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Basics of economics don’t change

Friday 24 June 2005, by KEEGAN*William

For all the talk of `globalisation’ and `outsourcing’, the fundamentals of economics such as keeping the consumer happy and companies seeking to cut costs remain unchanged.

MODERN CAPITALISM - or rather, capitalism - never ceases to amaze me. After several years when one of the big stories has been the way British companies have been making use of cheap labour in India for their "call centres," we now learn that British workers are being sent out to Mumbai to man those centres.

Companies are evidently concerned about high turnover at some of these call centres. Certainly one hears disturbing reports about the ’battery hen’ conditions in which many people have to work; there is also the little problem that, educated and skilled though the indigenous workers in such centres may be, they often do not have the local knowledge required by their distant callers when queries rise above the very straightforward.

With due respect to those distant workers, it is difficult to resist a quiet laugh when companies’ schemes for saving money run into trouble. The natural desire of the entrepreneurs Marx designated as "capitalists" is to sew up their markets and their sources of supply, to charge as much as they can get away with, and to minimise their costs. Until societies and governments reacted with the birth of trades unions and legislation to outlaw the worst abuses, the "capitalists" so vividly described by Marx and Engels in 19th century Britain would go to great lengths to argue that, to coin a phrase, there was "no alternative" to the way they operated.

Since the collapse of the Soviet Union people have come to realise that capitalism is not so much a system (as communism was) but rather the way the world actually works. The people who run multinational enterprises are always bellyaching about excess "regulation," and sometimes regulation does get out of hand. But there is usually a good reason why regulation became such a growth industry in the first place.

There are different approaches as to how, if at all, capitalism should be managed. One of the interesting anomalies is that the capitalist model implies free movement of capital and labour (the third "factor of production" economists like to talk about, namely land, is not obviously mobile). Yet while billions of pounds sterling, dollars and euros fly across the foreign exchanges every day, and multinationals site factories anywhere in the world where they think they can get the best "return", migration is strictly controlled. Indeed, as in many other nations, immigration was an unpleasantly hot topic during the U.K.’s election campaign.

Not new

The way modern capitalism works is often called "globalisation", but there is nothing new about enterprises having a worldwide reach. During the 19th century and in the early 20th century, British manufacturers would scour the world for the raw materials used for production in their home market. This kind of thing still goes on of course. The different feature of modern capitalism is that manufacturers in the advanced industrial countries will typically "outsource" manufacturing and services (eg: call centres) if they see an opportunity to cut costs.

The so-called "single market" in the European Union is supposed to make it easier for people, as well as capital, to move around Europe, but we have recently seen, as a feature of the French referendum campaign, that "Polish plumbers" are not popular in France because they allegedly deprive the locals of jobs. It is usually because they need jobs that people migrate. Obviously some of the ancestors of U.S. citizens were fleeing persecution in Europe, and some simply had the spirit of adventure. But most migrants went there for jobs - as did most migrants from Ireland to England in the 20th century.

So far the "outsourcing" of jobs in call centres overseas has not provoked a huge outcry for the simple reason that unemployment is low in the U.K. at present - indeed jobs are plentiful. This could change of course. The objection to the use of call centres - especially when they are so far away - is that they don’t always produce the standard of service the consumer wants. In their desire to cut costs many modern businesses are forgetting that, however they treat their workforce, in the end it is the consumer who keeps them in business.

See online : The Hindu

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