Tags: Europe, European Union, Eurozone, France, Germany, Greece
On June 3, when the President of the European Commission (EC), Jean-Claude Juncker conveyed the collective demands of Greece’s creditors—the European Central Bank (ECB), the European Commission, and the International Monetary Fund—to the embattled country’s Prime Minister, Alexis Tsipras, a member of his governing Syriza party said of the Greek delegation: “They came, they saw, and they had their balls handed to them.”
Five months after the anti-austerity party rode to victory in the Greek elections and had renounced efforts by previous Greek governments to impose austerity measures that had led the country’s debt grow from 124 per cent of GDP to 180 per cent and its unemployment rate soar to 25 per cent (and youth unemployment to 60 per cent) and its pensioners see their meagre pensions decline even faster, the German Chancellor Angela Merkel invited the IMF’s Managing Director Christine Lagarde and the President of the ECB, Mario Draghi to a previously scheduled meeting between herself, Juncker, and the French President Francois Hollande on June 1 to draft a common negotiating position among Greece’s creditors. Prime Minister Tsipras was notably not invited.
Papering over their differences, the 5-page demands Juncker delivered to Tsipras made some concessions to Greece—lowering the demand that the primary surplus for 2015 be 1 per cent rather than the 3-4 per cent that had been the earlier demand—but also included “red lines” that the Syriza-led government had vowed never to cross such as generating 2 per cent of the GDP from cutting pensions and raising VAT to a uniform level (except on food, medicines, and hotels), not to reverse the labor market reforms that the ‘troika’ (the ECB, the EC, and the IMF) had forced down the throats of previous governments, and even to establish an ‘independent’ tax and customs agency and thereby making its operations beyond the ambit of elected officials.
Yet, far beyond debates on primary surpluses and ‘red lines,’ the real struggle between Greece and its “European partners” is over politics. The positions are clear. Because of the single currency, an indebted country like Greece cannot devalue its currency and thereby cheapen its exports and with the increase in exports (and tourism) repay its debts. Hence the ‘troika’ (now renamed ‘the institutions’) were attempting to impose an ‘internal devaluation’ on Athens: forcing it to cut minimum wages and increase labor market ‘flexibility’ (making it easier to hire and fire workers and thereby also curb labor militancy) to force down the prices of Greek products to increase exports, to privatize government assets, improve taxation and efficiency in collecting taxes, and to sharply reduce government expenditures by severely cutting welfare programs and reducing public sector employment and pensions. Syriza and other opponents of the ‘austerity’ measures have argued that these measures actually impede Greece’s ability to repay its loans: if people don’t have money due to welfare cuts, job losses, etc., they cannot buy goods and hence more businesses fail. Indeed, Greece’s GDP has contracted by over 25 per cent in the five years of troika-mandated austerity and its unemployment remains high while its debt as a ratio of GDP has grown from 124 per cent to 180 per cent.
As Robert Preston, the BBC’s economics editor puts it:
But although for the pride of the creditors, the question of whether Greece is obliged to generate a surplus on its budget, excluding interest payments, of a bit more than zero or 3%, feels like a world of difference – it is a rounding error compared with the money Greece owes them, which is equivalent to 180% of Greek GDP.
In the highly unlikely event that Greece could generate a 2% or 3% surplus year-in and year-out without its economy shrinking further (which few economists would anticipate), it would take around half a century for Greek public sector debt to fall to a level regarded as sustainable. gett A half century of austerity? In what modern democracy would that be regarded as a realistic option?
Most egregiously, sharp cuts in expenditure has meant that in some hospitals budgets have fallen by 94 per cent. How can this be sustainable in a continent as rich as Europe?
It is clear that one way or another, as Nils Pratley wrote in the Guardian, there will have to be a debt write-down. What Greece’s European “partners” are unwilling to countenance is Syriza’s demands to reverse the “austerity” measures because they want to root out any left-wing challenge to the reigning neo-liberal orthodoxy. Once Greece caves in, subjects itself to ‘vasectomy’ in the words of one of its MPs, then debt-relief could be offered but not before. To offer a write-down of the debt is particularly terrifying to Spain where the governing party has already lost many local elections to a Syriza-like party, Podemos, which now controls the three major cities of Madrid, Barcelona, and Valencia. It is also threatening to other EU economies like Portugal, Ireland, and Italy which have been compelled to implement austerity measures.
Syriza has, however, done its cause no favors despite some eloquent posturing by its Finance Minister, Yanis Varoufakis. It has not demanded a write down of the debt—and we must remember that when the troika made the first loan to Greece in 2010, Germany and France explicitly demanded that the austerity not be extended to the military—and Greece has been the best customer of the German arms industry. How is the cutting of pensions and salaries to workers while maintaining higher than the EU average in military spending morally justifiable?
With Syriza maintaining the charade of negotiating with its European ‘partners’ over the last months, Greece’s position has rapidly deteriorated as frightened depositors have withdrawn their money from the banks and even transferred them outside the country. By the end of April, Greece’s bank deposits were at their lowest level since 2004 and by the end of last week deposits were being withdrawn at the daily rate of 1 billion euros.
Interestingly, the Speaker of the Greek Parliament, Zoe Konstantopoulou, has set up a Debt Truth Committee to report to parliament on June 18
is said to be on the point of finding some of Greece’s original bailout debt, from either 2010 or 2011, was unlawfully contracted. In addition, Ms Konstantopoulou is armed with a finding from experts that Germany owes Greece €350bn in war reparations – more than the whole of its debt to Europe.
This could open up a host of legal challenges even if Tsipiras was to finally cave into the troika’s demands. The question is whether the Left Platform within Syriza is strong enough to prevent a cave in when there is nothing the troika would like than to install a government of national unity with a rump Syriza. That would, temporarily at least till Spain’s November election, decapitate the European Left. Will it happen?
In the short run, if no resolution is found, Greece will be unable to make scheduled payments to its creditors and being declared to be in default would make its borrowing costs in private capital markets intolerable; Syriza’s reluctance to impose capital controls would lead to the swift collapse of its banking sector unless the government begins to issue a virtual currency against future revenues which could ease the liquify crunch domestically at least. But Greece cannot be thrown out of the EU without its consent as all decisions must be unanimous. Even if Greece were to exit the common currency—Grexit as it has been dubbed—it would call the whole European project into question. It is also unrealistic to expect a country as bankrupt as Greece to police its borders when hordes of refugees from Africa and the Middle East are streaming to Europe—and from Greece, they could move to any country in the Schengen area. Will this be enough for its European ‘partners’ to blink?
Tags: Capitalism, democracy, European Union, financial crisis, Germany, Greece, Political Economy, Spain, United States, world politics
Though it should not have caused any surprise, the news that Eurozone economies had contracted by 0.2 percent in the second quarter of 2012 underscored the deepening economic crisis faced by the 17-state bloc. Though the German economy may have grown by 0.3 percent, France recorded a third straight quarter of no growth, and the Finnish, Italian, Portuguese, and Spanish economies all fell sharply. Greece, of course, suffered the steepest fall: 6.2 percent in the second quarter–and was 18 percent below its GDP level in the April-June quarter of 2008.
There is little doubt that the declines have been aggravated by a failure of political imagination. Confronted by budget deficits brought about by high levels of government borrowing and by the collapses of housing bubbles, the creation of a common currency has meant that indebted Eurozone economies have not been able to resort to a currency devaluation to gain a competitive edge. Consequently, the troika of the European Commission, the European Central Bank, and the International Monetary Fund sought to impose an “internal devaluation” on these economies by forcing budget cuts to lower government deficits and wage cuts.
It follows as the night the day that if budgets and wages are cut, the economy will shrink. Lower government spending due to budget cuts means welfare and pension benefits fall, the cost of health care rises, and educational opportunities vaporize. These impact far more adversely on the elderly and the young. With wage cuts, people have less money to spend and this will depress all sectors of the economy–as sales reduce because of lower spending, companies will slash their work forces leading to greater declines in sales and to further cuts in employment. In the most severely affected of the southern European economies, unemployment rates for the youth are already at 50 percent or more. By May 2012, unemployment in the euro zone had already reached 11.1 percent or 17.5 million people and the International Labor Organization (ILO) estimates that it would rise to almost 22 million in the next four years. And if the euro zone were to break up, the ILO estimates unemployment in the 17-state bloc could reach 17 percent.
The adverse conditions created by the stringent cuts mandated by the troika are aggravated by the greater interest rates imposed on the weaker economies by international financial markets–thus for instance, while Austrian banks and other financial institutions can borrow at 2 percent, Italian banks have to pay 6 percent. As these higher interest costs are passed on by the banks to their borrowers, the cost of doing business in Italy, Spain, Portugal, or Greece increases correspondingly and could even negate the wage cuts imposed by the troika!
The effects of economic contraction will spread to the better performing economies. After all, Germany has been able to have a strong industrial sector because cheaper credit to other eurozone members had allowed them to buy German products while the German small-scale sector–which employs 60 percent of the country’s labor force–did not have to worry about currency movements in other European countries or fear that a strong German mark will price them out of the market in other countries.
As Susan Watkins has written, German lessons on debt repayment are especially galling to the Greeks.
Under the Nazi occupation, a hefty monthly payment was extracted from the Greek central bank to cover the Wehrmacht’s expenses; in March 1942 an additional forced loan of 476 million Reichsmarks was levied by the Axis powers. Greek partisans put up some of the toughest military resistance to the Nazis in Europe; the damage wreaked by the occupiers’ revenge was commensurate. Reprisals were exacted on the civilian population at a rate of fifty Greeks for every German killed. Much of the country’s infrastructure was destroyed; forced exports and economic collapse helped bring about one of the worst famines in modern European history.
German occupation (strictly a tripartite occupation since the Italians and the Bulgarians also participated) of Greece also led to hyperinflation–Richard Clogg says it was
five thousand times more severe than the Weimar inflation of the early 1920s. Price levels in January 1946 were more than five trillion times those of May 1941. The exchange rate for the gold sovereign in the autumn of 1944, shortly after the liberation, stood at 170 trillion drachmas.
After the war, the question of German reparations were deferred till German reunification and in the so-called 2+4 (Bonn and Berlin with the US, the USSR, the UK and France) agreement of 1990, Greek claims were excluded. Though several Greek politicians including the current prime minister, Antonis Samaras when he was the foreign affairs minister in 1991, had raised the issue of 476 million marks with the Germans, their demands were summarily dismissed. If this money had, in fact, been paid as the Germans are legally obliged to do, with interest for more than half a century, Greece would no longer be a problem economy.
It is galling too because while ancient historical myths as Greece being the ‘birthplace of democracy’ are routinely trotted out in discussions of the contemporary situation, recent history that people over 70 remember are carefully hidden from view! Be that as it may.
What is crucial is that the crisis demonstrates that capital and finance markets need to be regulated more stringently. It was irresponsible lending that led to high government deficits in Greece and to the housing bubbles in Spain and Ireland, to the subprime crisis in the US, and to the meltdown of the Icelandic economy to mention just the most obvious cases. Financial markets are continuing to demand punitive rates of interest from the weaker economies. The unchecked power of finance must be corralled–or we will enter another great depression just as the obsession with the gold standard led to the depression as Karl Polanyi showed in his Great Transformation.
What is required is a new political imagination not the shrill advocacy of measures that have already aggravated the situation!
Tags: European Union, Eurozone, France, Germany, Greece, Ireland, Italy, Spain, World-economy
Francois Hollande has defeated Nicolas Sarkozy to become the first Socialist president of France in 17 years. He campaigned on a platform to renegotiate the austerity package that the German Chancellor Angela Merkel and Sarkozy had championed, with the support of the British Prime Minister David Cameron and other ‘center-right’ politicians in Europe. The victorious Hollande argued that the way out of the fiscal crisis enveloping the Eurozone is to focus on growth rather than to reduce deficits. The austerity packages, by sharply curbing government expenditures not only leads to unemployment but also reduced payments to the elderly, the young, and the unemployed. They can therefore no longer consume at their previous levels leading to further unemployment as businesses curtail production and the economy continues its tailspin–as has already happened in Greece, Portugal, Italy, Spain, and Ireland.
But will Hollande be successful in reviving the Eurozone economies? Will this ‘marshmallow’ man (so-called because he hates fights) be strong enough to stand up to Merkel? His potential choice as prime minister, Jean-Marc Ayrault. has suggested that rather than reopening the draft fiscal treaty driven by Sarkozy and Merkel., Hollande will seek to incorporate a minor amendment on growth. This would not be surprising as Hollande’s previous experience in government was as an aide to the last Socialist president of France, Francous Mitterand, who in his second term initiated a wave of neo-liberal reforms that de-regulated much of the French economy.
Socialist and Labor parties in Europe, as political expressions of trade unions since the late nineteenth-century, have floundered as manufacturing has shifted to lower-waged countries and trade unions have suffered a tremendous erosion of memberships. After Margareth Thatcher defeated the miners strike in 1984, European unions have steadily declined in political and social significance.
What, too, is a ‘growth’ strategy has never been addressed except to say that it should not be based on austerity measures. As manufacturing is becoming increasingly automated–labor costs amounted to only $7.10 of a total production cost of $178.40 for Apple’s iPhone 4–high-paying jobs in industry are simply disappearing. In large, vertically-integrated industrial operations, workers going on strike in a singe shop can disrupt the entire assembly line and hence undermine corporate profits. If workers in a gear-box plant down their tools, the entire auto assembly line will soon grind to a halt. Workers in the service sector–in the fast food industry or tellers in banks–simply do not have this structural power and hence their ability to bargain for better wages are far more limited. And as industrial production relocates overseas, more and more workers enter the service industries.
With lower incomes, their ability to consume is more limited. And this makes it less profitable to produce more goods and so industrial production continues to plummet as capital is increasingly allocated to financial speculation. This has the strange effect that whenever an election is held, the first question asked by the talking heads on TV is what would be the reaction of the markets to the results–because after the de-regulation of capital controls, the flows of capital into and out of a country are crucial to its economy and there is not government mechanism to regulate these flows.
In these conditions, governments are compelled to maintain market-friendly conditions and this is not something Hollande is likely to change. So what does growth-oriented policies mean? This needs to be spelt out beyond saying that it is the opposite of austerity programs, How is the economy going to add well-paying jobs in a situation when manufacturing is being steadily downgraded in the hierarchy of economic activities?
Tags: 21st Century Capitalism, anti-systemic movements, European Union, Germany, indignados, new forms of protest, Spain, United Kingdom
To be in Barcelona on Thursday March 29, 2012 was to be a witness to a massive tidal wave of humanity on the streets, stretching beyond the horizon in every direction from Placa Catalunya, the city’s symbolic center. This was a response to the general strike called by Spain’s two largest trade unions–Union General de Trabajadores (UGT) affiliated to the Socialist Party, and the Comisiones Obreras (CCOO)–in response to the conservative Partido Popular (PP) government’s decision to announce the most austere budget since the transition to democracy 37 years ago. As evident on the streets of Barcelona, it was much more than a workers’ protest: though some 30 percent of employed workers had said that they would participate in polls before the strike, Spain has a high rate of unemployment–23 percent or double the European rate and almost half the people under 30 are out of work.
The unemployed are the backbone of the indignados (“the outraged”) movement that in May last year that with their tents in city centers and their emphasis on transparency, diversity, egalitarianism, and direct democracy, inspired the Occupy movements across the world. The employment situation is only likely to worsen as Mariano Rajoy, the new PP prime minister who took office in December last year, enacted an Emergency decree two months ago that sharply curbed labor rights. Permanent workers in Spain were eligible for 45 days’ pay for each year of employment if they were fired; this was substantially reduced to a maximum of 33 days and in Andalucia alone eight times as many workers were let go in the two months after the decree was promulgated than in the corresponding period last year. Companies were also permitted to reduce working hours.
The greater flexibility to hire and fire workers provided by the new labor laws may provide greater incomes in the short run to employers but will further depress prospects of economic growth in Spain. Spanish wages are already the lowest among the EU 15 (members of the European Union on 1 May 2004 before the inclusion of states from the former Eastern Europe) and the new law would further depress wages in the context of the high rates of unemployment and provide for more short-term employment–which will lead to a reduction in effective demand.
Moreover, Spain’s economic problems do not stem from high government deficits but from the burst of a property bubble and absurd laws governing liability of borrowers. The Spanish government had run a balanced budget from the time it joined the Euro in 1999 to 2007–that is to say it did not borrow at all during this period unlike many other economies, including Germany, even though interest rates on Eurozone countries fell sharply. However, though Madrid resisted borrowing at lower rates, Spanish citizens could not resist the lure of cheap interest rates and it fueled a housing boom–housing prices rose by 44 percent between 2004 and 2008.
Houses in Spain couldn’t be built fast enough. Great swathes of the coast and the countryside became clustered with urbanisations, instant housing estates thrown up to cater to what seemed to be an endless stream of Britons, Germans, and other norther Europeans now able to live the kind of life abroad of which their parents could only have dreamed.
Once the bubble burst with the financial crisis, however, the economy unraveled rapidly–the number of empty and unsold properties in the country is estimated to be between 700,000 and 1,500,000–and some 40 evictions are taking place across the country per day. Employment in construction collapsed and laid-off construction workers account for fully a third of the unemployed. What is more, Spanish law does not allow homeowners to simply hand over the keys and walk away from a property if they can no longer pay the mortgage. They remain liable for the remainder of the mortgage if the sale of the property does not cover the full extent of the mortgage–and they seldom do in a period when property prices have fallen by more than 19 percent. Hence, unlike most other countries, the unemployed in Spain not only lose their houses but remain responsible for part of their mortgages. This has meant that young people who had moved out of their parental home have often had to move back–and even that grandparents have had to use their pensions to help support their children and grandchildren. In turn, the iaiaflautas or retirees and grandparents have mobilized themselves to occupy buses to protest against price hikes, bank lobbies to oppose bailouts, and health departments to turn back cutbacks.
Hence, even if reports say that the general strike led to a fall in electricity consumption by 16.3 percent compared to a fall of 16.9 percent in the general strike of September 2010, it doesn’t account for the vast mobilization of the indignados, the unemployed, the students, and the iaiaflautas. What it underlines is that a new politics is emerging, a politics that as Ferran Pedret has put it “is characterized by the absence of leaders, by assemblies as a form of organization, and a diversity and transversality.”
it was this that was responsible for the massive turnout–what the strike symbolizes is a new politics, a politics beyond those of political parties because the parties are fully integrated into the system itself that must be changed. So no mere percentages of electricity consumption, businesses that stayed open, or workers participating in the strike can adequately assess its impact.
Tags: 21st Century Capitalism, Euro, European Union, financial crisis, Germany, Greece, Iceland, Internnational Monetary Fund, Ireland, Libya, NATO, neo-liberalism, Netherlands, Portugal, Spain, United Kingdom, US hegemony, US politics, World-economy
In the midst of the NATO campaign against Libya and the budget deal between Republicans and the Democrats in the US, a far more historically significant event appears to have fallen off the radar. On April 9, 2011, the people of Iceland voted for the second time to reject a government proposal for Iceland taxpayers to repay some €4 billion to the governments of Britain and the Netherlands which had compensated their domestic depositors in the collapsed online bank, Icesave. Initially, the British and Dutch governments had pressured the Iceland government to agree to repay them over fifteen years at a 5.5 percent annual interest–which was estimated to cost each household in the tiny island nation about €45,000 over the period. This was rejected by 91 percent of the voters in a referendum in March 2010. After subsequent negotiations, London and Amesterdam agreed to lower the interest to 3.2 percent and stretch the repayment period to 30 years between 2016 and 2046. The deal was accepted by a large majority of 44 in favor and 16 opposed in the Althingi, Iceland’s parliament, which also rejected a clause to submit the bill to another referendum. Nevertheless, as the President, Olafur Ragnar Grimsson, refused to sign the bill, it was automatically subject to a referendum wherein it was rejected by almost 60 percent of the voters.
The Dutch and British governments–which had used anti-terrorist legislation to seize assets of the failed Icelandic banks–have threatened to scupper Iceland’s application to join the European Union and to take the island nation to court. Reykjavik has insisted that the two governments would get most of their money back and the assets of the Landsbanki bank which set up the Icesave operation would be sold and was expected to realize 90 percent of the Icesave debt. What was at issue in the referendum was not whether London and Amsterdam would be compensated or not–but whether private citizens should be expected to shoulder the burden of repayment of a bank’s debt in which they had no hand in incurring and from which they did not benefit. The threat to take Iceland to court is important because it is to frighten off other states which also face indebtedness due to the financial crisis like Greece, Ireland, and Portugal. It is simply the question of whether the bankers have to bear the burden of the bad loans they have extended.
Iceland is, in fact, a case study of neo-liberalism gone awry. Before the late 1990s, Iceland’s financial sector had been small and the banks were largely government-owned. In 1998, the two leading parties–the Independence Party and the Centre Party–embarked on a privatization of the banking sector, assigning Landsbanki to grandees of the Independence Party and Kaupthing to the Centre Party. A new private bank, Glitnir, was also set up merging several smaller banks. None of these banks had much experience in international finance, but like South Korean banks a decade earlier, these banks tapped into abundant cheap credit and easy capital mobility. Unlike the South Korean banks, their strong ties to political parties, the merger of commercial and investment banking, and low soveriegn debt meant that they got extremely high grades from the credit ratings agencies and as Robert Wade and Silla Sigurgeirsdottir note: “government policy was now subordinated to their ends.”
With the government relaxing mortgage rules to permit loans up to 90 percent of value, the banks rode the wave–by buying shares in each other they inflated share prices and enticed depositors to shift their savings to shares. In less than 10 years after the privatization of banks, Iceland had the fifth highest GDP in the world, 60 percent higher than that of the United States, and the assets of their banks was valued at 800 percent of Iceland’s GDP. As land prices soared, Icelanders loaded up on lower-interest yen- or Swiss-franc debt.
By 2006, Iceland’s current account deficit had soared to 20 percent of its GDP. Late in that year, Landsbanki established an online bank, Icesave, to attract deposits from overseas clients and by offering highly attractive interest rates, it raked in millions of pounds from England, and later millions of euros especially from the Netherlands. This was soon copied by the two other banks. These were established as ‘branches’ rather than as ‘subsidiaries‘ which meant that they were to be supervised by the icelandic Central Bank rather than regulators in Britain or the Netherlands. Because of Iceland’s obligations as a member of the European Economic Area to insure bank deposits, no one thought to worry about whether the Icelandic Central Bank had the capacity to oversee the vastly extended operations of the island’s three major banks.
This happy bubble burst in September 2008 when Lehman Brothers collapsed, within a fortnight of which the three big Icelandic banks collapsed and by November of that year the krona had fallen from its pre-crisis level of 70 to the euro to 190 to the euro, so sharply cutting the islanders’ purchasing power that the three McDonald’s franchises were forced to close as the cost of importing ingredients made the price of burgers prohibitive! The country’s stock market lost 98 percent of its value! If ever there was a definition of crisis, this was it. It was the first time in over 30 years that a ‘developed’ state had to seek assistance from the International Monetary Fund.
In the light of all this, Iceland’s voters have had the courage to face up to the crisis. It was the first country to kick out the government which had failed so spectacularly. Unlike its neighbor in the North Atlantic–Ireland which underwrote its own banking collapse and loader every household with €80,000 in debt–Iceland let the three banks go under and they imposed capital controls to prevent the flight of capital. Though unemployment in Iceland today is 7.5 percent in Iceland–up from 2 percent in 2002–but just over half of Ireland’s 13.6 percent. Though the krona lost almost half its value, inflation is down sharply and without having to pay back foreign creditors, its government finances are in much better shape than those of Greece, Ireland, or Portugal.
Tags: 21st Century Capitalism, China, India, labor process, Manufacturing, trade wars, US Economy, US hegemony, World-economy
Persistently high unemployment figures in the United States have led to strident calls by politicians about ‘unfair’ trading practices by China, India, and other countries and demands to curb outsourcing of US jobs to lower wage locations overseas. Much of the discussion, especially in the context of President Barack Obama’s 10-day visit to Asia, has focussed on low-cost manufacturing in China and white-collar service work to India, a new type of outsourcing pioneered by Amazon.com’s Mechanical Turk service just five years ago, represents the potential to transform outsourcing in some sectors. This represents a further assault on incomes.
Claiming to take the tedium out of repetitive, monotonous tasks that are notoriously difficult to automate (recognition of handwritten messages or numbers, for instance), a handful of companies are creating software to further deskill digital labor. Essentially, these companies–Microtask, CloudCrowd, Cloudflower, and others–break up tasks into many different component parts both to shield the identity of their clients (as each worker gets to see only a miniscule portion of the document and therefore cannot identify the real client) and to lower labor costs by widely distributing the tasks: Cloudflower claims to have a virtual workforce of 500,000 people in 70 countries while CloudCrowd which was formed only in 2009 claims a virtual workforce of 25,000 and says it has completed 2 million tasks by September 2010 according to its promotional video.
Companies take different approaches. Microtask, a Finnish upstart, contracts with firms and provides software to its clients’ employees which enables them to do a small task–recognition of handwritten numbers, comparison of two images of a product, few minutes of speech transcription–without leaving their computer screen to get more information from the Internet. The software rotates and mixes up the tasks so that there is no monotony while the main computers of the client can compile the tasks performed by its employees–leading to an unprecedented level of control while minimizing the possibility of leaks.
Other companies directly contract with individual workers. At the Mechanical Turk website, there are are number of tasks on offer and once a person performs a test to show his or her talent at a job–identifying business locations, proof-reading, and such like–they can sign up and do tasks steadily at their own pace and when they want to work. However, Randall Stross reports in the New York Times that when Miriam Cherry, a law professor at the University of the Pacific and her research assistant tried an assignment offering 2 cents “each for finding the contact information of 7,500 hotels and 3 cents each for answering questions about 9,400 toys,” they did not even make the minimum wage!
As Stross notes, “Worker control is precisely what the Microtask model has engineered out–that’s the source of its insidious efficiency. Just as Ford’s assembly lines a century ago brought work to workers who performed a single, repetitive task, Microtask’s software, via the Internet, does the same. Every two seconds.”
Yet, the so-called ‘cloudsourcing’ (from the Internet ‘cloud’) model is different in crucial respects. By farming out work across the planet, companies do not have to confront organized labor–protests against low wages become infinitely more difficult if workers are spread across many, many jurisdictions. Cloudcrowd, for instance, takes translations of business documents that used to be done by a single person and initially submits it to translation software. The software translation is then broken up into pages and sent to people who look for nonsensical sentences. These are then submitted to native speakers and finally to editors who have no special expertise in the language, but simply make the text more readable. By farming out the work to several unconnected individuals, anonymity is assured and translation costs are minimized–from 20-25 cents a word to just 6.7 cents. And, of course, minimum wage legislation would not apply.
Even if these widely-distributed tasks do not earn minimum wages in the United States and other high-income economies, they beat the minimum wage in many low-income countries and hence many of the workers for Cloudflower and other ‘cloudsourcing’ companies are located in places like Malaysia and the Philippines. Seen in this light, too, it is not surprising that the new president of the State University of New York at Albany, George M. Philip, could eliminate the departments of Italian, French, Russian, Classics, and Theatre without hesitation!