ON THE WELFARE STATE, EMPLOYMENT, UNEMPLOYMENT AND UNDEREMPLOYMENT

Full transcript of the video “On the Welfare State, employment, unemployment and underemployment”: https://www.youtube.com/watch?v=gUUtrOYaY8w (Excerpt from "Is there a future for the capitalism?" -full video in Spanish-, discussion organized by Dante A. Urbina in the course of Political Economy, Faculty of Economic Sciences of the Major National University of San Marcos (Lima - Peru) on July 5, 2013).

This leads us to the issue of the Welfare State. The Welfare State has as its fundamental point an infrastructure of free market capitalism but with redistribution, this means that production is carried out based on a capitalist free market, incomes are generated and from them redistribution is performed. However this cannot be sustained long term and may not be sustainable in times of crisis when production falls. And that is what is currently showing us the financial crisis and the protests in Greece and all other countries.

I think the problem is in the mechanism, that is, instead of generating mechanisms to ensure that all people can participate meaningfully in the productive system and get their own income based on their effort and work, what is done is only a redistribution process that depends on only a certain members of society. So, in fact, the Welfare State can end excluding. Precisely the Welfare State is given in Europe where the phenomenon of multilocalization or delocalization of production is most pronounced, that is to say, where you can put a company in Switzerland and get that your whole production takes place in Africa, or the bulk of the production takes place in Africa, but the brand is from Switzerland.

That dynamic of delocalization of firms in the context of globalization is generating an unemployment problem in a important part of developed countries because, as people in Europe live in a Welfare State, the State protects certain social rights to ensure that wages are relatively high. What the companies do in this context of globalization is this: they seek labor force abroad or outsource the production, they go to developing countries where the laws are not as strict and where it is not established a Welfare State, and pay much lower wages and even establish systems of informal recruitment or outsourcing of services, etc.

So we see that in developed economies, with this scheme, unemployment is being created and, in underdeveloped economies, employment is not being created. In underdeveloped economies is underemployment what is being created, or forms of precarious employment. And this is something that Peruvian economists should keep in mind because whenever we see statistics, when we see how the employment or the unemployment are moved, we forget that our country (Peru) has underemployment basically. However, what extent economic theory helps us think about underemployment? Economic theory speaks us in terms of employment and unemployment, but not about the content of the working conditions. That's a problem we have here and that is being generated in globalization. Then we also have to think about that.

You can contact the author of this article in: “Dante Abelardo Urbina Padilla” (Facebook) and dante.urbina1@gmail.com (email)

ON ECONOMIC CORRUPTION, POLITICAL CORRUPTION AND FINANCIAL CRISIS

Full transcript of the video “On Economic Corruption, Political Corruption and Financial Crisis”: https://www.youtube.com/watch?v=4kot_GHdIMU (Excerpt from “The financial crisis, guilt of the market or the State?” -full video in Spanish-, discussion organized by Dante A. Urbina in the course of Macroeconomics II, Faculty of Economic Sciences of the Major National University of San Marcos (Lima - Peru) on November 28, 2013).

It is said that the State is a conglomeration of individual interests. Precisely there is a theory about this, which is the Public Choice Theory. Well, in this context it is assumed that each person is the best judge of his own welfare. The point is this: we realize that if each person is an agent seeking to maximize their welfare and may even be involved in corruption in order to maximize this welfare... if that is true regarding the State, why would automatically false regarding the market? Is there no corruption in the market? Or rather: is there not a systemic relationship between corruption in the market and corruption in the State? Are separate phenomena?

It was mentioned that some people in the State who had some particular economic interests had also important positions. But what is the problem here: the State itself, the institution itself, or rather the corrupt economic environment which dominates the State, the State capture?

It is said: “Banks take riskier positions because the State allows it”. Correct. But why the State allows it? The State allows it, for example in the U.S., because the lobby is legal. What is the lobby? It means that companies can “solve” their problems by giving money to Congress members so that they promote certain types of policies. And the same occurs in the Executive. When the crisis emerged there was a general problem of moral hazard. I mean, is not as simple as that the State is saying “Give me money, give me money to do what you want”. There is not only someone behind the door waiting for money to carry out corrupt actions but also there are also lots of private companies knocking on the door in order to corrupt. Where corruption exists there must be corrupt and corrupting people.

Someone might say: “Well, but why governments are not honest? Why don’t they stop the corruption?”. The issue is: the market is not an abstract entity; the market also exists in a set of power relations. Individuals who manage the big banks may also have control over media. If they have power over media, have the power to show the image of the governments to the people and, in a democratic system, as the people is ultimately who vote, this allows them to manipulate the image of the government. If the government behaves well with respect to their economic interests, their media will say that this government does things right, whereas if the government begins to contradict their economic interests, their media (in which they are the owners) could show the government in a negative way.

It was also mentioned that President Carter supported to leftists and forced the banks to give loans to insolvent people. But if we see a documentary like, for example, “Capitalism: A Love Story” by Michael Moore, we will find that the process of the current crisis can be understood from the deregulation which came in the 80s with Reagan, which was not supported by leftists but rather by rightists. He gave the banks free rein to do whatever they want.

The point is that government officials are also people who have been working on these big banks. Henry Paulson, the Secretary of the U.S. Treasury, was CEO of Goldman Sachs and, moreover, the President Reagan's chief economic adviser was Chairman of Merrill Lynch.

Well, then it’s very important understanding that exist an interrelationship between corruption in market and state corruption, they are not separate phenomena.

You can contact the author of this article in: “Dante Abelardo Urbina Padilla” (Facebook) and dante.urbina1@gmail.com (email).