Productivity and Equity—Productivity versus Equity
Couple or Dilemma?
by Michael Rösch
The question whether productivity and social equity are inter-related, depending upon or fighting each other is often raised when looking at the progress of under-developed countries as well as the overcoming of the present crises in the social and welfare states of the industrialized countries.
Before I am going to analyze this topic it is necessary to clarify some concepts. Social equity or "equidad" does not primarily mean equal distribution of material and non-material goods but instead equity of chances and equal starting conditions for all members of society—in a (neo-) liberal sense. So, equity is more a process than a kind of permanent state or fixed ideal, much the same as it is used in the CEPAL proposal. Therefore the word "equity" is used instead of "equality". Possible indicators to measure changes in equity would be the number of (productive) jobs, the distribution of income or educational aspects. Productivity means the growth of efficiency in production and the use of modern technologies as well as a restructuration of production patterns and a concentration on dynamic sectors of the world market. In this essay the concepts "productivity" and (economic) "growth" will be used almost similar as it is done in most of the research literature.
One basic question is: Does the amount of work decrease or has just the kind and quality of the necessary work changed? The headwords "structural unemployment" and "unemployment resulting from the present economic situation" may serve as analytical categories. One possible answer to the question about productivity and equity was given by the CEPAL. Therefore the first part of this essay will deal with this concept and the position in the developing countries. The second part will line out a popular position mainly promoted in the industrialized countries which was called "global glut" by Paul Krugman (Krugman 1997: 79). This essay only gives a short insight into these two positions concerning the inter-relation and interactions between productivity and equity to initiate a discussion in our newsgroup. The comparison of the two contrasting positions might be helpful to receive new ideas on what can or has to be done.
Changing production patterns with equity—the situation in the developing countries
"At first sight it might be feared, that there is a conflict between technological progress and the number of jobs, but this is only apparent. There are many technical advances which allow labour to be saved but which, while reducing the number of low productivity jobs increase those of high productivity." (Ramos 1995: 16).
This first, very enthusiastic position might be labelled as the neostructural one and bases on a proposal published by the CEPAL in 1990. This approach, which was entitled "Transformación productiva con equidad" ("Changing production patterns with equity") will now shortly be described. It was the result of the recognition that all great development theories of the last decades had failed. None of them had been able to create a stable long-termed development (Hurtienne 1994: 19). So one central idea was to avoid the mistakes of the past while taking the best of the former theories. Therefore neither a total undocking nor a complete extradition, but an authentic, active integration into the world market was promoted in the approach.
As stated above, the new proposal can be interpreted as a reaction to the failures of the past. Hence it is more complex but also much more flexible than former ones (Hurtienne 1994: 20). A major aim of "Transformación productiva con equidad" is to establish competitive structures on both the internal and the external market. CEPAL theorists thought that such a development is only possible by increasing productivity, per-capita income salaries and level of qualification together with an growth of social equity and democracy (Hurtienne 1994: 20).
Maybe the most important points of the new strategy are a) the basic question if an active integration into the world market, social equity and political democracy is possible (Töpper 1994: 245), (the demand for democracy and liberty is a novelty in CEPAL theories — up to this publication democracy was more or less only a second-class aim behind economic and social ones), and b) that an integration into the world market is considered to be inevitable (Mármora 1994: 55). This concept tries to dissolve contradictions like state—market and productivity—equity.
In most developing countries the discussion differs substantially from the one in the industrialized countries. Usually, as the quotation above shows, conflicts do not exist, as already the combination in the title of the CEPAL proposal already shows. Since the number of employed persons is extremely low in most developing countries, many analysts assume any more in productivity must be valuable and create new stable jobs instead of destroying them. That means, unemployment in developing countries usually is structural unemployment on a very low level combined with unemployment due to economic problems. Increasing productivity by changing production patterns effects the structural component of unemployment. Much more it effects on the other hand the economic component. This way it helps to overcome economic and technological deficits. So more independence from world market prices for resources can be reached. This can be justified when regarding for example the Chilean export structure, which still refers mainly to natural resources, agricultural or low worked out industrial products. Productivity could grow in our sense in two ways: either by the application of new techniques in the existing industries, which might mean the loss of a certain number of jobs, but will certainly create new, higher qualified ones. Or, as a second possibility, engaging new firms, new products and new techniques, which also establishes new jobs. As reality shows the Chilean situation has improved in the innovative sectors of the Chilean industry.
The changing of production patterns from low productive, low industrialized enterprises to ones working with advanced technologies or creating on their own new measures and methods, raises new challenges for the state and the society. Improved basic education and possibilities of further education will be required, investment in "human capital" as it is often called. The enterprises will be forced to train their workers better. Then it is unavoidable to pay better wages to higher qualified employees and workers. This way increased productivity improves not only economy but also social indicators. However, social equity so is a frame condition for more productivity and the resulting competitiveness.
More productivity means more unemployment—the situation in the industrialized countries
The economic and social situation is, especially in Europe, relatively bad and characterized by an economic crisis and constantly increasing unemployment rates. One consequence of this might be, that, at the moment, in almost every European country social democrats hold the office. In Germany for example, the chancellor Gerhard Schröder gave the explicit promise to reduce the unemployment rate significantly during his period. Even the first negotiations on a "Bündnis für Arbeit" (Márketa Zelenka is writing a paper on this subject) show, how huge problems in the German economy reduce the possibilities of any involved protagonist to create new jobs. The problem of creating new (productive) jobs and increasing equity at the same time, was discussed among others by Paul Krugman. He identified a position, which he called "global glut". Following him, it contains three main assumptions:
(Krugman 1997: 83).
The basic question of the "global glut" doctrine is, whether capitalism is too productive and therefore societal harmful. The relatively simple thesis refers to the assumption that productivity has reached such a high level in the industrialized countries, that the " [...] ability to work has expanded faster than the amount of work to be done" (Krugman 1997: 79). A huge number of (former) productive jobs is obsolete now and the possibility to create new ones is limited. Since the unemployment does to a major part not only exist due to an economic recession but because of basically changed production structures and challenges to the needed workers. Unemployment therefore is, unlike the one in developing countries, to a higher degree independent from economic reasons. More productivity can this way not be supposed to reduce unemployment, because the industrialized countries already do refer to the dynamic and industrial sectors of the world market. It would be illusionary then to expect enormous growth rates, which would be necessary to reduce unemployment and increase equity.
As in industrialized countries the level of basic and further education has already reached a high level, more productivity will probably not change the social situation or improve social indicators. Much more it could be feared that the social systems are burdened more and perhaps forced to be reduced.
Creating new jobs is mainly possible in the service sector as the example of the "American job miracle" shows. The majority of these jobs are not productive any more. They are not able to ameliorate social equity, or as Joseph Ramos stated: "Unemployment or employment in marginally productive activities (underemployment) is not only a social problem but also a sign of great economic inefficiency, since it means wasting the productive potential of a considerable part of a country’s society" (Ramos 1995: 15).
Conclusion
Instead of a classical conclusion I will try to present in this last part three theses which I zhink could be discussed in our newsgroup.
(Ramos 1995: 16)
Literature: