Go Lean…Caribbean

Go Lean Commentary

The field of Economics is unique! We all practice it every day, no matter the level of skill or competence. There is even the subject area in basic education branded Home Economics, teaching the students the fundamentals of maintaining, supporting and optimizing a home environment. Most assuredly, economics is an art and a science, albeit a social science.

In a previous blog/commentary, Scotman’s Adam Smith was identified as the father of modern macro-economics. Though he lived from 1723 to 1790, his writings defined advanced economic concepts even in this 21^st Century. His landmark book An Inquiry into the Nature and Causes of the Wealth of Nations qualified the divisions of income into these following categories: profit, wage, and rent.^[4] We have previously explored profit-seeking (a positive ethos that needs to be fostered in the Caribbean region) and rent-seeking (a negative effort that proliferates in the Caribbean but needs to be mitigated), so now the focus of this commentary is on the activity of wage-seeking, and the concepts of governance and public choice theory to allow for maximum employment.

This is hard! Change has come to the world of wage-seekers – the middle classes are under attack; the labor-pool of most industrialized nations have endured decline, not in the numbers, but rather in prosperity. While wage-earners have not kept pace with inflation, top-earners (bonuses, commissions and business profits) have soared; (see Photo).

As a direct result, every Caribbean member-state struggles with employment issues in their homeland. In fact, this was an initial motivation for the book Go Lean…Caribbean, stemming from the fall-out of the 2008 Great Recession, this publication was presented as a roadmap for the introduction and implementation of the Caribbean Union Trade Federation (CU) to elevate the economic, security and governing engines of the Caribbean region to create 2.2 million new jobs, despite global challenges.

Needless to say, the global challenge is far more complex than Home Economics. The Go Lean book describes the effort as heavy-lifting; then proceeds to detail the turn-by-turn directions of a roadmap to remediate and mitigate wage-seeking.

The roadmap channels the Economic Principles and best-practices of technocrats like Adam Smith and 11 other named economists, many of them Nobel Laureates. A review of the work of these great men and woman constitute “Lessons in Economic Principles”. Why would these lessons matter in the oversight of Caribbean administration? Cause-and-effect!

The root of the current challenge for wage-seekers is income equality; and this is bigger than just the Caribbean. It is tied to the global adoption of globalization and technology/ automation – a product of global Market Forces as opposed to previous Collective Bargaining factors. This relates back to the fundamental Economic Principle of “supply-and-demand”; but now the “supply” is global. This photo/”process flow” here depicts the ingredients of Market Forces. When there is the need for labor, the principle of comparative analysis is employed, and most times the conclusion is to “off-shore” the labor efforts, and then import the finished products. This is reversed of the colonialism that was advocated by Adam Smith; instead of the developed country providing factory labor for Third World consumption, the developed nation (i.e. United States) is now in the consumer-only role, with less and less production activities, for products fabricated in the Third World. This reality is not sustainable for providing prosperity to the middle classes, to the wage-seekers.

As a community, we may not like the laws of Economics, but we cannot ignore them. The Go Lean book explains the roles and significance of Economic Principles … with this excerpt (Page 21):

While money is not the most important factor in society, the lack of money and the struggle to acquire money creates challenges that cannot be ignored. The primary reason why the Caribbean has suffered so much human flight in the recent decades is the performance of the Caribbean economy. Though this book is not a study in economics, it recommends, applies and embraces these 6 core Economic Principles as sound and relevant to this roadmap:

1. People Choose: We always want more than we can get and productive resources (human, natural, capital) are always limited. Therefore, because of this major economic problem of scarcity, we usually choose the alternative that provides the most benefits with the least cost.
2. All Choices Involve Costs: The opportunity cost is the next best alternative you give up when you make a choice. When we choose one thing, we refuse something else at the same time.
3. People Respond to Incentives in Predictable   Ways: Incentives are actions, awards, or rewards that determine the choices people make. Incentives can be positive or negative. When incentives change, people change their behaviors in predictable ways.
4. Economic Systems Influence Individual Choices and Incentives: People cooperate and govern their actions through both written and unwritten rules that determine methods of allocating scarce resources. These rules determine what is produced, how it is produced, and for whom it is produced. As the rules change, so do individual choices, incentives, and behavior.
5. Voluntary Trade Creates Wealth: People specialize in the production of certain goods and services because they expect to gain from it. People trade what they produce with other people when they think they can gain something from the exchange. Some benefits of voluntary trade include higher standards of living and broader choices of goods and services.
6. The Consequences of Choices Lie in the Future: Economists believe that the cost and benefits of decision making appear in the future, since it is only the future that we can influence. Sometimes our choices can lead to unintended consequences.

Source: Handy Dandy Guide (HDC) by the National Council on Economic Education (2000)

The Go Lean book describes the end result of the application of best-practices in this field of economics over the course of a 5-year roadmap: the CU … as a hallmark of technocracy. But the purpose is not the edification of the region’s economists, rather to make the Caribbean homeland “better places to live, work and play” for its citizens. This branding therefore puts emphasis on the verb “work”; the nouns “jobs” and “wages” must thusly be a constant focus of the roadmap.

This Go Lean book declares that the Caribbean eco-system for job-creation is in crisis … due to the same global dilemma. The roadmap describes the crisis as losing a war, the battle of globalization and technology. The consequence of the defeat is 2 undesirable conditions: income inequality and societal abandonment, citizens driven away to a life in the Diaspora. This assessment currently applies in all 30 Caribbean member-states, as every community has lost human capital to emigration. Some communities, like Puerto Rico and the US Virgin Islands have suffered with an abandonment rate of more than 50% and others have watched more than 70% of college-educated citizens flee their community for foreign shores. Even education is presented as failed investments as those educated in the region and leave to find work do not even return remittances in proportion to their costs of development. (See Table 4.1 in the Photo)

The Go Lean book therefore posits that there is a need to re-focus, re-boot, and optimize the labor/wage-seeking engines so as to create more jobs with livable wages. Alas, this is not just a Caribbean issue, but a global (i.e. American) one as well. See the following encyclopedic references for wage-seeking and Collective Bargaining to fully understand the complexities of these global issues:

Encyclopedia Reference #1: Wage-Seeking
(Source: https://en.wikipedia.org/wiki/Wage)

A wage is monetary compensation paid by an employer to an employee in exchange for work done. Payment may be calculated as a fixed amount for each task completed (a task wage or piece rate), or at an hourly or daily rate, or based on an easily measured quantity of work done.

Wages are an example of expenses that are involved in running a business.

Payment by wage contrasts with salaried work, in which the employer pays an arranged amount at steady intervals (such as a week or month) regardless of hours worked, with commission which conditions pay on individual performance, and with compensation based on the performance of the company as a whole. Waged employees may also receive tips or gratuity paid directly by clients and employee benefits which are non-monetary forms of compensation. Since wage labour is the predominant form of work, the term “wage” sometimes refers to all forms (or all monetary forms) of employee compensation.

Determinants of wage rates
Depending on the structure and traditions of different economies around the world, wage rates will be influenced by market forces (supply and demand), legislation, and tradition. Market forces are perhaps more dominant in the United States, while tradition, social structure and seniority, perhaps play a greater role in Japan.^[6]

Wage Differences
Even in countries where market forces primarily set wage rates, studies show that there are still differences in remuneration for work based on sex and race. For example, according to the U.S. Bureau of Labor Statistics, in 2007 women of all races made approximately 80% of the median wage of their male counterparts. This is likely due to the supply and demand for women in the market because of family obligations. ^[7] Similarly, white men made about 84% the wage of Asian men, and black men 64%.^[8] These are overall averages and are not adjusted for the type, amount, and quality of work done.

Real Wage
The term real wages refers to wages that have been adjusted for inflation, or, equivalently, wages in terms of the amount of goods and services that can be bought. This term is used in contrast to nominal wages or unadjusted wages. Because it has been adjusted to account for changes in the prices of goods and services, real wages provide a clearer representation of an individual’s wages in terms of what they can afford to buy with those wages – specifically, in terms of the amount of goods and services that can be bought.

See Table of European Model in the Appendix below. (The European Union is the model for the Caribbean Union).

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Encyclopedia Reference #2: Collective Bargaining
(Source: https://en.wikipedia.org/wiki/Collective_bargaining)

Collective Bargaining is a process of negotiation between employers and a group of employees aimed at reaching agreements to regulate working conditions. The interests of the employees are commonly presented by representatives of a trade union to which the employees belong. The collective agreements reached by these negotiations usually set out wage scales, working hours, training, health and safety, overtime, grievance mechanisms, and rights to participate in workplace or company affairs.^[1]

The union may negotiate with a single employer (who is typically representing a company’s shareholders) or may negotiate with a group of businesses, depending on the country, to reach an industry wide agreement. A collective agreement functions as a labor contract between an employer and one or more unions.

The industrial revolution brought a swell of labor-organizing in [to many industrialized countries, like] the US. The American Federation of Labor (AFL) was formed in 1886, providing unprecedented bargaining powers for a variety of workers.^[11] The Railway Labor Act (1926) required employers to bargain collectively with unions. While globally, International Labour Organization Conventions (ILO) were ratified in parallel to the United Nations efforts (i.e. Declaration of Human Rights, etc.). There were a total of eight ILO fundamental conventions ^[3] all ascending between 1930 and 1973, i.e. the Freedom of Association and Protection of the Right to Organise Convention (1949).

The Go Lean book presents a roadmap on how to benefit from the above Economic Principles – and how to empower communities anew – in the midst of tumultuous global challenges. This roadmap addresses more than economics, as there are other areas of societal concern. This is expressed in the CU charter; as defined by these 3 prime directives:

• Optimization of economic engines in order to grow the regional economy to $800 Billion and create 2.2 million new jobs.
• Establishment of a security apparatus to protect the resultant economic.
• Improvement of Caribbean governance to support these engines.

Early in the Go Lean book, the responsibility to create jobs was identified as an important function for the CU with these pronouncements in the Declaration of Interdependence (Pages 14):

xix.  Whereas our legacy in recent times is one of societal abandonment, it is imperative that incentives and encouragement be put in place to first dissuade the human flight, and then entice and welcome the return of our Diaspora back to our shores.…

xxi.  Whereas the preparation of our labor force can foster opportunities and dictate economic progress for current and future generations, the Federation must ensure that educational and job training opportunities are fully optimized for all residents of all member-states, with no partiality towards any gender or ethnic group. The Federation must recognize and facilitate excellence in many different fields of endeavor, including sciences, languages, arts, music and sports. This responsibility should be executed without incurring the risks of further human flight, as has been the past history.

xxiv. Whereas a free market economy can be induced and spurred for continuous progress, the Federation must install the controls to better manage aspects of the economy: jobs, inflation, savings rate, investments and other economic principles. Thereby attracting direct foreign investment because of the stability and vibrancy of our economy.

xxvi.  Whereas the Caribbean region must have new jobs to empower the engines of the economy and create the income sources for prosperity, and encourage the next generation to forge their dreams right at home, the Federation must therefore foster the development of new industries, like that of ship-building, automobile manufacturing, prefabricated housing, frozen foods, pipelines, call centers, and the prison industrial complex. In addition, the Federation must invigorate the enterprises related to existing industries tourism, fisheries and lotteries – impacting the region with more jobs.

According to an article from the Economic Policy Institute, entitled The Decline of Collective Bargaining and the Erosion of Middle-class Incomes in Michigan by Lawrence Mishel (September 25, 2012), the challenges to middle class income are indisputable, and the previous solution – Collective Bargaining – is no longer as effective as in the past. (The industrial landscape of Michigan had previously been identified as a model for the Caribbean to consider). See a summary of the article here (italics added) and VIDEO in the Appendix:

In Michigan between 1979 and 2007, the last year before the Great Recession, the state’s economy experienced substantial growth and incomes rose for high-income households. But middle-class incomes did not grow. The Michigan experience is slightly worse than but parallels that of the United States as a whole, where middle-class income gains were modest but still far less than the income gains at the top. What the experience of Michiganders and other Americans makes clear is that income inequality is rising, and it has prevented middle-class incomes from growing adequately in either Michigan or the nation.

The key dynamic driving this income disparity has been the divergence between the growth of productivity—the improvement in the output of goods and services produced per hour worked—and the growth of wages and benefits (compensation) for the typical worker. It has been amply documented that productivity and hourly compensation grew in tandem between the late 1940s and the late 1970s, but split apart radically after 1979. Nationwide, productivity grew by 69.1 percent between 1979 and 2011, but the hourly compensation of the median worker (who makes more than half the workforce but less than the other half) grew by just 9.6 percent (Mishel and Gee 2012; Mishel et al. 2012). In other words, since 1979 the typical worker has hardly benefited from improvements in the economy’s ability to raise living standards and, consequently, middle-class families’ living standards have barely budged since then. This phenomenon has occurred across the nation, including in Michigan.

This divergence between pay and productivity and the corresponding failure of middle-class incomes to grow is strongly related to the erosion of collective bargaining. And collective bargaining has eroded more in Michigan than in the rest of the nation, helping to explain Michigan’s more disappointing outcomes.

Research three decades ago by economist Richard Freeman (1980) showed that collective bargaining reduces wage inequality, and all the research since then (see Freeman 2005) has confirmed his finding. Collective bargaining reduces wage inequality for three reasons. The first is that wage setting in collective bargaining focuses on establishing “standard rates” for comparable work across business establishments and for particular occupations within establishments. The outcome is less differentiation of wages among workers and, correspondingly, less discrimination against women and minorities. A second reason is that wage gaps between occupations tend to be lower where there is collective bargaining, and so the wages in occupations that are typically low-paid tend to be higher under collective bargaining. A third reason is that collective bargaining has been most prevalent among middle-class workers, so it reduces the wage gaps between middle-class workers and high earners (who have tended not to benefit from collective bargaining).

Collective bargaining also reduces wage inequality in a less-direct way. Wage and benefit standards set by collective bargaining are often followed in workplaces not covered by collective bargaining, at least where there is extensive coverage by collective bargaining in particular occupations and industries. This spillover effect means that the impact of collective bargaining on the wages and benefits of middle-class workers extends far beyond those workers directly covered by an agreement.
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Source: http://www.epi.org/publication/bp347-collective-bargaining/

The siren call went out 20 years ago, of the emergence of an “Apartheid” economy, a distinct separation between the classes: labor and management. Former US Secretary of Labor Robert Reich (1993 – 1997 during the Clinton Administration’s First Term) identified vividly, in this 1996 Harvard Business Review paper, that something was wrong with the U.S. economy then; (it is worst now):

That something is not the country’s productivity, technological leadership, or rate of economic growth, though there is room for improvement in all those areas. That something is an issue normally on the back burner in U.S. public discourse: the distribution of the fruits of economic progress. For many, the rise in AT&T’s stock after it announced plans [on January 3, 1996] to lay off 40,000 employees crystallized the picture of an economy gone haywire, with shareholders gaining and employees losing as a result of innovation and advances in productivity.

Has the distribution of the benefits of economic growth in the United States in fact gone awry? Is the nation heading toward an apartheid economy—one in which the wealthy and powerful prosper while the less well-off struggle? What are the facts? What do they mean? Are there real problems—and can they be solved?
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Deploying solutions for the problem of income equality in the Caribbean is the quest of the Go Lean/CU roadmap. The book identified Agents of Change (Page 57) that is confronting the region, (America as well); they include: Globalization and Technology. A lot of the jobs that paid a “living wage” are now being shipped overseas to countries with lower wage levels, or neutralized by the advancement of technology. Yes, computers are reshaping the global job market, so even Collective Bargaining may fail to counter any eventual obsolescence of wage-earners, their valuation and appreciation; (see Encyclopedic Article # 2). The Go Lean book, and previous blog/commentaries, therefore detailed the campaign to not just consume technology, but to also innovate, produce and distribute the computer-enabled end-products. Therefore industries relating to STEM (Science, Technology, Engineering and Mathematics/Medicine) are critical in the roadmap. Not only do these careers yield good-paying direct jobs, but also factor in the indirect job market, and the job-multiplier rate (3.0 to 4.1) for down-the-line employment (Page 260) opportunities.

The Go Lean… Caribbean book details the creation of 2.2 million new jobs for the Caribbean region, many embracing ICT/STEM skill-sets. This is easier said than done, so how does Go Lean purpose to deliver on this quest? By the adoption of certain community ethos, plus the executions of key strategies, tactics, implementations and advocacies. The following is a sample from the book:

The CU will foster job-creating developments, incentivizing many high-tech start-ups and incubating viable companies. The primary ingredient for CU success will be Caribbean people, so we must foster and incite participation of many young people into fields currently sharing higher job demands, like ICT and STEM, so as to better impact their communities. A second ingredient will be the support of the community – the Go Lean movement recognizes the limitation that not everyone in the community can embrace the opportunity to lead in these endeavors. An apathetic disposition is fine-and-well; we simply must not allow that to be a hindrance to those wanting to progress – there are both direct jobs and indirect jobs connected with the embrace of ICT/STEM disciplines. The community ethos or national spirit, must encourage and spur “achievers” into roles where “they can be all they can be”. Go Lean asserts that one person can make a difference … to a community (Page 122).

Other subjects related to job empowerments for wage-seekers in the region have been blogged in other Go Lean…Caribbean commentaries, as sampled here:

The Caribbean is arguably the best address on the planet, but “man cannot live on beauty alone”, there is the need for a livelihood as well. This is the challenge, considering the reality of unemployment in the region; the jobless rate among the youth is even higher.

The crisis of income inequality for the US is a direct result of free trade agreements, like NAFTA, and China’s Preferential Trading Status. Despite this status, we can benefit from the realities of globalization; jobs are being moved to conducive locations with lower labor costs.  We should invite these investors to look for cheaper labor options, here in the Caribbean region (Haiti, Dominican Republic, Jamaica, etc.). This is the same reality as in Europe with different wage levels for the different countries (see Appendix below); the Caribbean also has these wage differences.

The Go Lean roadmap seeks to foster higher-paying job options: Call Centers, Offshore Software Development Centers, R&D Medical campuses, light-manufacturing and assembly plants for “basic needs” products (food, clothing shelter, energy, and transportation) for Caribbean consumption. This is the successful model of Japan, China and the “East Asia Tigers” economies; these are manifestations of effective Economic Principles.

The Go Lean book therefore digs deeper, providing turn-by-turn directions to get to the desired Caribbean results: a better place to live, work and play. 🙂

Download the free e-Book of Go Lean … Caribbean – now!

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Appendix – List of European countries by average wage (USA & Japan added for comparison)

(Source: https://en.wikipedia.org/wiki/List_of_European_countries_by_average_wage)

2014 Annual values (in national currency) for a family with two children with one average salary, including tax credits and allowances.^[1] Net amount is computed after Taxes, Social Security and Family Allowances; the result is provided in both the National Currency and the Euro, if different. The table, sorted from highest Net amount to the lowest, is presented as follows:

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Appendix Video – Collective Bargaining and Shared Prosperity: Michigan, 1979 – 2009 http://youtu.be/PcT4jK89JmE

Published on September 27, 2012 – This VIDEO depicts the positive effects of Collective Bargaining on the quest for income equality in the US State of Michigan; and the sad consequence of the widening income inequality when Collective Bargaining is less pervasive.
This reflect the “Observe and Report” functionality of the Go Lean…Caribbean promoters in the Greater Detroit-Michigan area.