Monday, 12 March 2012

No foreigners please, we’re Labour

David Shearer, the Leader of the Labour Party, has finally made a headline.  (I give his official title here just so you know who he is. That you wouldn’t know if I didn’t tell you he is a measure of how desperately he needs the headline.)

Unfortunately, in announcing he would like to make NZ land virtually off limits to anyone without a New Zealand passport (for fear, perhaps, that NZ land will be put on ships and transported overseas where foreigners will do strange foreign things will be done with it) it is only to declare he is just as economically ignorant as his predecessors, and perhaps even more xenophobic.

Basically, he wants to make NZers poorer. He wants to buy votes with our prosperity.

Leave aside the xenophobia. If you can. But the economic ignorance on this one is, unfortunately, widespread, and should have everyone interested in their own future prosperity up in arms.

We have people willing to put good money into this place, matched with a blanket refusal to understand the benefits of foreign capital in a small place like ours with a paucity of our own pool of real savings. (A place that since its early days was built with foreign capital, for goodness’ sake.)

We have the prospect of new money being given voluntarily to existing owners, which they can re-invest, matched not with a welcome mat but a jackboot and a stop sign.

We have the prospect of new investment into existing land by those able to make it and us more prosperous, matched with no understanding whatsoever of the benefits to all of us of this increased prosperity.

Here are two more simple rules:

  1. In a division-of-labour society like ours, it doesn’t matter to us where capital comes from just as long as it comes here.
  2. In a division-of-labour society like ours, it doesn’t matter who owns the means of production just as long as the owners are free to invest, to produce and to innovate.

Why doesn’t it matter? Because there is a general benefit to all of us from there being more capital working here; a general benefit to all of us from more private ownership, whatever the race, creed, passport, skin colour or ancestry of the owners.

That is: there is a general benefit to buyers of products, to sellers of labour, to owners of other land. Which is to say, to all of us except a politician in search of a headline. 

Sellers of labour receive the benefit of the new capital applied to wages. The reason New Zealand wages are 30% lower than Australia is not because Australia has stronger unions or any other stupid reason, but because Australia has more capital, and is more productive with it—and we have politicians who want to keep it that way.

As even Shearer’s own economic advisers should be able to tell him (and as I suspect he even knows himself) the single-best means by which to increase wages is to increase our pool of real savings, which is to say to increase capital investment.  Sellers of labour benefit from the increased productivity of the greater capital coming into the country—both the new capital invested in the existing land, and the capital used to purchase the land that will be reinvested by vendors (or their investment vehicles) in new and further production. This is a double benefit for every wage-earner because, as George Reisman points out, 

Capital is the foundation both of the demand for labor and the supply of consumers’ goods. Its continuous accumulation is the foundation of high and rising real wages and a high and rising standard of living for everyone...

if you want higher wages you should be doing all you can not to an foreign investment but to encourage it.  Not to lower our pool of real savings but to discourage xenophobic restrictions on NZ's capital markets, and to discourage restrictions on local productivity.

And every consumer should be up in arms too about Shearer’s wish to prohibit to them the benefits of new foreign capital coming here. Buyers of products receive all the benefits of the new capital applied to production. (And remember, this is both the new capital invested in the existing land and the capital used to purchase the land that will be reinvested by vendors in new and further production.)  As George Reisman explains, “It cannot be stressed too strongly: the simple fact is that in a division-of-labor society, one does not have to own the means of production in order to get their benefit. One has only to be able to buy the products.” 

Remember, it doesn’t matter where capital comes from, just so long as it comes here; or who owns the means of production, just as long as owners are allowed to produce unencumbered.

This is a general rule which George Reisman calls:

imageThe General Benefit from Private Ownership of the Means of Production

The influence of the division of labor on the institution of private ownership of the means of production is almost universally ignored. Typically, people think of privately-owned means of production in terms that would be appropriate only in a non-division-of-labor society. That is, they think of them in the same way that they think of privately owned consumers' goods—namely, as being of benefit only to their owners. They believe that before the non-owners can benefit from the means of production, they must first become owners.

This belief underlies the popularity of all forms of "redistributionism" and socialism. People believe that so long as wealth remains concentrated in the hands of a relatively small number of capitalists [or foreigners], the capitalists [or foreigners] alone benefit from it. For the great mass of non-capitalists [or NZers] to benefit, it is believed, the wealth of the capitalists must first be taken away and given to the non-capitalists, or be held by the government and used for the collective good of all, [or, even more nonsensically, to be prohibited altogether from coming here].

Closely related to these ideas, of course, is the belief—held virtually as a self-evident axiom—that capitalism is a system which operates only in the interests of the capitalists, and that the defenders of capitalism must therefore either be capitalists themselves or be in the pay of the capitalists, or else simply be perverse enemies of the great majority of mankind. So deeply rooted are such convictions that it is often thought to be a sufficient refutation of the arguments of an advocate of capitalism to intimate the size of his bank balance or stockholdings.

Similarly, in reporting election results, the news media routinely explain voting patterns on the basis of the voters' wealth and income status. They take it for granted that only wealthy, upper-income voters will favor "conservative," i.e., pro-capitalist policies, and that poorer, lower-income voters will automatically favor "liberal," i.e., anti-capitalist policies.

Even the alleged friends of capitalism often share the conviction that private ownership of the means of production and capitalism serve only the capitalists: very often their notion of how to fight the spread of communism is first to create more capitalists. Only then, they believe, will there be a sufficient number of people with an interest in opposing communism.

The Benefit of Capital to the Buyers of Products

The first thing that must be realized is that in a division-of-labor society, all private property that is in the form of means of production—i.e.,  of capital—serves everyone, non-owners as well as owners. In a division-of-labor society, the means of production are not used in producing for their owners' personal consumption, but for the market. They are used in producing goods that are sold. The physical beneficiaries of this private property—and it is the far greater part of the capitalists' wealth—are all those who buy the products it helps to produce. In other words, it is the general buying public who are the physical beneficiaries of the capitalists' capital.

Consider, for example, the question of who are the physical beneficiaries of Toyota’s auto plants. That is, who physically receives the products of these plants? Is it the stockholders and bondholders of Toyota? Of course not. The number of Toyota's cars that is produced for the capitalists who own Toyota is relatively insignificant. Almost 100 percent of Toyoto’s auto output goes to people who do not own a single share of its stock or a single one of its bonds. The same is true of every other business enterprise.

Indeed, the proportion of Toyota’s auto output that is purchased by stockholders or bondholders of any enterprise—by  capitalists of any description—out of the proceeds of profit or interest income, is relatively small when compared with the proportion that is purchased by wage and salary earners. The far greater part of the automobiles purchased from Toyota and almost all other auto manufacturers is purchased by wage and salary earners. Wages and salaries, not profits and interest, are the source of the overwhelming bulk of consumption expenditure throughout a capitalist economy. It is wage and salary earners who consume the overwhelming majority of the automobiles, television sets, housing, furniture, food, and clothing, and almost every other consumers' good that is produced.

Thus, the overwhelmingly greater part of the physical benefit derived from the privately owned means of production in a capitalist economic system goes to non-owners of the means of production—to wage and salary earners.

imageIt cannot be stressed too strongly: the simple fact is that in a division-of-labor society, one does not have to own the means of production in order to get their benefit. One has only to be able to buy the products. In a division-of-labor society, one gets the benefit of means of production owned by others--every time one appears in the market as a customer. Indeed, it is of the very essence of a division-of-labor society that one obtains the benefit of others' means of production, just as one obtains the benefit of others' labor and knowledge, and that this occurs by means of the purchase of products in the market. It is only in a non-division-of-labor society, in which there is little or no production for the market, in which the producer and the consumer are almost always one and the same person, that privately owned means of production benefit only their owners, or virtually only their owners.

Implicitly, it is such a society that the enemies of capitalism have in mind. They have not yet woken up to the fact that capitalism is a division-of-labor society. They are unaware that in a division-of-labor society, the means of production serve everyone who buys products, and that thus, under capitalism, there is a general benefit from the capital owned by the capitalists—a benefit which everyone shares in his capacity as a buyer of products, even if he himself does not own any means of production or capital [and, it should hardly need saying, even if those capitalists were not born here].

This general benefit, it should be realized, applies to all of the means of production, not merely to those which are employed in the direct production of consumers' goods. The benefit of the steel mills that produce the steel that enters into Toyota’s cars goes to the buyers of the cars, along with the benefit of the auto plants, as does the benefit of the iron mines that contribute to the production of that steel, and the benefit of the factories that produce iron-mining equipment. The benefit of the land that grows wheat goes to the buyers of bread, as does the benefit of the tractors used in the growing of wheat, and the benefit of the factories which produce those tractors, along with the benefit of the flour mills that make the wheat into flour, and of the bakeries that finally turn out the bread....

It could be objected that if capital comes from overseas then all the production will go overseas as well. But the economic argument for selling overseas is the same wherever the capital comes from that is used to produce the products: it is to sell wherever the producer can receive the highest price.

The likes of Fonterra et all already sell most of their produce overseas because that’s where they get the highest prices: they sell milk overseas so we can import Toyotas. Any local production by foreign owners will bring similar benefits.

And if we do want to pay enough to bid our own produce away from foreign markets, then we can only do that by making ourselves rich enough to do that.

And we won’t do that by sticking a stop sign in the face of foreign capital.

* * * * *

The excerpt used above is taken from George Reisman’s book, Capitalism: A Treatise on Economics, pp 296-297. Copyright © 1996 by George Reisman. All rights reserved. Read more of Professor Reisman’s work at his blog and at The Jefferson School of Philosophy, Economics, and Psychology.

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