Adding instruments to abate inequality: spaces for price negotiation within productive chains

As well as there are collective bargaining for wages to level out the negotiation power of workers and employers, another eventual instrument to counteract the rampant inequality that prevails in the world is the establishment of price negotiation spaces among participants in productive chains. Doing so will promote the organic development of the entire productive chain.

 

The greatest impediment for establishing an organic development of our economic systems (where their participants could evolve complementing and reinforcing each other) is the huge process of wealth concentration that prevails in the world; this greatly enervates the abilities to collaborate, support, and take care of the other, to grow in tune with the rest and not at the expense of appropriating the results of their productive efforts. Concentration diverts investment and innovation far away from the general wellbeing; it imposes values of greed and sharp selfishness. Of course, the inevitable flip side is an inequality that does not cease to grow (1% of the population in the planet possess more wealth than the other 99% combined) as well as the disgrace of maintaining and reproducing poverty and indigence.

There is no way to hide that such concentration of wealth cannot be achieved just by the self effort of a minority of individuals and enterprises; on the contrary, most of the times it is done through the extraction of the value generated by other actors, hundred million families. To accomplish that, several mechanisms for appropriating incomes and assets are used; they have been established based on the power that privileged minority holds. Thus, dismounting those value appropriation mechanisms is necessary to end or significantly reduce the concentrating process; a challenge that is essentially political though it is economically expressed, as it requires the mobilization and organization of citizens in each country and locality.

The mechanisms for extracting value operate in several spheres of activity: in each productive unit, within productive chains, among sectors of the productive matrix, between the real economy and the activities of financial speculation, between local actors and international corporations, for the control of markets, the imposition of commercial regulations, the fixation of prices, tax evasion or elusion, the application of royalties and patents, among many other aspects. The common denominator of all these mechanisms is that they serve to extract values from those who produce them and then concentrate it in few hands. Several of these mechanisms are interconnected and reinforce each other; and their implantation and permanence is facilitated by complicities provided by co-opted or bought sectors of politics, the judiciary, and the media.

In other publications of Opinion Sur[1], we have analyzed the genesis and development of concentration processes of wealth as well as their dramatic consequences. In the following lines, we will focus on analyzing the mechanisms for extracting value within productive chains.

The precedent of spaces for collective bargaining of salaries and labor conditions

 A precedent that serves the theme of this article is the institutionalized process of collective bargaining of salaries and labor conditions that emerged to mediate in the permanent dispute between capital and labor over how to distribute the results of the productive process. Not long ago, the employers used to impose with few concessions salaries and working conditions. The power difference between enterprise owners and workers individually agreeing on their wages was such, that the results of that relationship always ended skewed in favor of the owners. Little by little, as the product of a struggle that took centuries not just decades, guilds and unions were formed pushing forward the defense of workers’ rights. One of its major accomplishments was to insert labor claims and demands into national political agendas up to institutionalizing the establishment of spaces for collective bargaining of salaries and working conditions. Despite important differences between countries and their phases of political development, they managed to change the way such unequal powers negotiate, moving from being just between owners of enterprises and individual workers towards collective bargaining between owners and guilds and unions, counting with the regulation that the State establishes upon the negotiation spaces. These new negotiation modalities reduced to some degree the preexistent power differences.

Far behind were left the worst eras of merciless exploitation of workers and miserable labor conditions even though, it hurts to admit, much more remains to be undone. It is an extremely long and unfinished process that humanity goes through in which certain individuals consider that their achievements are essentially the result of their own merit and believe they pay off any debt that they might have with the society they belong to just with their taxes (when they do not, cover or openly, evade them). It took a long time to recognize that the value an enterprise generates comes from the participation of a diversity of actors, workers, managers, the technological and moral context, owners of capital, suppliers, consumers with purchase power and the own State who provides the productive, social, legal and security infrastructure that is indispensable for a company to start and develop.

Spaces of collective bargaining of salaries and working conditions constitute a superior threshold in the relationship between capital and labor, though they are unfinished processes. Despite being institutionalized, they remain strongly influenced by the governments in place; some of which stress workers’ rights while others the interests of capital. This governmental influence is expressed through the public policies that are adopted but also because the public sector is the employer of a large group of public servants and thus the labor improvements it might grant may be used as reference for the private sector.

Negotiation spaces for prices and commercial conditions in productive chains

Within productive chains there is no such a space for negotiation among parties. This happens, despite no enterprise can develop its production in isolation and without counting on other enterprises with which it relates by buying and selling supplies, as well as by hiring a diversity of services (technological, legal, accounting, marketing, among others). That is, each enterprise adds value to a collective production as a part of a productive weave that can be more or less extended, simple or complex, domestic or articulated with foreign corporations.

Each productive chain is structured in a certain way setting up complementarities between large, medium, small, and micro enterprises. Commercial relations between companies are expressed in purchasing-selling agreements of what each one produces. In those agreements, a main variable are prices with which transactions are negotiated, though other variables weigh too, such as the time extension of agreements registered or informal transactions, with or without technological assistance to suppliers, advance payments to suppliers.

While every participant in the productive effort within a productive chain generates a quota of value, the prevailing dynamic makes the recognition of the value each actor generates be determined not by the productive chain as a whole but just by those who detent the ability to impose their will. And this privileged opinion will usually lead to market power abuses; the most powerful actors will be able to extract a good part of the value generated by others for their own sake. They extract value from their suppliers and also from the buyers of their products, being those enterprises or final consumers. In a similar way, medium-size participants impose conditions on the small and micro entrepreneurs. It is thus established a process of wealth concentration that flows towards the top of the productive chains, a few powerful actors getting even more powerful at the expense of those who cannot resist the loss, by appropriation, of the value that belongs to them.

This has serious consequences because while the most powerful enterprises accumulate surpluses through each productive cycle, the rest does so at minor rates or simply they do not accumulate at all and, thus, they stagnate or recede. Smaller enterprises, family ventures, are the most vulnerable because if they recede they are forced to maintain their activity sacrificing the quality of life of their family as they do not usually have many options for getting minimum subsistence incomes. In this way, the productive chain does not grow organically favoring all its participants but rather tends to concentrate results, causing an inequality that crystallizes and projects over the following productive cycles.

It is difficult, if not completely improbable, that this concentrating dynamic that takes place in almost every productive chain could spontaneously change without an exogenous intervention. As well as what was mentioned in the previous section regarding the negotiation of wages and labor conditions, owners and managers of powerful enterprises claim full credit for the profit they obtain while minimizing the contribution made by other participants of the productive chain and the society as a whole. They use their power to impose prices and commercial conditions to the rest, frequently evading the full payment of due taxes (compromising public revenues and, thus, the ability of the State to provide for the general wellbeing).

What is the foundation of the power to impose used by leaders of productive chains? Their size and economic position forces the rest to accept unfavorable conditions; those who refuse to cooperate with the interests of leader enterprises are substituted by other small and medium ventures willing to hand over value as long as they are hired. Something equivalent happens when workers are forced to agree with unfavorable salaries and working conditions in fear of being fired and easily replaced.

How to correct those power abuses? One possibility is to establish negotiation spaces for prices and commercial conditions among participants of a productive chain, including the participation of the State regulating and guarding the functioning of those spaces. The way of structuring such spaces can be varied as it is not the same a chain with a monopolistic leadership (just one leader enterprise) than those chains that have several leading companies and those others, much more open, with a large number of leading enterprises.

In addition to the way of structuring that must be adjusted to the different situations, it is also necessary to explicit certain parameters upon which it might be possible to negotiate. Thus, for example, a basic criterion is ensuring that every actor who participates in a productive chain gets favored by receiving a fair share in the results. It is also true that what is fair for some is not for others, thus it is necessary to associate fair participation with access to a rate of return that can let every producer grow in time and not just survive stagnant. That growth can be achieved individually or by increasing the scale and productivity thresholds through the association of small producers in some type of inclusive venture.

On the other hand, benefits claimed by different participants might risk the viability of the whole productive chain, though that does not mean condoning the concentration and extraction of value. What it implies is that the leader enterprises must give away part of their rate of return to let the rest grow too and therefore, the entire productive chain being able to lean towards an organic development. That is, there will be limits and margins in those negotiation spaces that might be dangerous to ignore, even more when as a result of the asymmetric globalization that has been imposed to the world, the competitiveness struggles also take place internationally.

Viability of establishing those price negotiation spaces

 There can be no ingenuity in aligning diverse interests, some of them antagonistic. It is complex (to say it aseptically) to harmonize positions among such diverse actors, especially when the most powerful have the ability to co-opt or dissuade with perks some actors at the expense of others.  Even worse if the incumbent government in charge of regulating and watching over the good functioning of these eventual negotiation spaces, could turn in favor of enterprises leaders of productive chains.

Some solutions require transforming parts of the structures that prevail in certain productive chains. For example, if there were a level of commercial intermediation that would appropriate a disproportionate part of the value generated by producers, that particular situation does not resolve by disputing the rate of return of leading enterprises, but rather by dismantling the power of intermediaries while favoring the establishment of other types of stockpiling and commercialization channels with some kind of participation by the own producers. This is what usually happens in food-related productive chains where price differences between what the producers receives and what the final consumer pays can be more than 30, 50, or even 100 times the initial price.

On the other hand, productive chains are not islands autonomous from the functioning of the economic system and, in particular, from the national and regional productive matrix. Some chains are orientated preferably towards meeting the demands of the domestic market and others towards exports. Some chains use mainly national supplies while others might greatly depend on imported inputs and equipment. Some chains use labor force more intensively than others. Some are very much linked with breakthrough technological development, others are not. Some national productive chains are appendixes of large international productive weaves. There are also productive chains that work as spaces where a new type of local entrepreneurs can emerge, get exposure and reinvest in their own country while in other productive chains financial speculation and capital flight prevail.

Hence, there are no all-or-nothing fundamentalist recipes, not just one option available; these arguments are not truths but machinations or negligence. Though there are objective parameters that we need to know, they are not the parameters that the hegemonic interests want to smuggle as “natural” limits to protect their interests. As usual, it is necessary to avoid both voluntarisms and determinisms and trust that the responsible search for innovation will benefit the general wellbeing. This assessment is worth in so diverse fields as politics, the economy, territorial development, human and international relations and, of course, also to establish negotiation spaces for prices and commercial conditions within productive chains.

 

 

[1] . Books Los hilos del desorden (The threads of disorder), Un país para todos (A country for all), Crisis global: ajuste o transformación (Global crisis: adjustment or transformation). A brief summary appears in the article Is the world burning?

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