Reports from the Economic Front

by Martin Hart-Landsberg

Archive for the ‘Organizing’ Category

Lessons From A Defeat In Europe

without comments

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:

consequencesNO

eurovsEU

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.

Pensions

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.

Statistics office

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.

Bridging finance

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.

Debt restructuring

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.

Radical reforms

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.

IMF support

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.

Energy market

Greece has been told to get on with privatising its energy transmission network operator (ADMIE).

Financial sector

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.”

He continues:

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.

Victory: Greece Over The Troika

without comments

“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:

Infographics / Unemployment

Infographics / Unemployment

 

Infographics / Social Impact

Infographics / Social Impact

Infographics / Poverty

Infographics / Poverty

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.

The Referendum

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.

The Vote

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.

 

Greece Versus The Troika

without comments

“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 Greek drama continues to play out.  Greece is supposed to make a 1.6 billion euro loan payment to the IMF by June 30.  The Syriza-led government says unless the Troika—The European Commission, European Central Bank, and International Monetary Fund (IMF)—releases the 7.2 billion euros authorized as part of the 2012 Greek bailout agreement it won’t have enough money to pay the IMF.  And it also won’t be able to make a July loan payment to the European Central Bank.

The Troika is adamant that the money will only be transferred to the Greek government if Syriza agrees to abide by the terms set by the past bailout, which was itself an extension of a 2010 bailout.  Those terms include further rounds of austerity, privatization, and labor market liberalization.  But that is the problem.  As the Levy Institute explains, these bailout terms are largely responsible for years of economic crisis (see Figures 1 and 2):

Estimates of real output for the Greek economy, published by the Hellenic Statistical Authority (ElStat), showed some signs of recovery up to 2014Q3, after six long years of uninterrupted fall in output, even though the fourth quarter of 2014 and preliminary estimates for the first quarter of this year show a reversal that, if it continues in the second quarter, will indicate the economy has slipped back into recession. Real output, at the end of 2014, was below its 2000 level, marking a more than 26 percent drop from its peak in 2007, while an even larger fall—30 percent—in employment has been recorded. More than one million workers have lost their jobs relative to the previous peak in 2008, with an increase of 800,000 unemployed—the total now stands above 1.2 million—while the active population is shrinking, as workers leave the country in search of better opportunities abroad.

Capture (1)

The Los Angeles Times provides a more ground level view of the devastation:

Estimates vary, but some experts peg the number of new homeless as high as 20,000. Moreover, nearly 20% of Greeks no longer have enough money to cover daily food expenses, according to a recent study by the Organization for Economic Cooperation and Development. The nation’s unemployment rate is 26%, the highest among 28 European Union members.

At Athens’ many apartment buildings, stories are rampant of people delinquent on so many months of rent that they simply leave behind keys and furniture, sneaking out in the middle of the night.

Until five years ago, it was hard to imagine masses of people living on the streets here; homelessness was so negligible that almost no one even bothered to measure. At the time, this was a strong welfare state with a rich tradition of family bonds. But austerity has eroded the former, and economic recession has frayed the latter.

The crisis has played out in a kind of domino effect. What might begin as a hard-luck case or two soon cascades through families and social groups. At some point there are too few roofs for too many relatives or friends.

The Greek people elected Syriza precisely because the austerity policies promoted by the Troika have left their country devastated.  See the video below for a five minute history of the forces propelling Syriza’s January 2015 election victory.  To this point, Syriza has offered several proposals involving compromises of its initial position.  However, these have all been rejected.  Syriza, for its part, continues to reject the Troika’s “take it or leave it” demand.

Experts claim that if Greece defaults on its loan to the IMF the government will be unable to sustain the country’s economic activity; Greece no longer prints its own currency so the government would not have the funds to pay salaries or support services.  It will be forced to put capital controls into place, nationalize the banking system, leave the euro area, and reintroduce its own currency.

Everyone agrees that the Greek economy and people will suffer in the short run regardless of whether it leaves the Euro Area or accepts Troika dictates and gets the money.  However, it is the long run view of future events that is up for debate.

The Troika argues that without a deal the Greek economy will enter a downward spiral leading to total collapse.  In contrast, some in Syriza argue that the above policy steps are precisely what the country needs to lay the ground work for a sustained recovery.  They point to Iceland’s use of similar policies to rapidly overcome its own devastating collapse after the great financial crisis of 2008.   

One thing is clear, euro membership has not produced the benefits promised for Greece and the other weaker euro area countries.  In fact, these countries actually did better before they adopted the euro, during the period when they had their own respective currencies which gave them some control over their interest rates and exchange rates.

MW-DO175_euro_c_20150616121435_ZH

As Brett Arends points out:

There’s a secret fear gripping the powerful across Europe.

It has policy honchos lying awake at nights in Brussels. It has bankers in Berlin tossing feverishly on their silken sheets. It has eurocrats muttering into their claret.

The fear?

It isn’t that if Greece leaves the euro, the Greeks will then suffer a terrible economic meltdown.

The fear is that if Greece leaves the euro, the country will return to prosperity — and then other countries might follow suit.

Take a look at the chart, above.

As you can see, Greece with the bad old drachma had double the economic growth of Greece under the euro. Double. And it wasn’t alone.

Italy, Spain and Portugal tell similar stories. Their economic growth back in the 1980s and 1990s, when they were “struggling” with the lira, the peseta, and the escudo, makes a mockery of their performance under the German-dominated euro.

Of course nothing is certain.  To this point a majority of Greeks want their country to remain in the Euro Area and Syriza is hoping that the Troika will modify their demands for austerity, accept Syriza’s program which includes a moderate increase in spending for social programs and employment creation, and release the funds.

In the meantime, Syriza has taken a number of steps in respond to popular demands.  One on-the-ground commentator, Quincey, offers the following summary of some of them:

What the hell has the SYRIZA-ANEL government been doing all this time, apart from negotiating with its creditors?

The answer may be found below, through a list I compiled from various sources. The list is not exhaustive, I focused on issues which I consider interesting for an international audience.

So, here it goes:

The SYRIZA-ANEL government initiatives’ list, as of today.
1. 
The government passed the humanitarian crisis bill, which will provide some 300,000 families with food stamps, free electricity, and a rent supplement.
2. It confirmed universal, free access to uninsured Greeks (not migrants) to the public health system.
3. Abolished the 5 euro public hospital entrance fee/ticket.
4. Abolished pension cuts (which were scheduled to take place automatically in February 2015).
5. Reopened the Public TV/radio broadcaster (ERT). ERT had been shut down 2 years ago, by the right-wing Samaras government.
6. Re-hired some 4,000 public officers who had been sacked by the previous government, among which the cleaning ladies of Finance Ministry (who achieved nation-wide fame thanks to their long and consistent struggle).
7. Canceled the “hood law”, under which dozens, perhaps hundreds of people arrested during protests, were risking up to 7 years imprisonment.
8. Theoretically speaking, the government abolished the new maximum security prison where political prisoners were held (not all prisoners have been transferred to normal facilities).
9. Non-regularized migrants held in detention camps are –supposedly- gradually released (the extent to which this process is actually taking place is debatable); police controls on migrants are significantly milder.
10. Generally speaking, police repression of protest is significantly milder (compared to the previous governments, one could say non-existent).
11. The Greek Parliament introduced an Odious Debt Committee to control for the legitimacy of the public debt (a mostly symbolic move).
12. The Greek Parliament founded the German War Reparations Committee (Greece has not been repaid the obligatory “loan” Nazi occupiers extracted during WWII, nor any war reparations).
13. The government introduced installments and discounts to help citizens and companies pay their debts to the state and pension funds.
14. A new bill will grant Greek citizenship to second generation migrants.
15. A bill is about to be voted, which will expand civil union to cover homosexual couples, granting them equal rights to the ones married couples enjoy.
16. An educational reform has been announced. The reform re-establishes academic asylum (abolished in 2011), reduces high-school students’ workload and allows for the so-called “perpetual students” (those who failed to get their degree on time) to retain their university student status.
17. The Minister of Labour, Panos Skourletis, has just announced that a (most-needed) labor reform, which would re-establish collective bargaining and collective agreements (practically abolished in 2012) will be introduced in the forthcoming days. The legislative proposal should – logically – include another major SYRIZA electoral promise, the gradual increase of the minimum monthly wage from approximately 550 euros (gross) to 750 euros (gross), during a period of 18 months. But we have to wait and see for that, as the reform has already been announced a couple of times, only to be blocked the day after by the country’s creditors.

So far, Syriza maintains majority support despite Troika efforts to discredit it as reckless and incompetent for rejecting the status quo.

More to follow in another post.

The Drive for $15

with one comment

“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 [2013], 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.

Written by marty

June 14th, 2015 at 9:33 am

Victory in Greece

without comments

keep calm

Syriza won the Greek election and its leader, Alexis Tsipras, is now prime minister—the Greek people showed bravery and intelligence and we should be studying as well as supporting the efforts of Syriza and the Greek people to build a responsive, democratic, and solidaristic economy.

What follows are some articles that I have found helpful in understanding current developments.

 

Social and economic conditions and popular responses to them in pre-election Greece:

Few in Greece, even five years ago, would have imagined their recession- and austerity-ravaged country as it is now: 1.3 million people – 26% of the workforce – without a job (and most of them without benefits); wages down by 38% on 2009, pensions by 45%, GDP by a quarter; 18% of the country’s population unable to meet their food needs; 32% below the poverty line.

And just under 3.1 million people, 33% of the population, without national health insurance. . . .

The Peristeri health centre is one of 40 that have sprung up around Greece since the end of mass anti-austerity protests in 2011. Using donated drugs – state medicine reimbursements have been slashed by half, so even patients with insurance are now paying 70% more for their drugs – and medical equipment (Peristeri’s ultrasound scanner came from a German aid group, its children’s vaccines from France), the 16 clinics in the Greater Athens area alone treat more than 30,000 patients a month.

The clinics in turn are part of a far larger and avowedly political movement of well over 400 citizen-run groups – food solidarity centres, social kitchens, cooperatives, “without middlemen” distribution networks for fresh produce, legal aid hubs, education classes – that has emerged in response to the near-collapse of Greece’s welfare state, and has more than doubled in size in the past three years.

Full text: http://www.theguardian.com/world/2015/jan/23/greece-solidarity-movement-cooperatives-syriza

 

Syriza’s platform:

  1. Audit of the public debt and renegotiation of interest due and suspension of payments until the economy has revived and growth and employment return.
  2. Demand the European Union to change the role of the European Central Bank so that it finances states and programs of public investment.
  3. Raise income tax to 75% for all incomes over 500,000 euros.
  4. Change the election laws to a proportional system.
  5. Increase taxes on big companies to that of the European average.
  6. Adoption of a tax on financial transactions and a special tax on luxury goods.
  7. Prohibition of speculative financial derivatives.
  8. Abolition of financial privileges for the Church and shipbuilding industry.
  9. Combat the banks’ secret [measures] and the flight of capital abroad.
  10. Cut drastically military expenditures.
  11. Raise minimum salary to the pre-cut level, 750 euros per month.
  12. Use buildings of the government, banks and the Church for the homeless.
  13. Open dining rooms in public schools to offer free breakfast and lunch to children.
  14. Free health benefits to the unemployed, homeless and those with low salaries.
  15. Subvention up to 30% of mortgage payments for poor families who cannot meet payments.
  16. Increase of subsidies for the unemployed. Increase social protection for one-parent families, the aged, disabled, and families with no income.
  17. Fiscal reductions for goods of primary necessity.
  18. Nationalisation of banks.
  19. Nationalisation of ex-public (service & utilities) companies in strategic sectors for the growth of the country (railroads, airports, mail, water).
  20. Preference for renewable energy and defence of the environment.
  21. Equal salaries for men and women.
  22. Limitation of precarious hiring and support for contracts for indeterminate time.
  23. Extension of the protection of labour and salaries of part-time workers.
  24. Recovery of collective (labour) contracts.
  25. Increase inspections of labour and requirements for companies making bids for public contracts.
  26. Constitutional reforms to guarantee separation of church and state and protection of the right to education, health care and the environment.
  27. Referendums on treaties and other accords with Europe.
  28. Abolition of privileges for parliamentary deputies. Removal of special juridical protection for ministers and permission for the courts to proceed against members of the government.
  29. Demilitarisation of the Coast Guard and anti-insurrectional special troops. Prohibition for police to wear masks or use fire arms during demonstrations. Change training courses for police so as to underline social themes such as immigration, drugs and social factors.
  30. Guarantee human rights in immigrant detention centres.
  31. Facilitate the reunion of immigrant families.
  32. Depenalisation of consumption of drugs in favor of battle against drug traffic. Increase funding for drug rehab centres.
  33. Regulate the right of conscientious objection in draft laws.
  34. Increase funding for public health up to the average European level.(The European average is 6% of GDP; in Greece 3%.)
  35. Elimination of payments by citizens for national health services.
  36. Nationalisation of private hospitals. Elimination of private participation in the national health system.
  37. Withdrawal of Greek troops from Afghanistan and the Balkans. No Greek soldiers beyond our own borders.
  38. Abolition of military cooperation with Israel. Support for creation of a Palestinian state within the 1967 borders.
  39. Negotiation of a stable accord with Turkey.
  40. Closure of all foreign bases in Greece and withdrawal from NATO.

Source: http://links.org.au/node/4265

 

The story behind Syriza’s victory:

Syriza’s victory has electrified the left in Europe – even moderate social democrats who have floundered in search of ideas and inspiration since the 2008 crisis. Now there is talk everywhere of “doing a Syriza” – and in Spain, where the leftist party Podemos is scoring 25% in the polls, more than talk.

But Syriza’s route to becoming Europe’s first far-left government of modern times was neither easy nor inevitable. For the past 22 days, I have been part of a Greek documentary team following its activists and leaders on the campaign trail to watch how they did it. I have seen them offering new hope to farmers on the breadline, and drumming up supplies for their network of food banks. I have watched them win over old-school communists in the dockers’ union, smarting from seeing their workplace sold off to the Chinese, and present a modern, youthful alternative to a political establishment serving a corrupt elite. And I have seen their leader, Alexis Tsipras, in action in his private office at critical moments. . . .

In the weak January sun, the mountains along the Gulf of Corinth are topped with snow. Dotted along the hillsides are villages known as political “castles”, normally so wedded to one or other of the main parties – Pasok and New Democracy – that you could navigate at election time by following the posters. But this is a troubled land; two-thirds of the vineyards and lemon groves here are technically in foreclosure. The farmers have been forced to take morgtgages, the banks are clamouring to repossess and suicides in these quiet farming towns are on the up.

Giannis Tsogkas, a 56-year-old grape grower from Assos, tells us: “[The government] pushed us into the IMF deal and all they do is obey the rightwingers. The little man will die. We keep hearing about suicides. So we tried to find somebody on the left to protect us. And we found it in Syriza.”

As night falls, the taverna in nearby Psari is full of the old and children – most of the young adults are gone. The battered faces of farmers on the breadline stare cautiously as one Syriza man delivers a Bolshevik-style oration: “Why do the IMF want to destroy us? Is it because the sun shines here? Is it because we’re a hospitable people? Do they hate southern European life?”

But, says election candidate Theofanis Kourembes, it’s not rhetoric that has turned villages like this red. “We go out and help people. When they tell us something, we listen. When they ask for help, we are here. You never see Pasok or New Democracy.”

It’s small meetings like this, miles from the main towns, that have helped turn Syriza from a party polling 4% 10 years ago to, by the last week of campaigning, a party leading on 32%.

“You journalists have come all the way up here to interview us,” says one farmer. “Syriza is the only party that did the same. They came and talked to us. If we wanted to talk to the main parties, how would we find them?”

Full Text: http://www.theguardian.com/world/2015/jan/28/greek-people-wrote-history-how-syriza-rose-to-power

 

Syriza’s Cabinet:

Greece’s prime minister, Alexis Tsipras, has lined up a formidable coterie of academics, human rights advocates, mavericks and visionaries to participate in Europe’s first anti-austerity government.

Displaying few signs of backing down from pledges to dismantle punitive belt-tightening measures at the heart of the debt-choked country’s international rescue programme, the leftwing radical put together a 40-strong cabinet clearly aimed at challenging Athens’s creditors.

Full Text: http://www.theguardian.com/world/2015/jan/27/greece-alexis-tsipras-syriza-cabinet

 

Syriza appears serious—much to the surprise and dismay of the European elite:

In his first act as prime minister on Monday, Alexis Tsipras visited the war memorial in Kaisariani where 200 Greek resistance fighters were slaughtered by the Nazis in 1944.

The move did not go unnoticed in Berlin. Nor did Tsipras’s decision hours later to receive the Russian ambassador before meeting any other foreign official.

Then came the announcement that radical academic Yanis Varoufakis, who once likened German austerity policies to “fiscal waterboarding”, would be taking over as Greek finance minister. A short while later, Tsipras delivered another blow, criticising an EU statement that warned Moscow of new sanctions.

The assumption in German Chancellor Angela Merkel’s entourage before Sunday’s Greek election was that Tsipras, the charismatic leader of the far-left Syriza party, would eke out a narrow victory, struggle to form a coalition, and if he managed to do so, shift quickly from confrontation to compromise mode.

Instead, after cruising to victory and clinching a fast-track coalition deal with the right-wing Independent Greeks party, he has signalled in his first days in office that he has no intention of backing down, unsettling officials in Berlin, some of whom admit to shock at the 40-year-old’s fiery start.

“No doubt about it, we were surprised by the size of the Syriza victory and the speed with which Tsipras clinched a coalition,” said one senior German official, who requested anonymity because of the sensitivity of the issue. . . .

Even as Greek stocks plunged and bond yields soared on Wednesday, Tsipras continued to promise “radical” change.

Over the past 24 hours, his government has put two big privatisations, of Piraeus port and Greece’s biggest utility, on ice, and his ministers have pledged to raise pensions and rehire fired public sector workers.

Full Text: http://www.reuters.com/article/2015/01/28/us-greece-politics-germany-idUSKBN0L121R20150128

Now the euphoria in Greece has subsided, it is being matched by astonishment in Berlin and the European Union institutions.

On its first day in government yesterday, Syriza cancelled a privatisation progamme of the ports and energy sector, pledged to re-employ around 15,000 workers, and announced minimum wage and pension rises costing around 12bn euros.

The astonishment in Europe cannot be expained by lack of foreknowledge. Numerous journalists who cover Greece, including me, reported in detail what Syriza planned to do: cancel the austerty and privatisations, run a balanced budget and massively hike the tax take from the so-called oligarchs and the black economy.

The astonishment comes because all the political centre’s contingency plans come apart. The centre-right did not win, the centre-left parties formed to create a moderation mechanism on Syriza in coalition did not get asked into the government (and in the case of Papandreou’s party, To Kinima, failed to get into parliament).

By tying up an immediate coalition with a far-right nationalist party, Tsipras was able to seize the apparatus of the Greek executive faster than anybody expected. That is what drove yesterday’s collapse of Greek bank shares, and the fall on the stock exchange.

Most market analysts thought before the election that Syriza would be forced into a U-turn. As someone who has grilled all of its economics team on camera, and Mr Tsipras himself, I can report they have no intention of backing down.

Full Text: http://blogs.channel4.com/paul-mason-blog/tsipras-reverse-shock-doctrine/3155#sthash.NNCqsjkx.dpuf

 

Might Spain be next with a Podemos election victory?

Something is happening in Spain. A party that did not exist one year ago, Podemos, with a clear left-wing program, would win a sufficient number of votes to gain a majority in Spanish Parliament if an election were held today. Meanwhile, the leaders of the group G-20 attending their annual meeting in Australia were congratulating the president of the Spanish conservative-neoliberal government, Mr. Mariano Rajoy, for the policies that his government had imposed. (I use the term “imposed” because none of these policies were written in its electoral program.) These included: (1) the largest cuts in public social expenditures(dismantling the underfunded Spanish welfare state) ever seen since democracy was established in Spain in 1978 and (2) the toughest labor reforms, which have substantially deteriorated labor market conditions. Salaries have declined by 10% since the Great Recession started in 2007, and unemployment has hit an all-time record of 26% (52% among the youth). The percentage of what the trade unions defined as “shit work” (temporary, precarious work) has increased, becoming the majority of new contracts in the labor market (more than 52% of all contracts), and 66% of unemployed people do not have any form of unemployment insurance or public assistance.

Full Text: http://www.counterpunch.org/2015/01/09/what-is-going-on-in-spain/

Inequality, Economists, and Capitalism

without comments

Most economists now recognize that income and wealth inequality has significantly increased over the last few decades. Many, however, refuse to see it as a problem.

Several sessions at the January 2015 annual meeting of the American Economic Association [AEA] addressed French economist Thomas Piketty’s book Capital in the Twenty-First Century which highlighted both the growth of inequality and its negative consequences.  Piketty works within the established framework of mainstream economics and his call for a global wealth tax is far from a challenge to the existing system.  Yet his argument that capitalism left unchecked produces a steady and destructive growth in inequality doesn’t appear to sit well with many leading economists.  [Useful reviews of the book are here and here.]

A case in point: one panel at the AEA meeting was organized by the influential Harvard economist Greg Mankiw, the author of widely used introductory and intermediate economics textbooks.  Chuck Collins, from the Institute of Policy Studies, described the panel session as follows:

Three neoclassical economist critics, assembled by Mankiw, embarrassed themselves by quibbling with the incontrovertible evidence of growing concentrations of wealth and surging plutocratic trends.

As an outsider to academic economics, I was struck by just how compartmentalized and smug the field appears. At one point, Mankiw even put up a slide, “Is Wealth Inequality a Problem?” Any economist who ventures across the disciplinary ramparts will, of course, find a veritable genre of research on the dangerous impacts of extreme inequality.

We now have over two decades of powerful evidence that details how these inequalities are making us sick, undermining our democracy, slowing traditional measures of economic growth, and turning our political system into a plutocracy.

Mankiw, at another point in his presentation, had still more embarrassing comments to make. Piketty, he intoned, must “hate the rich.” Piketty’s financial success with his best-selling book, Mankiw added, just might lead to self-loathing.

There can be little doubt as to the growth in inequality as the following charts demonstrate.  The first chart shows that the top 1 percent of households boosted their share of all pre-tax income from 8.9 percent in 1976 to 22.46 percent in 2012.

GIMP-Top-1p-Share-of-Total-PTI

The second shows changes in real family income between 1979 and 2012.  While the top 5 percent saw their real incomes grow 74.9 percent, the bottom 40 percent suffered actual declines.

GIMP-Changes-in-Real-Family-Income
While those at the top may not find these trends problematic, I don’t think that long arguments are needed to establish that those suffering from declining living and working conditions do.

At issue is the cause of these trends and the appropriate response to them.  One obstacle to clarity is the fact that most economists, even liberal ones, refuse to acknowledge the limits or perhaps better said blinders of mainstream economics.  See here for an example.  And Piketty’s work for all its benefits in documenting inequality trends suffers from the same limitations. As the economist Michael Roberts explains:

The real problem is that Piketty’s explanation for rising inequality is faulty and his proposals for action either utopian or ineffective. This is where the heterodox/Marxist view of inequality comes in. While the likes of Piketty and Joseph Stiglitz entertained thousands in the big halls at [the AEA meetings], heterodox economists (including me) in the Union of Radical Political Economics [URPE] presented papers to about 30-40 on Piketty exposing the flaws in his explanation. My paper argued that by deflating productive capital into a wider definition including property and financial wealth, Piketty cannot really explain rising inequality. Indeed, when housing and financial assets are stripped out, Piketty’s rate of return on assets becomes Marx’s rate of profit. And, instead of being steady and invariable as Piketty claimed, it falls.

Two main arguments have been presented by Piketty, both based on mainstream economics, to explain why the ratio of capital (wealth) to income has been rising. Piketty relies on neoclassical marginal productivity theory. This theory suggests that the more capital invested should lead to falling returns but Piketty claims there is a high rate of substitution of labor for capital in production, so the share of income going to capital rises. But as Fred Moseley showed in a paper at [the AEA], marginal productivity is logically incoherent and empirically false (Moseley-Piketty).

The other argument from Piketty is that, over the long term, as the savings ratios of households rises, it will eventually lead to a rising capital share. Well, a paper by Frank Thompson at the University of Michigan showed that, while this is theoretically possible, it is extremely unlikely to be achieved (URPE@ASSA Piketty presentation (n 9) and indeed, others calculated that it could take 200 years of balanced economic growth to explain rising capital share and inequality by rising savings rates!

As the URPE sessions showed, a simpler and clearer explanation of rising inequality in the last 30 years in most economies is increased exploitation of labor by capital. There has been a rising rate exploitation along with a huge switch of value into the financial sector which is owned and controlled by the top 1%, or even just the top 0.1%. Marx’s exploitation theory is a better explanation of inequality compared to marginal productivity or rising savings rates.  The so-called neoliberal period was characterized by holding down wages, globalization, a reduction in job security and privatization of public services, all of which boosted the rate of surplus value. So we entered the world of super-managers, oligarchs and top families that Piketty describes in his book.

But suggesting that rising inequality is the result of increased exploitation of labor by capital is not comfortable for mainstream economics, including Piketty, as it suggests something nasty about the capitalist mode of production, which the likes of Piketty, Stiglitz and others still support.

As to responses, if exploitation is the key explanation, organizing working people and their communities becomes the best response.  Thankfully there are signs that those suffering from capitalist dynamics well understand the situation and are beginning to challenge it.

Written by marty

January 16th, 2015 at 5:55 am

A Four Day Work Week to Combat Stress

without comments

Now here is an idea worth serious consideration—a four day work week to combat stress.

The Guardian newspaper reports:

One of Britain’s leading doctors has called for the country to switch to a four-day week to help combat high levels of work-related stress, let people spend more time with their families or exercising, and reduce unemployment.

Bringing the standard working week down from five to four days would also help address medical conditions, such as high blood pressure and the mental ill-health associated with overwork or lack of work, Prof John Ashton said.

The president of the UK Faculty of Public Health said the five-day week should be phased out to end what he called “a maldistribution of work” that is damaging many people’s health.

“When you look at the way we lead our lives, the stress that people are under, the pressure on time and sickness absence, [work-related] mental health is clearly a major issue. We should be moving towards a four-day week because the problem we have in the world of work is you’ve got a proportion of the population who are working too hard and a proportion that haven’t got jobs”,  Ashton said.

“We’ve got a maldistribution of work. The lunch-hour has gone; people just have a sandwich at their desk and carry on working,” added the leader of the UK’s 3,300 public-health experts working in the NHS, local government and academia.

Full article here.

Written by marty

July 2nd, 2014 at 11:13 am

The Money Is There!

without comments

Growth is slow, job creation minimal, and real median earnings are in decline.  However, for a small group of powerful people things are just dandy.  The following chart from an Economic Policy Institute study highlights the enormous gains enjoyed by top CEOs relative to their production/nonsupervisory workers.

ceo compensation

The next chart, from a different Economic Policy Institute study, highlights one reason for the divergent economic experiences of those at the top and almost everyone else.

productivity and compensation

As we can see, companies have generally been successful in maintaining a steady growth in real net productivity.  They have also been successful in suppressing any increase in real hourly compensation for production/nonsupervisory workers.  The growing gap between the two trends is the basis for these divergent economic experiences.   Workers continue to create wealth but an ever greater share is being captured by those at the top.  

The New York Times offers this look at the recent movement in median household income.  Worthy of note is the fact that the decline continues despite the fact that the economy has officially been in expansion since June 2009.

economix-28income-blog480

As I previously discussed, a disproportionately large share of all new jobs created in the current economic expansion are low wage ones.  Therefore, it should come as no surprise that growing numbers of people have concluded that economic expansion alone is insufficient to improve majority living and working conditions.

One consequence is the increasingly popular effort to push for a $15 an hour minimum wage. There are those that claim that such a high minimum wage is unthinkable.  However, as the chart below from a Huffington Post article shows, if the federal minimum wage in 1968 had been adjusted annually by the rate of productivity growth it would have reached $18.30 in 2013.

productivity and minimum wage

It is important to add that many of the firms employing the greatest number of low wage workers have also enjoyed above average rates of productivity growth.  One example is Walmart. As the New York Times explains

[Walmart] is a remarkably innovative exploiter of the latest technologies . . . The economists Barry Bosworth and Jack E. Triplett of the Brookings Institution find in a new book, “Productivity in the U.S. Services Sector” (Brookings Institution Press), that retailing in general has contributed substantially to the nation’s productivity boom since the mid-1990’s. And Wal-Mart is the industry leader.

The Seattle, Washington city council recently approved a $15 an hour minimum wage for workers in the city.  As the Guardian newspaper reports:

University of Washington study (pdf) commissioned by the council said the increase would benefit 100,000 people working in the city, reduce poverty by more than one quarter and save the government money by reducing the number of people claiming food stamps and other welfare payments. The pay of full-time workers on the existing minimum wage would increase by about $11,000 a year.

Opposition to the increase in Seattle has centered on claims that it will drive enterprises with slender profit margins out of business and force restaurants, which employ the largest number of minimum wage workers in the city, to lay off people.

But studies of significant minimum wage increases (pdf) in San Francisco, Santa Fe and San Jose show no evidence of job losses.

This is just one of many efforts by people to change the way our economy operates.  Hopefully these efforts will multiply and learn from each other, as well as broaden in terms of their constituencies and demands.

Written by marty

June 16th, 2014 at 9:05 am

The Deteriorating Labor Market

without comments

Despite the declining rate of unemployment—-it fell to 7.4% in July, the lowest level since December 2008—it is clear that economic trends, especially the rate and nature of job creation, are far from desirable.

As the Wall Street Journal explains:

The U.S. labor market’s long, slow recovery slowed further in July—and many of the jobs that were created were in low-wage industries.

Employers added a seasonally adjusted 162,000 jobs in July, the fewest since March, the Labor Department said Friday, and hiring was also weaker in May and June than initially reported. Moreover, more than half the job gains were in the restaurant and retail sectors, both of which pay well under $20 an hour on average. . . .

The falling jobless rate reflects to some degree a pace of hiring that, though slow, has remained steady over the past year even as the broader economy has grown in fits and starts. The U.S. has added an average of 192,000 nonfarm jobs per month so far this year, hardly a robust pace but more than enough to keep up with population growth.

But the drop in the unemployment rate is also the result of a job market that remains too weak to draw back workers who have dropped out of the labor force. Some 6.6 million workers say they want a job but don’t count as unemployed because they aren’t actively looking, a number that has barely budged in the past year. The number of Americans working or looking for work fell by 37,000 in July; as a share of the population, the labor force remains near a three-decade low. . . .

President Barack Obama has stressed the need for good jobs, including during a visit this past week to an Amazon.com Inc. facility in Chattanooga, Tenn., where he called for “a better bargain for the middle class.”

The day before the president’s visit, the Internet retail giant said it was adding more than 5,000 full-time jobs in its distribution centers across the country. Many of the jobs pay $11 an hour or less, although the company said workers will qualify for health insurance and other benefits, including stock grants and tuition subsidies.

“In our viewpoint these are great jobs,” Amazon spokeswoman Kelly Cheeseman said.

But the proliferation of low-wage jobs is leading to anemic growth in incomes. Average hourly wages were up by less than 2% in July from a year earlier, continuing a pattern of weak wage growth in the recovery. A broader measure of income released by the Commerce Department on Friday showed that inflation-adjusted incomes actually fell slightly in June.

The following chart, from a Washington Post article, helps highlight the problematic nature of U.S. job growth. By far the greatest number of jobs lost during the recession were mid-wage jobs.  And by far the greatest number of jobs created during the recovery have been low-wage jobs.

job losses gains

Even worse, almost all the jobs created over the last six months have been part-time.  According to a McClatchy report:

The unemployment rate is measured by the separate Household Survey, and it fell two-tenths of a percentage point to 7.4 percent, its lowest level since December 2008. That’s due in part to slow growth in the labor force. The jobless rate is based on a sample of self-reporting from ordinary people across the nation, and it’s the Labor Department measure that shows a very troubling trend in hiring.

“Over the last six months, of the net job creation, 97 percent of that is part-time work,” said Keith Hall, a senior researcher at George Mason University’s Mercatus Center. “That is really remarkable.”

Hall is no ordinary academic. He ran the Bureau of Labor Statistics, the agency that puts out the monthly jobs report, from 2008 to 2012. Over the past six months, he said, the Household Survey shows 963,000 more people reporting that they were employed, and 936,000 of them reported they’re in part-time jobs.

“That is a really high number for a six-month period,” Hall said. “I’m not sure that has ever happened over six months before.”

No wonder workers are struggling to make ends meet—job creation is weak and most of the jobs being created are low paying and part time.  But it is not like corporations don’t care.  For example, McDonald’s Corporation teamed with Visa to offer its workers a helping hand: a web page with advice about how to budget better.  This must be a great help to workers that earn on average about $8.25 an hour.

The McDonald’s working budget, shown below, is a bit hard to interpret.  What is clear however is that the company expects workers to have two jobs, pay $20 a month for health care, nothing for heat, $600 a month for rent, and . . .

For insight into what it is like to live on a McDonald’s wage, check out the Bloomberg story on Tyree Johnson, a 20 year employee still making minimum wage.  Corporations like McDonalds don’t pay these low wages because they are hurting but rather because they help their bottom line, as the following graphic from the Bloomberg story shows.

Corporate apologists often argue that these jobs are just “starter” jobs for high school students seeking to earn money for some extra like a smart phone.  But as the New York Times notes, only 14% of those earning between the minimum wage and $10 an hour are less than 20 years old.

As Steven Greenhouse reports, fast food and other low wage workers have begun organizing and striking to improve their working conditions; they are demanding a $15 hourly wage:

In recent weeks, workers from McDonald’s, Taco Bell and other fast-food restaurants — many of them part-time employees — have staged one-day walkouts in New York, Chicago, Detroit and Seattle to protest their earnings, typically just $150 to $350 a week, often too little to support themselves and their families. More walkouts are expected at fast-food restaurants in seven cities on Monday. Earlier this month hundreds of low-wage employees working for federal contractors in Washington walked out and picketed along Pennsylvania Avenue to urge President Obama to press their employers to raise wages.

These workers are taking real risks and if successful their gains would likely boost living and working conditions for most U.S. workers.  They deserve our strong support.

Written by marty

August 4th, 2013 at 2:39 pm

One Reason It Is Tough To Pass Progressive Legislation

without comments

Dylan Matthews, blogging in the Washington Post, discusses a very interesting paper that provides evidence showing that politicians seriously underestimate the progressivity of their constituents.

David Broockman and Christopher Skovron, the authors of the paper, “surveyed every candidate for state legislative office in the United States in 2012 [shortly before the November election] and probed candidates’ own positions and their perceptions of their constituents’ positions on universal health care, same-sex marriage, and federal welfare programs, three of the most publicly salient issues in both national-level and state-level American politics during the past several years.”  They then matched the results with estimates of the actual district- and issue-specific opinions of those residing in the candidates’ districts using a data set of almost 100,000 Americans.

Here is what they found:

Politicians consistently and substantially overestimate support for conservative positions among their constituents on these issues. The differences we discover in this regard are exceptionally large among conservative politicians: across both issues we examine, conservative politicians appear to overestimate support for conservative policy views among their constituents by over 20 percentage points on average. . . . Comparable figures for liberal politicians also show a slight conservative bias: in fact, about 70% of liberal office holders typically underestimate support for liberal positions on these issues among their constituents.

The following two charts illustrate this bias when it comes to universal health care and same sex marriage.

broockman_graph

As Matthews explain:

The X axis is the district’s actual views, and the Y axis their legislators’ estimates of their views. The thin black line is perfect accuracy, the response you’d get from a legislator totally in tune with his constituents. Lines above it would signify the politicians think the district more liberal than it actually is; if they’re below it, that means the legislators are overestimating their constituents’ conservatism. Liberal legislators consistently overestimate opposition to same-sex marriage and universal health care, but only mildly. Conservative politicians are not even in the right ballpark.

The authors found a similar bias regarding support for welfare programs.  Perhaps even more unsettling, the authors found no correlation between the amount of time candidates spent meeting and talking to people in their districts while campaigning for office and the accuracy of their perceptions of the political positions of those living in their districts.

One consequence of this disconnect is that office holders, even those with progressive views, are reluctant to take progressive positions.  More generally, these results speak to a real breakdown in “the ability of constituencies to control the laws that their representatives make on their behalf.”

 

Written by marty

March 16th, 2013 at 11:20 am