The financialisation of labour

My latest post at Pieria:

"We are used to thinking of workers as free agents who sell their labour in a market place. They bid a price, companies offer a lower price and the market clearing rate is somewhere between the two. Market economics, pure and simple.

But actually that's not quite right. The financial motivations of workers and companies are entirely different. To a worker, the financial benefit from getting a job is an income stream, which can be ended by either side at any time. But to a company, a worker is a capital asset.

This is not entirely obvious in a free labour market. But in another sort of labour market it is much more obvious. I'm talking about slavery.

Yes, I know slavery raises all sorts of emotional and political hackles. But bear with me. I am ONLY going to look at this financially. From a financial point of view, there are more similarities than differences between the slave/slaver relationship and the worker/company relationship - and the differences are not necessarily in the free worker's favour......"

The remainder of this post can be found here.



    Listening to this one for the 30th time makes me think attentively.
    This is one of the most original economics pieces I've ever read, ever.

    1) Now I understand why over indebted romans would sell themselves for 5 years or so. It made more sense financially.

    2) I've always thought that the main reason for the abolition of slavery is cheap energy, hence humans were no longer needed for energy provision purpose.

    3) How about socialist euro countries, like France etc. It's almost impossible to fire an employee.
    It's as if the state and unions are pushing for some kind of slavery, because as you say, it makes more sense financially.

    This is an outstanding piece, absolutely outstanding.

  2. So in effect today's free labourer is actually a slave and the agent for that slave... if business is not good the agent makes a loss and it would have been financially better to be a slave and outsource the agency to someone else, but when business is good, it's good to be the agent.

  3. Fantastic article but quite depressing.

    It made me think of peoples state education as but a shackle - which it is.
    At the same time true freedom is nothing without the skills that can be used in a free setting.

    I guess this sort of thinking happens at each historical breakdown event.

    What a waste of a life for us proles.
    It makes me pine for the deep free skills of the bushman.

    Its time to retreat as much as we can from this decaying market state.
    It holds no value for us lower orders.
    We are only given a crude price to measure our existence with.

  4. Excellent piece, even by your standards Frances.

    Agree that corporate under-investment is key to our problems. This ties to the austerity debate. We face households trying to save and govts trying to reduce their borrowing and no part of the economy: unless business agrees to pick up the slack and start running a financial deficit, all sectors will remain too "tight" in their stance for GDP growth to return.

    For what it's worth, my own take is that the culprits of the under-investment are (a) financial leverage (incl private equity) and (b) the cult of shareholder value, which now tells management teams that unless they are _certain_ they will deliver a return above the WACC, they should hang on to the cash.

  5. "You see, the main difference between buying a slave and employing a free worker is the up-front capital expenditure. A free worker is still a capital asset but it is, if you like, leased rather than owned.”

    Actually that isn't the biggest difference at all. Aside from the obvious difference of freedom and the ability of the worker to terminate the agreement, there is the fact that they have totally different exposures to pricing pressures. Buying a robot, you guarantee output at a fixed price over time, you are not exposed to rising prices of robots, in fact you benefit from it, whereas if you rented a robot you'd face increasing rental costs as the price of robots rose.

    I don't understand how you draw the conclusion that you do in the closing paragraphs given your metaphor. If you believe that workers are like assets, whose value to a company is their output minus running cost minus termination costs, why would one argue that increasing termination costs would make investing in these "assets" more attractive? If anything the logical conclusion is that you should be reducing termination costs if you want to increase investment.

  6. When you own a capital asset you are responsible for its maintenance, which is not the case when you rent. Over its lifetime, therefore, the cost of owning the asset may be no different from the cost of renting, but the cost profile will be different - capital assets tend to be at their most expensive and least efficient towards the end of their life. That would also be true of slaves, of course.

    However, my wider point was that the purpose of the rental market is to cover short-term and uncertain production needs, not to substitute for ownership of capital assets. What concerns me is that a very short-term view in an uncertain and risky world leads companies to reduce investment in capital assets, renting on a very short-term basis instead. When this is done with robots it just means there will be a thriving secondary market for robots. But when it is done with human beings, the economic and social consequences are severe. The whole point of this post is that humans are not robots and should not be treated like them.

  7. What's obvious to me is that since we are listed as "Short-term" we will be the placeholders until automation becomes much cheeper to do.

    Once the genie is out of the bottle it's nearly impossible to get it back in.

    What happens when it becomes more cheep to automate than lease a worker?

    A robot cannot argue, doesn't need food or anything but periodical maintenance and with AI getting smarter soon they'll be able to have other robots fixing themselves.

    When all's said and done where does that leave us?

    Let's face it we're outdated and require too much to maintain since we have to do those pesky things like eat and sleep. We're just a quick fix and soon there will be no need for us.

    Course I shouldn't have to explain how this is a disaster in the making because with no one to buy products you create a surplus and with all the money and wealth in few hands what does that mean?

    Sure you could just re-market your products towards those of an upper percentile but even then it would be only temporary. The economy would effectively grind to a halt.

    And that's just ASKING no...BEGGING for something bad to happen.


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