but shake my head in disbelief. I came from a country where the latest Gini Coefficient dated at 2012 is 0,43- a value considered to be high, given that the highest for the same year is 0,61. Actually, the Philippines was the 14th among the 20 countries with the highest levels of inequality, and the only Asian nation in the top 20. So what I thought at that time was, “Really? measurement? Just look at the shanties outside the grand, luxurious hotels of the cities and you’ll have hard-core evidence of inequality in front of you!”. I suppose it is still highly imperative for something to be measurable for it to exist? Tsk!)

Based on the Lorenz Curve, the Gini coefficient (G) “is a measure of statistical dispersion that is frequently used in income (or wealth*) distribution analysis”. It can be calculated by this formula:

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DO NOT let this mean-looking formula impress you. It really is simple once seen with an example:

Gini0

Where:

n is the number of subjects (Person- 5 in this case)

i is the order which the subjects are placed (A=1, B=2, C=3, D= 4, E=5 in our example)

Xi is the income of the subject we are referring to (X1, X2, X3, X4 and X5)

A Gini coefficient of “0” represents perfect equality (each person owns an equal share)

Using the information in the table above: Imagine 5 cousins who were given 12 pieces of candy bars to share among them. Nanay B., an excellent distributor, thus gave each kid exactly 2,4 candies so there would be no conflict. For practicality’s sake, let’s call the candies “Income” and the cousins “Population”. In this case, and following the diagram, we can apply the scary-looking formula and realize it’s not so scary at all:

Giniex1

 

 

I will even encourage you to compute the following and see for yourself how the Gini coefficient is truly zero. We may represent this in a graph similar to this one below (the Lorenz curve is equal to the 45º line of perfect equality of incomes):

Gini0gr

A coefficient of “1” suggests perfect inequality (where one person owns everything)

Meaning to say, that any value between 0 and 1 represent more or less inequality. Going back to our example (see information from the table below): imagine Uncle P. coming back from the U.S. and brings 12 packs of cookies to be shared by the 5 cousins (again, cookies=income and kids=population). Nanay B. went to the market, so the eldest cousin distributed the cookies according to his criteria. This meant that the younger ones (A, B and C) would receive less and the older ones (D and E) would receive more. The new distribution would be as follows:

Gini03

Applying the same formula, we get a Gini coefficient of 0,333333… which we could of course shorten to the value of 0,33. The Lorenz Curve will look like the line drawn in orange below (this time, the curve deviates from the perfect-income equality line):

Gini03gr

The value of G (0,33) as well as the distance of the new Lorenz Curve from the line in the middle suggest that there is evidently a lack of balance in the new distribution.

(I encourage you, dear reader, to use this measure the next time you want to prove that a certain malpractice is happening when it comes to distribution of resources- be it allowance, gifts, slices of cake, etc… Data-gathering is exhausting but it could be fun…?).

Other income inequality measures

For an easy reading about other income inequality measures, please refer to:

https://en.wikipedia.org/wiki/Income_inequality_metrics

Don’t hesitate to share your knowledge and/or opinion about these metrics!

III. An attempt at problem-solving

Aristotle pointed out that it would be more wrongful and more hurtful to make unequal things equal; it is simply against the natural order of life. However,where there is such a social and economic polarization (where the privileged are only acquiring even more privileges and making certain opportunities exclusive while the deprived ones are increasingly excluded), what becomes natural is to aspire for a more just way of life.

Even though I cannot replicate the dialouges I’ve had with different people, I can and will share my most favorite argument to battle economic inequality: if we incorporate the “human” aspect in our understanding of what is “economic”, we go beyond the concept of income as the sole measure for wealth and well-being. By doing this, we become open towards solutions aimed at developing human capacities in order for individuals and groups (families, communities…) to pursue a desired level of social and economic conditions. This is based on the human development paradigm** developed by Amartya Sen that suggests a new metric with which to base our concept of equality.

Some people would call it cheating- similar to readjusting a weighing scale to fit one’s desired outcome. I call it a necessary adjustment- similar to walking away from the mountain to get a better view of the whole.

A. Sen, Human Development approach

The most important idea is that Sen recognizes the vast diversity of individuals and how we are not equals, to begin with. It is absurd to push for equality when the fact is, life is as diverse as the people who live it- people with different cultures, ideas, preferences, values, ambitions and limitations. But, people can be given equal opportunities to develop their capacities which in turn will give them a chance to live the life they wish to (not everyone wants to be as rich as the top 50 richest people on earth, nor everyone wishes to trade their leisure time for money). This is why he has insisted on the role of human development to address the search for socio-economic equality.

Sen gives an example: a victim of famine and an affluent person who chooses to fast are both staving; materialistically they are “equals” because neither have access to nourishment. But under the human development paradigm, they are not- because the affluent man has the choice to satisfy his need to eat while the famined man has no alternative to hunger. In this sense, what would make them “less unequal” is if both possessed the freedom to choose whether to stay hungry or to eat. In other words, equality under this point of view means that both individuals are free to make real choices for themselves in order to live the lives they want to live.

According to the United Nations Development Programme (UNDP), Human Development (or Human Development approach) “is about expanding the richness of human life, rather than simply the richness of the economy in which human beings live. It is an approach that is focused on people and their opportunities and choices.”

In this sense, income is considered only as one of the means to give people access to opportunities and other resources that they need to make life choices. In the first part of this post, I mentioned how wealth distribution is important but having equal access to opportunities could partly address economic inequality more continuously; Sen goes ten steps ahead stating that inequality should be defied by confronting problems related to a person’s ability to develop his capacities, therefore, livelihood, health, education and social inclusion must be assured.

The overly simplified manner of explaining Amartya Sen’s thesis surely made me miss some very important points. However, the depth of this paradigm and the lack of time and space to expound are not very compatible elements. Thus, far from overcharging this post I limit myself to concluding that: when people claim their right to a decent job, healthcare, education and social inclusion and the society where they thrive assists them in their demand regardless of ethnicity, gender, age, income, et cetera, it means that the citizens are being treated fairly- it means that there is a serious search for equality.

 

IV. FUN TIME!

I found this very interesting page at the OECD website: http://www.oecd.org/social/inequality-and-poverty.htm

… where you can discover approximately “how much you earn compared with others in your country.” (Scroll down the page to see the tool entitled “What’s your share of the pie?”)

For our family, I made an educated guess basing on how much our household is earning per month, compared with the minimum salary and compared with the average salary of a person with my qualifications. I guessed right! (sadly…)

 

* Wealth and Income have been indistinctly used in this post. However, it must be remembered that wealth denotes a stock variable (measurable at a particular point in time), while income is a flow variable (measured with reference to a specific period in time).

** One important condition for this paradigm is for it to be studied and analyzed within the context of a democratic society.

Sources:

  1. http://data.worldbank.org/indicator/SI.POV.GINI
  2. Investopedia
  3. http://www.had2know.com/academics/gini-coefficient-calculator.html
  4. “99 Must-reads on Income Inequality”, available at: http://edition.cnn.com/2013/08/23/opinion/sutter-99-inequality-must-read/
  5. For richer, for poorer, available at: http://www.economist.com/node/21564414
  6. https://www.goodreads.com
  7. “Economic Growth and Income Inequlity”, by Simon Kuznets, available at: https://assets.aeaweb.org/assets/production/journals/aer/top20/45.1.1-28.pdf
  8. http://www.notable-quotes.com
  9. http://www.economicsdiscussion.net/difference-between/difference-between-flow-variables-and-stock-variables/555
  10. http://hdr.undp.org/en/humandev
  11. The Concept of Human Development: A Comparative Study of Amartya Sen and Martha Nussbaum”, by Christopher Ryan B. Maboloc, available at: http://www.diva-portal.org/smash/get/diva2:18358/FULLTEXT01.pdf
  12. “Desarrollo y Libertad”, by Amartya Sen, available at: http://goo.gl/9FuoFa

How I See Economic Inequality (1)

The greatest country, the richest country, is not that which has the most capitalists, monopolists, immense grabbings, vast fortunes, with its sad, sad soil of extreme, degrading, damning poverty, but the land in which there are the most homesteads, freeholds — where wealth does not show such contrasts high and low, where all men have enough — a modest living— and no man is made possessor beyond the sane and beautiful necessities.
– Walt Whitman
Image courtesy of: http://www.oxfamamerica.org

When fighting for equality is only but a memory…

I was about 4 or 5 years old when the concept of “equality” was introduced to me. I was living in the province with my grandmother, Nanay B. and she was patiently explaining why my cousin and I had to have equal share of candies. Her explanation was “so there will be no conflict”. From then on, my cousins and I would always try to divide everything into equal parts: news toys would be enjoyed by each of us for exactly 10 minutes, food would be equally shared among us, even hugs and kisses from the elders have to be exactly of the same intensity and length. An adult judge would be called in if someone tried to outsmart the rest. It didn’t work 100% of the times, but everyone agreed that an equal distribution would help avoid conflict. I didn’t know it then, but that would be the last time I would witness a firm stand on equality.

As an adult, I’ve grown to view the concept more as an ideal and less as an achievable reality. The basic reason being, that we live in a world where competition is the engine that makes things happen. And when the leitmotiv of our everyday existence is consciously wanting to be the best (some would settle to being better), isn’t it only natural for others to be left behind? and isn’t having people left behind already a situation displaying inequality?

Under the lens of rationality, inequality is “just part of life”.

As a member of a community, I can’t help but aspire for resources to be more equitably shared, even though the lottery of life has placed us in different situations the moment we were born. I believe it is a legitimate appeal so that all of us could obtain a minimum standard of living and that would allow us to serve our purpose in life.

Under the lens of world citizenship, inequality is causing conflicts and distorting the society by crippling social cohesion.

Both statements are true and one only needs to look out of their windows to find real-life testimony to these. They co-exist, and they divide our conscience into: convincing ourselves that there is a solution versus believing that this is a hopeless case.

Redirecting the debate

I’ve seen articles online arguing how inequality is actually necessary so the wheels of a capitalist society would turn. As a very simplistic example: you wouldn’t be enjoying that affordable item of yours that was made in China, if the factory workers had the same educational qualification as you do. Precisely, we are where we are now because historically it was the inequalities in the pre-capitalist societies that have made way for resources to be distributed the way we see them now. Right now we have the landlords, the capitalists, the workers (laborers, yuppies, executives, etc…), the oppressed…

Let’s say we accept that inequality was necessary back then and that it is inherent to the system at the present moment. Our sense of morality would dictate for us to “not be okay” with that fact. Yet, doesn’t it seem ridiculous to argue whether inequality is necessary or not in our current society? it is here and it is happening, after all. The debate is enriching, but its practicality is nil.

The way I see things, it’s not the disparity in the possession of wealth* per se that should be the focus of the debate. Instead, I propose to reorient the dialogue on the fact that: discussions about solving inequality is almost always geared towards the redistribution of the “pie”; taking from the rich to give to the poor. This response gives me the impression that the beneficiaries of such designation are seen as mendicants, waiting for charity to improve their lives. And I refuse to believe that.

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Image courtesy of: http://www.slate.com

Wealth is a by-product of an exerted effort, a risk taken and an opportunity tapped. However, not everyone I know dreams of living the life of a millionaire; most of them would be content providing for their families and knowing that their future is somehow secured. I know of people my age who have turned their backs on their “conventional” lives to live in and develop abandoned rural villages. There are also those who could have made it big in the corporate world but have chosen to continue contributing to the academia and other non-lucrative enterprises. Then there are those who simply dream of tilling lands or running a business of their own.

This is why I believe that it is the lack of access to opportunities that is the underlying cause of inequality. I have a feeling that if the world could be fairer in giving access to livelihood, financial capital, training, education, etc… people will have the chance to make a living on their own and eventually accumulate wealth for themselves, by themselves.

My proposition does not mean to downplay the importance of redistribution. Rather, it encourages the evaluation- and even the criticism- of the existing suggested solutions. Wealth redistribution perhaps offers the chance to solve inequality issues at the present moment and the immediate future. But opening up the doors for people to create their own wealth could potentially deliver a more sustainable and longer term solution.

Enter globalization

It is very difficult to detach globalization from discussions about economic inequality. As a young optimist, I was convinced that time would prove me right when I said that globalization will be more advantageous to the underprivileged. The principle is that opening the international barriers to capital, goods and labor will bring a positive outcome for everyone.

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Image courtesy of: http://www.huffingtonpost.com/

12 years have passed and time hasn’t been my ally. Although globally, inequality has declined (due to a worldwide economic growth), the gap within countries has worsened. And as what I have observed, the most striking repercussion of globalization is the trickle-down effect.

Investopedia defines the trickle-down effect as, “A phenomenon where an advertisement is rapidly disseminated by word of mouth or by viral marketing”. One the one hand, we are at the height of the daily improving Information and Communications Technology (ICT). This advancement is constantly making it easier for the people of our generation to take a peek at how others live no matter how far they are from us, eventually leading us to want, to “need” what they have and enjoy. At the same time, globalization is expanding the market for consumption as well as facilitating the financing of such consumption, thus allowing for the satisfaction of people’s new wants and needs.

Georg Simmel used fashion as a fantastic example to explain my point: “The elite initiates a fashion and, when the mass imitates it in an effort to obliterate the external distinctions of class, abandons it for a newer mode- a process that quickens with the increase of wealth.”

Notice how the middle-class have lately become quite busy purchasing the now-accessible goods and services (most of the times with the now more-accessible credit) which make them feel like they’ve reached a higher echelon in society- cars, properties, branded clothing, lavish celebrations, vacations overseas, and so on… All the while consuming, they don’t seem to notice how the economic gap is actually widening, not slowly diminishing. Something inside me says that this phenomenon has been successful in somehow placating conflicts that could possibly stem from the common people.

To cite an example: analyzed survey from 40 countries by researchers from Harvard University and Chulalongkorn University revealed that respondents in every country underestimate the size of the salary gap between a CEO and an average worker. In the U.S., the median American’s response to how they perceive this salary difference is a ratio of 30-to-1, when in reality the gap is 350-to-1. (Year of survey unmentioned by the source)

I’m afraid that this is not exclusive to the Americans and I can see this happening in many countries. The question is, how long will this distraction serve its purpose?

Conclusion

Nanay B. was right in asserting the importance of equality to avoid conflict; and since this is far from being achieved, it is not surprising that outcries and at times hostility are bursting from all corners of the world. Within my adult life, the most striking accounts I’ve heard so far are:

i) the 2005 riots in the suburbs of Paris

ii) the 2010 Arab Spring

iii) the 2011 “Indignants’ Movement” in Madrid

iv) the 2016 Kidapawan farmers’ protests

Surely there are more expressions of social unrest around the globe and across history. But given what we know about the fast-rising economic inequality, should there not be a manifestation of greater interest from the rest of the public? a higher participation from all members of the community?

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Image courtesy of: http://www.bbc.com

I can see Adam Smith’s thoughts as writings on the wall:

Though our brother is upon the rack, as long as we ourselves are at ease, our senses   will never inform us of what he suffers. They never did and never can carry us beyond our own persons, and it is by the imagination only that we form any conception of what are his sensations…His agonies, when they are thus brought home to ourselves, when we have this adopted and made them our own, begin at last to affect us, and we then tremble and shudder at the thought of what he feels.”- Adam Smith, The Theory of Moral Sentiments

Is the middle-class really so entertained at their illusions of wealth that they are not even aware of the magnitude of this social injustice?

I seem to remember that the French Revolution was led by the bourgeoisie, in complete compassion and genuine desire for a more equitable society. If history does repeat itself, then why is this not yet happening? Just wondering…

This is how I see economic inequality: an outright contortion of the society.

 

* Wealth and Income have been indistinctly used in this post. However, it must be remembered that wealth denotes a stock variable (measurable at a particular point in time), while income is a flow variable (measured with reference to a specific period in time).

Author’s note: Coming up is the second part of this post- a more technical note containing the different materials that aided the author in writing this entry. Stay tuned!

 

Sources:

  1. Investopedia
  2. “For richer, for poorer”, available at: http://www.economist.com/node/21564414
  3. “On Income Inequality: A French Economist vs An American Capitalist”, available at: http://www.npr.org/2014/05/08/310784652/on-income-inequality-a-french-economist-vs-an-american-capitalist
  4. “Fashion” by Georg Simmel, available at: http://sites.middlebury.edu/individualandthesociety/files/2010/09/Simmel.fashion.pdf
  5. “1789: France’s bourgeois revolution”, available at: http://www.worldsocialism.org/spgb/socialist-standard/1980s/1989/no-1019-july-1989/1789-france%E2%80%99s-bourgeois-revolution
  6. “The Surprising Reason that Crushing Economic Inequality Isn’t More of Election Issue” by David Sirota, available at: http://www.alternet.org/economy/surprising-reason-crushing-economic-inequality-isnt-more-election-issue
  7. https://www.goodreads.com/author/quotes/14424.Adam_Smith
  8. http://www.economicsdiscussion.net/difference-between/difference-between-flow-variables-and-stock-variables/555

Hidden-nomics (1)

My most favorite elective subject back in college was something entitled “Economics in Arts”. We actually had fun analyzing songs, movies and artworks looking for economically-linked issues beneath. It was the very first time I felt like an Undercover Economist…

One of the songs we analyzed was Phil Collins’ “Another Day in Paradise”. As a child of the 1980’s, I was exposed to this song because it was always within the repertoire of any brave soul in Karaoke sessions (those were the days when we had what we called “minus-one” tapes; amateur ones would carry an already-rewound tape of their favorite song to interpret). I even learned the lyrics by heart just by hearing it thousands of times! However, it was only a decade afterwards when I would truly listen and think about what Mr Collins wanted to tell us: how the homeless fare each and every day of their lives in “paradise”, while being considered invisible by most of us.

The situation in Paris is truly becoming unbearable. One cannot simply turn a blind eye on the SDF (sans domicile fixe– without fixed residence) because now they don’t consist only of grown men and women- there are actually infants sleeping in salvaged mattresses beside trash cans in winter! How can one have faith in the European Union when this very basic human crisis is unfolding under our very eyes? and if we look at how policy-makers are reacting, there seems to be no urgency to solve this! To think that the refugee situation is only aggravating it…

What a waste of human capital! what a poor display of France’s highly-acclaimed abundancy in social capital.

I’ll leave the socio-economic discussion for another time. Meanwhile, why don’t you stop for exactly 4 minutes and 49 seconds and hear how Mr Collins describes our common reactions when faced with this type of biting reality…

ANOTHER DAY IN PARADISE

Disclaimer: I do not own this video. Video courtesy of the official YouTube channel for the solo work of English singer-songwriter, drummer, and producer, Mr. Phil Collins.
She calls out to the man on the street
‘Sir, can you help me?
It’s cold and I’ve nowhere to sleep,
Is there somewhere you can tell me?’

He walks on, doesn’t look back
He pretends he can’t hear her
Starts to whistle as he crosses the street
Seems embarrassed to be there

Oh think twice, it’s another day for you and me in paradise
Oh think twice, ’cause it’s just another day for you,
You and me in paradise, think about it

She calls out to the man on the street
He can see she’s been crying
She’s got blisters on the soles of her feet
She can’t walk but she’s trying

Oh think twice, ’cause it’s another day for you and me in paradise
Oh think twice, it’s just another day for you,
You and me in paradise, think about it

Oh Lord, is there nothing more anybody can do
Oh Lord, there must be something you can say

You can tell from the lines on her face
You can see that she’s been there
Probably been moved on from every place
‘Cause she didn’t fit in there

Oh think twice, ’cause it’s another day for you and me in paradise
Oh think twice, it’s just another day for you,
You and me in paradise, just think about it, think about it

It’s just another day for you and me in paradise
It’s just another day for you and me in paradise, paradise
Just think about it, paradise, just think about it
Paradise, paradise, paradise

 

Songwriters: MERRILL, GEORGE ROBERT / RUBICAM, SHANNON / CLAYTON, ADAM / EVANS, DAVE / HEWSON, PAUL DAVID / MULLEN, LARRY / WALDEN, NARADA MICHAEL
Another Day In Paradise lyrics © Universal Music Publishing Group, IMAGEM U.S. LLC

Sources:

  1. Song facts, available at: http://www.songfacts.com/detail.php?id=1994
  2. Youtube
  3. Lyrics freak, available at: http://www.lyricsfreak.com/p/phil+collins/another+day+in+paradise_20108035.html

A researcher’s dilemma

Science Debate

Image courtesy of http://www.theenergycollective.com

While reviewing my educational background, I chanced upon some notes about one of the subjects in my Masters’ course: Research Methodology. The introductory module explained the importance of qualitative research and discussion in Social Sciences because basically we can’t perform experiments on human beings (or any other social unit). While “tougher” sciences can verify (or reject) hypotheses with the results of an experiment, social scientists like economists and sociologists seem to operate in another action zone. I am specialized in qualitative research- does that make me a “lower-level” type of researcher?

I ask this because the few times I saw a Research job being offered somewhere, it’s usually a “hard-core” researcher they look for- even when the job description clearly states that the study revolves around a subjective concept. Logic would tell us the reason would be because the companies intend to carry out a quantitative analysis. But what about the non-measurable aspects of life? Will they even be glanced at under this type of study?

 A discipline

It’s interesting to note that just like any other Social Science, Economics places human beings at the heart of its studies. (In a nutshell: Economics is the science of resource allocation.) Economists throughout the history have been using methods of quantitative analysis as a tool to measure values and sometimes to make assumptions on future values. My teacher in Research Methodology made a sort-of caricaturized explanation about this stating that the discipline’s forefathers used a lot of Maths* because they wanted to appoint laws to different phenomena. That way Economics could be made into a legit, true-blue science (eg: Law of Supply and Demand). Having said this, we know not all values associated to humans are measurable expecially when referring to feelings, opinions, impressions… So I wonder: what exactly did the forefathers expect to achieve when they started to assign numerical values on things non-quantifiable?

I’m not saying numerical data is unimportant. I’m saying it’s not EVERYTHING. A funny but good example my professors would always use is: if your data says that for a given country, an increase in the number of storks in one year shows an increase in the number of babies born in the same year, does that mean that we have to act on the population of storks to control human population increase in that country? (It’s really not that simple; there are ways to test just how “sensible” data relationships are. But you see where I’m getting at, right?)

I cannot imagine having studied Economics without passing through Algebra, Calculus, Statistics, etc… But I don’t think it has to heavily rely on rigorous statistical computations to be considered a science.

Qualitative research methods

The everlasting question we asked back then was, “Why are we so stubborn in fitting certain aspects of human beings in a mathematical model, when those aspects are subject to as many criteria as there are human beings in this planet?”. I’m pretty sure an econometrist would find a sassy way to put me in “my place” (Ah, Ceteris Paribus**!). Don’t get me wrong, I might even be swayed by it! I’m not belittling anything, but it doesn’t seem to cover the complexity of humans.

This is one of the reasons why qualitative research methods have been developed. A qualitative research is more descriptive in nature; it does not generalize an outcome derived from a certain population. (A scientific law would do this- a statement based on repeated experimental observations. It always applies under the same conditions, and implies that there is a causal relationship involving its elements. But the data gathered from experimentation must be measurable!) One cannot simply put a universal value on how much teenagers love to watch TV or how much more one prefers spring to summer. Well I admit, one could if one wants. For one. But what if I want to make a study for a group of friends? Or what if I want to consider different groups from different countries? Each of them would have their own criteria for scoring so even the same scores would not mean exactly the same thing.

Besides, if I were to make a study based on human or a society’s behavior, why would  I want to generalize my conclusions to the rest of the world or across time? Our society has (in principle) accepted that diversity is enriching, so why not accept a diversity in solutions and conclusions all the same?

Debate as an alternative

One way to enhance a qualitative research is through debate or discussion*** (others include conducting of surveys, interviews, review of literature and more. See sources 2 and 3 below). The convenience lies behind the assumption that as the participants share their thoughts, results and experiences, knowledge is gradually accumulated. Meaning to say that through consensus, some ideas are rejected while others are accepted and continously developed. I’ve no doubt that Maths and especially Statistics are being used but results are enriched by experiences derived from observations from different people with sometimes contrasting perspectives. Remember the microcredit “boom”? First, it was supposed to solve poverty, then it appears not to have been able to do so. Presently, advocates say it’s supposed to work when integrated with other initiatives like improvement of education and health. Debate was an essential tool in getting us where we are now on that issue.

Flashback to Autumn of ’09: when “debate as an alternative” was brought up. Several people in my class did not agree. And why should they, since the very subjects of the study are the ones interchanging their educated opinion? For them, this just gives more room for prejudice based on the person’s background, education and beliefs. I see their point- it presents such a lack of structure. However, I begged to differ.

I was one of those who believe that although not a cure-all, a debate might be a very efficient way for a researcher to develop the matter at hand. First, because one cannot just access the data he wishes to in any given place at any given time. Second, there might already have been very good materials available about the subject and the cost of replicating those kinds of studies might be too much. And third, synergies could take place when you put opposing views face to face. Going back to our example: some policy-makers advocating for microcredits were open to debate and they were attentive enough to consider criticism about their work. This made them investigate the faults in their programs and are now coming up with more effective solutions.

In fact, I used a debate to present my hypothesis in my Master’s Thesis. I wanted to apply a method that would allow me to question something I firmly believed in- Microfinance****. I’m convinced it enriched not only the project, but also me, as an economist.For instance, it paved way for me to explore wider topics of conversation while I was conducting interviews within the community. As for the results, not only was I able to prove the existence of both positive and negative effects: I also found out that for the particular community in my study who were using specific microfinance products, the “negative” effects were a by-product of corporate governance with ample room for improvement. So to speak, it’s not the instrument that’s failing, it’s the way the instrument is being distributed that’s not very effective.

A few parting thoughts

Speaking from a limited experience, I noticed how a lot of people feel more at ease when statements are presented with mathematical models. I would ask myself if it isn’t just”psychological” in the sense that since Maths represent a very exact science, it makes humans feel more stable in the presence of something systematical and accurate. No gray areas there- either it’s black or white. The weakness in structure presented by qualitative research clearly shifts the balance for scientists and learners alike. And in my case, I can debate all I want but the result is what it is.

The day I started to recognize the use of the qualitative type of research was when I realized how everything around me has to do with economics- with resource allocation corresponding to an order of preferences. Everyday, I make decisions that affect how I distribute my time, effort and money among my responsibilities, interests, whims… It may be clear to me what value I give to hanging out with a friend, or how much I would pay to get a few more hours of sleep. But the truth is once I step out of myself, I have not the slightest idea how others think: what factors do they consider in putting a value on social life? is sleep even on top of their priorities? “Talking” about it helps get a better understanding of how the rest of the world arranges their preferences. In some cases, there might even be similarities for people from the same culture, religion, race, gender, etc… But we cannot generalize anything. This is why I believe qualitative research should not be set aside as a mere “support” for quantitative research. In many cases it should be the other way around, especially when human factor plays a key role.

Perhaps when the research to be undertaken has to support the construction of a building, the flight of an aircraft or the functioning of an artificial heart, precision should be expected. In this case, I wouldn’t be surprised if companies would prefer a physicist or a telecommunications engineer over a developmental economist. But sometimes a study would involve non-measurable concepts and ever-changing scenarios. Then, wouldn’t it make more sense to look for someone who could look at numerical data beyond the symbols and discover what stories they tell? someone who is trained to analyze and interpret events (versus numbers) to extract learnings from it?

 

 

*Just like Econometrics, which Wikipedia says is the application of mathematics, statistical methods and computer science to economic data to discover exact relationships among data.

**Latin for “with other things the same“. Economists live by this premise.

***Debate is also very widely used in pure sciences but its service to the social sciences is highly valued because of the limited possiblity to conduct experiments.

****Microfinance is an integrated source of financial services comprising microcredits. It could also include microsavings and microinsurance among others.

Sources:
  1. Wikipedia
  2. Modalidades de investigación, available at: http://metodologiafloresmagon.blogspot.fr/2011/02/1.html
  3. Metodología de la investigación: http://zanadoria.com/syllabi/m1019/mat_cast-nodef/PID_00148556-1.pdf
  4. The Laws of Economics don’t exist, available at: http://www.theatlantic.com/business/archive/2013/04/the-laws-of-economics-dont-exist/274901/