Reports from the Economic Front

by Martin Hart-Landsberg

Archive for the ‘Environment’ Category

Capitalism At Work: Profits Over People

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Corporations have been making money just fine—but economic growth has been slow, productivity stagnant, and job creation limited.  What gives?

The following figure, which comes from a Brookings report on the negative consequences of the financialization of the U.S. economy, provides one explanation.  It shows that corporations increasingly prefer to fund dividends and stock purchases (the green line, left scale) rather than productive investment (red line, right scale).

priorities

In fact,  according to a Bloomberg Businessweek article, corporate spending on stock repurchases is heading for a record:

Corporations report profits as earnings per share (EPS). By reducing the number of shares outstanding, buybacks help increase a company’s EPS. . . . Companies in the S&P 500 bought more than $550 billion of their own stock last year, boosting EPS growth by 2.3 percentage points, according to data compiled by Bloomberg.

The last time buybacks contributed as much to profits was in 2007, when companies spent the most ever on their own stock and enhanced that year’s increase in EPS by 3.1 percentage points.

Buyback announcements so far in 2015 have already topped full-year totals for 2008, 2009, 2010, and 2012, and they’re on pace to reach an annual record of $993 billion, according to Birinyi Associates. . . .

Since 2009 companies have spent $2.4 trillion on buybacks, drawing criticism from politicians who say the companies should use the money to hire workers, pay them more, build plants, and fund research.

The figure below illustrates this trend.

stock repurchase trend

In a telling comment, the Bloomberg Businessweek article actually quotes analysts who share the view that corporations are being forced into this behavior by the lack of “attractive” alternative uses for their funds:

Over the previous 12 months [U.S. companies have] generated $1.1 trillion in profits—a sum that “cannot possibly be reinvested back” as capital spending or research and development, says Dubravko Lakos-Bujas, an equity strategist at JPMorgan Chase. “Cash flow generation for U.S. companies has been very robust, balance sheets have remained pretty healthy, and interest rates are still low,” he says. “With growth fairly anemic, it’s extra reason for buybacks.” Or as BTIG’s Greenhaus puts it, “Companies have to do something with their cash.”

An interesting perspective, one apparently shared by most corporations—investing money in productive, job-creating, environment-supporting activities is a distraction from the real work of making profits.

Written by marty

July 26th, 2015 at 12:43 pm

Oppose Fast Track And The TPP

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It is looking increasing likely that the U.S. Congress is going to approve a Fast Track mechanism which will be used to pass the Transpacific Partnership (TPP) agreement.  This is not good.   What follows is the text of a talk I gave at an April 2015 Oregon AFL-CIO sponsored event on the TPP.

 

I don’t have much time so I am going to try and make my points as quickly but as clearly as I can.

First, globalization is a process that is shaped by power and current globalization dynamics reflect corporate interests.  Sadly, these dynamics have produced a globalization process that is harmful to workers in all the countries involved.

Many U.S. companies have globalized their production because it enables them to lower labor and environmental costs and greatly increase their profits.  Since they no longer need to engage in production in this country they have not used their profits to fund investment or job creation in this country.  Rather they have channeled them into dividends or stock by-backs, both of which enrich their owners and managers.  The consequence for working people is quite different.  The resulting low growth and intensified competition between workers for jobs has left us with weak job creation and employment conditions that are increasingly precarious.

 

Second, the essence of these globalization dynamics is perhaps best revealed through an examination of our various free trade agreements.  These agreements, and the Transpacific Partnership agreement (TPP) is no different, are called free trade agreements because the government believes that we all think free trade is good and so by calling them free trade agreements it hopes we will uncritically support them.

The fact is that these agreements are about far more than trade.  For example, they normally have some 20 chapters, most having nothing to do with trade as we understand it.  The US-Korea agreement had 24 chapters, for example.    The TPP apparently has 29 chapters.  Now, we don’t know precisely what the TPP or the Trans-Atlantic Trade and Investment Partnership, another agreement being pushed by the current government, will include because they are being negotiated primarily in secret.  But we have seen enough agreements signed that we know the US trade negotiator’s play book and there have been enough leaks about the TPP that we can be confident of what many of the chapters will include.

Let me highlight two of its chapters:

We know the TPP has an investment chapter because of a recent leak.  Ostensibly this chapter is supposed to protect foreign investors, defined broadly, from nationalization or expropriation, but it does much more.  For example, the chapter blocks governments from putting performance requirements on foreign investment.  More problematic, it also grants foreign corporations protection from direct or – and here is the kicker – indirect expropriation or nationalization.

So, what is an indirect expropriation or nationalization you might ask?  According to the leaked chapter, one of the factors that might signal an indirect expropriation is “the extent to which the government action interferes with distinct, reasonable investment-backed expectations.”  Another is “the character of the government action.”  This last factor becomes clearer from a reading of the terms of the Investment Chapter in the U.S.-Korea Free Trade Agreement.  There it is stated that one of the factors to be considered in determining whether a foreign investor has suffered an indirect expropriation is “whether the government action imposes a special sacrifice on the particular investor or investment that exceeds what the investor or investment should be expected to endure for the public interest.”

Moreover, the chapter also allows an investor that feels like it has been wronged to sue the offending level of government in a special tribunal, whose judges are primarily corporate lawyers who will earn millions of dollars regardless of who wins.  In fact many of these lawyers actively encourage corporations to sue in one period, making millions representing them, and then sit on a tribunal judging a government in another time period and again making millions.

The number of corporations suing governments under investment chapters, which are in most FTAs, is rising sharply.  Here are a few cases:

  • Philip Morris is suing Uruguay and Australia, because these countries want tobacco products sold in plain packaging with large health warnings. The company is suing Uruguay for $2 billion.
  • Vatterfall, a Swiss company, is suing Germany because the country has decided to decommission nuclear power plants.
  • Lone Star, a U.S. based company, is suing Canada because the province of Quebec has decided to ban fracking.
  • Veolia, a French company, is suing Egypt because the government mandated increase in the minimum wage has reduced the profitability of its waste management operation.

Another leaked chapter, this one designed to protect the intellectual property rights of our large companies, seeks, among other things, to extend the length of patents enjoyed by big drug makers. It does that in several ways.   For example, it protects “evergreening” in which drug companies can obtain patent extensions by making minor changes to their patented formula or by promoting a secondary use for the drug.  It also limits the criteria a product must fulfill in order to be eligible for a patent, thereby making it easier for companies to patent new products.  An earlier version of the chapter—it is not sure where things currently stand—even tried to secure patents for particular methods of performing surgery.

I could go on but you get the idea—these and other chapters are designed to promote corporate power and profits by limiting public policies that might regulate their investment or production decisions.  This freedom would come at our expense and, I would add, the overall health of our economy.

 

Third, what about the trade part.  We hear over and over again from economists how wonderful free trade is for all countries involved.  However, realize that this conclusion is largely based on Ricardo’s theory of comparative advantage, a theory which rested on a few key assumptions.  The most important were: full employment, balanced trade, and a lack of capital mobility.  Now you might think that this theory and its assumptions is just another example of the fantasy world that economists live in, and no one, especially policy-makers, would take its conclusions seriously.  Well, every time you read or hear an economist or government official tell you how much such and such free trade agreement is going to raise GDP or boost trade you can be sure that they got that number from something called a Computable General Equilibrium Model.  And those models, believe it or not, use the very same assumptions.  They have to make those assumptions if their models are to produce numerical estimates.  But think of what that means.  We worry about unemployment, trade deficits, and capital flight.  Economists, the ones that our government relies on, assume those worries away, by assumption.

Even granting them their assumptions, their predictions for gains are still incredibly small.  The most common estimates, using the method noted above, find that the TPP will boost U.S. GDP by 0.38 percent in 2025.  That is a predicted gain of approximately $80 billion, really a rounding error in a $18 trillion economy.  And then remember all the chapters that we know will do us harm.  For example, the extra cost for medical care from extending and promoting patients will clearly swamp predicted benefits from trade.

Nevertheless U.S. officials have been endlessly quoting that the agreement will boost jobs—most often they cite a gain of 650,000 jobs.  However, it is unclear where this number comes from.  The studies themselves do no actual job forecasting.  All they do is predict, subject to the assumptions noted, growth in GDP and exports and imports.

So, where does the administration get its estimate?  No one knows for certain, but here is a good guess:  The model predicts that the TPP will increase exports by $124 billion by 2025.  The Commerce Department estimates that about 5,500 jobs are supported by every $1 billion in exports, so, if you do the math you get an increase of approximately 650,000 jobs.  There is one big problem with this calculation—it leaves out imports.  The model actually predicts an increase of approximately the same dollar value of imports—so there goes the increase in jobs.

In short, we are being lied to—about the nature of this and other agreements.

The fact is that the government doesn’t have the slightest idea of what this agreement will do for our GDP or employment.  What it knows is that it will greatly increase corporate profits and power and that is what it cares most about.  The rest is all salesmanship.

So, the takeaway: these agreements have been harmful—we have the history of past agreements to show us that.  We need to oppose them.  The government knows that the more people know about these agreements the less they will like them so they want to fast track them.  They want a procedure that will allow a simple and quick up or down vote.  Unfortunately many of our politicians depend on corporate funds and so they also want fast track because it allows them to do what they want without drawing too much public heat.  We cannot let that happen.  We need to educate others about what these agreements are really about and we need to pressure Congress not to approve a fast track procedure for approving them.

Things are bad enough in this economy we certainly don’t need to implement agreements that will only worsen them.

Hipster Economics

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We have the money and the know how to tackle most of our social problems.  Certainly unemployment, houselessness, and poverty.  So, why don’t we?

In large part it is because our socially created wealth remains outside social control.  Critical economic decisions are driven by private interests not the public good.  One result is hipster economics.

If you are not familiar with hipster economics, I recommend Sarah Kendzior’s The Perils of Hipster Economics. Here is the first part:

The Perils of Hipster Economics

On May 16, an artist, a railway service and a government agency spent $291,978 to block poverty from the public eye.

Called psychylustro, German artist Katharina Grosse’s project is a large-scale work designed to distract Amtrak train riders from the dilapidated buildings and fallen factories of north Philadelphia. The city has a 28 percent poverty rate – the highest of any major US city – with much of it concentrated in the north. In some north Philadelphia elementary schools, nearly every child is living below the poverty line.

Grosse partnered with the National Endowment of the Arts and Amtrak to mask North Philadelphia’s hardship with a delightful view. The Wall Street Journal calls this “Fighting Urban Blight With Art”. Liz Thomas, the curator of the project, calls it “an experience that asks people to think about this space that they hurtle through every day”.

The project is not actually fighting blight, of course – only the ability of Amtrak customers to see it.

2013-086_psychylustro_Warehouse_004

“I need the brilliance of colour to get close to people, to stir up a sense of life experience and heighten their sense of presence,” Grosse proclaims.

“People”, in Grosse and Thomas’s formulation, are not those who actually live in north Philadelphia and bear the brunt of its burdens. “People” are those who can afford to view poverty through the lens of aesthetics as they pass it by.

Urban decay becomes a set piece to be remodeled or romanticised. This is hipster economics.

The rest of the article is here.

Written by marty

June 8th, 2014 at 12:42 pm

Free Trade Agreements And Corporate Power

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Corporate power has steadily grown over the last three decades.  And corporations have aggressively used their growing power to boost profits and the well-being of those at the top of the income pyramid at the expense of majority living and working conditions.

This development has often been presented as a force of nature.  The implied takeaway is that there really isn’t much we can do about it.  In reality, this development is the outcome of carefully devised policy.

A case in point: the two major free trade agreements that our government is currently negotiating, the Trans-Pacific Partnership Free Trade Agreement (TPPFTA) and the Trans-Atlantic Free Trade Agreement (TAFTA).

These agreements are being negotiated largely in secret.  For example,  President Obama has repeatedly rejected requests by members of congress to see drafts of the U.S. position in TPPFTA negotiations.  At the same time, more than 600 transnational corporations know everything about these negotiations because they are involved in shaping our government’s position thanks to their membership on official advisory boards.

Investment Chapters

Free trade agreements have many chapters.  While the specific terms may vary, all free trade agreements include an investment chapter.  One can see the terms of the Korea-U.S. FTA investment chapter here.  And thanks to a leak we can see the general make-up of the likely TPPFTA investment chapter here.

The draft TPPFTA chapter includes, as is typical, “minimum standard of treatment” protections for investors. More specifically:

Each Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security.

The TPPFTA investment chapter also includes an investor state dispute settlement mechanism (ISDSM) which allows a transnational corporation to sue a host government in an international tribunal if it believes that any of the rights granted to it under the terms of the chapter have been abridged.

Most investment chapters have ISDSMs.  When corporations use them to sue a government, the case is usually heard by a three person panel that is not bound by national law.  Each party chooses an arbitrator and the two select the third.  Most cases are heard by arbitrators registered with the International Center for Settlement of Investor Disputes (ICSID), the World Bank’s body for administrating disputes.  These arbitrators are overwhelmingly corporate lawyers.  In fact, according to a study of the workings of the system by Corporate Europe Observatory and the Transnational Institute:

Just 15 arbitrators, nearly all from Europe, the US or Canada, have decided 55% of all known investment-treaty disputes. This small group of lawyers, referred to by some as an ‘inner mafia’, sit on the same arbitration panels, act as both arbitrators and counsels and even call on each other as witnesses in arbitration cases. This has led to growing concerns, including within the broader legal community, over conflicts of interest.

International trade lawyers make a great deal of money when a corporation sues a government regardless of whether they serve as council to one side or the other or sit in judgement as arbitrators.  Not surprisingly, then, they actively support the inclusion of ISDSMs in agreements and their use by corporations.

A recent study by UNCTAD highlights the rapid growth in cases brought by transnational corporations (see the two charts below):

  • In 2012, 58 new cases were initiated, which constitutes the highest number of known treaty-based disputes ever filed in one year and confirms that foreign investors are increasingly resorting to investor-State arbitration.
  • In 66% of the new cases, respondents are developing or transition economies. While the number of cases initiated by developing country investors has increased, the majority of new cases (64%) still originate from developed countries.
  • Claimants have challenged a broad range of government measures, including those related to revocations of licenses, breaches of investment contracts, irregularities in public tenders, changes to domestic regulatory frameworks, withdrawal of previously granted subsidies, direct expropriations of investments, tax measures and others.
  • At least 42 arbitral decisions were issued in 2012, including decisions on objections to tribunal’s jurisdiction, merits of the dispute, compensation and applications for annulment of an arbitral award. 31 of these decisions are in the public domain.
  • In 70% of the public decisions addressing the merits of the dispute, investors’ claims were accepted, at least in part. Nine public decisions rendered in 2012 awarded damages to the claimant, including the highest award in the history of ISDS (US$ 1.77 billion) in Occidental v. Ecuador, a case arising out of a unilateral termination by the State of an oil contract.

Recent

Trend

As UNCTAD notes, “Since most arbitration forums do not maintain a public registry of claims, the total number of cases is likely to be higher.”

A Problematic System: The Case of Ecuador

The Occidental v. Ecuador case referred to above provides a powerful example of what is wrong with investment chapters and their associated ISDSM.  The tribunal hearing the case decided that Ecuador had violated Occidental’s right to “fair and equitable treatment.”  In addition to the $1.77 billion judgment, the tribunal also ordered Ecuador to pay $589 million in backdated compound interest, plus post-award interest and half of the costs of the hearing for a total of $2.4 billion.

Public Citizen offers the following summary of the events that led Occidental to sue Ecuador using the ISDSM contained in the U.S.-Ecuador Bilateral Investment Treaty, with the paragraphs cited below referring to the tribunal’s ruling:

In May 1999, Oxy signed a 20-year contract with Ecuador and the state oil company to explore for oil in Block 15, a segment of Ecuador’s Amazon, and extract from any discovered reserves (paras. 112, 115).  In exchange for taking on all expenses, Oxy was contractually entitled to 70% of the oil produced, with Ecuador maintaining a right to the rest (para. 117).  The contract also stipulated that while Oxy could sell the oil, it could not sell off any portion of its rights to produce and profit from the oil without government authorization.  The contract stated that transferring the rights to the oil production without authorization “shall terminate” the contract, meaning legal annulment and forfeiture of investments (para. 119).  This provision explicitly enforced Ecuador’s hydrocarbons law, which protected the government’s ability to vet companies seeking to gain control over oil production in its territory, a particular concern in the Chevron-ravaged Amazon region (para. 121).

One year after signing the contract, Oxy sought to sell off a portion of its investment in Block 15 oil production so as to gain capital and reduce expenditure risks.  In October of 2000, it signed with the Alberta Energy Company (AEC, a Canadian firm) a contract in which Oxy kept “nominal legal title” to the oil production contract with the government, but AEC purchased 40% of Oxy’s oil rights and agreed to foot 40% of ongoing costs (paras. 128, 129).   The two companies formed a “Management Committee” comprised of one AEC representative and one Oxy representative with the “power and duty to authorize and supervise Joint Operations” (para 136).  Oxy mentioned the deal to the government, but neither presented the contract nor sought government authorization for AEC’s acquisition of a significant economic and operational stake in the Amazonian oil project (paras. 147-160).

After an audit of Oxy in 2004, Ecuador’s Attorney General determined that the confidential Oxy-AEC contract in 2000 had bypassed necessary government authorization and thus violated Oxy’s contract with the government, prompting him to initiate a process to annul it (para. 177).  In May 2006, after a long delay filled with a presidential ouster and political tumult, the government terminated the contract with Oxy and repossessed the land and oil equipment of Block 15 (paras. 199, 200).

Strikingly, despite finding that Occidental did indeed violate its contract, and that the government’s decision to cancel it was consistent with the terms of the contract, the tribunal ruled that Ecuador did not provide the company “fair and equitable treatment.”  Since, in its opinion, Ecuador did not suffer materially from Occidental’s violation, it concluded that canceling the contract was too great a penalty.

The tribunal then estimated the loss of revenue suffered by Occidental assuming that its 20 year contract had not been prematurely canceled and it did not sell 40% of its oil production rights to AEC.  Finally, the tribunal concluded that Ecuador bore 75% of the responsibility for the loss and the company only 25%, which was the basis for the final monetary award to Occidental.

Public Citizen concluded its discussion of the case as follows:

In the end, the tribunal’s runaway interpretation of FET [fair and equitable treatment], disregard for the rule of law, defiance of basic English, selective weighing of evidence, and arbitrary blame game have not only saddled Ecuador with a cost tantamount to health care for half the country.  They have saddled all Parties to NAFTA-style treaties with a precedent of twisted reason.  Let’s hope it isn’t followed.

Not surprisingly, Ecuador is refusing to pay and its national assembly is considering a bill to terminate its bilateral investment agreement with the United States.  In addition, the country recently hosted a “Ministerial Conference of Latin American States Affected by Transnational Interests” with the aim of sharing information about the workings of investor-state tribunals and developing an alternative investment framework.  Twelve governments attended.

The Corporate Agenda

Investment chapters advance the corporate agenda in many other ways.  For example, all contain, including the draft TPPFTA, restrictions on performance requirements which make it illegal for governments to set export or import requirements or require foreign investors to use local parts or components, hire local labor, or transfer technology to domestic enterprises.  These restrictions effectively undermine any meaningful government attempt at industrial policy.

Perhaps most damaging to the public interest is another provision found in all free trade agreements, one designed to protect corporations from direct and indirect expropriation.  Indirect expropriation refers to a government action that “unfairly” limits the profit-making potential of a foreign investment.

According to the draft chapter of the TPPFTA,

(a) The determination of whether an action or series of actions by a Party, in a specific fact situation, constitutes an indirect expropriation, requires a case-by-case, fact-based inquiry that considers, among other factors:

(i) the economic impact of the government action, although the fact that an action or series of actions by a Party has an adverse effect on the economic value of an investment, standing alone, does not establish that an indirect expropriation has occurred;

(ii) the extent to which the government action interferes with distinct, reasonable investment-backed expectations; and

(iii) the character of the government action.

(b) Except in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect the legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations.

In other words, a transnational corporation can sue a host government in response to any perceived violation of any provision in the investment chapter.  Thus any government action that a foreign corporation believes “interferes with [its] distinct, reasonable investment-backed expectations” could trigger a suit.  As the Ecuador case shows, even corporations that are themselves in violation of their contracts can sue and win large judgments.  Given the track record of tribunal decisions, it should not be surprising that governments have become reluctant to pursue any regulations that might challenge corporate prerogatives.

Bloomberg News recently published an article discussing some of most serious ongoing disputes between transnational corporations and governments.  Among other things, it point out that:

Arbitration clauses were originally included in treaties to deal with the nationalization of a company’s assets. Now arbitrators hear claims for lost business or costs stemming from public-health laws and environmental regulation and financial policies, with billions of dollars at stake.

In some instances, investors are even demanding that national laws or court judgments be overturned.

Once a “shield of last resort,” arbitration has become a “sword of first resort,” according to a paper by Howard Mann, a senior law adviser at the International Institute for Sustainable Development, a Winnipeg-based nonprofit.

Free trade agreements include many other chapters that help transnational corporations to pursue profits at the public expense.   U.S. financial service firms, for example, have become quite aggressive in promoting the use of financial service chapters to avoid domestic regulation of their activities.

As Bloomberg News explains:

U.S. bankers and insurers are trying to use trade deals, which can trump existing legislation, to weaken parts of the Dodd-Frank Act designed to prevent a repeat of the 2008 financial crisis.

While the companies say they are seeking agreements that preserve strong regulations and encourage economic growth, their effort is drawing fire from groups who argue that Wall Street wants to make the trade negotiations a new front in its three-year campaign to stop or alter the law.

The Korea-U.S. FTA included a strongly pro-business financial service agreement. We have no idea whether the U.S. government seeks to include a similar chapter in the TPPFTA, although it is likely.

Final Thoughts

Corporate power is buttressed and promoted by many policies, including free trade agreements.  These agreements have one major goal: restricting our ability to use public power to defend majority living and working conditions.  And, as we can see, the U.S. government is hard at work securing U.S. participation in such agreements.  Reversing negative social and environmental trends requires recognizing this reality and building a movement powerful enough to challenge and transform government policy.

 

Written by marty

May 29th, 2013 at 8:09 am

Economics And Values

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Mainstream economics is largely built on theories that assume that people are best understood as highly competitive and individualistic maximizing agents. In fact, capitalism is said to be the most desirable economic system ever constructed precisely because its laws of motion are in sync with these traits.  Capitalism’s desirability is easily called into question, however, if people highly value fairness, cooperation, and relations of solidarity.  After all, capitalist imperatives tend to work against the development of social conditions and institutions that promote these values.

Many supporters of capitalism draw upon studies of non-human animal behavior to defend their assumptions about human nature.  But, as the Ted Talk by Frans de Waal found here (and below) demonstrates, non-human animals also greatly value fairness, cooperation, and relations of solidarity.

After watching the video take a few moments to imagine an economic system that builds upon these attractive values, then compare the policies that would be helpful to create it with the policies we currently promote to strengthen our existing economic system.  For example, how would this foundational shift influence our thinking about how best to organize production, relate production decisions to social and community needs, structure the ownership of society’s productive assets, and so on.

 

 

 

“Occupy” With Chinese Characteristics

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The Asia Times Online calls it “‘Occupy’ with Chinese Characteristics.” Whether Chinese activists identify with the Occupy Movement is unclear.  What is clear is the growing activism of:

a confrontational vanguard of young people – high school students and twenty-somethings (collectively known as “after 80s” and “after 90s” for their birth years) who appear quite happy to mix it up violently with the cops and cadres.

The most recent confrontation took place on July 28thin Qidong.   Qidong, as the Austalian Socialist Alternative explains,

is located on an estuary of the Yangtze River; across the way stands China’s biggest city, Shanghai. The Yangtze River Delta is one of China’s richest regions, but high speed economic development has come at the cost of severe environmental destruction. For example, more than half of coastal areas in Jiangsu province (where Qidong is located) are categorised as “seriously polluted zones” by the Ocean and Fishery Bureau. The main source of pollution is the industrial wastewater illegally discharged by corporations.

The Chinese government wants to build a new pipeline that would take wastewater from a special economic zone near Shanghai to a major Qidong fishing port on the Yellow Sea.  The pipeline would serve a paper mill and nearly completed pulp plant, both of which are owned by a large Japanese multinational, Oji Paper Company of Japan.  The people of Qidong don’t believe Chinese government claims that the wastewater will be safe and have voiced opposition to the pipeline since 2009 when the government first proposed its construction.  

THE RESISTANCE MOVEMENT IN ACTION

Here is a report from a Japanese newspaper about what happened in Qidong:

About 5,000 people filled the streets in central Qidong before 6 a.m., when the rally began. The protesters began chanting, “Protect the environment” against the dangers posed by a plan for a drainage pipeline into local waters.

But less than 10 minutes later, the crowd broke through a row of police officers blocking the main street and started marching toward the city government building 1 kilometer away. The demonstrators became louder after they reached the building.

Several minutes later, they pulled down the steel gate and swarmed over the premises.

About 2,000 occupied the inner courtyard, several thousand on the street in front of the city government building and many others in nearby structures overlooking the building, bringing the total of protesters to more than 10,000.

Here are some pictures that help to give a feeling for the day’s events:

 

This was, as Socialist Action describes, a well planned action:  

In order to stop this disastrous project, small-scale protests had been occurring since June, but were suppressed by the local government with various means. When China’s summer school holiday began in July, many students in Qidong decided to help build a bigger protest movement. They used social media to spread the information, but also produced many leaflets “To the people of Qidong” and distributed them in shopping centres and other public spaces. . . .

Big banners of petition with countless signatures were carried in the middle of the column, saying “Resolutely Resist Oji Paper Discharging Wastewater at Qidong”. Organisers equipped with megaphones led the chanting: “Opposing Oji Paper, defending our home!” A teenage woman, holding an anti-pollution t-shirt with her mother, marched proudly in the front of the contingent. More people arrived. The demonstration was growing like a rolling snowball.

People were taking photos from the roadsides and posting them online. Within hours, the news of Qidong had spread like a wild fire nationally. . . . Some shops offered free bottled water and bread to the protesters as support.  A 70-year-old woman reproached the cops: “These kids are doing the right thing, don’t disrupt them.” Most of the police personnel who arrived in the morning were local residents, whose families would be affected by the pollution as much as the protesters, so they generally sympathised with the cause. Moreover, they were heavily outnumbered so could not stop the protesters anyway!

Outside the municipal building, the protesters demanded that the government stop Oji Paper from building industrial wastewater pipes. The officials rejected the demand with the excuse that the government would have to pay a great amount of compensation to the company if they cancelled the project. The response enraged the crowd and thousands of protesters stormed the building. They surrounded the party secretary (the highest government official in a city) and asked him to wear an anti-pollution T-shirt. On his refusal the protesters stripped him naked and chased him around.

Large quantities of poker cards, condoms, expensive cigarettes and imported wine were found in those officials’ offices. These things were displayed on the roadside as evidence of government corruption.

The outcome, as reported by Asia Times Online, was a victory for the demonstrators:

The announcement posted on the Qidong municipal website on July 28, the same day as the demonstrations, stated:

After careful considerations, the Nantong City Government has decided to halt the implementation of the Nantong Large-Scale Project for Expelling Standards-Meeting Water into the Sea in Qidong.

An electronic billboard in Qidong displayed a less nuanced, more crowd-pleasing message on the same day, even as demonstrators were gathered in the city center:

After careful consideration, the Nantong City Government has decided to cancel this project for ever. 

MOVEMENT BUILDING

The Qidong protest was no isolated event.  For example, it followed the three day June struggle in Shifang (in Sichuan province, Southwest China) to halt the construction of a copper smelter.  According to Asia Times Online,

In Shifang, activists among a crowd of several thousand attempted to bumrush the municipal government building, but were repelled in a police action that turned into something of a police riot. The result was dozens of serious injuries inflicted on agitators, demonstrators, and hapless bystanders alike, and a marked swing in national popular sympathy toward the demonstrators.

Despite the repression, the activists did succeed in forcing the government to cancel the project.  Socialist Action notes that the Shifang action was itself inspired by:

a 100,000-strong demonstration in Dalian (in Liaoning province, Northeast China) last year, which compelled the local government to promise to move a chemical plant. . . . 

From Dalian to Shifang, then to Qidong, young people dominated. They used social media to organise their actions, their enthusiasm to agitate the masses and their bodies to fight the cops. Many of them were born after 1989, but they have inherited the spirit of Tiananmen Square. Such a generation of youth are not only active in environmental struggles, but also in the strikes taking place in the factories of Pearl River Delta, in the land rights uprisings occurring in the villages of Guangdong, in the battles against police brutality that occur in every city on a daily basis.

There is a lot going on in China that is not reported in this country.  While there is indeed labor repression there is also resistance fueled by the desire of many Chinese to change the direction of their country. Rather than seeing ourselves locked in some kind of zero sum economic competition with China, we should be looking to connect with Chinese activists, sharing experiences and strategies.  After all, we also are in desperate need of a change in direction.

Written by marty

August 6th, 2012 at 5:33 pm

China and Neoliberalism

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China is widely celebrated as an economic success story.  And it is as far as GDP, investment, and export growth is concerned.   However, as we know well from our experience in the United States, such economic indicators often reveal little about the reality of people’s lives.  In China workers are subject to intense working conditions with a disproportionate share of the benefits of production going to a top few.   For example, as Bloomberg News notes 

The richest 70 members of China’s legislature added more to their wealth last year than the combined net worth of all 535 members of the U.S. Congress, the president and his Cabinet, and the nine Supreme Court justices.

The net worth of the 70 richest delegates in China’s National People’s Congress, which opens its annual session on March 5, rose to 565.8 billion yuan ($89.8 billion) in 2011, a gain of $11.5 billion from 2010, according to figures from the Hurun Report, which tracks the country’s wealthy. That compares to the $7.5 billion net worth of all 660 top officials in the three branches of the U.S. government.

The income gain by NPC members reflects the imbalances in economic growth in China, where per capita annual income in 2010 was $2,425, less than in Belarus and a fraction of the $37,527 in the U.S. The disparity points to the challenges that China’s new generation of leaders, to be named this year, faces in countering a rise in social unrest fueled by illegal land grabs and corruption.

“It is extraordinary to see this degree of a marriage of wealth and politics,” said Kenneth Liberthal, director of the John L. Thornton China Center at Washtington’s Brookings Institution.  “It certainly lends vivid texture to the widespread complaints in China about an extreme inequality of wealth in the country now.”  

Growing numbers of Chinese workers and farmers have been engaged in workplace and community struggles in opposition to corporate and government policies, especially those designed to intensify the privatization, deregulation, and liberalization of the Chinese economy.  The number and determination of participants in these struggles has forced business and government leaders on the defensive.  

Recently, the People’s Daily ran an editorial calling for renewed commitment to “reform” in an attempt to shore up support for the government’s neoliberal policies.  The editorial appears to have triggered growing discussions and debates on and off the internet among academics and activists about alternatives. 

One concrete outcome from these discussions and debates is a 16 point proposal which was developed collectively and recently published on the Red China website; it has gained significant support.  The following is an English translation of the proposal by the China Study Club at University of Massachusetts, Amherst.   Reading it provides a window into political developments in China and also highlights the similarity of struggles in China and the United States.  

A SIXTEEN-POINT PROPOSAL ON CHINA’S REFORM  

1. That the personal and family wealth of all officials be publicized and their source clarified, and all “naked bureaucrats” be expelled from the Party and the government. (“Naked bureaucrats” refer to those officials whose family lives in developed countries and whose assets have been transferred abroad, leaving nothing but him/herself in China.)  

2. That the National Congress concretely exercises its legislative and monitory function, comprehensively review the economic policies implemented by the state council, and defend our national economic security.   

3. That the existing pension plans be consolidated and retirees be treated equally regardless of sector and rank.  

4. That elementary and secondary education be provided free of charge throughout the country; compensation for rural teachers be substantially raised and educational resources be allocated on equal terms across urban and rural areas; and the state assume the responsibility of raising and educating vagrant youth.  

5. That the charges of higher education be lowered, and public higher education gradually become fully public-funded and free of charge.   

6. That the proportion of state expenditure on education be increased to and beyond international average level.   

7. That the price and charge of basic and critical medicines and medical services be managed by the state in an open and planned manner; the price of all medical services and medicines should be determined and enforced by the state in view of social demand and actual cost of production.   

8. That heavy progressive real estate taxes be levied on owners of two or more residential housings, so as to alleviate severe financial inequality and improve housing availability.

9. That a nation-wide anti-corruption online platform be established, where all PRC citizens may file report or grievance on corruption or abuse instances; the state should investigate in openly accountable manner and promptly publicized the result.   

10. That the state of national resources and environmental security be comprehensively assessed, exports of rare, strategic minerals be immediately cut down and soon stopped, and reserve of various strategic materials be established.  

11. That we pursue a self-reliant approach to economic development; any policy that serves foreign capitalists at the cost of the interest of Chinese working class should be abolished.  

12. That labor laws be concretely implemented, sweatshops be thoroughly investigated; enterprises with arrears of wage, illegal use of labor, or detrimental working condition should be closed down if they fail to meet legal requirements even after lawfully limited term for self-correction.   

13. That the coal industry be nationalized across the board, all coal mine workers receive the same level of compensation as state-owned enterprise mine workers do, and enjoy paid vacation and state-funded medical service.  

14. That the personal and family wealth of managerial personnel in state-owned enterprises be publicized; the compensation of such personnel should be determined by the corresponding level of people’s congress.   

15. That all governmental overhead expenses be restricted; purchase of automobile with state funds be restricted; all unnecessary traveling in the name of “research abroad” be suspended.   

16. That the losses of public assets during the “reforms” be thoroughly traced, responsible personnel be investigated, and those guilty of stealing public properties be apprehended and openly tried.    

Free Trade Above All

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Agreement on Technical Barriers to Trade (TBT)—what could that be you ask?  It is one of the many agreements enforced by the World Trade Organization (WTO).    

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The WTO is said to be concerned only with the promotion of free trade for our collective benefit.  And, according to the WTO, the TBT was negotiated to achieve that very aim. In the words of the WTO:

Technical regulations and product standards may vary from country to country. Having many different regulations and standards makes life difficult for producers and exporters. If regulations are set arbitrarily, they could be used as an excuse for protectionism. The Agreement on Technical Barriers to Trade tries to ensure that regulations, standards, testing and certification procedures do not create unnecessary obstacles, while also providing members with the right to implement measures to achieve legitimate policy objectives, such as the protection of human health and safety, or the environment.

Sounds reasonable—well, the United States just lost two cases this past September in which foreign governments charged the United States with violating that agreement.

First case: a WTO panel ruled in Mexico’s favor against U.S. measures designed to protect dolphins.  The United States allows tuna fishers that use dolphin-safe nets to label their tuna sold in the U.S with a dolphin-safe label.  According to Mexico, this unfairly discriminates against those fishers that want to use different methods of production.  The WTO agreed—the U.S. was being an unfair trader.  No more labels.  

Second case: a WTO panel ruled against U.S. measures designed to reduce teenage smoking.  Among other things, the U.S. measures banned the sale of many flavored cigarettes–in particular clove cigarettes–which were seen as likely to hook young smokers.  Indonesia is a major producer and exporter to the United States of clove cigarettes and it argued that the U.S. ban discriminated against its products.  The WTO agreed—the U.S. was being an unfair trader.   

It also looks likely that a WTO panel will find against U.S. consumer labeling laws that allow country of origin labeling for beef.  If consumers knew where their beef came from it might influence their purchasing decisions.  That could have a negative effect on sales of imported beef.  

Free trade in the eyes of the WTO means maximum freedom for corporations to produce and sell products as they want.  Said differently, it means a world in which governments are forbidden to take steps to protect the environment or the health of its citizens if doing so interferes with private profit making. 

This is just one agreement.  The WTO presides over many more that are equally, if not more, scandalous.  You will be hard pressed to read about these decisions in the press.  The reason: it might encourage people to question the free trade agreements with Korea, Colombia, and Panama that the U.S. government is promoting, since they also include TBTs.  My recently published analysis of the U.S.-Korea Free Trade Agreement can be read here.

Written by marty

October 3rd, 2011 at 10:23 am

Learning From The UK

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The U.S. economy isn’t the only one struggling.  That means there are things to learn from other countries.  Take the United Kingdom, for example. 

The United Kingdom faces many of the same problems we do.  And the British government has decided to respond to these problems with many of the same policies promoted by our own conservative political leaders: slash public spending and cut public sector jobs and wages.  In fact,  the British plan calls for six consecutive years of spending cuts.  As Paul Krugman explains:

Britain, like America, is suffering from the aftermath of a housing and debt bubble. Its problems are compounded by London’s role as an international financial center: Britain came to rely too much on profits from wheeling and dealing to drive its economy — and on financial-industry tax payments to pay for government programs.

Over-reliance on the financial industry largely explains why Britain, which came into the crisis with relatively low public debt, has seen its budget deficit soar to 11 percent of G.D.P. — slightly worse than the U.S. deficit. And there’s no question that Britain will eventually need to balance its books with spending cuts and tax increases.

The operative word here should, however, be “eventually.” Fiscal austerity will depress the economy further unless it can be offset by a fall in interest rates. Right now, interest rates in Britain, as in America, are already very low, with little room to fall further. The sensible thing, then, is to devise a plan for putting the nation’s fiscal house in order, while waiting until a solid economic recovery is under way before wielding the ax.

But trendy fashion, almost by definition, isn’t sensible — and the British government seems determined to ignore the lessons of history.

Both the new British budget announced on Wednesday [October 20, 2010] and the rhetoric that accompanied the announcement might have come straight from the desk of Andrew Mellon, the Treasury secretary who told President Herbert Hoover to fight the Depression by liquidating the farmers, liquidating the workers, and driving down wages. Or if you prefer more British precedents, it echoes the Snowden budget of 1931, which tried to restore confidence but ended up deepening the economic crisis.

The British government’s plan is bold, say the pundits — and so it is. But it boldly goes in exactly the wrong direction. It would cut government employment by 490,000 workers — the equivalent of almost three million layoffs in the United States — at a time when the private sector is in no position to provide alternative employment. It would slash spending at a time when private demand isn’t at all ready to take up the slack.

Why is the British government doing this? The real reason has a lot to do with ideology: the Tories are using the deficit as an excuse to downsize the welfare state. But the official rationale is that there is no alternative. . . .

What happens now? Maybe Britain will get lucky, and something will come along to rescue the economy. But the best guess is that Britain in 2011 will look like Britain in 1931, or the United States in 1937, or Japan in 1997. That is, premature fiscal austerity will lead to a renewed economic slump. As always, those who refuse to learn from the past are doomed to repeat it.

Well, not surprisingly, the outcome of this austerity plan has been further economic decline.   As the chart below shows, the UK economy actually fell back into recession the last three months of 2010, suffering a 0.5% contraction. 

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Despite that outcome, the government, according to the BBC, remains committed to its austerity policy: 

The Chancellor, George Osborne, said the numbers were disappointing.

But he added the government would not be “blown off course” from its austerity program.

The figures are set to raise concerns over prospects for the economy, with large public spending cuts expected to come in this year.

The BBC’s economics editor Stephanie Flanders said people were right to worry about where the UK’s growth would come from in 2011, especially as higher-than-expected inflation had dealt a further blow to household budgets.

Michael Roberts provides the following update and summary of economic trends:

The UK economy is struggling to recover from the Great Recession of 2008-9.  While profitability has recovered, British big business is still refusing to invest.  In Q1’11, UK gross fixed investment slumped by 4.4% compared with Q4’10, while household consumption fell 0.6%.  Most significant, business investment excluding property fell 7.1%  (manufacturing investment fell 1.1%).  It prefers to heap up the cash, invest abroad or speculate in stock markets rather than invest in expanding production or employment in the UK.   And while that continues British households on average will continue to suffer significant losses in living standards.

Household spending  is set to experience the slowest pick-up of any post-recession period since 1830, according to a survey of economists.  British consumers will spending barely more by 2015 than they were before the financial crisis in 2008.  In the UK’s 18 major recessions since records began in 1830, Bank of England data show consumer spending on average recovered to 12% above its previous peak within seven years.  But forecasts by the UK’s Office for Budget Responsibility put spending in 2015 at just 5.4% above the 2008 peak, making it the slowest recovery of any comparable post-recession period.  After recessions in the early 1980s and 1990s, spending was 20% and 15% higher respectively.

That household spending will be so laboured is not surprising as the average British household faces the biggest drop in income for 30 years.   Average income could fall 3% this year, the steepest drop since 1981 and taking households back to 2004-5 levels.  The Institute for Fiscal Studies said average take-home incomes actually rose during recent recession due to low inflation and higher social benefits.  But IFS analysis suggests the long-term effects of the recession and higher inflation will soon squeeze incomes.  Lower wage increases and the corrosive effect of rising inflation mean that it is “entirely possible” that income this year will return to levels of six years ago.   Even the Bank of England warned that UK households faced a significant cut in their spending power as inflation heads towards a 5% annual rate.

So, one thing we can learn from studying the UK is not to adopt conservative budget policies.  Another is that there are alternatives to the other established policy option, which is to just keep spending and hoping for a magical revival of economic fortunes. 

For example, UK climate activists and several national trade unions are promoting a straightforward, effective campaign to create one million green climate jobs.  As the alliance says:

To find solutions to the climate crisis and the recession, we need more public spending, the opposite of current government policy. We have people who need jobs and work that needs to be done. A million climate jobs in the UK will not solve all the economy’s problems. But it will take a million human beings off the dole and put them to work saving the future.

Their plan is careful to distinguish between climate jobs (which reduce greenhouse gases) and green jobs (which can mean almost anything).  More specifically it calls for the creation of a million, new public sector jobs and a National Climate Service to employ them, highlights the kind of work that should be done, and presents a plan for financing it that does not rely on increasing the federal deficit.

In the words of the alliance:

We mean a million new jobs, not ones people are already doing. We don’t want to add up existing and new jobs and say that now we have a million climate jobs. We don’t mean jobs with a climate label, or a climate aspect. We don’t want old jobs with new names, or ones with ‘sustainable’ inserted into the job title. And we don’t mean ‘carbon finance’ jobs.

We mean new jobs now. We want the government to start employing 83,300 workers a month in climate jobs. Then, within twelve months, we will have created a million jobs.

We mean government jobs. This is a new idea. Up to now government policy under both Labour and Conservatives has been to use subsidies and tax breaks to encourage private industry to invest in renewable energy. The traditional approach is to encourage the market. That’s much too slow and inefficient. We want something more like the way the government used to run the National Health Service. In effect, the government sets up a National Climate Service (NCS) and employs staff to do the work that needs to be done. Government policy has also been to give people grants and loans to insulate and refit their houses. Instead, we want to send teams of construction workers to renovate everyone’s home, street by street. And we want the government to construct wind farms, build railways, and put buses on the streets.

Direct government employment means secure, flexible, permanent jobs. Workers with new climate jobs won’t always keep doing the same thing, but they will be retrained as new kinds of work are needed.

I strongly recommend reading their plan.
 

Globalization And The Environment

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Over 3000 participants from 183 countries are attending a two week UN sponsored climate gathering in Bonn, Germany.  The talks are supposed to help prepare the agenda for COP 17, or as it is more formally known, the 17th Conference of the Parties of the United Nations Framework Convention on Climate Change (defenders of the environment have renamed the meeting the Conference of Polluters) which will take place November 28 to December 9, 2011 in Durban, South Africa. 

The cost of climate inaction grows worse.  As the Earth Island Journal reports:

Last week, the International Energy Agency announced that emissions continue to increase unabated. Emissions released in 2010 were the highest in history, despite the economic recession. The report stated that the “prospect of limiting the global increase in temperature to 2 degrees Celsius is getting bleaker.”

The National Oceanic and Atmospheric Administration (NOAA) announced that the level of CO2 emissions released in May 2010 set another record high.

The COP meetings have three main goals, all of which remain far from satisfied:

• set emission reductions for developed and developing nations

• secure funding and technology to help developing nations adapt to climate change

• determine how to measure, report and verify emission reductions

The Kyoto Protocol is the only international treaty that has binding targets for reducing emissions.  It was adopted on December 11, 1997 and entered into force on February 16, 2005.  The implementation rules were adopted at COP 7, which was held in Marrakesh in 2001. The Protocol targets are only binding on developed countries (Annex I countries); there are no binding targets for developing countries.  The Annex I countries agreed to reduce their collective production of greenhouse gas emissions by 5.2% relative to the 1990 level over the period 2008 to 2012; their commitments are listed in the Protocol’s Annex B. 

Unfortunately, the Protocol does not include any mechanism for enforcing national action, which is one reason that overall emissions continue to grow.  Another reason is that some important polluters, like the United States, never signed the Kyoto treaty.

If no action is taken at COP 17, the Kyoto Protocol will expire.  Most developed countries appear content to let this happen.  At COP 15, held in Copenhagen, the United States led the charge for replacing the Protocol with a less binding agreement, one that included no specific emission reduction targets.  No progress was made at COP 16, which was held last year in Cancun.

Most third world countries–including the G77, Alliance of Small Islands States (AOSIS), the Least Developed Countries, the Africa Group, and ALBA–support a second renewal period as a step toward a strengthened treaty, one with enforceable national targets and a commitment by developed countries to pay climate reparations to those third world countries suffering the consequences of climate change. 

One argument made by the United States and other developed countries against a renewal of Kyoto is that the Protocol does not including binding targets on the third world, and third world countries like China and India are themselves now major producers of greenhouse gasses. 

new study, one that acknowledges the importance of globalization, offers an important perspective on this developed country claim.  In brief, the study seeks to distinguish between emissions generated by production in a given territory and emissions generated in a given territory as a result of both production and consumption.  This is an important distinction because developed country transnational corporations have off-shored manufacturing activity to the third world.  This development has promoted a significant rise in third world emissions.  However, since an ever growing share of third world manufacturing production is exported to developed countries, the calculation of territorial based emissions overstates third world country responsibility and understates developed country responsibility.

As Glen P. Peters, Jan C. Minx, Christopher L. Weber, and Ottmar Edenhofer, the authors of the study, explain:

Despite the emergence of regional climate policies, growth in global CO2 emissions has remained strong. From 1990 to 2008 CO2 emissions in developed countries (defined as countries with emission- reduction commitments in the Kyoto Protocol, Annex B) have stabilized, but emissions in developing countries (non-Annex B) have doubled. Some studies suggest that the stabilization of emissions in developed countries was partially because of growing imports from developing countries. To quantify the growth in emission transfers via international trade, we developed a trade-linked global database for CO2 emissions covering 113 countries and 57 economic sectors from 1990 to 2008.

We find that the emissions from the production of traded goods and services have increased from 4.3 gigatonnes [Gt] CO2 in 1990 (20% of global emissions) to 7.8 Gt CO2 in 2008 (26%). Most developed countries have increased their consumption-based emissions faster than their territorial emissions, and non-energy-intensive manufacturing had a key role in the emission transfers. The net emission transfers via international trade from developing to developed countries increased from 0.4 Gt CO2 in 1990 to 1.6 Gt CO2 in 2008, which exceeds the Kyoto Protocol emission reductions.

Our results indicate that international trade is a significant factor in explaining the change in emissions in many countries, from both a production and consumption perspective. We suggest that countries monitor emission transfers via international trade, in addition to territorial emissions, to ensure progress toward stabilization of global greenhouse gas emissions.

The figure below, which comes from their study, compares the rate of growth in a number of variables.  It shows that “emissions embodied in trade,” which are emissions generated by the production of exports, has grown faster than population, GDP, and global CO2 emissions.  It also shows that the growth in “net emission transfers Annex B to non-Annex B,” which are emissions contained in exports produced in developing countries but consumed by or used in developed countries, has outstripped all the variables, even the growth in international trade.

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Their study also included the following figure which shows the net change in territorial emissions over the period 1990 to 2008 along with the change in the net emission transfer between each country and developing countries.   The small orange star represents pledged emission reduction commitments.  

If we consider only territorial emissions, Europe actually came close to meeting its target reductions.  However, if we take into account the net emission transfers that come from consuming exports produced in the third world, Europe actually increased its emissions.  U.S. emissions grew territorially and again because of net emission transfers.  Looking at Annex B countries as a whole, we can see the important role that China plays as a producer and exporter of manufactured goods to the developed world.

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The authors of the study conclude by noting that their work shows that “a significant and growing share of global emissions are from the production of internationally traded goods and services.”  This means that emission reduction cannot fairly or productively be approached solely through the use of territorial mandates.  We need to recognize that progress in achieving environmentally sustainable economic relations will require national changes that also confront and transform contemporary capitalist globalization dynamics.

Written by marty

June 12th, 2011 at 10:07 am