Archive for the ‘Job Creation’ Category
Reports From the Economic Front will soon only be available at its new location, https://economicfront.wordpress.com/
There are growing signs that the global economy is slowly but steadily heading into another period of stagnation.
Global growth since the 2009 world financial crisis has largely been driven by the third world; developing Asia alone accounted for almost 60% of world growth over the period 2009 to 2014.
However, the economic fortunes of most third world countries, including those in developing Asia, are now being pulled down by weak core country growth. And this development will in turn deepen economic problems in Japan, most Eurozone countries, and even the U.S.
For example, Asian growth has largely been fueled by exports to advanced capitalist countries, in particular the U.S. However, as a result of core country economic difficulties developing Asian countries have seen their exports plummet. The following figure shows year-on-year export growth for developing Asian countries; the last data point (April 2015) is an average growth rate only for Korea, China, and Taiwan.
The next figure shows that all of Asia’s leading economies are suffering a similar fate, with their exports now barely growing in value compared with growth rates of over 40% in 2010.
The Wall Street Journal explains what is happening as follows:
For decades, Asia fueled its development by selling products to the West. That engine is now sputtering, threatening to sap the region’s economic expansion. . . .
Today, it is unclear whether exports can still provide that oomph. Overall growth is slowing in many Asian nations, forcing policy makers to ponder whether demand from their own consumers can fill the void.
“That model that Asia had of relying on the trade channel—that’s gone,” said Markus Rodlauer, deputy director for Asia and the Pacific at the International Monetary Fund in Washington.
The following figure shows aggregate exports by destination for six leading Asian economies: China, Hong Kong, Korea, Singapore, Taiwan and Thailand. The declines in sales to Japan and the EU are especially striking. However, even intra-Asian export growth has fallen, in large part because of China’s slowing economic activity.
To this point, Asian economic growth has not fallen as much as one might expect given the export trends highlighted above. Perhaps the main reason is that China’s massive investment spending has, up to now, served to support Asian exports, although at a reduced rate. But China’s investment first policy has largely run its course, leaving the country with a growing number of empty towns, shopping centers, theme parks, airports, and high-speed rail lines and its regional governments deep in debt.
Here is one illustration of the problem from the South China Morning Post:
When officials reopened the airport on the sparsely populated Dachangshan island off the mainland’s northeast coast after a US$6 million refurbishment in 2008, they planned to welcome 42,000 passengers in 2010 and another 78,000 in 2015.
However, fewer than 4,000 passengers – or just a 10 a day – passed through its gates in 2013, data from the civil aviation authority showed.
Since February last year , China has approved at least 1.8 trillion yuan (HK$2.3 trillion) in new infrastructure projects to counter a slowing economy. The approvals come just as the full costs of the underused airports, expressways and stadiums built during the last spending binge are beginning to emerge.
While construction firms profited from the boom, it saddled provincial governments with US$3 trillion worth of debt, with the most over-exuberant seeing their local economies weaken and become imbalanced towards the building sector.
As noted above, some analysts believe that Asian governments are likely to try and compensate for the loss of demand from stagnate exports by supporting policies to boost domestic consumption. However, this is extremely unlikely.
To put it bluntly, governments throughout the region remain committed to their export growth strategies. This has left them locked in competition to attract and hold corporate investment and determined to keep labor costs as low as possible. The Chinese government, for example, has decided to counter the recent rise in labor activism and wages by engaging in a massive push to replace workers with robots.
As the New York Times reports:
Chinese factory jobs may thus be poised to evaporate at an even faster pace than has been the case in the United States and other developed countries. That may make it significantly more difficult for China to address one of its paramount economic challenges: the need to rebalance its economy so that domestic consumption plays a far more significant role than is currently the case.
Another indicator of global fragility is the decline in commodity prices. Of course this trend is largely a consequence of the previous one. Asia’s export decline has translated into a decline in regional manufacturing activity and a fall in the demand for as well as price of most commodities. The following figures from the Guardian illustrate this trend.
These sharp declines in commodity prices threaten to dramatically slash rates of growth in sub-Saharan African and Latin American countries, most of whom depend on exports of these commodities to finance the imports they need to support domestic production and consumption.
In brief, growth prospects in core countries are poor. As a consequence, developing Asia faces the exhaustion of its export-led growth strategy. And the same is true for sub-Saharan Africa and Latin America. Compounding global problems is the fact that Germany and Japan continue to embrace their own export-led growth strategies and U.S. growth is unlikely to prove strong enough to ensure sufficient global demand.
In sum, without significant structural changes in most economies, changes that include support for policies designed to boost majority living and working conditions or said differently privilege people over profits, workers everywhere are in for a long period of economic hardship.
Reports From the Economic Front will soon only be available at its new location, https://economicfront.wordpress.com/
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).
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.
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.
Reports From The Economic Front will soon be moving to its new location.
The Troika are celebrating the end of negotiations with Greece, proclaiming that thanks to their tireless efforts the Eurozone remains whole. And why wouldn’t they celebrate. They have demonstrated their power to crush, at least for now, the Greek effort to end austerity and its associated devastating social consequences. Tragically, Syriza has not only surrendered, the nature of its defeat is likely to leave the country worse off, at least both economically and very likely politically as well.
At this point, one of the most important things we can do is try to draw lessons from the Greek experience.
- Perhaps one of the most obvious lessons is that visions of a more humane Europe are not real. European leaders were more than willing to pursue the complete collapse of the Greek economy in order to break Syriza and the movement that gave it power for fear of the demonstration effect a successful Syriza might have had on broader European politics. Using the lever of a European Central Bank cut off of funding for Greek banks, the Troika pressed Syriza to the wall.
Here is how a Guardian blog post described the nature of the discussions leading up to the final Greek surrender:
Alexis Tsipras was given a very rough ride in his meeting with Tusk, Merkel and Hollande, our Europe editor Ian Traynor reports.
Tsipras was told that Greece will either become an effective “ward” of the eurozone, by agreeing to immediately implement swift reforms this week.
Or, it leaves the euro area and watches its banks collapse.
One official dubbed it “extensive mental waterboarding”, in an attempt to make the Greek PM fall into line.
An unpleasant image that highlights just how far we have now fallen from those European standards of solidarity and unity.
- Second, the vicious nature of the European response to the Greek government’s initial offer of moderate austerity, symbolized by the stance of its dominant power Germany, reflects more than ignorance or petty mindedness on the part of European leaders. It reflects the increasingly exploitive nature of contemporary capitalism everywhere. Capitalists, pursuing profits in an increasingly competitive and unstable global system, demand ever greater power to intensify the exploitation of workers everywhere and that is how dominant states approach social policy in their respective countries and international institutions.
- Third, class interests dominate so-called “economic rationality”. A case in point: in the period before the July 5 referendum we learned that IMF staff believed that Greece would be unable to pay its debts under the best of conditions and that therefore any agreement with Greece had to include debt relief while at the very same time the head of the IMF was aggressively joining with European leaders to reject Greek government pleas for just such relief.
- Fourth, since dominant powers will do everything in their power to block meaningful social transformation, those seeking to lead it must prepare people as best they can for the expected class struggle and opposition. In this case Syriza can and should be faulted for not engaging people about the difficulty of achieving both an end to austerity and Eurozone membership under current conditions and doing its best to develop the technical and political capacities necessary for a break from the Euro on its own terms if and when the situation called for it.
Greeks elected a progressive government, voting Syriza into power in January 2015, on the basis of the party’s commitment to both anti-austerity and continuing Eurozone membership. The leadership of Syriza never wavered from encouraging Greeks to believe that both were possible and most Greeks, for many reasons, were eager to believe that this was true. Although the results of the July 5 referendum showed that the Greek working class has a strong fighting spirit, polling also revealed that most of those who voted No hoped that their vote against the European austerity plan would lead to a better deal from Europe, not a break from the Eurozone. They no doubt felt this way because of government pronouncements.
For example, below are the results of polling done the day before the referendum:
Tragically, immediately after the vote the Greek government surprised everyone by returning to negotiations with the Troika with an offer to accept an austerity program much like the one that had been originally placed before the people and rejected. The only meaningful addition was that it included the long held Greek proposal for debt relief. This decision was a serious mistake for two reasons—it generated serious confusion on the part of the Greek population and perhaps even more importantly convinced the Troika that the Greek government was not prepared to use its new domestic support to challenge the status quo. This only emboldened the Troika to proclaim that the referendum had changed everything and now that trust had been lost between the Troika and Syriza leaders, the austerity demands had to be intensified.
In fact, we have learned that Syriza’s leaders did not expect to win the referendum and were prepared to and in fact perhaps hoped to be able to resign and let more conservative forces negotiate and approve a new austerity package. Here is part of an interview with James K. Galbraith, a strong Syriza supporter:
The recent Ambrose Evans Pritchard piece is very much on the mark (” Europe is blowing itself apart over Greece – and nobody seems able to stop it“). The Greek government, and particularly the circle around Alexis, were worn down by this process. They saw that the other side does, in fact, have the power to destroy the Greek economy and the Greek society — which it is doing — in a very brutal, very sadistic way, because the burden falls particularly heavily on pensions. They were in some respects expecting that the yes would prevail, and even to some degree thinking that that was the best way to get out of this. The voters would speak and they would acquiesce. They would leave office and there would be a general election.
It all went downhill from there. In short, Syriza leadership had no plan B. The Troika knew that Syriza was unwilling to pursue its own break from the Eurozone, which meant that its leadership would do anything to remain in the Eurozone. The following is from an interview with Yanis Varoufakis, the former Greek finance minister, that provides insight into the somewhat self-inflicted weakness in Syriza’s bargaining stance:
The referendum of 5 July has also been rapidly forgotten. It was preemptively dismissed by the Eurozone, and many people saw it as a farce – a sideshow that offered a false choice and created false hope, and was only going to ruin Tsipras when he later signed the deal he was campaigning against. As Schäuble supposedly said, elections cannot be allowed to change anything. But Varoufakis believes that it could have changed everything. On the night of the referendum he had a plan, Tsipras just never quite agreed to it.
The Eurozone can dictate terms to Greece because it is no longer fearful of a Grexit. It is convinced that its banks are now protected if Greek banks default. But Varoufakis thought that he still had some leverage: once the ECB forced Greece’s banks to close, he could act unilaterally.
He said he spent the past month warning the Greek cabinet that the ECB would close Greece’s banks to force a deal. When they did, he was prepared to do three things: issue euro-denominated IOUs; apply a “haircut” to the bonds Greek issued to the ECB in 2012, reducing Greece’s debt; and seize control of the Bank of Greece from the ECB.
None of the moves would constitute a Grexit but they would have threatened it. Varoufakis was confident that Greece could not be expelled by the Eurogroup; there is no legal provision for such a move. But only by making Grexit possible could Greece win a better deal. And Varoufakis thought the referendum offered Syriza the mandate they needed to strike with such bold moves – or at least to announce them.
He hinted at this plan on the eve of the referendum, and reports later suggested this was what cost him his job. He offered a clearer explanation.
As the crowds were celebrating on Sunday night in Syntagma Square, Syriza’s six-strong inner cabinet held a critical vote. By four votes to two, Varoufakis failed to win support for his plan, and couldn’t convince Tsipras. He had wanted to enact his “triptych” of measures earlier in the week, when the ECB first forced Greek banks to shut. Sunday night was his final attempt. When he lost his departure was inevitable.
“That very night the government decided that the will of the people, this resounding ‘No’, should not be what energised the energetic approach [his plan]. Instead it should lead to major concessions to the other side: the meeting of the council of political leaders, with our Prime Minister accepting the premise that whatever happens, whatever the other side does, we will never respond in any way that challenges them. And essentially that means folding. … You cease to negotiate.”
Of course, it is easy to call for a break with the Eurozone but in reality such a break would not be a walk in the park. For example, Varoufakis makes clear that there were no certainties for what would happen if the government decided on a break:
“He [Tsipras] wasn’t clear back then what his views were, on the drachma versus the euro, on the causes of the crises, and I had very, well shall I say, ‘set views’ on what was going on. A dialogue begun … I believe that I helped shape his views of what should be done.”
And yet Tsipras diverged from him at the last. He understands why. Varoufakis could not guarantee that a Grexit would work. After Syriza took power in January, a small team had, “in theory, on paper,” been thinking through how it might. But he said that, “I’m not sure we would manage it, because managing the collapse of a monetary union takes a great deal of expertise, and I’m not sure we have it here in Greece without the help of outsiders.” More years of austerity lie ahead, but he knows Tsipras has an obligation to “not let this country become a failed state”.
To be a bit more specific, a break from the Eurozone would require nationalization of the banks—an act that would immediately draw the country into a serious legal test with Europe since the banks are technically under the control of the European Central Bank. It would require the government to quickly issue new script as it prepared a new currency, and aggressively engage in an expanded public works program. At the same time it was unclear whether the new script would be accepted and whether the country would have sufficient foreign exchange to maintain minimum purchases of key import items such as food and medicine. Moreover, many businesses, holding debts denominated in euros, would likely be forced into bankruptcy necessitating government takeover. And, all this would take place in a relatively hostile international environment. No doubt some countries would offer words of solidarity, but it appears unlikely that any would or could offer meaningful financial or technical assistance. Still, with proper preparation the possibilities for success could have been greatly enhanced.
Strikingly, Varoufakis mentioned that Syriza had established a small team to think about what a break would mean shortly after their January 2015 election, a team that no doubt was kept small because the government wanted to keep the planning secret. But that was a mistake. Planning should have happened on a large scale and in a visible way. Discussions should have been held with international legal experts as well as with the Brics countries concerning possible use of their new lending and investment facilities. There was no need to keep this planning quiet, quite the opposite—Eurozone leaders should have been made aware that Syriza was seriously studying its alternatives. And the population should have been brought along—that the government would do all in its power to stay in the eurozone as long as this was consistent with an end to austerity.
As it was, Tsprias went back into negotiations unarmed, desperate for a bailout. Once the ECB tightened its support for Greece’s banking system it should have been clear, if not before then, that a German-led Europe was only interested in total surrender on the part of Greece. And as far as I can tell total surrender is what they got.
Greece has agreed to austerity program that is far worse than any previously rejected. Here is the Guardian summary of what was agreed:
Greek assets transfer
Up to €50bn (£35bn) worth of Greek assets will be transferred to a new fund, which will contribute to the recapitalisation of the country’s banks. The fund will be based in Athens, not Luxembourg as Germany had originally demanded.
The location of the fund was a key sticking point in the marathon overnight talks. Transferring the assets out of Greece would have meant “liquidity asphyxiation”, Tsipras said.
As the statement puts it: “Valuable Greek assets will be transferred to an independent fund that will monetise the assets through privatisations and other means.”
The “valuable assets” are likely to include things such as planes, airports, infrastructure and banks, analysts say.
Some of the fund will be used to recapitalise banks and decrease debt, but analysts are sceptical about how much money there will really be to work with.
“Given the experience of the last few years’ privatisation programme, these targets appear overtly optimistic, serving as a signalling mechanism of Greek government commitment to privatisation rather than a meaningful source of financing for bank recapitalisation, growth and debt reduction,” said George Saravelos, a strategist at Deutsche Bank.
Greece has been told that it needs to pass measures to “improve long-term sustainability of the pension system” by 15 July.
The country’s pensions system, and its perceived generosity relative to other eurozone states, has been a key sticking point in the past five months of negotiations with creditors.
The so-called troika of lenders believes that Athens can save 0.25% to 0.5% of GDP in 2015 and 1% of GDP in 2016 by reforming pensions.
Greece had wanted to draw out reform of early retirement rules, starting in October and running until 2025, when everyone would retire at 67. The EU wants the process to start immediately, by imposing huge costs on those who want to retire early to discourage them from doing so. The lenders also say Athens must bring forward the reform programme so it completes in 2022.
VAT and other taxes
Another source of contention in the months of failed negotiations that preceded Monday’s tentative deal, VAT is now also on the block for immediate reform.
The latest agreement demands measures, again by 15 July, for “the streamlining of the VAT system and the broadening of the tax base to increase revenue”.
One of the key objections from Greece’s creditors to its VAT system is a 30% discount for the Greek islands. Athens proposed a compromise on 10 July under which the exemptions for the big tourist islands – where the revenue opportunities are greatest – would end first, with the more remote islands following later.
The onus on Greece to “increase revenue” is likely to mean more items will be covered by the top VAT rate of 23%, including restaurant bills, something that had until recently been a red line for Tsipras.
Another demand for legislation by 15 July is on “the safeguarding of the full legal independence of ELSTAT”, the Greek statistics office.
Balancing the books
Greece has been told it must legislate by 15 July to introduce “quasi-automatic spending cuts” if it deviates from primary surplus targets. In other words, if it cannot cut enough to balance the books, it should cut some more.
In the past, the troika has demanded that Greece commit to a budget surplus of 1% in 2015, rising to 3.5% by 2018.
Talks will begin immediately on bridging finance to avert the collapse of Greece’s banking system and help cover its debt repayments this summer. Greece must repay more than €7bn to the European Central Bank (ECB) in July and August, before any bailout cash can be handed over.
Greece has been promised discussions on restructuring its debts. A statement from Sunday night also ruled out any “haircuts”, leaving the €240bn Greece owes to Brussels, the ECB and the International Monetary Fund (IMF) on the books.
Angela Merkel, the German chancellor, said the Eurogroup was ready to consider extending the maturity on Greek loans. She argues that a delay in loan repayments and a lower interest rate act in the same way as a write-off, which is why many analysts point out that the Greek debt mountain is worth the equivalent of 90% of GDP in real terms and not the 180% commonly quoted. Merkel said that for this reason there was no need for a Plan B.
Tsipras pledged to implement radical reforms to ensure the Greek oligarchy finally makes a fair contribution. The agreement thrashed out overnight would allow Greece to stand on its feet again, he said.
Implementation of the reforms would be tough, he said, but “we fought hard abroad, we must now fight at home against vested interests”.
He added: “The measures are recessionary, but we hope that putting Grexit to bed means inward investment can begin to flow, negating them.”
Liberalising the economy
The new deal also calls for “more ambitious product market reforms” that will include liberalising the economy with measures ranging from bringing in Sunday trading hours to opening up closed professions.
Greece’s labour markets must also be liberalised, the other eurozone leaders say. Notably, they are demanding Athens “undertake rigourous reviews and modernisation” of collective bargaining and industrial action.
Pharmacy ownership, the designation of bakeries and the marketing of milk are also up for reform, all as recommended in a “toolkit” from the Paris-based Organisation for Economic Co-operation and Development.
The statement from the euro summit stipulates that Greece will request continued IMF support from March 2016. This is another loss for Tsipras, who had reportedly resisted further IMF involvement in Greece’s rescue.
Greece has been told to get on with privatising its energy transmission network operator (ADMIE).
Greece has been told to strengthen its financial sector, including taking “decisive action on non-performing loans” and eliminating political interference.
Shrinking the state
Athens has been told to depoliticise the Greek administration and to continue cutting the costs of public administration.
The Guardian highlights one of the hidden landmines in the agreement:
Our economics editor Larry Elliott has been going through the details of this morning’s deal and concludes it will deepen the country’s recession, make its debt position less sustainable and that it “virtually guarantees that its problems come bubbling back to the surface before too long.”
One line in the seven-page euro summit statement sums up the thinking behind this act of folly, the one that talks about “quasi-automatic spending cuts in case of deviations from ambitious primary surplus targets”.
Translated into everyday English, what this means is that leaving to one side the interest payments on its debt, Greece will have to raise more in revenues than the government spends each and every year. If the performance of the economy is not strong enough to meet these targets, the “quasi-automatic” spending cuts will kick in. If Greece is in a hole, the rest of the euro zone will hand it a spade and tell it to keep digging.
This approach to the public finances went out of fashion during the 1930s but is now back. Most modern governments operate what are known as “automatic stabilisers”, under which they run bigger deficits (or smaller surpluses) in bad times because it is accepted that raising taxes or cutting spending during a recession reduces demand and so makes the recession worse.
At least according to press reports, Tsprias put up his greatest fight over inclusion of the IMF in monitoring the agreement and privatization. The IMF is definitely in. As for privatization or what the Guardian calls “Asset Transfer,” gains were minimal. One can question in fact whether at least the latter area is one where Tsprias should have tried to draw lines. At least on the face of it, it would seem that it would have made more sense to fight the demand to “liberalize” labor markets. A victory here would have given the state freedom to encourage the development of a strong labor movement, regardless of ownership.
Moreover, as noted in the summary, Greece is still not guaranteed new loans or debt relief. Its parliament has to pass all of the above and then the government gets to start negotiations again.
As the Guardian reports:
European leaders lined up to say Grexit has been averted, but this snappy soundbite glides over the fact the eurozone has simply agreed to open negotiations on an €86bn (£62bn) bailout. Although this is a step to shoring-up confidence in the euro, it is only a promise to have more talks with no guarantee of success.
Talks on the bailout plan are forecast to last around four weeks. “We know time is critical for Greece, but there are no shortcuts,” said Klaus Regling, the official in charge of the the European Stability Mechanism, the eurozone’s permanent bailout fund that Greece hopes to tap.
But these formal talks can only begin, if eurozone leaders avoid several political and financial tripwires. The Greek government has until the end of Wednesday to ensure that sweeping reforms to its pension system and VAT rates are written into law. If Greek lawmakers meet this eurozone-imposed deadline, the baton will pass to the creditors. At least five countries, including Germany, the Netherlands and Finland, will have to put the idea of opening negotiations on a bailout to a parliamentary vote.
Politics could be overtaken by financial deadlines. Athens faces demands to repay €7bn of debts in July, including €3.5bn due to the European Central Bank on Monday (20 July).
Eurozone officials are working round the clock to come up with emergency funds that will help Greece bridge the gap before a permanent bailout kicks in. “It’s not going to be easy,” said Jeroen Dijsselbloem, the hawkish Dutch politician, who was re-elected chair of the eurozone group of finance ministers on Monday. Several options were being discussed on bridge finance, but no one had found “the golden key to solve the problem”, he said, although he hopes to see progress by Wednesday.
The ECB will also continue to maintain a choke hold on the Greek economy perhaps for months, tightening if any deviations take place.
They told clients tonight that the European Central Bank is unlikely to cut Greece much slack until the third bailout is agreed.
We suspect the ECB will stall an ELA decision until Greece begins to legislate the new deal later this week.
Greece would still face a tight ELA cap, however. We expect the ELA cap will remain carefully calibrated and controlled at least until the new ESM loan is fully in place. Access to banks could be fully normalised only in the fall.
It is hard to see this agreement as anything but failure. Clearly the main responsibility for this disaster rests with the leaders of Germany and the European Union. They showed that they had no interest in meaningful, honest negotiations, fearing that they would likely lead to a real challenge to their power. But unfortunately Syriza’s leadership did not make the best of the bad hand they were dealt. They needed to talk more truthfully to the population about the political/class nature of and reasons for the difficult challenges they faced and do the maximum possible to strengthen their negotiating position and prepare the population for the failure that they thought likely.
Hopefully, the Greek people will find the time and space necessary to digest and learn the lessons from this struggle and successfully regroup. We all must.
“Reports From The Economic Front” will soon be moving to its future home.
It seems certain that the political economy textbooks of the future will include a chapter on the experience of Greece in 2015.
July 5, 2015, the people of Greece overwhelmingly voted NO to the Troika’s austerity ultimatum. According to the Greek government, “61.31% of the votes for the 5th of July Referendum voted “NO” whereas 38.69% voted “YES”. There was also a 5.8% of invalid/blank votes. Turnout was 62.5%.”
The Greek government, led by its prime minister, Alexis Tsipras, refused to accept Troika dictates. Instead, recognizing how important the decision was, he put the Troika’s “take it or leave it” ultimatum up to referendum. Win or lose, that was an inspiring vote of confidence in the Greek people. And by the extent of their participation and choice in the vote the Greek people showed that his confidence was not misplaced.
Background To The Referendum
Greece has experienced six consecutive years of recession and the social costs have been enormous. The following charts provide only the barest glimpse into the human suffering:
While the Troika has always been eager to blame this outcome on the bungling and dishonesty of successive Greek governments and even the Greek people, the fact is that it is Troika policies that are primarily responsible. In broad brush, Greece grew rapidly over the 2000s in large part thanks to government borrowing, especially from French and German banks. When the global financial crisis hit in late 2008, Greece was quickly thrown into recession and the Greek government found its revenue in steep decline and its ability to borrow sharply limited. By 2010, without its own national currency, it faced bankruptcy.
Enter the Troika. In 2010, the European Commission, European Central Bank, and the IMF penned the first bailout agreement with the Greek government. The Greek government received new loans in exchange for its acceptance of austerity policies and monitoring by the IMF. Most of the new money went back out of the country, largely to its bank creditors. And the massive cuts in public spending deepened the country’s recession. By 2011 it had become clear that the Troika’s policies were self-defeating. The deeper recession further reduced tax revenues, making it harder for the Greek government to pay its debts. Thus in 2012 the Troika again extended loans to the Greek government as part of a second bailout which included . . . wait for it . . . yet new austerity measures.
Not surprisingly, the outcome was more of the same. By then, French and German banks were off the hook. It was now the European governments and the International Monetary Fund that worried about repayment. And the Greek economy continued its downward ascent.
Significantly, in 2012, IMF staff eventually acknowledged that the institution’s support for austerity in 2010 was a mistake. Simply put, if you ask a government to cut spending during a period of recession you will only worsen the recession. And a country in recession will not be able to pay its debts. It was a pretty clear and obvious conclusion.
But, significantly this acknowledgement did little to change Troika policy to Greece.
By the end of 2014, the Greek people were fed up. Their government had done most of what was demanded of it and yet the economy continued to worsen and the country was deeper in debt than it had been at the start of the bailouts. And, once again, the Greek government was unable to make its debt payments, now to Troika institutions, without access to new loans. So, they elected Syriza in January 2015 because of the party’s commitment to negotiate a new understanding with the Troika, one that would enable the country to return to growth, which meant an end to austerity and debt relief.
Syriza entered the negotiations hopeful that the lessons of the past had been learned. But no, the Troika refused all additional financial support unless Syriza agreed to implement yet another round of austerity. What started out as negotiations quickly turned into a one way scolding. The Troika continued to demand significant cuts in public spending to boost Greek government revenue for debt repayment. Syriza eventually won a compromise that limited the size of the primary surplus required, but when they proposed achieving it by tax increases on corporations and the wealthy rather than spending cuts, they were rebuffed, principally by the IMF.
The Troika demanded cuts in pensions, again to reduce government spending. When Syriza countered with an offer to boost contributions rather than slash the benefits going to those at the bottom of the income distribution, they were again rebuffed. On and on it went. Even the previous head of the IMF penned an intervention warning that the IMF was in danger of repeating its past mistakes, but to no avail.
Finally on June 25, the Troika made its final offer. It would provide additional funds to Greece, enough to enable it to make its debt payments over the next five months in exchange for more austerity. However, as the Greek government recognized, this would just be “kicking the can down the road.” In five months the country would again be forced to ask for more money and accept more austerity. No wonder the Greek Prime Minister announced he was done, that he would take this offer to the Greek people with a recommendation of a no vote.
Here is the New York Times version of events:
ATHENS — Last Friday morning [June 26], the Greek prime minister, Alexis Tsipras, gathered his closest advisers in a Brussels hotel room for a meeting that was meant to be secret. All the participants had to leave their phones outside the door to prevent leaks.
A week of tense negotiations between Greece and its creditors was coming to an end. And it was becoming increasingly clear to the left-leaning prime minister that he could not accept the tough economic terms that his lenders were demanding in exchange for new loans.
As Mr. Tsipras paced and listened on the 25th floor of the hotel, his top aides argued that neither Germany nor the International Monetary Fund wanted an agreement and that they were instead pushing Greece into default and out of the euro.
The night before, at a meeting of eurozone leaders at the European Union’s headquarters, Mr. Tsipras had asked Chancellor Angela Merkel of Germany about including debt relief with a deal, only to be rebuffed again.
This is going nowhere, the 40-year-old Greek leader said in frustration, according to people who were in the room with him. The more we move toward them, the more they are moving away from us, Mr. Tsipras said.
After hours of arguing back and forth about possible responses, Mr. Tsipras made a decision to get on a plane and go home to call a referendum, according to the people who were in the room. . . .
But a close look at the events of the last week — based on interviews with some of the participants and others briefed on the discussions — reveals an accumulation of slights, insults and missed opportunities between Greece and its creditors that led the prime minister to conclude that a deal was not possible, regardless of any concessions he might make.
Greece’s creditors see it differently, of course. In their view, Mr. Tsipras, who swept into power on a wave of anti-austerity support, was only interested in a deal that would go light on austerity measures and deliver maximum debt relief. He could not and would not comply with any agreement that required more sacrifices from the Greek people.
Still, for a week that ended with so much enmity, its start was auspicious.
That Monday, June 22, Greece’s technical team in Brussels submitted an eight-page proposal to their counterparts. The paper was an effort to bridge a six-month divide on how Greece planned to sort out its future finances.
For political reasons, the Tsipras government had said it would not cut pensions or do away with tax breaks that favored businesses serving tourists on the Greek islands. Instead, the new Greek plan envisaged a series of tax increases and increases in pension contributions to be borne by corporations.
The initial response seemed positive. Both Pierre Moscovici, a senior finance official at the European Commission who is known to be sympathetic toward Greece, and Jeroen Dijsselbloem, the head of Europe’s working group of finance ministers who is one of Greece’s harshest critics, said on Tuesday that the plan was promising.
The Greek team was elated. For the first time, the Greek numbers were adding up.
The next morning, though, that optimism evaporated.
Greece’s creditors — the I.M.F., the other eurozone nations and the European Central Bank — sent the Greek paper back and marked it in red where there were disagreements.
The criticisms were everywhere: too many tax increases, unifying value-added taxes, not enough spending cuts and more cuts needed on pension reforms.
The Greek team couldn’t believe it. The creditors had seemed to dial everything back to where the talks were six months ago. . . .
Instead of bending as the deadline neared for Greece to make a payment of 1.5 billion euros to the I.M.F., Germany and the fund appeared to be hardening their positions.
On Wednesday night, Greece was presented with a counterproposal. At the behest of the I.M.F., the tax increases had been reduced and, crucially, the government was told that it needed to increase value-added taxes on hotels.
Moreover, several requests by the Greeks to discuss debt relief had been rejected — you need to agree to reforms first, they were told.
On Thursday, Mr. Varoufakis and Mr. Tsipras agreed that they could not present this latest proposal to their cabinet back in Athens. In recent weeks, radical factions within the ruling Syriza party in Greece had become more vocal in opposing any deal that crossed certain lines on pensions and taxes.
Moreover, some within Syriza were even pushing Mr. Tsipras to walk away from Europe altogether and return to the drachma, an approach that the prime minister and Mr. Varoufakis had promised never to consider. . . .
Mr. Schäuble began criticizing Mr. Moscovici, the senior European Commission official, over his positive comments regarding the Greek offer.
Even the latest proposal from the creditors was too lenient toward the Greeks, Mr. Schäuble argued, saying that he saw little chance that he could get it past the German Bundestag, the national parliament of the Federal Republic of Germany.
The only solution here is capital controls, he said, his voice rising.
But Mr. Varoufakis persisted on the issue of Greece’s staggering debt load, ignoring the admonitions of Mr. Dijsselbloem and others.
Then Mr. Varoufakis turned on Christine Lagarde, the French director of the I.M.F.
Five years ago, the fund had given its blessing to the first bailout, doling out loans alongside Europe despite internal misgivings that Greece would be in no position to repay them.
Now the I.M.F. was pushing Greece to sign up to yet another austerity program to access more loans even though the fund had now concluded that their initial misgivings were correct: Greece’s debt was unsustainable.
I have a question for Christine, Mr. Varoufakis said to the packed hall: Can the I.M.F. formally state in this meeting that this proposal we are being asked to sign will make the Greek debt sustainable?
Yanis has a point, Ms. Lagarde responded — the question of the debt needs to be addressed. (A spokesman for the fund later said that this was not an accurate description of the exchange.)
But before she could explain, she was interrupted by Mr. Dijsselbloem.
It’s a take it or leave it offer, Yanis, the Dutch official said, peering at him through rimless spectacles.
In the end, Greece would leave it.
Almost immediately after the Greek government announced its plans for a referendum, the leaders of the Troika intervened in the Greek debate. For example, as the New York Times reported:
By long-established diplomatic tradition, leaders and international institutions do not meddle in the domestic politics of other countries. But under cover of a referendum in which the rest of Europe has a clear stake, European leaders who have found Mr. Tsipras difficult to deal with have been clear about the outcome they prefer.
Many are openly opposing him on the referendum, which could very possibly make way for a new government and a new approach to finding a compromise. The situation in Greece, analysts said, is not the first time that European politics have crossed borders, but it is the most open instance and the one with the greatest potential effect so far on European unity. . . .
Martin Schulz, a German who is president of the European Parliament, offered at one point to travel to Greece to campaign for the “yes” forces, those in favor of taking a deal along the lines offered by the creditors.
On Thursday, Mr. Schulz was on television making clear that he had little regard for Mr. Tsipras and his government. “We will help the Greek people but most certainly not the government,” he said.
European leaders actually actively worked to distort the terms of the referendum. Greeks were voting on whether to accept or reject Troika austerity policies yet the Troika leaders claimed the vote was on whether Greece should remain in the Eurozone. In fact, there is no mechanism for kicking a country out of the Eurozone and Syriza was always clear that it was not seeking to leave the zone. As the Guardian explained:
One day before Greece’s bailout ends and the country’s financial lifeline melts away, Europe’s big guns have lined up one after another to tell the Greeks unequivocally that voting no in Sunday’s referendum means saying goodbye to the euro.
There was no mistaking the gravity of the situation now facing both Greece and Europe on Monday. Leaders were by turns ashen-faced, resigned, desperate and pleading with Athens to think again and pull back from the abyss.
There were also bitter attacks on Alexis Tsipras, the young Greek prime minister whose brinkmanship has gone further than anyone believed possible and left the eurozone’s leaders reeling.
One measure of the seriousness of the situation could be gleaned from the leaders’ schedules. In Berlin, Brussels, Paris and London, a chancellor, two presidents and a prime minister convened various meetings of cabinet, party leaders and top officials devoted solely to Greece.
The French president, François Hollande, was to the fore. “It’s the Greek people’s right to say what they want their future to be,” he said. “It’s about whether the Greeks want to stay in the eurozone or take the risk of leaving.”
Athens insists that this is not what is at stake in the highly complicated question the Greek government has drafted for the referendum, but Berlin, Paris and Brussels made plain that the 5 July vote will mean either staying in the euro on their tough terms or returning to the drachma.
In what was arguably the biggest speech of his career, the president of the European commission, Jean-Claude Juncker, appeared before a packed press hall in Brussels against a giant backdrop of the Greek and EU flags.
He was impassioned, bitter and disingenuous in appealing to the Greek people to vote yes to the euro and his bailout terms, arguing that he and the creditors – rather than the Syriza government – had the best interests of Greeks at heart.
Tsipras had lied to his people, deceived and betrayed Europe’s negotiators and distorted the bailout terms that were shredded when the negotiations collapsed and the referendum was called, he said.
“I feel betrayed. The Greek people are very close to my heart. I know their hardship … they have to know the truth,” he said.
“I’d like to ask the Greek people to vote yes … no would mean that Greece is saying no to Europe.”
In a country where the hardship wrought by austerity brought a sharp increase in suicides, Juncker offered unfortunate advice. “I say to the Greeks, don’t commit suicide because you’re afraid of dying,” he said.
Juncker’s extraordinary performance sounded and looked as if he were already mourning the passing of a Europe to which he has dedicated his long political career. His 45-minute speech was both proprietorial and poignant about his vision, which seems to be giving way to a rawer and rowdier place.
That was clear from the trenchant remarks of Sigmar Gabriel, Germany’s vice-chancellor and the head of the country’s Social Democratic party. He coupled the Greek situation with last week’s foul tempers over immigration and said that Europe faces its worst crisis since the EU’s founding treaty was signed in Rome in 1957.
Gabriel was the first leading European politician to voice what many think and say privately about Tsipras – that the Greek leader represents a threat to the European order, that his radicalism is directed at the politics of mainstream Europe and that he wants to force everyone else to rewrite the rules underpinning the single currency.
The unspoken message was that Tsipras is a dangerous man on a mission who has to be stopped.
Standing alongside his boss, Angela Merkel, as if to send a joint nonpartisan national signal from Germany, Gabriel said that if the Greek people vote no on Sunday, they would be voting “against remaining in the euro”.
Unlike Juncker and Hollande, who pleaded with the Greek people to reject Tsipras’s urging of a no vote, the German leaders sounded calmly resigned to the rupture.
For Merkel, it was clear that the single currency’s rulebook was much more important than Greece. In this colossal battle of wills, Tsipras could not be allowed to prevail.
Having whipped up popular fears of an end to the euro, some Greeks began talking their money out of the banks. On June 28, the European Central Bank then took the aggressive step of limiting its support to the Greek financial system.
This was a very significant and highly political step. Eurozone governments do not print their own money or control their own monetary systems. The European Central Bank is in charge of regional monetary policy and is duty bound to support the stability of the region’s financial system. By limiting its support for Greek banks it forced the Greek government to limit withdrawals which only worsened economic conditions and heightened fears about an economic collapse. This was, as reported by the New York Times, a clear attempt to influence the vote, one might even say an act of economic terrorism:
Some experts say the timing of the European Central Bank action in capping emergency funding to Greek banks this week appeared to be part of a campaign to influence voters.
“I don’t see how anybody can believe that the timing of this was coincidence,” said Mark Weisbrot, an economist and a co-director of the Center for Economic and Policy Research in Washington. “When you restrict the flow of cash enough to close the banks during the week of a referendum, this is a very deliberate move to scare people.”
Then on July 2, 3 days before the referendum, an IMF staff report on Greece was made public. Echos of 2010, the report made clear that Troika austerity demands were counterproductive. Greece needed massive new loans and debt forgiveness. The Bruegel Institute, a European think tank, offered the following summary and analysis of the report:
On July 2, the IMF released its analysis of whether Greek debt was sustainable or not. The report said that Greek debt was not sustainable and deep debt relief along with substantial new financing were needed to stabilize Greece. In reaching this new assessment, the IMF stated it had learned many lessons. Among them: Greeks would not take adequate structural reforms to spur growth, they would not sell enough of their assets to repay their debt, and they were unable to undertake sufficient fiscal austerity. That left no choice but to grant Greece greater debt relief and to provide new financing to tide Greece over till it could stand on its own feet. The relief, the IMF, says must be provided by European creditors while the IMF is repaid in whole.
The IMF’s report is important because it reveals that the creditors negotiated with Greece in bad faith. For months, a haze was allowed to settle over the question of Greek debt sustainability. The timing of the report’s release—on the eve of a historic Greek referendum, well after the technical negotiations have broken down—suggests that there was no intention to allow a sober analysis of the Greek debt burden. Paul Taylor of Reuters tells us that the European authorities worked hard to suppress it and Landon Thomas of the New York Times reports that, until a few days ago, the IMF had played along.
As a result, the entire burden of adjustment was to fall on the Greeks before any debt reduction could even be contemplated. This conclusion was based on indefensible economic logic and the absence of the IMF’s debt sustainability analysis intentionally biased the negotiations. . . .
But, of course, as the IMF now makes clear, if a country has to repay about 4 percent of its income each year over the next 40 years and that country has poor growth prospects precisely because repaying that debt will lower growth, then debt is not sustainable. If this report had been made public earlier, the tone of the public debate and the media’s boorish stereotyping of Greeks and its government would have been balanced by greater clarity on the Greek position.
But the problem with the IMF report is much more serious. Its claims to having learned lessons from the past years are as self-serving as its call on other creditors to provide the debt relief. The report insistently points at the Greek failings but fails to ask if the creditors misdiagnosed the Greek patient and continued to damage Greek economic recovery. Protected by the authority and respect that the IMF commands, it is easy to lay the blame on the Greeks whose rebuttals are treated as more hysterical outbursts of an (ultra) “radical” government. . . .
This is why the IMF’s latest report is disingenuous. The report says that growth in Greece has failed to materialize because Greeks are incapable of undertaking sustained structural reforms. There is so much that is wrong with that statement. First, my colleague Zsolt Darvas of Bruegel argues persuasively that the Greeks have, in fact, undertaken significant structural reform. He notes that the “Doing Business” index has improved materially and labor markets are now more flexible than in Germany. Second, the IMF had set unrealistically high expectations of structural reforms: productivity was to jump from the lowest in the euro area to among the highest in a short period of time and labor participation rates were to jump to the German level. Again, the IMF’s own research department cautions that the dividends from structural reforms are weak and take time to work their way through (see box 3.5 in this link). The debt-deflation cycle works immediately. If it has taken decades for Greece to reach its low efficiency levels, it was irresponsible to assume that early reforms would turn it around in a few years. Finally, when an economy spirals down in a debt-deflation cycle, demand falls and that, in itself, will show up in the less productive use of resources. So, it is even possible that productivity has increased more but is being drowned by shrinking demand.
In other words, the leaders of the Troika were insisting on policies that the IMF’s own staff viewed as misguided. Moreover, as noted above, European leaders desperately but unsuccessfully tried to kill the report. Only one conclusion is possible: the negotiations were a sham.
The Troika’s goals were political: they wanted to destroy Syriza because it represented a threat to a status quo in which working people suffer to generate profits for the region’s leading corporations. It apparently didn’t matter to them that what they were demanding was disastrous for the people of Greece. In fact, quite the opposite was likely true: punishing Greece was part of their plan to ensure that voters would reject insurgent movements in other countries, especially Spain.
And despite, or perhaps because of all of the interventions and threats highlighted above, the Greek people stood firm. As the headlines of a Bloomberg news story proclaimed: “Varoufakis: Greeks Said ‘No’ to Five Years of Hypocrisy.”
The Greek vote was a huge victory for working people everywhere.
Now, we need to learn the lessons of this experience. Among the most important are: those who speak for dominant capitalist interests are not to be trusted. Our strength is in organization and collective action. Our efforts can shape alternatives.
“Reports From The Economic Front” is moving. For a short time it will appear at both its current location and future home. Still working on the email subscription function.
The drive for $15 continues throughout the country. Not surprisingly, gains have generated resistance, with opponents raising fears of economic chaos. The experience of the city of SeaTac, Washington, population just under 28,000 and home of the Seattle-Tacoma airport, helps to illustrate how unfounded those fears are and the importance of labor-community organizing in securing victories.
Late 2013 SeaTac became the first city to pass a $15 an hour minimum wage. Perhaps even more noteworthy, its law mandated immediate implementation; there was no phase in period. The measure also included an inflation index, ensuring that the new minimum would maintain its real value.
The victory was a narrow one. One compromise that may well have tipped the balance is that not all employees in the city are covered. The beneficiaries are, as explained by a Huffington Post story,
transportation and hospitality workers at large businesses tied to Seattle-Tacoma International Airport, rather than to all private employers within the city. Among those exempted from the law: free-standing restaurants not tied to hotels; unionized hotels that already have a collective bargaining agreement with workers; hotels with fewer than 30 employees or 100 guest rooms; and “park and fly” lots with fewer than 100 parking spaces or 25 employees.
Workers at SeaTac airport were supposed to be covered, but a business coalition, led by Alaska Airlines, argued that because the airport is owned and operated by the Port of Seattle, not the city of SeaTac, it should be exempt. The issue is still being fought in the courts. Approximately 6500 workers would benefit if the law is upheld.
Regardless, approximately 1,500 workers have already benefited, some 400 of who live in the city. The Huffington Post article offers this story to highlight the importance of the victory:
When the new law went into effect last year , Sammi Babakrkhil got a whopping 57 percent raise.
A valet attendant and shuttle driver at a parking company called MasterPark, Babakrkhil saw his base wage jump from $9.55 per hour, before tips, up to $15. Having scraped by in America since immigrating from Afghanistan 11 years ago, he suddenly faced the pleasant predicament as his co-workers: What to do with the windfall?
For the overworked father of three, it wasn’t a hard question. Babakrkhil decided to quit his other full-time job driving shuttles at a hotel down the road. Though he’d take home less money overall, the pay hike at MasterPark would allow him to work 40 hours a week instead of a brutal 80 — and to actually spend time with his wife and three young girls.
As for predictions of doom from the business community, the Puget Sound Business Journal reports:
In the run-up to the contentious vote, the owners of some companies bemoaned the impact the proposal would have on their businesses, telling Mia Gregerson – then the deputy mayor of the suburb south of Seattle – that the law would force them out of business. Other opponents said passage would create an implementation nightmare for the city. . . .
“I’m not aware of any business closing because of Prop. 1,” Gregerson said.
City Manager Todd Cutts said he has not heard of any businesses closing due to Prop. 1 either. City Hall has not spent an inordinate amount of time enforcing the law or implementing it for that matter, he said. . . .
Roger McCracken, a representative of one affected business, the airport parking lot MasterPark, which opposed Prop. 1 and contributed $31,890 to the group that tried to defeat it, declined to comment Monday. But on its website, the company posted that it had raised the wages of all employees, resulting in a 63 percent cost of labor increase, or $1.4 million a year. To absorb this, the company added a 99 cent a day surcharge to customer parking fees.
The former manager of another SeaTac business, an upscale hotel called Cedarbrook Lodge, said Prop 1 would “destroy this community.” Cedarbrook undertook a $16 million expansion that added 63 rooms and a spa that started in December 2013.
While the lawsuit blocked implementation of Prop. 1 at the airport, the Port of Seattle Commission this summer voted to mandate increases for some employees to $11.22 an hour in January 2015 and $13 an hour in January 2017, affecting about 3,000 workers.
These workers’ wages, however, could be boosted to $15 an hour depending on how the state Supreme Court rules on an appeal of the judge’s decision that Prop. 1 does not apply to workers at the airport.
Victories like the one in the city of SeaTac are based on organizing. The following long excerpt from a Labor Notes article provides important insight into some of the organizing challenges faced and overcome:
When organizers from the Service Employees (SEIU) and the Teamsters first began reaching out to airport workers in 2011, we faced a big challenge. The single largest group of low-wage airport workers hailed from Somalia. While their conditions were lousy, they weren’t quite ready to trust us.
In the past, unions weren’t seen as particularly responsive to African workers, especially Muslim workers. For instance, in 2003 Hertz Rent-a-Car had suspended a group of Somali rental car shuttle drivers when they went to pray during Ramadan.
But the workers didn’t get the help they needed from their union, the Teamsters. Instead, an immigrant rights group filed a discrimination complaint on their behalf, got their jobs back, and secured their right to religious expression.
Eight years later, a nearly identical incident erupted. Hertz suspended 34 Somali workers for taking a brief break to go pray.
THE RIGHT TO PRAY
For Muslims daily prayer is obligatory—it’s one of the five pillars of Islam. Ritual prayers last but a few minutes, hardly causing a blip in operations.
After the 2003 suspensions and legal action, Hertz management had agreed to accommodate the workers, treating prayer breaks like smoke or bathroom breaks: just take it and then come back to work. In bargaining with the Teamsters, they agreed that no clock-out was necessary. They even provided a spare room for prayer.
But when workers went to pray on the last Friday in September 2011, the manager told them to clock out. Shuttle driver Zainab Aweis recalled her manager standing with his arms extended, blocking workers who were trying to get into the prayer room. “If you guys pray, you go home,” he declared.
For Aweis, it was an easy choice: she went to pray. “I like the job,” she said. “But if I can’t pray, I don’t see the benefit.” While money mattered, faith was not negotiable.
Again the workers appealed to their union, Teamsters Local 117. Given the anti-Muslim hysteria in this country, Teamsters leaders might just have responded with low-profile activities, like filing a grievance.
But instead, the Teamsters took a stand. They organized a multi-faith pray-in at the Hertz counter and invited the media. Muslims, Christians, and Jews joined union and community activists, praying while holding signs that read, “Respect me, respect my religion.” Union officers and the Hertz shop steward went on national news shows. They brought in lawyers.
Hertz fought back, conceding the workers’ right to pray but insisting on maintaining the suspensions. But union leaders held the line, arguing that the company had violated a principle of collective bargaining. If Hertz wanted to change the break policy, it would have to bargain with union members first.
Essentially the union leaders said that Muslims’ right to pray to Allah isn’t just a Muslim issue. It’s a labor movement issue, because it’s about workers’ right to honor their cultures and traditions—and to have some say over break time.
DOORS BEGAN TO OPEN
You can imagine the negative blowback the Teamsters got—locally, from some of their members, and also in the national blogosphere. But their willingness to take on this fight proved to be a turning point in the relationship between the unions at the airport and the East African community.
After the pray-in, community doors began to open. We were invited to conduct union meetings in the mosques. Imams delivered Friday sermons exhorting people to get civically involved.
Workers warmed up to organizers at the airport, saying, “I heard you were at the mosque,” or “the imam told us about the union.” The airport campaign gained momentum.
When the union organizers and faith leaders both started telling the airport workers, “We are here with you, fight with us,” community leader Mohamed Sheikh Hassan said, it made workers realize “that you can make a change, that you can stand up, that everything’s possible collectively.”
Other airport workers—largely new immigrants—saw what happened at Hertz, and concluded that the union would fight for their broader interests.
Two years later, as the union organizing campaign pivoted to the $15 ballot initiative, we registered more than 900 new voters in SeaTac, almost all new immigrants or the children of immigrants—boosting the voting population in this small city by 9 percent. Probably more than 200 were registered outside Friday prayers.
We won the ballot initiative by 77 votes.
“Reports From The Economic Front” is moving. For a short time it will appear at both its current location and future home. Those of you receiving it by email will need to re-enter your email address at the new site.
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.
“Reports From The Economic Front” is moving. For a short time it will appear at both its current location and future home. Those of you receiving it by email will need to re-enter your email address at the new site.
Growth is not development. The Chinese labor experience is a good example of this. In brief, despite record rates of growth, the Chinese economy has failed to generate formal sector jobs. In fact, there were fewer formal sector urban workers employed in 2010 than in 1990. All the job growth has been outside the formal sector, which means that a growing percentage of Chinese workers are not covered by the country’s labor law, and their wages, benefits, and working conditions are not captured by official Chinese labor statistics.
From 1979 until 2010, China recorded an average annual GDP growth rate of approximately 10%, a thirty year growth rate unmatched by any other country. The country’s rate of growth is now slowing, from 10.6% in 2010, to 7.7% in 2012, and 7.4% in 2014. Of course those are official rates of growth. According to most analysts, Chinese growth was probably closer to 5% in 2014 and, despite government efforts, likely to continue to slow.
But what about the labor experience? In “Misleading Chinese Legal and Statistical Categories: Labor, Individual Entities, and Private Enterprises,” a 2013 article published in the journal Modern China, Philip C.C. Huang describes the evolution and application of Chinese labor law, highlighting its relevance for and growth of different categories of labor. As he explains, Chinese statistical categories recognize four main types of labor activity based on the legal standing of the employing firm: labor by “employee-workers,” labor by workers employed by legally registered “private enterprises,” labor by people in legally registered “individual entities,” and “unregistered” labor.
Only “employee-workers” are considered formal sector workers and covered by the country’s labor law. The following table, with numbers expressed in units of 10,000, shows that there were almost 128 million urban formal sector workers employed in China in 2010.
Significantly, as the next table illustrates, both the number and percentage of workers employed in the formal urban economy are shrinking. The number employed in the formal economy in 2010 was less than the number employed in 1990. As of 2010, only 36.8% of all workers in the urban economy were employed in formal sector jobs. In short, all the growth in urban employment over recent decades has been in categories not covered by Chinese labor law, which means that those workers are not covered by legally established minimum wage, overtime regulations, and social benefit requirements.
Who are the workers employed outside the formal sector? “Private enterprises” are mainly legally registered small-scale businesses averaging 13-15 people. As Huang describes: “They are also as a rule not formally incorporated as a limited liability entity with separate ‘legal person’ status and are therefore not considered legal ‘employing units’ that are involved in ‘labor relations’. . . . These small businesses rely mainly on the cheapest labor available, the majority of them on disemployed workers and peasant-workers, who are considered to be only in a casual work relationship with them and for whom they need provide no benefits.”
“Individual entities” include legally registered small scale operations employing one or perhaps two people, usually the owner and a family member or friend. In the largest cities, these workers are “largely engaged in wholesale and retail trade (mainly of daily necessities and clothing), followed by small and modest eateries and hostels, domestic and other services, and transport work. . . .Regardless, the great majority of the people operating the individual entities come from the ranks of the disemployed urban workers and the migrant peasant-workers.”
“Unregistered” workers are those, as the category name implies, whose work is unregistered and therefore largely illegal or extralegal. They are primarily “newer and less established peasants-workers working in the lowest levels of the informal economy, as temporary construction workers, janitors, itinerant peddlers or stall keepers, guards standing outside residential compounds and commercial buildings the help in eateries and hostels domestic servants manual transport and loading-unloading workers, and the like, many of whom work in the shadow of the law without permits, truly members of the so-called floating population.”
Unregistered workers “appear in the official state statistical tallies only as the difference between those who have registered with the official state administrative entities and the actual numbers of laborers counted up by the decennial population censuses (which have made every effort to enumerate every person living and working in the cities).” As we can see from the table above, the number of unregistered urban workers are quickly catching up to the number of formal sector urban workers.
The critical point here is that despite record rates of growth few formal sector jobs have been created in urban areas. That means that official Chinese labor laws and regulations cover a relatively small and declining share of Chinese urban sector workers. As a consequence, the great majority of urban workers suffer from conditions far worse than do formal sector workers.
At the same time, things are far from rosy for most formal sector workers. For example, many companies, especially foreign owned companies, have been actively seeking to weaken formal sector job rights by employing so-called dispatched workers and student interns to avoid paying the wages and benefits mandated by Chinese labor law. It is therefore not surprising, as recent labor struggles make clear, that even workers in the formal sector have been forced to take direct action to ensure compliance with their country’s labor laws and improve their working conditions.
Business has failed to create the jobs we need and our public policies are failing to protect those who are unemployed.
As an Economic Policy Institute report explains:
The drop in the official unemployment rate overstates the overall improvements made in the underlying labor market. The United States lost 7.8 million jobs between December 2007 and October 2010 but the working-age population continued to grow over that period. As a result, even with steady job growth in recent years, the current labor market is still short 5.6 million jobs needed to keep up with the growth in potential labor force (see Figure A).
And, as of December 2014, only 23.1 percent of unemployed workers received any state unemployment benefits (see Figure B). One reason is the nature of many of the recently created jobs: they are short term and low paying; this leaves workers without the work record or earnings necessary to draw benefits. Another reason:
since 2011 nine states have cut the maximum available number of weeks of regular UI benefit duration [to below the long-accepted norm of 26 weeks] : Arkansas, Florida, Georgia, Illinois, Kansas, Michigan, Missouri, North Carolina, and South Carolina. Except Illinois, all these states made other legislative changes to their programs which may have reduced benefit recipiency.
Times are not easy even for those lucky enough to receive the benefits they earned: As the Economic Policy Institute report notes:
Many states pay low benefits. There were 11 states with maximum weekly benefit levels of $350 or less in 2014, meaning that workers earning more than $700 a week (well below the median weekly earnings) do not get half their pre-layoff wages replaced by UI benefits. Average benefits overall were only $315 a week in 2014 with average weekly benefits below poverty levels in the poorly performing states.
President Obama continues to press for a form of fast track approval to ensure Congressional support for two major trade agreements, the Trans-Pacific Trade Partnership Agreement with 11 other countries (Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) and the Trans-Atlantic Trade and Investment Partnership Agreement with the entire European Union.
Both agreements, based on leaks of current negotiating positions, have been structured to promote business interests and will have negative consequences for working people relative to their wages and working conditions, access to public services, and the environment.
These agreements are being negotiated in secret: even members of Congress are locked out of the negotiating process. The only people that know what is happening and are in a position to shape the end result are the U.S. trade representative and a select group of 566 advisory group members selected by the U.S. trade representative.
Thanks to a recent Washington Post blog we can see who these advisory group members are and, by extension, whose interests are served by the negotiations. According to the blog post, 480 or 85% of the members are from either industry or trade association groups. The remaining 15% are academics or members of unions, civil society organizations, or government committees. The blog post includes actual names and affiliations.
Here we can see the general picture of corporate domination of U.S. trade policy as illustrated by the Washington Post.
In short, corporate interests are well placed to directly shape our trade policies. No wonder drafts of these treaties include chapters that, among other things, lengthen patent protection for drugs, promote capital mobility and privatization of public enterprises, and allow corporations to sue governments in supra-national secret tribunals if public policies reduce expected profits.
Officially, the U.S. economy has been in expansion since June 2009. Many people find this hard to believe. One reason is that wages have either been flat or falling for much of the period.
A recent study of real hourly wage trends over the period 2007 to 2014 by the Economic Policy Institute (EPI) documents this reality. The 2007 period marks the end of the previous expansion; the recession started in December 2007. The charts below highlight the results of their study.
This first chart shows that only those in the top wage percentile have enjoyed an increase in real hourly wages since 2007. Moreover, almost all groups are currently experiencing real declines in earnings. The exception is the bottom percentile and, according to the EPI, “a series of state-level minimum wage increases” is the main reason for their recent gains.
The following two charts separate the labor force by gender. Again, we see gains only for the top percentile. Men have experienced steeper declines in hourly earnings than women, although male wages remain higher than female wages.
As the EPI study explains:
It is clear that those in every education category experienced falling or stagnant wages since 2007. In fact, real hourly wages have declined for 90 percent of the workforce with four-year college degrees since 2007 (not shown). From 2000 to 2014, real wages of the 90th percentile of this group only increased 4.0 percent cumulatively.
The data do show that college graduates have fared slightly better than high school graduates since 2007. This is not because of spectacular gains in the wages of college graduates, but because college-graduate wages fell more slowly than the wages of high school graduates. Notably, despite wage declines in both 2013 and 2014, those with advanced degrees are the only ones who have returned to their 2007 real wage levels.
These trends only highlight the mean spirited nature of current attacks on unions and resistance to raising minimum wages.