Life on the Global Commodity Frontier

What is a commodity? Literally, something sold in quantity There must be a demand for it. It must have a price in the market Commodification involves: Turning something into a commodity Creating demand for a good or service Ensuring that demand continues, either through replacement or upgrading

$100/bbl?? The price of the marginal barrel of oil is the price of oil everywhere Consumer spending is 60-70% of U.S. economic activity $ 9 trillion or about $30k/person— more than $4 trillion might be foreign debt A lot of consumer spending has been drawn from home equity

Under the classical understanding of economic accounts Consumers spend savings or surplus income—not equity Consumers stop spending when these are exhausted, or they borrow funds in credit markets The government gets revenues from taxes If spending exceeds taxes, the government must borrow from credit markets To pull funds into credit markets, interest rates must be sufficiently high If interest rates are too high, they will squelch consumer spending and other economic activity The economy will go into recession, employment & income will decline, and tax revenues will go down How can the economy be restored? Through Keynesian pump-priming or Fiscal discipline—squeeze the economy

This pattern began to change in the 1990s Cheap imported goods  low wage pressure  low inflation Dollar flows abroad  China & others buy Treasury bonds  loans to government for defense & wars Foreign reserve overhang  unpayable IOUs  declining dollar  investment in other currencies Low inflation  Low interest rates  consumer borrowing  rising real estate prices  asset inflation Housing bubble  higher returns than Treasury bonds  Mortgage bundling  selling & speculation To maintain inflow of dollars requires higher interest rates; to reflate the economy requires lower interest rates

Oil is denominated in dollars  declining dollar motivates higher oil prices  more dollars flowing abroad  for. Reserves up Speculators can get higher returns betting on future oil price increases  affects price of oil today Attack on Iran could lead to oil shortages  higher oil prices in the future  Oil-producing countries and U.S. oil companies are benefiting from higher oil prices U.S. arms sales to Saudi Arabia is one way to extract some of that surplus

A commodity frontier involves: Finding new goods for which a demand exists or can be created Commodifying new products for profit If possible, establishing monopolies on new goods through property rights

Commodity frontier relies on the creation of scarcity Create demand for new products, e.g., MP3 players Privatize a public resource through enclosure, e.g., pollution permits Develop new services that people seek, e.g., medical interventions If you can create a monopoly, even for a limited amount of time, you can generate windfall rents on the good or service The trick is to make things with no apparent value both scarce and costly

Some commodities last a very long time—1968 Volvos—which tends to limit the market for new sales and can lead to overproduction Hence, commodity frontiers can involve redesign, new features, sex appeal, all in order to get a buyer to dump the old and buy the new. Planned or intentional obsolescence is another way to maintain a commodity frontier: new computers run only new software which requires prodigious quantities of memory not available on older models.

Information and knowledge can be transformed into new commodities, to be bought and sold Consumer preferences Segmented markets Software revisionsDNA Organ trade

Knowledge Culture Bodies Software, biotech, nanotech, consumer preferences, personal data Music, media, dress, food, lifestyles, identities, living spaces, religions, travel Genetic modifications, body modification, organs, appear- ances, sex tourism & workers New commodity frontiers are being explored in knowledge, culture, and the body

Private property (PP) is at the heart of capitalism: With any new product, it is important to establish proprietary rights John Locke Milton Friedman Improving nature through labor entitles one to ownership Returns from property encourage effort to be more productive Only private property provides returns required to foster individual initiative and invention Kenneth Arrow If "information is not property, the incentives to create it will be lacking. Patents and copyrights are social innovations designed to create artificial scarcities where none exist naturally... These scarcities are intended to create the needed incentives for acquiring information. (p. 125, in: "The economics of information: an exposition," Empirica 23, #2 (1996): )

Intellectual property rights (IPRs) create private property, scarcity, monopoly, and incentive—or so it is said—which allows owners to reap “appropriate” profits IPRs are title to forms of knowledge that prevent non-owners from use with- out payment or license TrademarksPatentsCopyrights

One had to apply for a patent or copyright in every country Failure to patent meant your book or invention could be pirated Paris Convention of 1882 est. uniform int’l patents Berne Convention of 1886 est. uniform copyrights Until well into the 20 th century, the U.S. was a signatory to neither Historically, IPRs were granted nationally

Sometime during the 1960s and 1970s, the economic potential of technological and biological patents became of central concern to the U.S. government TRIPS (Trade-Related Aspects of Intellectual Property Rights) was a political and social innovation by the United States to enable corporations to assert control over products S/he who can establish binding rules of the global political economy can do so to his/her advantage Trade-related Intellectual Property & Services (TRIPS) was the brainchild of U.S. govt. & pharmaceutical entrepreneurs TRIPS sets minimum standards for protection of intellectual property, which WTO members must follow WTO Dispute Resolution System as well as national courts can enforce IPRs under the terms of TRIPS

What are the effects of IPR monopolies? Owners of IPRs enjoy a monopoly for a specified period of time Others must buy a license and pay royalties to use or produce the good The high costs of some innovations are impossible for the poor to pay Monopoly prices may make some goods inaccessible to the poor New technologies remain under control of corporations in rich countries Poor countries have access only to older generation technologies Power relations are maintained via the control of knowledge and goods Open-source intellectual goods are faced with a restrictive environment

Global political implications of living on the commodity frontier People & things come to be valued in the market rather than for their social roles Since commodities have limited use value, they tend to be discarded rather easily A focus on consumption foregrounds self- interest and devalues common good Bonds of trust and mutual obligation are eroded and destroyed This feeds back into social relations within and among groups, and into insecurity