The Dull Compulsion of the Economic (#1)

by Dollars and Sense

A series of blog entries by D&S collective member Larry Peterson.

Please note: this is a continuation of a series that began in March under the title "This Just In: Dollars & Sense Reads the News"; besides the terrific new name, taken from Chapter 28 of Volume One of Marx's Capital), I'm hoping to make the entries more regular (once a week, usually appearing on Monday, or early in the week), consistent in length (800-1000 words, though this entry will go beyond that), and, I hope, better thought out and less impressionistic in tone.

When I first heard about Paul Wolfowitz's difficulties at the World Bank involving his companion some weeks back, I thought it warranted nothing more than indulgence in some good, stupid fun. That one of the major architects of a duplicitous, illegal, and immoral war and breathtakingly negligent occupation was finally being forced to answer for his actions to an even miniscule degree, and over such a silly-sex issue, was certainly good for a smirk or two. The fact that the "anticorruption" campaigner at the bank found himself entangled in a conflict of interest was less satisfying; after all, this is the man who cut his teeth as U.S. ambassador to the supercorrupt Suharto in Indonesia in the 'seventies. (In what is surely one of the most disingenuous lines of the year, The Economist suggests that Wolfowitz's anticorruption stance was actually nurtured in the years he "observed" the crony capitalism rampant there, as if he stood back wringing his hands while the place went to pot all around him, and over his strenuous objections). And his peccadillos certainly don't begin to approach the kind of conspicuous corruption practiced by other associates of the Bush administration, like Tom DeLay, Jack Abramoff and Randy "Duke" Cunningham. But now that he's finally gone, perhaps it's a good time to take a good, hard look at the bank. Is it still the éminence grise of the global economy, skulking behind the scenes, baiting benighted countries (or their elites, anyway) with Faustian bargains designed to ensure their economic dependency and, hence, political passivity? Or is it time we on the left starting turning our attentions to other things? And if so, what might those other things be?

First, a history review. The World Bank, like its sister organization, the International Monetary Fund, was founded at a famous conference held at Bretton Woods, New Hampshire, right before the end of World War II. These so-called "Bretton Woods" institutions, amongs whose founders was John Maynard Keynes, were originally designed to aid in the reconstruction of Europe and to provide a safety valve for countries finding themselves experiencing balance of payments problems of the sort that led to the hyper-inflation experienced in Germany after World War I, which, in turn, contributed to the sort of capital flight that gave rise to the depression worldwide, the protectionist measures taken in its wake, and, ultimately, to resumption of world war. Under this scheme, the IMF would provide grants, below market-rate loans and economic advice to countries experiencing difficulties in meeting their foreign obligations, while the World Bank would focus on microeconomic reconstruction and development (low cost investment in infrastructure, especially).

While European reconstruction was spectacularly successful, the intensification of the Cold War, expansion of global markets—itself a consequence of successful European reconstruction—and discovery of natural resource deposits in historically impoverished areas pushed the IMF and WB into a somewhat different role: that of placating corrupt elites who were allied with the West, or provided its essential natural resources, like oil. After the double-digit inflation of the 'seventies, the "great reversal"—an unprecedented series of interest rate hikes by the Federal Reserve—forced the US economy into recession in the early 'eighties; but its effects on some of the IMF and WB clients was much, much greater: huge cuts in the prices of key commodities (oil, agricultural products, metals: many of the items whose very production was financed with World Bank and private-sector loans when times were good) dried up national incomes at the same time that interest rates were skyrocketing.

You would be forgiven, at this point, for thinking that, under these circumstances, further largesse from the IMF and WB would be regarded with some suspicion. These were interesting times, and for elites in the poor world, already witnessing the restoration of profitability enabled by Reagan's policies, and feeling the heat from their long-downtrodden populations—whose birthrates were huge—it was all too easy to assume that another export wave was on the way. But crushing debt and currencies that failed to keep pace with the dollar's recovery (which was based precisely on the high interest rates that accompanied Reagan's military spending deficits) in the early 'eighties meant that the resumption of exports, far from restoring development, would ensure, under deteriorating monetary conditions, ever-increasing penury. To prevent economic breakdown, or even revolution, only one alternative remained for many of these countries: to borrow more!

But if the elites hadn't learned anything, the bankers and politicians had. This time, loans were extended only on condition that severe austerity measures would be taken in the event of non-payment. In a clear reversal of the founders' intentions, IMF and WB loans were granted not so much to prevent balance-of-payments and subsequent currency difficulties as to lock countries into a dependency that would—almost inevitably—arise with onset of the former. These measures included privatizations, drastic fiscal cutbacks and monetary rigidity, reaching absurdly inhumane proportions in the case of Sri Lanka, where, as Naomi Klein notes, the bank forced telecom privatization on the government as a condition for aid in the wake of the Asian tsunami.

Many countries found themselves so damaged by these conditions that, in the wake of the Asian crash of 1998 and the dot.com/9-11 meltdown in the West, they embarked on a concentrated effort to get the Bretton Woods institutions out of their lives forever. Since the United States, notwithstanding its burgeoning budget and current account deficits in 2001, could borrow in its own currency at will, and not suffer repercussions of the sorts developing countries were only too used to, lowered interest rates about 500 basis points (5%) in the space of a few months after September 11th, exporters in many countries saw a unique opportunity: a population being exhorted by its commander-in-chief to express its patriotism by shopping even in the midst of what would prove to be prolonged wage stagnation, and, hence, the ability to build up foreign exchange reserves the likes of which the world had never seen, all financed by the kind of debt-immiseration they had only just been victimized by. So, they financed our housing boom, and are sitting on the foreign exchange reserves to show for it: and suddenly, the IMF and World Bank aren't needed any more. In addition, the explosion of liquidity made possible by exceptionally lax monetary policy has created a situation in which private investors worldwide are jonesing for yield; hence, anybody with anything to sell can finance whatever scheme he will at rates on or near market ones on stock exchanges or via bond issuances throughout the world. What use is the IMF or WB under these circumstances?

So what is the role of the bank under such conditions? Well, the Asia Times carried a story on May 22nd, in which it claimed, on the basis of a leaked document, that Wolfowitz had, contrary to his own promise, appointed a new country manager for Iraq, Simon Stolp. Perhaps the bank, made redundant partially by the very disinflationary conditions it itself had fostered (largely on the backs of the desperately poor, it should be remembered), was to become some sort of ghostly appendage to U.S. imperial Middle East policy; perhaps Iraq is such a benighted society that they won't-even with all their oil-find the wherewithal to escape the clutches of the Bretton Woods institutions like the Asians did. But this simply casts Wolfowitz's "corruption busting" credentials in an even more absurd light. For, as the Financial Times reported on May 23d, Congress is now looking at perhaps $5 billion (and 100,000-300,000 bbl of oil a day) in losses a year through corruption in Iraq. Shunned by the rest of the world, Wolfowitz insists (perhaps thereby gaining essential European support for his departure compromise?) on maintaining the bank's presence in Iraq, one that had been discontinued, due to the deteriorating security situation, since August of 2003. Maybe the bank, a failed institution if there ever was one, is destined (at least in the fantasies of its depraved former-officers) to become the abusive nanny of a failed state. What would the great Keynes have thought of that?

But we on the left can't leave it at this. The irrelevance of the international institutions casts all the more responsibility on us, the members and allies of the working classes in the rich countries, to be ever more vigilant in accounting for how our consumer outlays, pension saving, and taxes are spent. The very withdrawal of the Bretton Woods institutions, among others, I fear, is fostering an attitude in which "transparency" and "good governance" are possibly being used to establish a foothold among highly vulnerable labor forces. Consider the debt forgiveness movement: has anyone suspected that this may constitute the first step (debt cancellation would improve the business climate for multinationals immeasurably) in integrating previously shunned, but even more exploitable labor forces than that offered by China (recently suffering from a severe bout of wage-and even more so-speculative inflation) or India? Don't get me wrong: these debts are abominable; but we must insist that debt cancellation isn't merely followed up by yet another outward thrust by multinationals. And that means that all of us must be extra vigilant in observing that the prices that we pay are fair, and that the concerns our pensions are invested in observe just and sustainable targets, just as much as we expect—well, a few of us, anyway, still—our unions to protect our own standards of living. The sad lesson of the World Bank is the same one we have been learning for 175 years: that of the indispensability of solidarity. 

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5/25/2007 10:53:00 AM 1 comments

 

How Doctors Think, By Jerome Groopman M.D.

by Polly Cleveland

Two years ago, an urgent call from my father: My mother, then 84, was ill. Gray skin, sunken eyes, confused. At the hospital, her blood tests showed abnormally high levels of calcium. She had calcium poisoning. Calcium poisoning? Six weeks prior, it turned out, the family doctor had instructed her to start taking calcium tablets and drinking three glasses of milk a day. Unknown to him, she was nibbling Tums all day for heartburn; little rolls of Tums nestled in every drawer in the house.

Jerome Groopman might better have titled his bestseller, "How Doctors Screw Up." Despite those professional white coats, doctors make the same kinds of cognitive errors as the rest of us. To begin with, they stereotype patients from first impressions. Groopman cites a case of a fortyish forest ranger with chest pains, who looked so fit and healthy that the examining doctor dismissed the possibility of an impending heart attack. Doctors apply rules of thumb: old women lose bone density, so my mother's doctor ordered calcium. Doctors jump to conclusions based on their particular specialties or their recent experience. Groopman himself saw six different doctors for a wrist injury and got four different diagnoses. Doctors pay closer attention to patients they like than to those they don't--especially those with apparent psychosomatic disorders. Groopman presents a young woman who nearly died after a whole series of doctors dismissed her complaints of intestinal pain, and attributed her weight loss to anorexia.

Groopman takes a dim view of pharmaceutical industry sales tactics, notably the strategy of turning the natural aging process into a disease. Drug companies learn from pharmacies exactly how much of their products each doctor prescribes, enabling them to reward big prescribers. Groopman describes an industry rep harassing a top endocrinologist who refuses to prescribe his brand of testosterone. "You will write three prescriptions this month." But many doctors yield to incentives or pressure, which they also feel from their patients--inspired by advertising. A recent report in the New England Journal of Medicine found that 94% of the 1,662 physicians surveyed had accepted gifts or money from pharmaceutical or medical device manufacturers. Over three quarters had accepted meals or samples; 35% had accepted reimbursements for attending drug company "educational" conferences--usually held at resorts. (WSJ 4/26/07.)

My parents each take over a dozen different pills a day. Sometimes I help them fill their weekly dispensers: the ones for getting up, for breakfast, for dinner, for bedtime. Tiny white pills, fat grey pills, clear golden capsules, skinny red lozenges, thick purple lozenges, round yellow tablets, cream octagonal tablets and flat pink tablets shaped like little shields. Names to conjure by: Zocor, Spironoloactone, Lisinopril, Lasix, Paroxetine, Protonix, Fossamax, Ecotrin, and Ambien. The doc once prescribed testosterone for my father; fortunately he had the good sense to Google it and learn it would aggravate his prostate.

Groopman admonishes doctors to look out for cognitive traps, and even more important, listen carefully and respectfully to patients. He advises us, the patients, to ask questions, do our own research and don't hesitate to consult other doctors.

After my mother's bout of calcium poisoning, I checked her medications on the web, and then with my own doctor. Half were inappropriate and possibly harmful, especially since she has borderline kidney failure. I wrote her doctor a polite letter, questioning the meds. I also suggested he might refer her to a kidney specialist. A scribbled note came back: the medications were "necessary" and he would refer her "only if she requests it." Of course my parents wouldn't dream of asking tough questions or requesting a referral--that would be rude.

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More Econamici

I send Econamici--occasional emails with interesting attachments or links--to friends who are economists or care about economic issues. If you can't follow a link, I can send you the actual article.

 

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5/17/2007 09:46:00 PM 1 comments

 

This just in...D&S reads the news (#10)

by Dollars and Sense

The tenth in a series of blog entries by D&S collective member Larry Peterson.

What is it with economics-based periodicals? The Economist insists on calling itself a newspaper, while it shed any passing similarity with that format—one, I might add, that Karl Marx was intimately familiar with in the mid-nineteenth century—generations ago. More recently, Challenge, The Magazine of Economic Affairs, a bi-monthly with all the characteristics of an academic journal, has just celebrated its 50th edition. Some congratulations are in order: Challenge is definitely a publication to keep one’s eye on. Crammed with an editorial board of Nobel-laureates (Joseph Stiglitz, Robert Solow, Paul Samuelson, Kenneth Arrow) in economics, the journal—sorry, "magazine"—seems to be dedicated to opening the everyday boundaries of conventional economics beyond the application of time-honored (some of us would say –worn) textbook axioms. In this sense, it is a great read for lefties who feel the need to stay current with conventional economics (Challenge is fantastic at summarizing all those little formulations you need to brush up on so often, from the Hecksher-Olin theorem to good old Pareto optimality, and it does so in a way that doesn't put you to sleep or want to bash the writer’s head against the wall—indeed, it has a pronounced social conscience). But it is certainly weird: most writers seem to be of the persuasion that markets ultimately allocate resources and weath in the most efficient and even fair manner. The only problem is that it's virtually impossible, with all the information and power asymmetries and externalities that can crop up in any exchange, to establish a durable, tolerably just and yet efficient market. So most Challenge writers and editors look to a vigorous public sector to create institutions that will be optimal at creating, nurturing and maintaining these acceptably friction-free market opportunities. But, at the end of the day, you leave these folks scratching your head: it's a bit like being asked to achieve cold (sic) fusion with the aid of a physics that's not even Newtonian, never mind one that accounts for quantum phenomena.

Anyway, I wanted to discuss two pieces in the current issue of Challenge. The first is an interview conducted with Oxford economist Avner Offer on his new book, The Challenge of Affluence. Offer’s book is an attempt to interrogate the "Easterlin Paradox," which notes the tendency of a rising standard of living to lower objective standards of well being. While there are many interesting points made in the interview, the one I want to focus on here deals intimately with the traditional conception of consumer choice. This notion, based on the idea of diminishing marginal utility, states that further consumption of a good beyond a certain level will produce less and less satisfaction—or less utility—than the increment that preceded it. Most classic examples refer to food: the first hors d'oeuvre is exquisite, but if you have ten of them they begin to lose their taste. Accordingly, such notions of consumer behavior tend to be decidedly linear and compartmentalized: choice A at T1 leads attains a level of utility corresponding to it alone; choice B at T2 likewise. There is little by way of feedback or interrelations between wants (that I know of, anyway), except notions of baskets of goods and the like. Offer makes the very interesting point that, especially in consumer societies, we spend a lot more time—and money—reversing the choices we have already made. Accordingly, choices that, according to the conventional conception, are essentially costless, must be seen in terms of their costs, if their true economic significance is to understood. So the conventional theory is doubly misleading: choices are not only unable to be distinguished as unilinear temporal sequences with no feedback loops, but that there is often a significant opportunity cost involved if consumers are not aware of such a possibility. And in consumer society, where every potential purchase is dressed up a "unique" experience, it is hardly surprising that such costs become very heavy indeed, and de-couple totally from any measures of well-being. If anyone is interested in this kind of thinking, and does not want to navigate the more technical—but still quite accessible—points made by Offer (not to mention the subscriber-only access), Dollars & Sense published an article by Jonathan Rowe in 1999 which anticipated, in mostly peripheral ways, some of the concerns Offer would voice in the Challenge interview.

The other article I wanted to mention was John Connor’s "Woe for the Working Classes." Besides the elegiac title, I would call attention to another notorious axiom of conventional economics that ordinary people have trouble squaring with actual experience: the notion that there is a trade-off between work and leisure that resolves strictly into income effect or substitution effects (labor and leisure being considered rival goods). According to such a notion, the decision to work is pretty much exhausted by considerations of lost wealth or leisure alone, and issues pertaining to compulsion or even exploitation are pushed all the further into the background. Such reasoning, despite its pretty patent divorce from reality in many cases, is readily applied by economists when they speak of low wage work and welfare. But Connor, in this article, turns the tables, and applies it to the elites: studies he cites suggest that there is no evidence that tax increases reduce the work effort of high-income earners. 

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5/15/2007 12:33:00 PM 0 comments

 

Up against the charros and the changarros

by Dollars and Sense

Mexico's independent unions confront a wave of lousy jobs

Chris Tilly and Marie Kennedy
May 9, 2007

This is the fourth in a series of posts by D&S comrades Marie Kennedy and Chris Tilly, who are spending six months in Tlaxcala in central Mexico. Their first posting was about the recent increases in the price of tortillas in Mexico.

[Photo captions: Lower/right-hand photo: Authentic Labor Front (FAT) protesters call for union autonomy, an end to government interference in unions' internal affairs, and support for immigrant workers. (Photo credit: Marie Kennedy.) Upper/left-hand photo: Independent unions and their allies fill the Zócalo, the huge public square in the heart of Mexico City. (Photo credit: Chris Tilly.)]

"We have the best bosses in the world," trumpeted the headlines in the Mexican press upon the release of an international survey earlier this year. Mexicans responding to the survey, carried out by the Kelly Services temp agency, rated their bosses 7.6 out of 10—higher than in any of the other 28 countries in the survey. Mexico came in second (after Denmark) in the level of job satisfaction.

Few satisfied workers were in evidence among the thousands flooding Mexico's cities on May 1st (Labor Day in Mexico and everywhere in the world except the United States, despite the holiday's Chicago origin). In days past, unionists would file politely through Mexico City's Zócalo, holding signs saying "Thank you, Mr. President." In 2007, for the first time in more than 80 years, Mexico's president decided not to attend. Felipe Calderón claimed he didn't want to steal the spotlight away from the workers, but many speculated that his main motivation was to avoid angry labor leaders like Valdemar Gutiérrez. "He has no basis for continuing to call his administration ‘the employment administration'," thundered Gutiérrez, leader of the National Social Security Workers' Union, "when unemployment is rising, the cost of living is going up, the social safety net is being abandoned, and inequality and poverty are exploding!"

Mexican workers have much to be angry about. Despite labor laws that look great on paper and two-plus decades of presidents extolling the virtues of trade liberalization and anti-inflationary measures, job quality has stagnated and in some ways worsened. The charro (cowboy) unions, as critics dub the "official," government-linked labor associations, are trapped in a model left over from Mexico's former one-party state, and deliver little for workers. Independent unions like Gutierrez's seek to chart a different course, but so far their numbers remain small and their impact limited. May 1st in Mexico may have shifted from a ceremonial parade to a cry of protest; it is still far indeed from a celebration of working-class victories.

Laws and realities

On May 1st, we joined up with the contingent of the Authentic Labor Front (FAT), a small (they claim about 1/18 the membership of the charro Mexican Confederation of Labor) but feisty independent union confederation. A sea of union militants in tan t-shirts and red baseball caps converged on the gathering point, near the corner of Lázaro Cárdenas and Articulo 123 in the center of Mexico City. The symbolism of the intersection was potent. Cárdenas was the fiery populist leader of the 1930s who nationalized key industries (notably oil) and fused workers and peasants with the ruling Institutional Revolutionary Party (PRI) via labor law and land reform. Article 123 is Mexico's basic statement of labor rights, enshrined as an article of the Constitution; it opens by stating, "Every person has the right to decent and socially useful work…."

The scope of Mexican labor law can be startling to the casual US observer. Left-wing legal scholar Néstor de Buen recently described the law's requirement of six days of paid vacation after one year as "a miserable amount"; in the United States, of course, the amount required by law is zero. Mexico's labor law also restricts firing and requires a holiday bonus of two weeks' pay, a dozen official holidays, overtime pay, the right to form unions, profit-sharing, provisions for worker health and safety and labor-management committees to address issues of mutual concern such as training. In fact, the law is so strong—on paper—that previous president Vicente Fox (2000-2006) tried unsuccessfully to gut it, and Calderón has promised business he will finish the job.

But two problems prevent this legislation from turning Mexico into a workers' paradise. First, the law is barely enforced. Workers commonly work extra hours, not only without an overtime premium, but without any pay at all; one convenience store employee told us he works an average of four unpaid extra hours a week. Companies dodge the profit-sharing rule by using accounting tricks to declare zero profits, as Volkswagen's extremely successful Mexico division did this year.

From chambas to changarros

An even bigger problem is that increasing numbers of Mexicans fall outside the scope of the law altogether, because instead of having chambas (jobs), they have changarros (self-employment or marginal employment in a kaleidoscopic range of microbusinesses and hustles). Unemployment proper has drifted up from 3.6 to 4 percent since Calderón has taken office. But outright unemployment is not a viable option for most, given that Mexico has no unemployment insurance system. Instead, Mexicans join the ranks of those heading north to the United States (about 500,000 a year) or, in even larger numbers, join the informal economy of changarros. Experts estimate that today about 26 million of Mexico's 41 million workers labor without legally required benefits (including social security) or an employment contract. Even in the industrial powerhouse city of Puebla, Rita Amador, head of the union of vendors at the informal Hidalgo Market, reports that unemployed job seekers have increased the group's ranks by ten percent in the last year alone. Over the last four presidential terms, the percentage of workers without benefits soared from 25 percent to 63 percent.

The benefits gap offers one window on how appallingly bad most Mexican jobs are. There are many others. Even among benefited workers the percentage who are temporary has leaped from 8 percent in 1997 to 18 percent in 2006. Prominent labor lawyer Arturo Alcalde states that of workers fired or laid off in Mexico, four out of ten had been compelled to sign a blank sheet upon being hired, allowing the employer to compose a letter of resignation that voids any complaint about the firing. In the case of Mexico's new budget airlines (such as Azteca, which just went bankrupt), according to Alcalde, the company goes one better and requires pilots to sign a paper acknowledging receipt of a fictitious "loan"—insuring the company against severance claims.

A March UN report pronounced Mexican child labor laws a "dead letter" in Mexico. Pint-sized street vendors, cashiers in family markets, and grocery baggers working only for tips, can be seen in every Mexican city. Recent press reports have spotlighted large numbers of children among miners in Guerrero (working 12-hour days for about $7 a day), melon harvesters in Michoacán (where kids reportedly make up more than half of the crews), coffee pickers in Puebla, and clothing maquiladoras in the Puebla maquila center of Tehuacán. The mayor of coffee-producing Xicotepec, Puebla commented, "Lately I've seen commercials saying it's against the law, but here work comes very naturally to the children, because it's their daily bread Children have accompanied their elders to the harvest here all their lives."

Natural or not, such work has consequences. In the dusty rural community of Analco, Tlaxcala where we are working on a community project, large numbers of children—especially boys—drop out after primary school to devote full-time to farming. Mexico, where the median level of education falls between 7th and 8th grade, can ill afford these dropout rates.

David Salgado, a nine-year old Mixtec boy from Guerero, paid an even higher price when he was crushed to death last January by a tractor while working the tomato harvest with his family in the fields of Sinaloa. Safety and health is another area where Mexican laws look better on paper than in reality. The most dramatic recent incident was the explosion and cave-in at the Pasta de Conchos coal mine, where 65 miners perished in 2006. A church-sponosored investigative commission found a history of negligence at the mine dating back to 2000 and continuing up to the time the investigation wrapped up more than a year after the tragedy.

The deindustrialization of Mexico?

Globalization and trade liberalization (a concerted government policy since the early 1980s) have had mixed effects on Mexican jobs. The influx of (often subsidized) U.S. agricultural goods and the spread of supermarkets that crave large-scale suppiers able to guarantee uniform quality have hammered small farmers. Mexico has become a net food importer. The textile industry, likewise, is in free-fall, shedding nearly 50,000 jobs a year during the Fox sexenio (presidential term). Southern Tlaxcala state, where we are living, is ground zero for textile job losses. Numerous factories are shuttered or entangled in prolonged "strikes" that have devolved into desperate struggles to extract some amount of severance pay. When we admired finely made wool rebozos at a local shop, the shopkeeper said, "Better buy them while you can. There used to be six factories here that made these; now there are none left." He shrugged, "We can't compete with the Chinese."

Apparel maquiladoras, once a huge growth industry are slipping away to Central America and the Far East as well. Even in Mexico's "Silicon Valley" in the western state of Jalisco, 60 percent of transnational companies have reportedly begun outsourcing, and Hitachi recently announced a plant closing that will idle 4,500 workers. Still, Mexico does continue to briskly export oil, autos and parts, and mano de obra in the form of migrants. Overall, the country's impressive $80 billion trade surplus with the United States is offset by trade deficits with every other major trading partner (a $62 billion deficit with Asia alone), leaving Mexico billions of dollars in the hole each year. While workers struggle to cope with the resulting layoffs and stagnating wages, Mexico's wealthy—like Carlos Slim, owner of the privatized TelMex phone company and recently declared the world's second-richest man—are doing just fine, thank you. According to an Economic Policy Institute study, Mexico's corporate profits grew 18 times as fast as the economy as a whole over the just-ended sexenio.

For decades, public employees were relatively protected from the economic ravages that rocked other Mexicans. But no longer. In mid-2006, when Oaxaca teachers mobilized their annual strike for higher wages, Governor Ulises Ruiz chose to forego the customary negotiation and instead unleashed savage repression that over the next six months escalated to mass arrests, disappearances and killings. In March 2007, ignoring worker protests, Mexico's Congress enacted a law to privatize government workers'pensions and convert them from guaranteed payouts to "defined contribution" plans dependent on investment returns.

Paper unions, charros, and independents

Mexican labor laws also codify workers' right to join a union. But only about ten percent of Mexican workers are unionized (around the same rate as in the United States). Even worse, as the former CEO of a supermarket chain explained to Chris, "In Mexico, it's very easy to have a union that's a paper union." Labor lawyer Alcalde estimates that over 90 percent of unioin contracts are contratos de protección, designed to shield the company from authentic labor representation in return for a dues rakeoff for union officials. Workers are often unaware they even have a union. Government control of whether unions get a registro permitting them to recruit workers in a given sector impedes independent organizing. When that fails, according to the Center for Labor Research and Union Advising (CILAS), the "official" unions often unleash armed goons to smack down opposition. (We spoke with a CILAS researcher the day his report on "union terrorism" hit the media; "I'm glad they didn't mention my name," he remarked wryly.

Napoleon Gómez, president of the "official" Miners' Union, refused to play the game and led a militant strike last year. The federal government twisted arms and managed to get him removed. This year it was discovered that some of the union officials' signatures on the document used to replace Gómez were forged, and he was reinstated. Advocates of union democracy rejoiced in the victory over government meddling, but the triumph was bittersweet. Gómez's militancy does not translate into a commitment to democracy or transparency. In fact, "Napoleon II" inherited his post from his father, and appears to have siphoned off tens of millions of dollars from the union's pension fund. (His temporary replacement has also been accused of looting the fund.) Gómez is currently running the union from Vancouver, where he is fighting extradition on embezzlement charges.

Moreover, as a knowledgeable observer of the Mexican labor scene commented to us, "Even the independent unions are not doing much to organize workers who aren't already unionized. They're fighting to divide a shrinking pool." And with a few exceptions (most notoriously Elba Esther Gordillo, the charro leader of the teacher's union who cut a political deal to accept the pension reform that puts her members' retirement at risk), both the official and the independent unions remain male-led despite the growing numbers of women in the workforce.

Two, three, many May Days?

The fractured and weakened state of Mexican labor was much in eveidence on May 1st. Gone are the days when hundreds of thousands of workers marched in lockstep with each other and with the Institutional Revolutionary Party (PRI) that ruled Mexico for over 70 years. Mexico City saw four separate commemorations of the workers' holiday. The Mexican Confederation of Workers (CTM), the largest and most charro of the labor groupings, organized a small, half-hour long, and low-energy rally featuring mainstream political leaders like Beatriz Paredes, the current chair of the PRI (and perhaps the only woman speaker heard at any of the union-sponsored events that day). Independent unions, including the FAT, but also telephone and electrical workers, miners, firefighters, teachers, and many others, rocked the Zócalo with angry speeches, guerilla-theater, and a burning in effigy of teachers' union chief Gordillo and Calderón, arm in arm. Spirits were high and the turnout overshadowed the official celebration, but the numbers appeared to be in the thousands, not the tens of thousands.

Meanwhile, the Revolutionary Confederation of Workers and Peasants (CROC) and a number of other unions derided by some independents as "neo-charros" chose to boycott both marches and hold their own demonstration, where they naturally called for labor unity. Supporters of the Zapatista rebels followed yet another route, promoting the demands of indigenous and poor people, single mothers, prostitutes, and street vendors. In state capitals in Chihuahua, Guerrero, and our own Tlaxcala, pro- and anti-charro teachers' factions traded shoves and punches.

Nonetheless, May 1st brought hopeful signs as well. The independent unions massed alongside organizations of peasant (including one historically linked with the PRI) and migrants, plus leftists from the Party of the Democratic Revolution (PRD), Mexico's second-largest party, reflecting new alliances that grew out of the tortilla price crisis of January-February. Slogans included food sovereignty as well as labor rights.

Winning better wages and working conditions depends on much more than the number of co-sponsors of a May Day demonstration. It will take local organizing, mobilizing for this fall's gubernatorial elections, creation of cooperatives and other "solidarity economy" outposts, and direct action. The scope of the problem is huge—even megabillionaire Carlos Slim acknowledges that widening inequality marks one of Mexico's greatest challenges. But the flowering of independent unionism is an important step toward a solution.

Labels: Calderón, labor law, May Day, Mexico, unions

 

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5/11/2007 04:06:00 PM 0 comments

 

This just in...D&S reads the news (#9)

by Dollars and Sense

The ninth in a series of blog entries by D&S collective member Larry Peterson.

Last Wednesday, at Harvard, former Federal Reserve governor and current Princeton economics professor Alan Blinder engaged Jagdish Bhagwati of Columbia University in a debate on the costs and benefits of the phenomenon known as offshoring (the tendency of companies legally domiciled in one country—usually a rich one—to shift production capacity to another country—almost always poorer, often considerably so—in order to reduce production costs). Blinder has been in the center of controversy regarding the topic since he published last March in Foreign Affairs. In the article, he claimed that his research indicated that the susceptibility of jobs to offshoring could no longer be correlated to levels of education and income (higher education and income being less correlated to offshorability) as had been the case hitherto; instead, correlations were increasingly being made with the mere capacity of work to be rendered or transmitted digitally. Accordingly, he noted, large segments of the workforce in the US are becoming—at an alarmingly rapid pace—vulnerable to job dislocation; and those affected are increasingly more politically active higher-earners. This being the case, Blinder warned, there is a real threat of reversal to the freeing of trade that has taken place in the last few decades if measures weren’t taken to somehow reduce the disruption. The article attracted a good deal of discussion and criticism (attacks on offshoring and other presumably efficiency making measures being generally looked at as heretical in mainstream economics), but the debate was re-ignited in late March when the Wall Street Journal did a front-page profile of Blinder which centered on his controversial thesis: hence the event at Harvard.

Opposing Blinder was Jagdish Bhagwati, one of the most renowned trade theorists in the world, who has over the years developed a reputation as a fire-and-brimstone, if sophisticated, advocate of free trade. His concept of “kaleidoscopic comparative advantage” constitutes an attempt to adapt the classical theory of comparative advantage (a good summary is by Paul Krugman), dating back to David Ricardo in the early nineteenth century (gains from trade accrue to all parties if trading partners specialize in what they’re best at producing, even if certain of the parties have an absolute advantage in producing everything), to modern conditions. In the Ricardian formulation, labor is the only relevant factor of production—and a relatively anchored one at that--and gains from trade tended to be long-term and cumulative. Bhagwati’s formulation takes into account capital and much higher labor mobility and suggests that comparative advantage, formerly viewed as long-term and relatively constant, is better seen under modern conditions as a far more fleeting and volatile affair, but one whose benefits remain incontestable for all.

The debate, despite the fact that the topic generates so much apprehension in the wider society, was a decidedly lighthearted affair: numerous (and generally rather lame), indeed excessive, jocular allusions to the various participants were received with almost footstomping enthusiasm by a crowd that tended toward the sycophantic. Clearly, the Harvard crowd did not share the fears of many of the rest of us, no matter what side of the academic debate they found themselves on. Blinder led off by making it clear that he had no quarrel with the notion of comparative advantage, and did not favor the implementation of any policies which would restrict trade in any way; he was only concerned with developing measures which would ease the transition for those adversely affected by trade rather than artificially protecting their jobs. He then laid out his claim and touched upon the rationale of his study. Based regression modeling, he came up with a figures that astonished even as conventional a macroeconomist as he: that 30-40 million jobs are susceptible to offshoring in the next decade or two, and that 14% of wage losses are already accounted for by the phenomenon. He sees two forces of unprecedented power driving this phenomenon: exceptionally rapid and far-reaching technological change (which has itself reduced capital costs—especially computing power—drastically, consistently and quickly), and the incorporation of the equivalent of three enormous trading blocs—the Soviet Union and its satellites, China and India--into the global labor supply. These forces act in the following way: lower capital (remember, many capital goods are getting cheaper all the time) to labor (the supply of which has exploded) ratios mean that wages will be less in relation to the return on capital (as capital becomes the scarcer factor of production, and thereby commands a premium). And these gigantic forces aren’t going away anytime soon; in fact, they will certainly become farther-reaching. That being the case, policy responses must be developed now. Economists and policymakers are in for a real shock if they fail to do so, now.

As for actual policy proposals, Blinder mentions three: first, improvement of the safety net; second, better and more appropriate training for the jobs that will tend to remain insulated from the threat of offshoring, especially “high end personal services,” which can only be performed locally; and “taking advantage of comparative advantage in the right way,” or focusing training and development on areas in which the US currently has an overwhelming advantage (especially high technology), or can quickly create one in response to market demand (using aspects of the same technology). If these proposals are adopted, Blinder thinks, the loss of “impersonal services” to offshoring should neither result in unbearable pain for those affected or loss of productivity and growth in the economy in general: everybody will win.

Bhagwati’s response was largely beside the point and even incomprehensible. It amounted to the claim that there is simply no hard evidence that the costs of offshoring have outweighed the benefits, or will do so in the future. He accused Blinder of simply equating mere offshorability with actual job losses, an absurd claim given the fact that Blinder had just gone to some pains to explain the distinction between personal and impersonal services. He did make the important point that huge price differentials exist between markets for complicated and even unknowable reasons, and hence that offshorability will not necessarily translate into nearly as many job losses as might be apparent. As for Blinder’s methodology, Bhagwati didn’t mention any specific complaints, but merely noted that even if Blinder’s numbers are correct, the fact the US economy creates and destroys so many jobs every year shows that there’s nothing specific about offshoring that doesn’t apply to other factors (especially technical change), and that it should not be singled out as the focal point for policy tinkering.

Bhagwati has in the past been emphatic in expressing concerns for the world’s poor, and in rightly documenting the enormous disadvantages they face due to restriction of market access in the developed countries from subsidies (which poor countries can’t afford) and intellectual property protection (which Bhagwati believes to be no more or less than another case of market-restricting rent-seeking) in particular. For some reason he felt no compulsion to voice these concerns in any detail at Harvard. Instead, he noted that, in important respects, trade flows between the developed and undeveloped worlds are decidedly one-way: there are no economists migrating from Harvard to Delhi, for instance; it’s all the other way round. All the more reason not to fear offshoring in particular, and globalization in general: there will always be room here for certain kinds of work, and supporting industries to meet the needs of those engages in such pursuits. This suggested nonchalance about the vulnerability of the working classes in the developed countries that bordered on the crass. But he outdid this by actually saying that there was no need for additional measures to aid the displaced in the US because a safety net has existed for those adversely affected by trade since the Kennedy administration. Blinder had just finished showing how that this legislation, and other half-measures adopted since then, can hardly be taken seriously in terms of their adequacy, then or now. Maybe that was in keeping with the valid point that workers even in the US have something to fall back on, something that workers in developing countries can only envy. But, again, he resisted the chance to bring the plight of the poor world into the discussion. Never mind the idea of-God forbid-looking at the interests of the poor and disadvantaged in both the rich and poor countries as one, rather than as diverse and competing.

What Bhagwati did recommend by way of policy initiatives differed from Blinder in an important respect: while Blinder sought to make training more specialized, Bhagwati felt that the exact opposite needed to be emphasized: in a world in which the focal points of comparative advantage were constantly shifting and being reconfigured, considerations of flexibility demand that education be more general than specific. That two of the most prominent economists in the world can disagree so fundamentally something so basic in both their prescriptions suggests strongly that education is far too important a matter to be left to economists.

Four commentators were chosen to give their impressions of the opposing viewpoints. Only two of them, Lori Kletzer of the University of California at Santa Cruz and Richard Freeman of Harvard, really had anything interesting to say. Kletzer re-ran Blinder’s numbers with one important change in parameters and came up with a radically different result: offshoring still does correlate strongly with income and education levels. But she confirmed the 40 million figure concerning the number of jobs susceptible to offshoring. She noted that statistics regarding job change are notoriously primitive, more appropriate to the age of factory production and widget counting than commerce at the speed of light and multitasking. Her talk provided a much--needed reality check, and was probably the high point of the entire event. Freeman, bizarrely if refreshingly attired in a fedora during the entire debate, started by making a point that should be obvious to everyone, but is often overlooked: that opening to trade is almost always accompanied by an increase in the size of the informal economy; and that alone should indicate that redoubled efforts to shore up the safety net are very much in order as trade grows. He went further and noted that an appropriate level of protection will not come cheap; and that elites disproportionately benefiting from globalization should be put on notice that increases in taxation-big increases-will be an opportunity cost for their outsized gains. Not that this is likely to happen, needless to say. But that isn’t the only objection one can make to Freeman’s generally well-meant comments, and, by extension, to the far more limited recommendations of Blinder and Bhagwati; all of them focus on reactive measures to assuage the pain of displacement, and none of them really focus on ways in which worker’s participation in the workplace can be nurtured and intensified (with productivity levels accordingly rising in tandem), outside of the erratic training proposals. One is left with the impression that these economists are more interested in shunting disadvantaged workers out of the way and keeping them quiet than engaging them in a globalization that benefits all, as they claim to be doing.

I left the debate with a number of questions (there were no questions taken from the floor, as time allotted for that purpose had lapsed). First and foremost on my mind was something that struck me when I read Blinder’s Foreign Affairs article last spring: isn’t all this emphasis on face-to-face services suspiciously suggestive of the Malthusian view, generally rejected out of hand by mainstream economists, that spending by the wealthy on luxuries is necessary to prevent gluts in the labor market? And this is no mere academic quibble: one of the distinguishing features of the contemporary economy consists in the fact that its wealthiest members work, and are some of the most educated and productive participants in the economy; in former times this was not so. By catering to these people--who would represent the most stable demand for high end services in the economy—and providing them with everything from healthcare to recreation and education and mere timesaving devices, service workers are essentially giving them the means to increase their competitive advantage over everyone else, many of whom are finding the same services, if provided publicly, failing in quality--if not absent altogether—or skyrocketing in price. In this sense, the developments and measures regarded as most positive for working people by our economists will prove doubly regressive: along with relatively less security, new service workers will provide the rich with the means not only to realize the gains from globalization associated with their present displacement, but indeed to increase their gains in the future. Where qualifications turn into privilege is the way a sociologist (I forget which one) recently put it.

Another question I had concerned productivity. According to “Baumol’s Law,” services by their very nature are less productive than manufacturing, generally speaking. The usual illustration goes like this: you don’t want those providing you with a service to economize; you want the full treatment, in other words. So, you don’t want your waiter, say, to run away in a mad dash to get your order; instead, you want him to display the bottle and remark learnedly on the vintage of the wine. Another strange fact about our economy’s recent performance (until very recently) concerns the fact that productivity levels have been stellar, and this in an economy which is 70% services. If Baumol’s “law” still holds, how is this possible? And if it doesn’t, isn’t the celebration of services on the part of economists just a bit disingenuous? For the shift to services would mean a decline in productivity, and hence, if not augmented by longer hours, in living standards. For a country with current account and budget deficits the sizes of ours, any loss of productivity (and hence attractiveness to foreign investors financing the deficits) should be quite worrying to economists, one would think. Indeed, a further question for Blinder would be this: Given the above illustration of Baumol’s law, aren’t “high end personal services” precisely the type of services in which productivity gains will be hardest to realize? And, if not, why? Indeed, could such a difference with impersonal services be quantified or measured in the first place?

Finally, I would ask all the participants about some of the odder aspects of globalization: that a huge percentage of world trade consists of transfers between multinationals and their foreign subsidiaries, and that another huge chunk is in like goods: trade in more or less the same thing. Don’t these peculiarities force us to go beyond even the “kaleidoscopic” notion of comparative advantage?

At the end of the day, the debate was really a klunker. I should have known. In fact, the thing is a perfect allegory. Unlike the distinguished participants, and most of the audience, I had to take time off from work to go to the event, and had to make up the time by working three extra hours the next day. So, by substituting my time—and the compensation I would receive for it by working—my warm body in a seat at Harvard potentially increased in a miniscule way, but one subject to network effects and the increasing returns characteristic of the latter, the social and intellectual capital of the participants, who were being paid—directly and indirectly (free publicity for their books, etc) to be there. What better illustration of the world the economists and elites have in store for us is there? And, to cap it all off, I’m the one who is supposed to be more flexible!

Labels: Alan Blinder, Baumol’s Law, Jagdish Bhagwati, offshoring

 

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5/07/2007 11:53:00 AM 0 comments

 

This just in...D&S reads the news (#8)

by Dollars and Sense

The eighth in a series of blog entries by D&S collective member Larry Peterson.

First of all, I'd like to wish everyone a happy May Day. Keep struggling out there, comrades!

Speaking of May Day, the most recently released economic indicators are starting to bring to mind—despite the astronomical differences in living standards, efficiency and respect for basic freedoms—the old saying from Brezhnev's Soviet Union: "They pretend to pay us, and we pretend to work." In short, virtually all of them point to slowdowns and backlogs—except corporate profits, comsumer-level inflation (which disregards volatile items like fuel and food), and, to a much lesser extent, wages. How can this be? Basically, the economy is distributing very ample rewards, in the form of stock appreciation and dividend payouts, ordinary wages (this after a long period in which wages lagged very much behind productivity gains) and employment opportunities. True, the housing bubble's bursting still looks set to destroy a significant part of that weath; but the fact remains that, throughout the economy, relatively large payouts are being made while productivity levels are falling rapidly. Since productivity levels are, according to economic theory, the most important contributor to rising living standards, this suggests that the current conjucture is either highly unusual, in a fundamental sense, indicative of a deeper malaise in the economy, or both.

Now it is certainly the case that the astosnishingly high levels of productivity characteristic of the first half of the decade were able to coexist with stagnation in wage levels for a number of reasons: interest rates were unprecedentedly low (given the business cycle stage) for a period of some years, and, as we all know, the wealth effect from rising housing prices acted together to make people feel richer despite the wage lag. This is all the more true because credit was so easily available and relatively cheap, and because the opening of key markets allowed cheaper imports to substitute for—or simply maintain pressure on the prices of—domestic production (and then there were the Bush tax cuts...). Accordingly, inflation was tame despite the low interest rates and high growth. GDP during this period was quite good by developed-country standards; some would even call it exceptional.

The problem now concerns the fact that the set of unusually benign— particularly from the point of capital—influences is beginning to turn into a far more unruly one. For while the various wealth-effects of the earlier part of the decade were able to offset each other (for much of the mmiddle and all of the upper classes, anyway), in the sense that none of them were allowed to stand in the way of growth, growth is now threatened by inflation pressures and deflationary ones simultaneously; and offsetting the two is becoming extremely difficult, while the stakes grow higher every day. And this while our savings rate continues negative and, part and parcel with that, the dollar continues its slide versus the Yen, Euro, Pound and Yuan.

So: to return to the original question...What could possible account for this situation? Well, I can hardly provide much by way of an answer, but I would point in the direction of the financial secctor. Financial institutions have comprised a completely disproportionate share of firms reporting earnings surprises for several quarters now, no doubt due to their fee collections from mergers and acquisitions (some among mega firms in their own sector, such as the Royal Bank of Scotland/ABN AMRO merger proposed last week). Stock prices have been buoyed to a great extent by these mergers and by share buybacks that tend to deter predatory takeover attempts. That earnings continue to surprise on the upside, even beyond the financial sector—which, remember is significantly exposed to the travails of the housing market—and that, in a period characterized by higher interest rates (banks, traditionally—for what that's worth anymore—struggle as interest rates go up: loan demand tends to fall and deposit costs to rise), is unusual, though it does have an underpinning.

That leaves the recent wage rise to explain: why now? Well, much of the wage rise in the earlier part of the year consisted of humungous bonus payouts to filthy rich stockbrokers and the like. But it does appear as if more recent rises are filtering through to the rest of us, which is to be expected, given the rising inflation rate (not to mention the fact that wages have been so slow in following productivity's rise). But nonwage costs (especially health insurance) continues to outpace even inflation, so many workers, even with higher pay packets, aren't bringing home as much as they did even last year. So, for all practical purposes, labor is still being bled. The combination of these two factors, and certain other odd factors (US companies make far more on foreign investments than foreign firms do here), may go a long way in explaing the resilience of profits in the face of inflation and even the uptick in wages. But can profits continue to stay on par, which they are expected to do by demanding (and incresingly debt-laden) investors, especially in a higher interest rate environment, one with an undertermined overhang from the housing slowdown? Maybe here is where the fiction of Brezhnev's Soviet Union will finally meet that of fictitious capital.

Hang on to your hats, comrades. 

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5/01/2007 01:00:00 PM 0 comments