The Phillips Curve and globalization: an equation incompatible with democracy

By Juan Francisco Gutierrez Lopez

.

By relating the rate of inflation, rate of unemployment, Phillips wanted to highlight with his curve1 the potential causalities between the monetary value of the goods produced by the mass of labour and the notion of progress of capitalist societies. Their postulated economic lay in the principle of progressive industrial of the constant increase of the production, the basis of capitalism. This spiral dynamics would find a certain balance in the struggle of forces between the mass worker (reflected in the rate of the unemployed) and the holders of capital and economic power (in some way reflected by the inflation). So the rate of unemployment and the inflation of each society would be determined by this balance of forces is moderated by the degree of social protection (minimum wage, unions, labour legislation, rights of the unemployed,…) of the political system of the country.

In this curve compare also the two social classes extreme within the capitalist system. On the one hand, there are those who possess a great part of the capital ; to which they benefit from low inflation to lower wages and thus get labor cheaper due to increased competition for acquiring a job and does not affect them too much of a high inflation, because they can use part of their accumulated capital to remedy. On the other hand, are those that possess a small part of the capital and have only their labor to survive ; that high inflation hurts them considerably, looking to reduce their purchasing capacity, and the unemployment rate is high the conviction to the limbo of capitalism (exclusion from the labour market) or to the galleys of the same (by logging in the rate of unemployed or precarious workers).

The social inequalities explained through the Phillips curve we show that within a capitalist economic system built on a system of political, democratic, the balance between these two social classes, squeezed in macroeconomic indicators, it is key to ensure social peace within a few inequalities bearable by a system of social welfare to support unemployed workers and inflation is not too high, that ensures that the social classes that have the capital and the political power and labor to increase their profits in a constant manner and at the same time ensuring a certain level of purchasing power of the working classes. In reality, democratic governments allow for a constant enrichment of the upper social classes to exchange a balance between the rate of unemployment and inflation, tolerable, and defined by the forces of labour and social.

While there have been moments in which a society has experienced periods of high inflation accompanied by high unemployment rates and a recession landscape, a period known as stagflation2, so that it is difficult or practically impossible to occur in a capitalist system is a period, more or less, over inflation, zero or negative, in coexistence with an unemployment rate in recession or almost zero. This situation is akin to a society that is going towards an equitable sharing between the effort related to the work and wealth produced, in the final analysis to a reduction of inequalities. This leads us to ask the key question of this article:

Can we make economic policies based on a control of inflation and reduction of unemployment, such as those carried out currently by the governments of the european Union, without putting in danger the democratic system? It is more than likely that it may not be possible because this situation tends to increase the inequalities between the social classes.

Democratic political forces elected by the people have work to attenuate the inequalities between the social classes mentioned above. The so-called social elevator works only occasionally, because the social privileges continue to provide access to a significant part of the capital and of the positions of responsibility, and the greater part of the time is broken and out of service, we’re going, we don’t do for fix it. Within a framework of democratic governance, the political forces must perform tasks of legislation and scrutiny to ensure that those that hold the capital does not increase the inequalities with respect to those who do not possess and that a number as large as possible of citizens can access the workforce system and economic consumption. That is to say, to ensure a balanced market and as broad as possible.

Prior to the development of globalization, the policies on monetary, financial, economic, the masses wage and the markets were much more restricted than today. That is to say, the Phillips curve could be controlled by the powers-political and economic of the countries is limited to the threshold of tolerance marked by an unemployment rate and an inflation rate too high. States could use means of attenuation for periods of inflation as the devaluation of the national currency, the method used primarily to restrictive policies as these have a considerable weight on the results of the election. If it came to exceed this tolerance threshold, there is the risk of uprisings or popular revolutions due to the increase in the inequality of distribution of capital and labour. In this way the powers in exercise defended the status quo by ensuring a certain level of social peace.

The process of globalization3 the financial, commercial and economic has led to the development of common practices among the majority of societies. Practices that focus on increased economic benefits, relying on the networks of international trade, the means of transport each time more developed and fast, in the means of global communication almost instantaneous, and the interrelation of economic international, which has become a reality. This situation leads to a development of international trade and to a wide range of market for many international companies it means an economic power substantial. The fact that the vast majority of societies agree on these principles associated with globalization has not led to a convergence of political, financial, economic, or social at the international level. The governance, commercial and financial private sector at the global level, however yes, it is a reality and the international organizations have not been able to develop an instance control intergovernmental based on human rights, defended by the democratic systems. The international division of labour almost uncontrolled develop their actions to their hearts content. Is more, democratic political systems have been allied with the powers of international financial and economic to have favored the creation of a global economic and financial system controlled by the networks of finance, and by the multinationals.

To limit inflation and reduce the unemployment rate have been convetido in two of the political dogmas to be implemented by governments. The risk is that this policy entails that the economic powers to protect themselves by keeping their part of capital and politicians of their status, in addition to lust also the economic power, so that in this situation of non-control and non-governance, the trend is to increase that capital and the political power. These phenomena lead us towards societies that are more unequal and less democratic, since one of the foundations of democracy is the redistribution of wealth and the breadth of the middle classes in long sense. Aim to decrease the unemployment rate and control inflation within a framework of economic progress is marked by an augmentation of the GDP, while the economic and social policies they carry out, tied by the globalization of the financial markets and trade alone will result in an increase of inequalities.

The present governments aim to push on towards the crossing of the coordinate axis, the Phillips curve is looking for a model almost impossible inflation subdued and unemployment rate very low. This situation could only be achieved with a better distribution of wealth, something that globalization prevents the based on the postulate of increasing the benefits without taking practically into account the social rights, so that lead to a decrease of the same, apply new formulas for the calculation of the unemployment rate and reduce the rights of the unemployed at the same time that the financial markets do grow inflation by speculating in the financial markets. This leads to more social exclusion to be more difficult of access by citizens to employment, the unemployment subsidy and the consumption of basic goods.

Globalization threatens the autonomy of peoples and their decision-making power. The mundualización of economic activities strategic cause them to lose their power of decision in economic. You are in a situation of powerlessness, to define its monetary policy, deciding its budget, organizing production and trade and to enter the taxes of their companies and therefore be able to respect its obligations to social security benefits.

In the case of the EU, the austerity policies imposed by the agencies of rating, by the international financial agencies (IMF and WB), and by the countries most powerful not to do more than try to push down on the Phillips curve, knowing that it is practically of the order of the utopia that the economic actors (employers, unions, governments and ministries of economy of the EU and rich countries) agree on a distribution of wealth more equitable, since there are no bodies of governance or control with the force sufficient to ensure this evolution nor do I believe that there is a real will to do it.

.

Juan Francisco Gutiérrez López4

March 21, 2012

NOTES

  1. The Phillips curve was introduced from the data of the american economy of the early 1960s. When putting in a y-axis coordinate in x for the unemployment rate and on the ordinate the rate of inflation, Phillips obtained a curve with negative slope, similar to that of the demand. The Phillips curve relates the rate of inflation, unemployment, and suggests that a policy aimed at price stability promotes unemployment. Therefore, a certain level of inflation is necessary in order to minimize it. [↩]
  2. Situation of contraction, economic which leads to an increase of social inequalities and a decrease of the overall wealth of a society in which it is very likely to find Spain at the end of 2012. [↩]
  3. It is the process that leads to a number each time more important for economic agents to bring their projects and to conduct their operations within a perspective to the global scale. This definition emphasizes, at the same level that the tendency to the standardization of economic phenomena, the tightening of the economic competition on a global scale due to the inequalities of the conditions of production (mainly the level of technology and the price of labor) and the movement control of the capital. The consequence of this process is the uniformity, in direct relation with the development of the techniques of communcations. Financial globalization is not a consequence of direct of the internationalization of the inercambios. [↩]
  4. Juan Francisco Gutiérrez López is a socio-demographer and is currently working for the Social Security in France, the Caisse d allocations familiales in the department of Eure in Haute-Normandie. See more in list of contributors [↩]

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Posts

Begin typing your search above and press enter to search. Press ESC to cancel.

Back To Top