Category - Econ-Atrocity / Econ-Utopia

by Emily Kawano, CPE Exec. Dir.

In a remarkable and historic move, the United Steel Workers union (USW) and Mondragon International^[1] announced that they would be working together to establish Mondragon manufacturing cooperatives in the U.S. and Canada.^[2] The Mondragon Cooperative Corporation (MCC) is the world’s largest industrial workers cooperative, located in the Basque region of Spain. It employs almost 100,000 workers in 260 cooperative enterprises that include manufacturing, a university, research and development, social security mutual, and retail shops. In 2008, MCC reached annual sales of more than 16 billion euros and is ranked as the top Basque business group, the seventh largest in Spain.

Inspiration

In the cooperative world, Mondragon, despite criticism of the compromises that it has made in the face of globalization, is still the gold standard of success and has inspired many other cooperative initiatives in other countries. In the U.S., for example, Cleveland’s $5.8 million Evergreen Laundry Cooperative start-up, the first in a network of local worker cooperatives, was inspired by the visit of a Cleveland delegation to Mondragon. The development of this cooperative network is envisioned as a way of creating jobs and revitalizing depressed neighborhoods of Cleveland.

In Chicago, the Austin Polytechnic Academy (APA), a public high school, follows in the footsteps of Mondragon. The first industrial cooperative of MCC was started fifty years ago by five graduates of a technical training school under the guidance of a visionary local priest, Father José Mar&iacutea Arizmendi, who continued to play a central role in the development of Mondragon until his death in 1976. Austin Polytech prepares its students, almost all of whom are from low-to-moderate income families in an African-American neighborhood, for jobs in Chicago’s high skilled industrial sector, and even more importantly, to become worker owners. Towards this end, they have brought in speakers from the Emilia-Romagna region of Italy, another hotbed of successful cooperatives, and a group of APA students are currently on a study tour in Mondragon.

In the Bay Area, the Arizmendi Association of Cooperatives takes its name from Mondragon’s visionary. It is a worker-owned network that provides assistance to new bakeries that are interested in following their successful cooperative business model. There are currently three Arizmendi Bakeries in addition to the original worker-owned Cheeseboard that provided the model and technical assistance for the Arizmendi Association.

New Frontier

It is clear that Mondragon is a source of inspiration for many other initiatives to build economic democracy. The collaboration with the United Steelworkers raises the potential to a whole new sphere of possibilities.

The USW-Mondragon collaboration grew out of a USW ‘green industrial revolution’ project that created a partnership with Gamesa, a Spanish wind turbine firm, to establish production in Pennsylvania by refitting shuttered steel plants. Gamesa is based near Mondragon and it wasn’t long before one thing led to another and the USW-Mondragon connection was made. Discussions and meetings followed over the course of the following year and culminated in this historic agreement to create worker cooperatives in the manufacturing sector, either through worker buy-outs or new start-ups. Other aims include integrating collective bargaining with the cooperative model and exploring co-investing through the USW backed Quebec Solidarity Fund and Mondragon’s Eroski Foundation.

The United Steelworkers (USW) is the largest industrial union in North America, representing 1.2 million members in a diverse range of industries. In a time where labor unions and worker cooperatives have drifted far away from their common roots—when worker cooperatives were seen by some unions as a way to eliminate the class struggle between owner and worker—it is enormously significant for a union of this weight and history to reforge those alliances. It is a signal to the labor union movement as well as the wider public that cooperatives are part of the solution, not some alien phenomenon from a parallel universe. USW spokesman, Rob Witherell said that the collaboration was not a hard sell. Most of their members had been unfamiliar with the concept of worker coops, but once it was explained, they easily ‘got it’ and were very interested. He believes that there is a great potential to expand this project, citing the Blue-Green Alliance, which was launched by the USW and the Sierra Club in 2006 and now numbers 8 million members, as an example of how these initiatives can catch fire.

We continue to see rising unemployment, stagnant wages, cuts in benefits, deteriorating workplace conditions and the hollowing out of our manufacturing sector. This announcement breathes hope of reviving our manufacturing base and rebuilding communities that have been devastated plant closings. Rising oil and transportation prices, combined with the falling dollar are creating the conditions for a manufacturing renaissance in the U.S.^[3] Imagine if this renaissance could be infused with, as USW President Leo Gerard said, “Mondragon’s cooperative model with ‘one worker, one vote’ ownership as a means to re-empower workers and make business accountable to Main Street instead of Wall Street.”

And when workers own and run the factories they work in, they’re not likely close up shop at the first sign of stress—in over fifty years of operation, Mondragon has only seen three of its cooperative enterprises fail. Imagine.

Notes:

1. Mondragon website: http://www.mondragon-corporation.com/language/en-US/ENG.aspx
2. The full text of the agreement is available at http://assets.usw.org/Releases/agree_usw_mondragon.pdf
3. “Can the U.S. Bring Jobs Back from China?” BusinessWeek, 6/19/08 http://www.businessweek.com/magazine/content/08_26/b4090038429655_page_3.htm

By Patrice Woeppel, Ed.D.
Author of Depraved Indifference: the Workers’ Compensation System

March 16, 2009

The Bureau of Labor Statistics (BLS) records 5,488 worker fatalities for 2007, the most recent year for which their data is completed. But the number of worker fatalities recorded by BLS is grossly under-reported.

Worker deaths from toxic exposures, other work illnesses are conservatively estimated by NIOSH and other researchers at 50,00 to 60,000 deaths each year, or ten times the number of fatalities from work injuries.[fn1] [fn2] [fn3] It is a disaster of monumental proportions that goes largely unrecorded. The United States has no comprehensive occupational health data collection system.

As we have lagged behind other nations in our lack of a national comprehensive medical and statistical database on occupational illnesses, occupational injuries; we have lagged behind in the research into the causes and consequences of occupational illnesses that would lead to improved diagnosis, treatment, prognosis, and ultimately prevention, of occupational toxic exposures and resultant diseases.

While the United States has set permissible exposure limits on less than 500 of the hundreds of thousands of chemicals in use in workplaces throughout our country, the EU regulates 30,000 chemicals utilized in their workplaces, and many that we allow here have been banned for years in the EU.[fn4] Even the small number of chemicals, upon which exposure limits have been set in the US, are grossly out of date based on more recent scientific data.

It is a major and costly health issue – costly in lives, and costly in dollars. The economic burden for occupational illness, injury and death in our country is an estimated $170 billion annually. It is an economic burden that falls mainly on families (44%) and on taxpayers (18%); with only 27%, on average, being paid by workers’ compensation.[fn5]

There has been very little general public awareness of this system that maims and kills with impunity. The time is long overdue to re-evaluate a structure that evolved over one hundred years ago; and which clearly doesn’t meet the needs of seriously injured, ill, or toxic chemical-exposed workers, or the families of workers who died from their work – a system that has fostered devastating and lasting damage to families, to communities, to our environment.

Increasingly as a nation, we have been all too willing to push corporate costs onto workers and taxpayers; and all too willing to cut protections for workers, communities.

Occupational illness deaths are now the eighth leading cause of death in the US, more than many of the diseases that receive far more government, public, and media attention.[fn6] We need to right this terrible, continuing American tragedy.

References:

1. Leigh, J. Paul; Markowitz, Steven; Fahs, Marianne; Landrigan, Philip. Costs of Occupational Injuries and Illnesses. University of Michigan Press, 2000.

2 U.S. House of Representatives. Hidden Tragedy: Underreporting of Workplace Injuries and Illnesses. A Majority Staff Report by the Committee on Education and Labor. Honorable George Miller, Chairman, June 2008.

3.Steenland, Kyle; Burnett, Carol; Lalich, Nina; et al.Dying for Work: The Magnitude of US Mortality From Selected Causes of Death Associated With Occupation, American Journal of Industrial Medicine, Vol 43, pp 461-482, 2003.

4. Regulation EC 1907/2006 of the European Parliament and of the Council of 18 December 2006 concerning the Registration, Evaluation, Authorization and Restriction of Chemicals (REACH), http://eur-lex.europa.eu.

5. op. cit. Leigh, et al, 2000.

6. LaDou, J., M.D. Occupational and Environmental Medicine in the United State: A Proposal to Abolish Workers’ Compensation and Reestablish the Public Health Model, International Journal of Occupational and Environmental Medicine in the United States. 2006; 12 (2) 154-168; and US Department of Health and Human Services, National Center for Health Statistics, Centers for Disease Control and Prevention, National Vital Statistics System, National Vital Statistics Reports, Vol 53, Number 5. Deaths: Final Data for 2002, Table 10 and Worktable I, pp. 1585, 1634, 1662, 1703, 2220-2224, at cdc.gov/hchs/data/dvs/mortfinal2002_workipt2.pdf.

I don’t often agree with Greg Mankiw, but in this case I do agree with two of his points, if not with his reasoning.

A Modest Proposal: Ten Steps to a Democratic Economy

In my initial installment of this series, I proposed, “Ten Steps to a Democratic Economy.” With this column, I would like to explain and defend my third proposal. I invite commentary and analysis.

3. Reform the Money System – The money supply system is directly under the control of the Federal Reserve. This agency has 14-year terms. They need to be placed under congressional control, not Presidential control. I recommend that their terms be limited to 4 years and they should be checked by Congressional fiscal policy. High interest rates currently only benefit banks and financial institutions.

The Federal Reserve, usually called, ”The Fed,” is the central banking system of the United States. The Federal Reserve System is composed of a central Board of Governors in Washington, D.C., and twelve regional Federal Reserve Banks located in major cities throughout the nation, and a number of member banks. The Federal Reserve Act created the Federal Reserve System in 1913. The board and its chairman are appointed by the President of the United States and approved by the Senate.

The money supply available at any given time in our economy is a product of the interest rates that are set by the Federal Reserve. As it raises or lowers the interest rate it charges to member banks, it increases or decreases the amount of money available to the economy. Higher interest rates slow the economy and lower interest rates speed it up. This means that the economy is producing goods and services and thereby creating jobs in a “slow” manner or in a “faster” manner.

I am not an expert in economics, but I know that high interest rates hurt low-income people and benefit wealthy people. Low interest rates help low-income people, but do not hurt wealthy people. The wealthy have a surplus and they profit from whatever the amount of the interest that it earns. Their complaint would be that they are not being rewarded “enough” for their thrift and/or miserly behavior. People who have surplus money can, of course, give it away, but most wealthy people prefer to “rent” it out. The money you pay in interest on a loan is in effect the rent for that loan. The wealthy are the creditors and the poor are the debtors. Those who lend are the creditors and those who borrow are the debtors. (One problem with this scenario is that truly destitute, impoverished people are hardly ever loaned money. They are considered poor risks.)

When a bank grants someone a loan, most people feel happy. This is understandable but they should not feel happier than the bank. The bank is now getting a 6% return on its money, when earlier it was only getting 2%. This is how banks make money for themselves. They take it in at one window and loan it out (part of it) at the other window.

Low interest rates stimulate purchasing of goods and services. With low interest rates it is easier to borrow money to buy a car, a refrigerator or a house. This means that more people will exercise that purchase option and the economy will move along. This tends to create a bit of inflation.

Wealthy people do not like inflation. It means that their wealth does not buy as much as it used to buy. Large financial institutions feel the same way. They like to have the Federal Reserve under the control of people who are not elected by the citizens, or at least at a distance from the people. The President appoints Federal Reserve Board members. Their terms in office are for 14 years and the Senate confirms them. The House plays no role. The Senate is the more conservative of the two legislative branches. Senators have 6-year terms. There are two per state regardless of population.

Recently, after Hurricane Katrina, hit the Gulf Coast, a number of people felt that the Federal Reserve should have lowered interest rates to make goods and services available to those afflicted. It did not do so. It was focused on the anti-inflationary policy that it had been following. This is an example of monetary policy interfering with fiscal policy. Tax cuts meant that the government would have to borrow to cover the costs of the hurricane and aftermath.

Fiscal policy refers to the ability to raise revenue by way of taxes and to spend money on needed projects. In a phrase, fiscal policy refers to revenue and expenditure policy. With a democratic fiscal policy, we could collect more money from the affluent and provide more services to the poor. Tax the rich and help the poor.

It is for this reason that conservatives fear and loathe democracy. Conservatives fear that a majority would probably want to spend more money on schools, health care and environmental protection, instead of prisons, police and the military. Since the wealthy people would see an increase in their federal income taxes, if this happened, they generally oppose giving Congress strong fiscal tools, and instead rely on monetary policy to adjust the economy.

A more democratic society would give us better economic policies. Better economic policies would put people before profits.

A better world is possible.

References:

Economic Report of the People. Boston: South End Press, 1986.
(Center for Popular Economics, Amherst, Massachusetts)

http://en.wikipedia.org/wiki/Federal_Reserve

A Modest Proposal: Ten Steps to a Democratic Economy

In my initial installment of this series, I proposed, “Ten Steps to a Democratic Economy.” With this column, I would like to explain and defend my second proposal. I invite commentary and analysis.

2. Raise the Minimum Wage – I think it would be a good idea to raise the minimum wage to $10.00 per hour. It is currently $5.85 per hour.($8.00 in Massachusetts.) I would also shorten the workweek to 35 hours to give people more free time for recreation and education.

Raising the minimum wage would put a lot more money into circulation and would stimulate the economy. Most of the people who would benefit from this new policy would spend their money on goods and services that they presently do without. For all of these people, it would mean more money above the subsistence wage that they are presently earning. These people are the working poor. They are for the most part the invisible poor. Visible or not they are a reality in the current American economy.
The economist Holly Sklar is a widely published op-ed columnist and author. She is co-author of “Raise The Floor: Wages and Policies That Work For All Of Us,” which Barbara Ehrenreich calls, “A commanding work and powerful tool for the living wage movement.” She is a contributor to numerous high school and college text anthologies and is a frequent guest on talk radio.
She tells us,

“The number of Americans in poverty is a group so large it would take the combined populations of Louisiana, Mississippi, Alabama and Texas, plus Arkansas to match it. That’s according to the Census Bureau’s latest count of 37 million people below the poverty line.
Millions more Americans can’t afford adequate health care, housing, child care, food, transportation and other basic expenses above the official poverty thresholds, which are set too low. The poverty threshold for a single person under age 65 was just $9,827 in 2004. For a two-adult, two-child family, it was just $19,157.
By contrast, the Economic Policy Institute’s Basic Family Budget Calculator says the national median basic needs budget (including taxes and tax credits) for a two-parent, two-child family was $39,984 in 2004. It was $38,136 in New Orleans and $33,636 in Biloxi, Mississippi.
America is becoming a downwardly mobile society instead of an upwardly mobile society. Median household income fell for the fifth year in a row to $44,389 in 2004 — down from $46,129 in 1999, adjusting for inflation.”

Under my proposal, if the principal wage-earner was paid $10.00 an hour for a 35 hour work week, their family income would be $17,500.00. This would not eliminate poverty, but would put a floor under it. With family assistance for the working poor, in the form of tax credits or income credits, we could effectively insure that no family lived in poverty.
A higher minimum wage also helps protect the wages of workers in the higher brackets. It also promotes a greater sense of community, in that it eliminates the resentment that gross inequality in income and wealth promotes. This resentment contributes to criminal and anti-social activity.
The minimum wage would have to be indexed to inflation to protect it. To promote skilled labor, a minimum wage policy would have to include free education. By making education available to all, with free tuition, room and board, etc. we would remove a number of people from the work force and at the same time invest in future job growth for highly skilled graduates. Over time these skilled workers would pay back the system by paying their just share of taxation.
The current system will not move toward this direction unless we build a social and political movement that works to bring it into being. The current economic elite is aware of how fragile their social position is. That is why they spend so much money for lobbyists and political bribes (aka “contributions) to keep the current unjust system in place. A disciplined political organization of working people and their allies could easily overcome this. It really is just a matter of, “keeping your eyes on the prize,” as they used to say in the civil rights movement.
One thing is certain, if we do not try to build a progressive movement, then we will not have a progressive movement. If we try, we might fail. But a rational and realistic effort, very probably would succeed.
The alternative is the misery and injustice that we see around us today. To maintain that outcome, we need to do nothing.

Here is a quick quiz question and reality redefinition brought to you by President Bush’s Council of Economic Advisers. Fill in the blank:

“[A]s people’s real incomes grow, they become subject to higher tax rates.”

This phenomenon is known as _______________________.

A Modest Proposal: Ten Steps to a Democratic Economy

by John J. Fitzgerald

I propose Ten Steps to a Democratic Economy. Starting with this column, I would like to explain and defend my proposals. I invite commentary and analysis.

1. The Right to a Job – Every person should be guaranteed a job. If the private sector cannot help them, then a public sector job should be available. This could include working on a mass transit system to replace the interstate highway system. Maintenance of public parks, fully staffing public schools and public hospitals could be other areas of employment. We should also publicly fund an alternative energy policy to end our dependence on foreign oil. The model to follow here would be Sweden.
- - - - -
Every person who is not significantly handicapped should be able to work for a living. I define a decent job as one that pays at least $10.00 per hour, for a 7 hour day, 5 days a week, with decent working conditions, health care and Social Security coverage. If the current market can not supply those jobs, then the government should. This program would be similar to what Franklin Roosevelt’s New Deal meant in the 1930’s, except it would not wait for an economic depression to get it started. I would like to see this expand and contract as the situation required. For example, maintenance of public parks and recreation areas would be an ongoing effort. Maintenance of public buildings, schools and hospitals which are historically neglected because of budget concerns would be fully funded, thereby creating a supply job market that will always be present to match demand. Creating a mass transit system would require a huge workforce just as the interstate highway system of the 1950’s and 1960’s did. Converting from an automobile based transportation system would ease global warming and end our dependence on oil from the Middle East. Converting from petroleum and natural gas to wind power, solar and increased hydro would also require new construction and manufacturing jobs.
Shortening the work week to 35 hours will also create more jobs. It would increase leisure time and thus would promote jobs in that sector. We would also have to make over-time illegal. One should be able to survive and flourish on the income generated by one job. The goal is to create more jobs. The whole idea is to get away from a profit making system to an economy that puts people first. Another name for this is democratic socialism.
To attain this goal we need to start discussing it as a goal. Some people are already close to doing this. This past month, [December, 2006] AFL-CIO President John Sweeney outlined his federation’s vision for stopping what he called, “the senseless slaughter” of good American jobs.
In a speech to the National Press Club, Sweeney described how America’s workers have struggled over the past 25 years as “a perfect storm of outsourcing, off shoring, tax evasion, layoffs, work speedups, wage cuts, health care cuts, pension cuts, shifting risks, bashing unions and short-changing communities”
has swept across the economic landscape.
Sweeney talked about some of the immediate actions Congress and President George W. Bush can take to stop the erosion of good jobs in
America, including:
• Guaranteeing America’s workers the freedom to form unions and
bargain for a better life.
• Giving workers the same protections as corporate interests in
our trade policy.
• Making it illegal for companies to buy or sell products made
in sweatshop conditions.
• Repealing tax laws that encourage companies to send jobs
overseas.
• Passing universal health care coverage.
• Telling corporate America to rejoin our national community by
investing more in workers and less in their executives.
• Doubling the money we spend on education and job training.
• Raising the minimum wage.

Sweeney is making proposals within the context of a corporate-capitalist-labor union system. I think we need to move beyond this approach and for that we will need to get involved with political parties and political campaigns. A good start might be found in a progressive movement within the Democratic Party.

By Amit Basole
CPE Staff Economist

Global Charity
In the year 2000, the richest 10 per cent of the world’s population held 85 percent of its total income and wealth. The bottom half owned a mere 1 percent. Such glaring global asymmetries have long justified redistribution of wealth from the “Global North” to the “Global South” in the form of development aid and loans. So much so, that the stock image of a developing country that springs to mind (particularly in sub-Saharan Africa) is that of a heavily indebted economy which continually borrows simply to repay its old loans and receives food and other forms of aid to feed and clothe its “naked and hungry masses.” Persistent poverty is often blamed on inadequate aid, and rich countries are periodically exhorted to donate more generously. This form of global charity is visible to all. But there is another flow of wealth across national borders, greater in magnitude and more clandestine. This is the flow from poor countries to the rich. Yes, the world’s poorest countries are today financing the richest. Far from being heavily indebted, many developing countries are net creditors vis-à-vis the rest of the world. How is this possible?

Who is financing whom?
Recent analysis of flows of income and wealth across national borders reveals a startling and different story than that of global charity towards the South. Economists have found that more money flows out of developing countries in the form of interest payments, profits of foreign corporations, and clandestine investments in financial markets of the rich countries than flows into them as loans, aid, and foreign direct investment. According to a recent United Nation’s report, in 1995 the net inflow of money into developing countries was $40 billion, but by 2006 this had reversed to a net outflow of $657 billion! The global financial system is sucking wealth out of developing countries, making them poorer in the process. Sub-Saharan Africa in particular is associated with highly indebted poor countries. Indeed, in 1996 the combined external debt of 25 countries of sub-Saharan Africa, owed to rich countries and to institutions such as the IMF and the World Bank, stood at $178 billion—a large sum indeed. But even more significantly, the flow of wealth out of these same countries over 26 years (1970-1996) equaled more than $193 billion. To make matters worse, much of this wealth flowing out of poor countries ends up in the US economy, which absorbs two-thirds of world savings. The ecologically-damaging consumption boom in the world’s rich countries is financed by its poor countries where consumption is a matter of survival. The insanity of this situation puts a question mark on the entire logic of the international financial system.

How does this happen?
But wait a minute. We might wonder, aren’t developing countries poor by definition? How then do they have resources to transfer to rich countries? We must remember here that although the majority of the population in a developing country is indeed poor, most countries have a small elite class that owns a disproportionate share of its income and wealth. In other words, the poor are poor precisely because the rich are rich. Further, a government may be highly indebted but what about its private citizens, in particular the rich ones? Several African leaders have amassed personal fortunes even as the governments they head have incurred large debts. At least in part these extraordinary assets are held abroad in rich countries. The problem is that while public debts are scrupulously recorded, many private assets are just as scrupulously concealed. To take just one famous example, the Swiss bank accounts of the family of General Sani Abacha, who ruled Nigeria for five years, reportedly contain as much as $2 billion.

This phenomenon is also known as “capital flight.” There are several avenues by which money flows from the poor countries to the rich. Repayment of earlier debt and accumulation of foreign exchange reserves with Central Banks in developing countries are two big ones. Since reserves often take the form of US treasury bills, reserve accumulation essentially means lending scarce capital to the US, a classic case of the poor lending to the rich. But there is yet a third, more hidden, avenue as well. This is trade mis-invoicing: under-reporting exports and over-reporting imports. Exporters in a country may understate the value of their export revenues, so that they can retain abroad the difference between their true value and their declared value, while importers may over-state the value of their imports to obtain extra foreign exchange, which can then be transferred abroad.

What can be done?
Should we simply chalk this up as a typical case of Third World mismanagement and corruption, a problem of “failed states,” a lack of democratic accountability and transparency? It is all that, but that is not the whole story. Rich country governments and international lending institutions are often complicit in maintaining corrupt rulers and in transferring their assets abroad. The Financial Times remarks in an editorial on the freezing of General Abacha’s bank accounts, “Financial institutions that knowingly channeled the funds have much to answer for, acting not so much as bankers but as bagmen, complicit in the corruption that has crippled Nigeria.”

If development aid is used to amass private fortunes while external creditors look the other way, why should a developing country’s poor citizens be forced to pay the price of painful “reforms” such as cutbacks in government spending on essential services, when most of that aid has not benefited them at all in the first place? Rather citizens of developing countries and their governments could tell their foreign creditors that old debt will only be treated as legitimate if the creditors can provide evidence for how the money was used for genuine development goals. This shifts the burden of proof onto the lenders. Needless to say, such a proposal would be extremely unpopular with rich country governments as well as with the IMF and the World Bank.

In addition to “bottom-up” approaches to development, such as strengthening government accountability and democracy from below in developing countries, there is a role for us here in the developed world to play: we can do our bit by raising awareness about capital flight and odious debt, and holding our own governments accountable for who they lend or give aid to and how that money is spent.

Sources:

1. Isabel Ortiz (2007) Putting Financing for Development in Perspective: The South Finances the North, IDEAS Network (http://www.ideaswebsite.org/news/nov2007/Putting_Financing.pdf)

2. World Economic Situation and Prospects, 2007- United Nation Development Policy and Analysis Division (http://www.un.org/esa/policy/wess/wesp.html)

3. James Boyce and Leone Ndikumana (2000) Is Africa a Net Creditor? New Estimates of Capital Flight from Severely Indebted Sub-Saharan African Countries, 1970-1996. (http://www.umass.edu/economics/publications/econ2000_01.pdf)

It’s hard to think of something that counts as an “econ-atrocity” more than the health insurance industry’s practice of paying bonuses to employees who meet targets for cancelling policies of sick customers or refusing to cover the care that the customers need. My uncle sent me this link to the latest revelation published in the LA Times:

Health insurer tied bonuses to dropping sick policyholders

By Lisa Girion, Los Angeles Times Staff Writer
November 9, 2007
One of the state’s largest health insurers set goals and paid bonuses based in part on how many individual policyholders were dropped and how much money was saved.

Woodland Hills-based Health Net Inc. avoided paying $35.5 million in medical expenses by rescinding about 1,600 policies between 2000 and 2006. During that period, it paid its senior analyst in charge of cancellations more than $20,000 in bonuses based in part on her meeting or exceeding annual targets for revoking policies, documents disclosed Thursday showed.

As my uncle put in his email’s subject line, “did somebody say, ’single-payer health plan?’”

[See part one]
Jonathan Teller-Elsberg, CPE Staff Economist

It’s worth remembering that commons already exist, lots of them, in various places and parts of the world’s economies. Most often, however, they are informal arrangements—holdovers from before the rise of modern market capitalism. In general, commons are not recognized formally by governments as a type of property arrangement deserving protection, the way conventional private property is legally protected.

It is this lack of protection that enables the famous “tragedy of the commons.” Barnes argues that, contrary to the standard perception, commons aren’t undermined by internal tragedies—they are victims of infringement from the outside. Marx described the enclosure of common land into private land as “the primitive accumulation of capital”; today, Barnes is primarily concerned with the ability of corporations to horn in on remaining commons as they seek new resources to exploit for private gain. A recent example is with the digital TV broadcast spectrum, with an estimated value of $70 billion but which the U.S. government gave away for free in 1996 to media conglomerates, even though the airwaves are supposed to be the shared property of all Americans.

An important debate in the social health literature is whether more inequality causes worse health. At some later date I’ll post a bibliography, or maybe commenters can help. In any case the list of publications is long, the contributors illustrious, and the findings varied and at odds with each other. Some of the most important papers representing a range of findings include those by Deaton, Deaton and Lubotsky, Mellor and Milyo, Lynch, et al., Kawachi, Subramanian, et al., Navarro, et al., Wilkinson, et al., and Marmot, et al.

Note that the debate is about the effect of inequality, per se, on health. Everybody knows that being rich reduces mortality and being poor increases it. The relationship between income and health (mortality, infant mortality, life expectancy, morbidity) is so well known in the literature that it is simply known as “the gradient.” It obtains at the macro and micro levels in dozens of studies. For example, let me quote Angus Deaton, who is BTW an inequality-mortality skeptic, “Men in the United States with family incomes in the top 5 percent of the distribution in 1980 had about 25 percent longer to live than did those in the bottom 5 percent. Proportional increases in income are associated with equal proportional decreases in mortality throughout the income distribution” (Angus Deaton “Policy Implications Of The Gradient Of Health And Wealth”). But I digress.

There are three basic channels through which an association between inequality and health could occur. The first two are causal in that social inequality affects individual health.

1. Direct. Inequality creates stress, which is bad for health.
2. Indirect. Inequality disrupts the production of health-supporting public goods or causes the production of health-reducing public bads, which is bad for health.
3. Artifactual. More income improves the health of the poor more than it improves the health of the rich. (The health-income relationship is concave.) A more unequal society will have worse average health than a more equal society with the same mean income because the health gain to the rich from being much richer is not as great as the health loss to the poor from being much poorer. Note that individual income only affects individual health, but the distribution of income affects average health.

A fairly recent entry in the field is Leigh and Jencks, “Inequality and mortality: Long-run evidence from a panel of countries” (Journal of Health Economics 26 (2007) 1-24). Here is a link to a working paper version which is very similar to the published version. In a nutshell, the income share of the richest 10 percent of the population is the measure of inequality, and life expectancy at birth and infant mortality are the two main measures of health outcome.

The 14,500 doctors and 58,000 nurses of this health-care organization serve 7.6 million enrollees, delivering care that outperforms both commericial insurance and Medicare–let alone poor, underfunded Medicaid–on a host of indicators of quality of process and outcome. While Medicare costs increased from $5,000 to $6,800 (36 percent) per patient-year between 1996 and 2004, its costs stayed constant at $5,000 per patient-year. And the patients receiving this high-quality, moderate-cost care are disproportionately poor and disabled.

Is it Kaiser Permanente? Is it a new for-profit chain of health clinics? No, it’s the Veterans Health Administration (VHA).

Jonathan Teller-Elsberg, CPE Staff Economist

A few weeks ago, CPE Staff Economist Jerry Friedman wrote an Econ-Atrocity reviewing Bill McKibben’s new book, Deep Economy. Though he says McKibben “has written a clear attack on much of what ails us,” Friedman nonetheless criticizes McKibben for approaching the environmental and social problems of the day from an individualist perspective. For all that McKibben wants to promote and revive “community,” he has the attitude (says Friedman) of a “personal Salvationist . . . [who thinks that] the enemy [is] ourselves: we use too much, waste too much, want too much; and the only salvation for the environment is to change our preferences, use less, recycle more, and choose to live simply.” What McKibben misunderstands or ignores, Friedman argues, is the power of social institutions to drive behavior, regardless of the desires and seemingly free choices of individuals.

I think that Friedman will find solace in Peter Barnes’ recent book, Capitalism 3.0: A Guide to Reclaiming the Commons, since Barnes’ approach is definitively institutional. The problem, according to Barnes, is that the structure of the economy and society leave too much power in the hands of corporate capitalism. Even if all the CEOs and boards of directors and politicians were replaced with kind-hearted souls like McKibben, we would still face pretty much the same issues of environmental decay, economic inequality, and other social ills—the logic of capitalism and the legal structure of private property rights force the leaders of corporations to do what they currently do. He learned this from personal experience as co-owner and manager of several business ventures, most famously Working Assets (a telephone and credit card company that donates one percent of gross revenues to progressive charitable organizations). “I’d tested the system for twenty years, pushing it toward multiple bottom lines [that consider social and environmental impacts in addition to profit concerns] as far as I possibly could. I’d dealt with executives and investors who truly cared about nature, employees, and communities. Yet in the end, I’d come to see that all these well-intentioned people, even as their numbers grew, couldn’t shake the larger system loose from its dominant bottom line of profit.” (Ironically, Bill McKibben is quoted on the front cover of Capitalism 3.0 helping to promote Barnes’ book.)

By Helen Scharber, CPE Staff Economist

Last month, the recall of 60 million cans and pouches of pet food by Menu Foods left Americans concerned and confused. The pet deaths and illnesses that spurred the recall have since been linked to melamine, a chemical added to animal feed in China to boost its reported protein content. Melamine is not digested in the same way as vegetable protein, however, and therefore lacks nutritional value. Why, then, are Fluffy and Fido eating it? In short, because companies value profits over pets. Using melamine increases profits by lowering costs, and without effective regulation, the drive for profits tends to trump other concerns, including human and animal health.

Melamine is a hard, white, coal-derived substance used primarily to make fertilizer and plastics. You may have melamine bowls or plates in your house; a warning on the bottom declares them unfit for use in microwaves or dishwashers, since high temperatures can cause the plastic to break down and contaminate your food. Animal feed manufacturers in China buy scrap melamine cheaply and add it to feed in order to boost its nitrogen content, which inflates protein levels in tests. According to a Chinese animal feed factory manager interviewed in the New York Times, “If you add it in small quantities, it won’t hurt the animals.” He goes on to justify the substitution of vegetable protein with melamine’s indigestible protein. “Pets are not like pigs or chickens… they don’t need to grow fast.” Profits, he might have added, do need to grow fast, and substituting melamine, at one-fourth the cost of vegetable protein, helps profits grow.

The pet food recall case illustrates the problems that can spring from increasing globalization paired with poor regulation. While the use of melamine in food is prohibited in the United States, it isn’t in China. Because it reduces costs and has the added benefit of beefing up advertised protein levels, Chinese manufacturers use it as a filler, despite its total lack of nutritional content and poorly understood health effects.

The contaminated feed makes its way into the U.S. via companies like ChemNutra, the American importer that supplied the contaminated wheat gluten to Menu Foods. Steve Miller, the chairman of ChemNutra, claims that his company is actually the victim, not the offender. “We are concerned that we may have been the victim of deliberate and mercenary contamination for the purpose of making the wheat gluten we purchased appear to have a higher protein content than it did,” he writes in a public letter. Moreover, according to Miller, “[ChemNutra] had no idea that melamine was an issue until being notified by the FDA on March 29. In fact, we had never heard of melamine before.”

If ChemNutra did not know about the melamine, Menu Foods, the Ontario-based pet food manufacturer that bought wheat gluten from ChemNutra, could not have known either. But if Menu Foods is not to blame for the contamination, they are responsible for the extent of the problem. Menu Foods, a company most Americans hadn’t heard of before March, manufactures wet cat and dog food under nearly 100 familiar brand names. These brands are sold in most major grocery and pet food stores around the country.

Incidents like the pet food recall and last year’s spinach contamination reveal just how concentrated – and, therefore, vulnerable – our food supply is. Such incidents also underline the importance of market regulation. It was the operation of the free market – specifically, Chinese animal feed processors seeking higher profits – that resulted in melamine-enhanced wheat gluten. Legally, the U.S. Food and Drug Administration (FDA) is responsible for protecting our food supply from harmful and illegal substances such as melamine. But faced with increasing numbers of food imports and inadequate staff, the FDA is unable to filter out every last potential culprit. Because the short-staffed FDA is unable to conduct necessary inspections, the Center for Science in the Public Interest (CSPI), in a press release from April 24, advocates a temporary ban of grain products from China. “If U.S. pets must serve as the ‘puppies in the coal mine,’” writes CSPI executive director Michael Jacobson, “we urge FDA to heed the warning and take action now to ban grains and other grain products until the Chinese government and producers can guarantee that these imports are free of illegal and dangerous substances.”

Even if Chinese grains were banned for a while, food production in the U.S. would continue to be complexly intertwined with the global food supply. Thus, federal regulatory agencies must step up their efforts to protect consumers from unsafe food, often a direct result of cost cutting by companies eager to increase profits. Current food safety laws are over 100 years old, and according to the CSPI, the FDA inspection staff has shrunk by 15 percent since 2003. To better protect the public from food-borne illnesses, Senator Dick Durbin and Representative Rosa DeLaura have introduced the Safe Food Act that would create a unified food agency with more modern rules. In tandem with better regulations, we should also make it harder for companies like Menu Foods to sell contaminated food to such large swathes of the country, by encouraging a less concentrated food processing and distribution system. After all, what’s the point of healthy profits if we don’t have healthy pets and healthy people?

Resources

New York Times web page with links to articles about the pet food recall

Center for Science in the Public Interest press release, urging FDA to ban grain imports from China – April 24, 2007

Letter from the chairman of ChemNutra about the pet food recall

Senator Dick Durban’s bill to establish a Food Safety Administration, introduced February 15, 2007 [pdf]

© 2007 Center for Popular Economics

Econ-Atrocities and Econ-Utopias are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

By Gerald Friedman, CPE Staff Economist

At the time of the first Earth Day, April 22, 1970, the Environmental Movement straddled two approaches to addressing environmental problems, approaches rooted in two alternative theories. Senator Gaylord Nelson of Wisconsin proposed the first Earth Day to “force this issue onto the political agenda,” to promote changed government policy to protect the environment. But many of the 20 million Americans who took part in this first Earth Day were deeply suspicious of organized politics or state action. “Personal salvationists,” they blamed environmental troubles on our weaknesses as individuals. Instead of failed social policy, the enemy was ourselves: we use too much, waste too much, want too much; and the only salvation for the environment is to change our preferences, use less, recycle more, and choose to live simply.

Twenty seven years later, the Environmental Movement confronts the same division between personal salvation and political action, a division nicely illustrated by a new book, Bill McKibben’s Deep Economy. A prominent environmentalist, McKibben has written a clear attack on much of what ails us; but he misses the underlying cause of these ills and, therefore, his prescription for remedial action is necessarily off. In many ways, a pleasure to read, the book also left me so frustrated that I threatened to throw it against the wall.

By Hasan Tekguc

What are honeybees, the favorite economic textbook example of a positive externality, doing nowadays? The short answer is: they are vanishing in droves, in billions.

Let’s take a step back and see what economics textbooks tell us. In many economics textbooks and introductory classes honeybees are referred to as the perfect example of a positive externality. A positive externality is the benefit from economic activity that falls on a party ‘external’ to the activity. Economics textbooks and professors explain that when honeybees visit flower after flower to collect nectar, they help flowers to pollinate. However, honeybee keepers are not paid by orchard owners for honeybees’ services and hence the pollination service is underprovided. The market-based solution offered in textbooks is to expand the market to include the positive externalities; in plain language if the orchard owners start to pay the beekeepers for bees’ services, the beekeepers will keep more honeybees, more flowers will be pollinated, and the trees will bear more fruit.

By Helen Scharber, CPE Staff Economist

On February 8, Representative Louise Slaughter (D-NY) introduced the Preservation of Antibiotics for Medical Treatment Act of 2007, a bill designed to limit the use of antibiotics in healthy farm animals. Though their surnames do not lend themselves as aptly to a bill about livestock, Senators Kennedy (D-MA) and Snowe (R-WA) introduced a nearly identical bill to the Senate the following week. Why are lawmakers suddenly so concerned with porcine penicillin? As Snowe explains, “The effectiveness of infectious disease fighting antibiotics continues to be compromised by their overuse for agricultural purposes.” In other words, the antibiotics we’re feeding our edible friends are speeding the development of drug-resistant super bacteria, a type of progress that’s bad for pigs and for people.

By Heidi Garrett-Peltier, CPE Staff Economist

You are what you eat. And according to Michael Pollan, author of The Omnivore’s Dilemma, that means we’re corn. Corn has now made its way into our diet in the form of fillers, sweeteners, oils, alcohols, pills, and breakfast cereals, not to mention of course the indirect path it takes through animal feed. Why should we care? Because cheap corn has been linked to obesity, and obesity will soon overtake tobacco as the leading cause of preventable death.

By Matthew Riddle, CPE Staff Economist

The Regional Greenhouse Gas Initiative, or RGGI, grabbed headlines in Massachusetts recently when Governor Deval Patrick signed onto it, committing Massachusetts to a cut in its emissions of greenhouse gasses from power plants, and reversing Mitt Romney’s decision to abandon the agreement. In addition to rejoining RGGI, Patrick also outlined some proposals for its implementation, which may prove to be even more significant than his decision to join.

By Jonathan Teller-Elsberg, CPE Staff Economist

With Al Gore on Oprah giving his “inconvenient” PowerPoint presentation, new reports of melting ice sheets and rising sea levels, and the release of the British government’s Stern Review, which is the latest major estimate of the economic costs of climate change, the issue of global warming is becoming a part of mainstream politics and kitchen-table conversations. Since the burning of fossil fuels (oil, natural gas, and coal) is the main source of human-caused warming, the need for alternative forms of energy is clear.

By Helen Scharber, CPE Staff Economist

When your child’s doctor gives you advice, you’re probably inclined to take it. And if 60,000 doctors gave you advice, ignoring it would be even more difficult to justify. Last month, the American Academy of Pediatrics (AAP) issued a policy statement advising us to limit advertising to children, citing its adverse effects on health. Yes, banning toy commercials might result in fewer headaches for parents (“Please, please, pleeeeeeease, can I have this new video game I just saw 10 commercials for????”), but the AAP is more concerned with other health issues, such as childhood obesity. Advertising in general – and to children specifically – has reached astonishingly high levels, and as a country, we’d be wise to take the doctors’ orders.

By Helen Scharber, CPE Staff Economist
Dec. 20, 2006

Ahh, the holidays. So full of joy, laughter, good cheer… and contradictions. The holidays are all about spending time with loved ones. Or are they all about finding the perfect gift? They are a time of relaxation and spirituality. Or perhaps a time of stress and consumerism? According to a 2005 poll by the Center for a New American Dream, more than three in four Americans (78%) wished that holidays were less materialistic, yet shoppers around the country planned to spend an average of $907 on gifts this holiday season. Sixty percent of people polled anticipated spending less this year than last, but according to the National Retail Federation, holiday retail sales were forecasted to rise five percent to $457.4 billion. As Howard Dvorkin, founder of Consolidated Credit Counseling Services, Inc. (CCCS), observes, “It seems that consumers are trying to be more conservative with spending this year over last, but many of the best laid plans fall through when the pressures of advertisers and unrealistic holiday expectations hit a fever pitch of season overload.” The fast pace and high cost of the holidays can seem to be out of our control, but there are a number of good reasons to take the reindeer by the antlers and reign in holiday consumption.

By Gerald Friedman, CPE Staff Economist
Dec. 1, 2006

A recent article in the New York Times (October 25, 2006) entitled “Hospitals Try Free Basic Care for Uninsured” raises an intriguing possibility. The Times reports how some local governments and hospitals have found that by providing primary care, supportive services, and preventive care for the uninsured they can save money by avoiding higher costs when conditions worsen down the road. Following the experience of a diabetic patient at Seton, a Roman Catholic hospital network in Texas, the Times shows how preventive care reduced “costs for the hospital” by helping the woman avoid expensive emergency room visits. By improving her health, preventive care cut her medical bills nearly in half. “The money we save,” Dr. Melissa Smith, medical director of three Seton clinics, “money that is not hemorrhaging through the I.C.U., is money we can do so much more with to help her upfront.”

We could all hope that there will be enlightened insurers who will respond to these stories. The Times is certainly hoping to promote a free-market win-win where the poor will receive care that will help them stay healthy, and health insurers and providers will increase their profits by reducing total expenditures. But this worthy goal misses the fundamental flaw of for-profit health insurance: Capitalist businesses, including America’s health insurers, are not eleemosynary institutions. They do not set out to produce useful things. Instead, they seek to create profits; any social value or use is purely coincidental. In the specific case here, our capitalist health care industry is organized to produce profits; any quality health care that it provides is a desirable, but secondary, product.

By Gerald Friedman, CPE Staff Economist

As I write this, it appears likely that after 12 years in the wilderness, the Democrats will capture a majority in the House of Representatives and will make substantial gains in the Senate. (My favorite objective source, http://www.electoral-vote.com/, gives the Democrats a 225-208 lead in the House and a gain of 4 Senate seats to move to 49-51 in the upper body.) After 6 years of almost uninterrupted one-party rule, and the worst government this country has endured since the 1850s, we can only rejoice at Democratic gains as, if nothing else, a sign of a return to sanity after the trauma of September 11, 2001. But, beyond this, what can we expect from the Democrats? Can we anticipate a reversal of Bushism, and a renewed push for social progress?

by Emily Kawano, CPE staff economist

TINA is dead – let us rejoice. In the early 1980s British Prime Minister Margaret Thatcher famously declared, “There Is No Alternative” meaning that there is no alternative to capitalism. In the following years it certainly seemed that the capitalist juggernaut was on a roll. By the 1990s, Communism in the Soviet bloc had fallen and neo-liberalism, a particularly pro-corporate and anti-government brand of capitalism, had been enthroned throughout most of the world, enforced by the International Monetary Fund (IMF), the World Bank and the World Trade Organization. TINA ruled, unchallenged by clear evidence that a viable alternative existed.

And yet, the steady encroachment of neo-liberalism, accompanied by growing inequality and immiseration for many throughout the world, may have seeded TINA’s demise. The critique of neo-liberalism has been well honed by the ever-growing global justice movement that has focused a spotlight on the failure of the neo-liberal model in terms of growth, equity and sustainability. In Brazil, Venezuela, Chile, Argentina, Uruguay and Bolivia left-leaning governments have been swept to power under the banner of anti-neo-liberalism. The World Social Forum, the largest and most significant gathering of social movements in the world, is united by an opposition to neo-liberalism and a belief that ‘Another World is Possible.’

At the same time, many people and communities, moved by desperation, practicality, values, or vision, have become involved in concrete economic alternatives. A sample includes:

• Cooperatives, which are businesses that are owned and run by the workers, consumers or members, are seeing new life. According to the International Cooperative Alliance, co-operatives provide over 100 million jobs around the world– 20% more than multinational enterprises.
• Co-housing promotes a sense of community involvement and responsibility. Housing is private, but there are communal spaces and buildings, including for example, a common dining area, kitchen, childcare space, meeting rooms, and recreation space. Real estate speculation on the housing is prohibited and land is held in common.
• Local currency, in which people and businesses use locally printed money, aims to stimulate and support the local economy by keeping money circulating in the local economy rather than ‘leaking’ outside.
• Community supported agriculture supports local farmers by creating dependable demand for their produce. People pay for a seasonal or yearly subscription, which entitles them to a share of whatever is produced. In the U.S., 25,000 people participate in more than 500 CSA projects across the country, while in Japan, where it has been around since the 1960s, 5,000,000 families participate in CSA.
• Participatory budgeting serves to democratize the process of governmental budgeting by giving local residents an official say in where public money should go. The most prominent example of Participatory Budgeting has been in Porto Alegre, Brazil where communities have been involved in city budgeting since 1989. The model has spread to cities in Canada, India, Ireland, Uganda and South Africa.
• The squatters movement works to take over abandoned or unused land or structures and then secure permanent rights to the property; improve the quality of housing, sanitation, and access to clean water; and empower the poor to come up with their own solutions. Given that nearly half the population of cities in Asia, Africa and Latin America are squatters living in illegal settlements, the challenge and need for this work is very great.

Do these examples offer a serious challenge to neo-liberal capitalism? The potential is there, but particularly in the U.S., this potential will remain unrealized unless there is greater coherency among the various strands and a connection with the larger social movements. Otherwise these practices run the risk of remaining worthy but isolated endeavors, struggling for their individual survival, and cloaked in invisibility.

Shedding the cloak of invisibility is an important step in the development of greater coherency as well as legitimizing the importance of economic alternatives. For example, the European Union (EU) has officially recognized the social economy which includes significant segments of the alternative economy such as:

• Cooperatives: housing, credit unions, coop banks, producer & consumer coops.
• Social enterprises: businesses that put social aims at the core of their operation. There are many forms of social enterprises, including: enterprises that seek to create employment for marginalized populations such as people with disabilities, or community businesses that contribute a percentage of profits to a community fund and include community members on the board.
• Mutuals: non-profits that exist for the benefit of their members, providing services such as insurance, mortgage and savings plans.

The EU has recognized the value and importance of the social economy both as a significant sector of the economy as well as its role in fulfilling social needs. EU governments are required to earmark a percentage of their budgets to promote the social economy.

Ultimately, it will take this kind of policy, financial and institutional support to develop the many inspiring economic alternatives into a viable economic system grounded in economic justice and sustainability. TINA is dead. The task now is to realize the transformative potential of the many alternatives that are already a reality.

Sources:
- International Cooperative Alliance, Statistics, http://www.coop.org/coop/statistics.html
- Co-housing, http://www.cohousing.org/default.aspx
- “The Potential of Local Currency,” Susan Meeker-Lowry, Z Magazine, July/Aug 1995, http://www.zmag.org/ZMag/articles/july95lowry.htm
- Community Supported Agriculture, http://www.nal.usda.gov/afsic/csa/
- Participatory budgeting resources, http://www.participatorybudgeting.org/resources.htm
- Squatters movement, http://www.sdinet.org/home.htm
- EU Social Economy, http://ec.europa.eu/enterprise/entrepreneurship/coop/index.htm

© 2006 Center for Popular Economics
Econ-Atrocities are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

By Jonathan Teller-Elsberg, CPE Staff Economist

In the U.S., talk of tax reform usually means debates about taxes on income and wealth. A little less common are discussions of flat taxes and a shift from payroll, income, investment, or property taxes to consumption taxes—that is, a federal sales tax.

We’ve seen the miserable results of lowering taxes on the rich, and we’ll be dealing with the massive government debts for decades to come. Flat taxes are simply another way to lower taxes on the rich, under the guise of simplifying the tax system. (To be sure, simplifying taxes is not exactly something to dismiss out of hand—the system is far more intimidating than it should be.) The supposed advantage of a shift to consumption taxes is that the shift away from payroll and/or other taxes should lead to more jobs. This is because a payroll tax makes it “expensive” for a business to have an employee. If the payroll tax is reduced or eliminated, the business will have more money available to hire additional workers. The problem with consumption taxes is that they tend to be regressive—meaning that they fall hardest on lower-income members of society.

Another type of tax reform that deserves more attention is the environmental tax shift (ETS), also known as the green or ecological tax shift. The idea here is to increase taxes on activities that result in environmental damage and use the money generated to reduce other taxes by the same amount. As with the consumption tax idea, most proposals center around reducing payroll taxes.

By Heidi Garrett-Peltier, CPE Staff Economist

In 1810, 84 percent of the U.S. workforce was employed in agriculture. Today, it’s down to two percent. Thanks to dramatic increases in productivity resulting from advances in technology and the mechanization of agriculture, we can produce a great deal more food with far fewer people than we could 200 years ago. But does this progress come at a cost?

Large-scale corporate farms are able to out-compete small-scale (often family-owned) farms and drive them out of business. Economies of scale (the competitive edge gained by being bigger) enable large corporate farms to produce more cheaply than smaller farms. These large farms are able to invest in expensive machinery and buy their inputs (fertilizer, seed, etc.) more cheaply than small farms, which in turn makes it difficult for small farms to compete. One might think that corporate farming is better for the consumer – large farms, producing more efficiently, can offer products at lower prices. In addition, the vast network of global agriculture allows consumers access to many varieties of foods throughout the year that can not be produced locally.

By Thomas Masterson, CPE Staff Economist

The Basic Income Guarantee (BIG) is just what it sounds like: a guaranteed basic level of income. Most proposals suggest that it be distributed to every adult citizen without regard to income or wealth. BIG would replace all of the social programs currently in place that attempt to reduce or eliminate poverty, such as welfare, unemployment insurance, and Medicaid, with a monthly payment sufficient to lift an individual out of poverty.

Interestingly, this proposal is drawing support from the right as well as the left (leftists have long supported versions of this proposal). Even Charles Murray (think “The Bell Curve”) likes it: he has written a book about it in which he seems to say that he thought it up, calling it “The Plan.” By eliminating the need to monitor for fraud and abuse of the system, BIG would actually be cheaper than our current system of multiple benefits and eligibility criteria. BIG would also get rid of the disincentive to work built into the welfare system–often working for pay leads to a decrease in benefits, making work a less attractive option. And, by allowing people to decide on their own what to use the money for (though Murray’s plan calls for $3,000 of his $10,000 annual grant to be spent for health insurance), BIG would increase efficiency. Lefties like it because it frees people from dependence on employers and gives them more bargaining power to demand good working conditions and better pay.

By Helen Scharber, CPE Staff Economist

The new national bankruptcy laws that went into effect in late 2005 prompted a big stir, not to mention a record-setting level of bankruptcy filings just before the laws changed. What is it about the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that caused so much controversy? Like its Orwellian cousins the Clear Skies and Healthy Forest Initiatives, this act—whose very title suggests it will enhance consumer protections—does anything but. Indeed, the problems with this new law have much to do with what it does not include.

by Jonathan Teller-Elsberg, CPE Staff Economist

After eighteen years holding the reigns of power, Alan Greenspan has finally ended his career as chair of the Board of Governors of the U.S. Federal Reserve, as a result of legal limitations on the length of his term. As the person in charge of monetary policy in the U.S., Greenspan was, by some accounts, the single most powerful person in the world economy. His term as chair coincided with the early 1990s recession that contributed to George H. W. Bush’s loss to Bill Clinton; continued through the longest continuous period of economic growth in U.S. history; included the multi-billion dollar bailout of the Long-Term Capital Management hedge fund in 1998; persisted through the internet-inflated stock market boom and bust as the new century began; and has finished in the current period of feeble recovery.

By Jonathan Teller-Elsberg, CPE Staff Economist

Most of the news we get about China has to do with the actions of the Chinese government or with broad economic trends. Only rarely, it seems, is there much reporting on the actions of Chinese people.

So the Washington Post and China correspondent Edward Cody deserve credit for a series of articles he’s written for the paper over the past year. Cody’s articles have described the struggles of Chinese factory workers and peasants as they face various abuses at the hands of factory owners and corrupt local officials (sometimes one and the same people). He reports that the Chinese government believes that the core cause for the increase in spontaneous mass protests across the country is growing economic inequality.

In the southern Fujian province, thousands of peasants have been protesting the seizure of their land, which is often converted to industrial use. Those Cody talked to have received hardly any compensation for the land, and they suspect that the local officials who should be distributing compensation payments have instead used the money to make investments in factories. Few of the peasants have been able to get jobs in the new factories, something that was promised when the land was seized.

In next-door Guangdong province, workers at shoe factories have staged spontaneous strikes, including one in which hundreds of workers ransacked company facilities. There have been numerous walkouts at the shoe manufacturers in the past couple years. The workers are angry about low wages, limited time off, and lack of communication with managers.

Farther north, in the town of Huaxi, villagers fed up with years of polluted air and water and stonewalling by government officials created a protest camp outside the gates to an industrial park. Despite a police raid to shut the camp down, the protesters increased in number. When a large force of police and civilian assistants returned on April 10th, some 20,000 villagers responded. A fierce street battle ensued and the police and city officials were forced to retreat from the town. The protest camp remained for another month and a half, until government officials agreed to shut down the industrial park. However, those suspected of being leaders of the protest movement remained on police wanted lists.

In the Anhui province, the beating of a young man by bodyguards of a businessman sparked a spontaneous riot in which approximately 10,000 city residents torched police cars, threw rocks at anti-riot troops and looted a grocery store after the owner was seen providing water to the police.

Though each of these was an isolated incident on its own, they are part of growing pattern of angry resistance by China’s poor–whether from peasant farms or sweatshop factories–to the Communist Party’s cozy alliance with capitalist business. A minister for public security in China estimated that 3.76 million people participated in what he termed “mass incidents” throughout the country during 2004, and that the frequency of these incidents has been increasing.

The government has become very concerned, both because this expression of people power threatens the stability of Communist Party control and because it could undermine the party’s goals for further economic development in the capitalist mold. The spread of cell phones and the internet are allowing unofficial news of resistance to reach a larger Chinese audience, despite the efforts of government censors in the official media. Even the state-run media has begun reporting that the root cause of the recent unrest is the widening gap between rich and poor in the country. Perhaps conveniently, these reports downplay the idea that protesting citizens could be angry about the political structure of one-party rule. After all, much of the economic development that has been part of China’s shift to capitalism and the growing rich-poor gap has relied on collusion between local government officials and private businessmen.

Sources:

Articles by Edward Cody in the Washington Post:

“China’s Land Grabs Raise Specter of Popular Unrest; Peasants Resist Developers, Local Officials,” 10/5/04;

“In China, Workers Turn Tough; Spate of Walkouts May Signal New Era,” 11/27/04;

“For Chinese, Peasant Revolt Is Rare Victory; Farmers Beat Back Police In Battle Over Pollution,” 6/13/05;

“A Chinese Riot Rooted in Confusion; Lacking a Channel for Grievances, Garment Workers Opt to Strike,” 7/18/05;

“A Chinese City’s Rage At the Rich And Powerful; Beating of Student Sparks Riot, Looting,” 8/1/05;

“China Grows More Wary Over Rash Of Protests; Cell Phones, Internet Spread The Word, Magnify Fallout,” 8/10/05;

“China’s Rising Tide of Protest Sweeping Up Party Officials; Village Chiefs Share Anger Over Pollution,” 9/12/05;

“China Warns Gap Between Rich, Poor Is Feeding Unrest,” 9/22/05;

“China Promises Equitable Growth,” 10/1/05;

“China’s Party Leaders Draw Bead on Inequity,” 10/9/05;

“Beijing Pledges to Focus on Income Disparities,” 10/12/05.

(c) 2005 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

Adapted from Understanding Capitalism: Competition, Command, and Change, 3rd Edition by Samuel Bowles, Richard Edwards, and Frank Roosevelt, 2005

Firestone recalled 14.4 million of its tires in August 2000 due to construction flaws resulting in “tread separations” likely to cause blowouts. A month later the National Highway Traffic and Safety Administration announced that Firestone tires were under investigation in cases involving 271 fatalities and more than 800 injuries. As the extent of the public relations debacle became clear, the world’s largest tire manufacturer—officially Breakstone/Firestone since its purchase in 1988 by a giant Japanese tire producer—considered dropping the Firestone name. But this was more than an embarrassment to the company. It was a mystery worthy of a modern day Sherlock Holmes: how had Firestone put on the road so many blowouts waiting to happen?

Two economists (associated, ironically, with the industrial relations section of the Firestone Library at Princeton University) have uncovered clues leading them to a single plant during a two-year period in the mid-1990s. The apparent “scene of the crime,” a Firestone plant in Decatur, Illinois, was one of three plants making the type of tires that were recalled (the others were in Wilson, North Carolina, and Joliette, Quebec). Tread separations on tires built at the Decatur plant during 1994 to 1996 were much more likely than on tires built at that plant during other years or on tires built in any year at the Joliette or Wilson plants.

What was special about Decatur during the mid-1990s? The answer, it appears, is labor strife.

Early in 1994 the company proposed increasing shifts from 8 to 12 hours and operating the plant 24 hours a day, with workers alternating night and day shifts. Firestone also wanted to pay new workers 30 percent less and to reduce pension and other benefits. In April 1994 the 4,200 employees went on strike. Firestone replaced the striking workers at much lower pay, subsequently announcing that the replacements would be permanent and that the strikers could seek reemployment at reduced pay when the need for additional work arose.

Over the next year many took up the offer, but under highly difficult conditions. According to a union account: “Forced to work alongside scabs who had taken their jobs . . . the strikers were assigned to the hardest jobs on the worst machines, rather than the jobs they had held for 10, 20 and even 30 years. The company supervisors had a field day harassing, intimidating and firing union members for the smallest infractions.” Building quality tires may not have been the top priority for workers—or, it seems, for supervisors either.

The economists conclude their study: “Unless another factor can be found that explains the sudden rises in defects in tires when Breakstone Firestone demanded contract concessions . . . and again when replacement workers and recalled strikers worked side by side, we think the weight of the evidence points to labor strife as being at the root of many of the defective tires.” They estimate that faulty tires produced at the Decatur plant during the years of strife accounted for at least 40 deaths, and the number would have been twice that had it not been for the recall.

A century ago the International Workers of the World (IWW), a radical American labor group, demanded, “A fair day’s pay for a fair day’s work” and pointedly warned, “good pay or bum work!” Firestone would have saved lots of money (and lives) had they recognized the force of these demands.

Source:

Alan Krueger and Alexandre Mas, “Strikes, Scabs, and Tread Separation: Labor Strife and the Production of Defective Bridgestone/Firestone Tires” (Industrial Relations Section, Firestone Library, Princeton University, 2002) http://www.irs.princeton.edu/pubs/pdfs/461_revisedB.pdf.

(c) 2005 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

(Part two of two. See part one.)
Professor Gerald Friedman, University of Massachusetts at Amherst

There is no Social Security crisis. President Bush warns that we face a ‘crisis’ in Social Security to justify transforming the system. Hoping to rally the young for an inter-generational civil war, President Bush admonishes young Americans that they have nothing to lose from Social Security reform, or even repeal, because they will never receive benefits from a Social Security system that is bankrupt under the weight of eleven trillion dollars in unfunded liabilities.

Were there a serious crisis, we would be irresponsibly careless to reject necessary action. But, first we should carefully review whether there is a crisis.

“Thirteen years from now, in 2018, Social Security will be paying out more than it takes in,” declared President Bush in his State of the Union address. In 2018, the Social Security Administration (SSA) predicts that Social Security will pay out about $16 billion more in benefits than it receives in payroll taxes. But this is irrelevant. By that year, the Social Security system will have accumulated a Trust Fund amounting to $3.6 trillion that will generate $206 billion annually in interest income, and the Trust Fund will continue to grow after 2018 because interest income and payroll taxes will together exceed benefits paid out.

Social Security will run out of money by 2042, or is it 2052? Using rather pessimistic assumptions, the SSA estimates that benefits paid will exceed interest income plus payroll taxes after 2020, and some benefits will then be paid from the accumulated Trust Fund. The SSA predicts that benefits will continue to be paid in this way until 2042, when the accumulated fund will be exhausted and ongoing payroll taxes will cover about 73% of benefits. This date is in question; the Congressional Budget Office (CBO), appointed by Congress’s Republican leadership, predicts that the fund will last another ten years, until 2052.

If there is any substance to the President’s warnings of crisis, it is in 2042 (or 2052), when Social Security will no longer be able to pay all its promised benefits from established revenue sources. But this dispute over whether the Social Security Trust Fund will last another 37 or 47 years, a dispute between two conservative bodies appointed by our nation’s Republican leaders, is a sign of just how tenuous are these arguments that Social Security faces a crisis. The SSA makes its more pessimistic estimates by assuming that economic growth will slow dramatically over the next 40 years and wages will rise by only 1.1% a year. The CBO adds 10 years to the system’s financial stability by assuming that wages will rise by 1.2% a year. But this is still well below the 1.7% rate of increase in real wages for most of American history. If wages rose at this historical rate, then the trust fund would never be exhausted.

Even if the Trust Fund is exhausted in 2042, or 2052, there will be no crisis. The crisis-mongers base their arguments on a fundamental misconception about Social Security. A private pension must accumulate enough reserves during people’s working lives to pay benefits when they retire. But Social Security is not a private pension, it is social insurance guaranteed by the faith and credit of the United States government including its ability to tax. The real test of Social Security’s sustainability is the ability of the United States to raise revenues sufficient to pay benefits.

The real test of our ability to sustain Social Security is the strength of our economy. Rather than answering this straight-forward sustainability question, crisis-mongers prefer to throw around large and scary numbers pulled out of context. Consider the frequently repeated warning that the elderly population will double by 2060, to 80 million. Or, there’s the warning that there will be just two workers per retiree in 2030, as opposed to the three workers per retiree today. True, but the population of all age groups is growing, and the decrease in the ratio of workers to retirees will be slower than what we have already experienced since 1950. Moreover, the increase in the retiree population will occur at the same time that the population of other dependents – children under 18 – will be shrinking; this means that the overall dependency ratio will barely increase.

The real failure of the crisis-mongers is their peculiar loss of faith in the American economy. In even the most pessimistic estimates of the SSA and the CBO, the increase in the size of the elderly population will be considerably less than the increase in labor productivity. Over the next 55 years, productivity will more than double, allowing a relatively smaller labor force to support a growing population of retirees – in the same way that a shrinking farm labor force allows us to be fed by only 1% of the population.

The ultimate test for the sustainability of Social Security is the same as the test we always face: Can our economy grow enough to support our population? It is ironic that our conservative Republican leaders show so little faith in American capitalism. It would be worse than ironic if we let their loss of faith lead us to adopt policies that undermine one of our most successful social programs.

Next: Social Security privatization: a bogus cure for an illusory problem

Sources:

Dean Baker and Mark Weisbrot, Social Security: The Phony Crisis (Chicago, 1999).

Peter A. Diamond and Peter R. Orszag, Saving Social Security: A Balanced Approach (Washington, D. C., 2004).

Robert Kuttner, “What Social Security Crisis?” The American Prospect: Online Edition (Dec. 23, 2004).

Mark Weisbrot, 2018, Center for Economic and Policy Research, February 3, 2005

Economic Policy Institute, Social Security Issues Guide

The Social Security Network

(c) 2005 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

(Part one of two)
By Professor Gerald Friedman, University of Massachusetts at Amherst

President Bush is fundamentally wrong about Social Security. His proposal shows he thinks Social Security is a pension plan – a form of individual savings towards retirement. But Social Security is not a pension plan. It is a social insurance program: it provides benefits to individuals according to their situation, rather than strictly according to their contributions.

Social Security is insurance against some of the misfortunes that may afflict us: old age, disability, and death. The Social Security Act of 1935, which created Social Security, also created other social insurance programs – like unemployment insurance and Aid to Families with Dependent Children. Since then, programs have been established to encourage workplace pensions and private savings, like 401K plans and Individual Retirement Accounts. But Social Security has remained apart because it is not a savings or pension plan; it is a program where we all protect one another against the maladies and afflictions of life.

Seen as an insurance program, Social Security should be evaluated according to different criteria than one would use to evaluate a pension plan. Some economists and administration officials have criticized Social Security because of the low rate of return some retirees receive for their lifetime contributions. By the same logic, they might criticize my homeowner’s insurance plan because after 16 years, I have paid over $8,000 into it without receiving any benefits. Have I wasted my money on a bad investment? No – because it’s not an investment, it’s an insurance plan.

The same holds for Social Security. Unlike pensions or savings plans where individuals look to maximize their expected returns, we look for something different from insurance: adequacy and protection. We ask: will the insurance we have provide enough coverage? Will it be there when we need it? And does it come at an excessive premium?
Judged by these criteria, Social Security has been a great success. Consider:

* Social Security protects the elderly from the risk of outliving their means. Unlike savings or many pensions, the elderly cannot outlive their Social Security. Social Security accounts for 40% of the income of the elderly, and the proportion rises with age. Over 90% of elderly Americans receive Social Security benefits; by contrast, only 42% receive pensions and 67% receive investment income.

* Social Security lifts millions of older Americans out of poverty. Unlike pension benefits that depend on past contributions and earnings, Social Security benefits are progressive to favor the poor. For the lowest wage workers, benefits replace 70% of wage income, and for nearly a third of these, Social Security accounts for over 90% of income after retirement. For the highest wage workers, benefits replace just 23% of wage income. Without Social Security, 48% of people over age 65 would be in poverty; Social Security reduces that figure to barely 8%.

* A majority of Social Security recipients are women. Because women live longer than men, have generally earned less than men, and are less likely to have a pension, they are more vulnerable to exhausting their savings – so they depend more on Social Security than do men. Women also benefit from Social Security’s survivor benefits and provisions giving home-makers benefits equal to half the benefits provided to spouses who worked outside the home.

* Social Security also provides disability benefits to over 5 million people, including children and spouses of disabled people. In addition, Social Security provides benefits to 11 million children, spouses, and widows of retired workers. Fewer than two-thirds of recipients are retired workers.

* All of this coverage is provided at very low cost. Because Social Security is a universal system, it operates with extremely low administrative costs. Only 0.7% of the program’s income goes to administrative costs – half the level of the best mutual funds and a small fraction the rate of private insurance. This leaves more money for benefits.

There are problems with Social Security. Too many workers, especially low wage workers in agriculture and domestic service, are not covered. The disability benefit program has sometimes been too slow in providing benefits, and too restrictive in the categories of disabilities covered. Medical benefits, administered in the separate Medicare program, need to be adequately funded and extended to long-term health care. All of these problems require that this successful program be expanded. There is no justification for abandoning what works.

President Bush objects that he and his wealthy supporters get a bad deal from Social Security. They do: for the affluent, a program that pays more to low wage workers is a bad investment – at least if all you consider is the personal return. President Bush and his friends would destroy Social Security because they do not need it. But the rest of us do.

Next: Is there a retirement crisis?

Sources:

Dean Baker and Mark Weisbrot, Social Security: The Phony Crisis (Chicago, 1999).

Peter A. Diamond and Peter R. Orszag, Saving Social Security: A Balanced Approach (Washington, D.C., 2004).

Economic Policy Institute, “Issue Guide: Social Security”

Social Security Administration, Income of the Aged Chartbook 2000 (Washington, D.C., 2002).

(c) 2005 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

By Jonathan Elsberg, CPE Staff Economist

A funny thing happened on the road to liberation. The U.S. military has discovered that high unemployment among Iraqis has a lot to do with the strength of resistance to the occupation. Those parts of Iraq that suffer from the worst unemployment are also the places where militant resistance to the U.S. and its allies is the fiercest. The U.S. military’s reaction is an overt, though painfully slow-going, policy by commanders in these battle-torn areas to create jobs for Iraqis, a sort of “Keynesian militarism.”

Keynesianism, named for British economist John Maynard Keynes (pronounced “Kaynz”), is commonly distilled into the idea that governments can and should pursue “counter-cyclical” policies. These are policies that aim to boost employment and economic activity when the economy is sagging, and to tone it down when it gets overheated, to avoid a disastrous crash. Keynes famously suggested that in the face of an unemployment crisis, the government should do almost anything to create jobs, even going so far as burying money in old mines and hiring people to dig it back up.

By Yahya Mete Madra

The 1990s saw a revived interest in the writings of Karl Polanyi (1886-1964). Given that capitalism is still in the process of being re-instituted everywhere across the globe; given that the expansions and contractions of capitalism cause endless social dislocation; given that the
recent wave of financial liberalization, labor market deregulation, and privatization has led to grave socio-economic costs; this revived interest should not be surprising. Those who wanted to understand and devise alternatives to capitalism have found it useful to revisit Polanyi’s account of the emergence of capitalism as laid out in his The Great Transformation.

Polanyi maintained that exchange, along with redistribution and reciprocity, has always existed, albeit embedded in different socio-institutional forms. Nevertheless, during the nineteenth century, first in England and then in Western Europe and North America, as land, labor, and money gradually became commodities, the price mechanism and the profit motive, rather than the deliberation and negotiation of diverse social interests and concerns, became the structuring principle of the society. The market society, for Polanyi, was not only undesirable but also was socially and ecologically unsustainable. He believed that the society will develop spontaneous responses to protect itself against the advent of the logic of the markets.

(4/21/04)
By Alanna Hartzok, Co-Director, Earth Rights Institute

One day, while riding horseback in the Oakland hills, merchant seaman and journalist Henry George had a startling epiphany. He realized that speculation and private profiteering in the gifts of nature were the root causes of the unjust distribution of wealth. The insights presented in Progress and Poverty, George’s masterwork, launched him to fame. His policy approach was known at that time as the “single tax” - meaning that taxation should be shifted off of labor and onto the socially created surplus value of land and other natural resources. His message reached as far as the great Russian Leo Tolstoy, who was so taken with the idea that he frequently referred to George and “Georgism” in his novel Resurrection.

During the last 20 years of the 19th century George built an impressive populist movement bent on solving the problem of the wealth gap, and he died in 1897 while campaigning to be New York’s mayor. The “Georgists” were determined to free labor and all productive effort from the burden of taxation. Land and natural resources were gifts of nature to be fairly shared by all. The role of government would be to secure democratic rights to the earth for all people via the collection of resource rents, the surplus value accruing to natural wealth, which would be distributed in social goods, services or by direct citizen dividends.

But just as this solution to the rich/poor gap was gaining momentum, the Georgist movement was stopped in its tracks. Wealthy individuals poured their money into leading schools of economics to encourage the writing of treatises against George and the movements he had spawned. The ethical perspective that land is a common heritage and the policy approach of land value taxation were subsequently eliminated from the field of economics. The newly dominant theory focused on only two primary factors - labor and capital - with capital having the upper hand as “employing labor.” “Labor,” of course, is quite capable of self-employment given access to land. This is what the elites and the plutocrats feared most - that labor would gain full power to directly produce capital given conditions of equal rights to the resources of the earth.

Despite the elites’ success in mangling the science of political economy, the Georgist paradigm has had some influence over the years. The 1887 Wright Act in California enabled bonds raised by local irrigation districts to be paid from the increase in land values, resulting in a powerful and beneficial land reform, though this equitable and successful public finance approach was eventually undermined by private banking institutions. Now taxpayers nationwide subsidize the irrigation needs of agribusiness. Alaska’s state constitution vests the ownership of oil and other natural resources in the people as a whole and the state’s Permanent Fund distributes substantial oil revenue as citizen dividends to state residents. With no state income or sales taxes, Alaska has been the only state where the wealth gap has decreased during the past decade. This is essentially a Georgist paradigm approach, and surface land values and electromagnetic spectrum rent could be similar sources for citizen dividends.

Meanwhile, Georgist economics is again making steady progress. In Pennsylvania, eighteen municipalities, including Harrisburg and Allentown, have been revitalizing their local economies via property tax reform which shifts taxes off of homes and the built environment and onto the value of land sites. Movements for land value taxation are growing now in Scotland, UK, Ireland, South Korea and elsewhere, while Venezuela, Russia and other countries are pushing for greater resource rents from oil and mineral resources. Georgist economics is increasingly recognized as a key to economic democracy based on equal rights to the earth for all.

Recommended:

Mason Gaffney, Fred Harrison and Kris Feder, The Corruption of Economics. Shepheard-Walwyn Ltd., 1994.

Henry George’s books can now be read online. Hardcopies of his books, and those of other Georgist authors, can be ordered from The Robert
Schalkenbach Foundation (212-683-6424).

J.W. Smith, Economic Democracy: The Political Struggle of the Twenty-First Century. This excellent Georgist paradigm book can be ordered from The Institute for Economic Democracy (866-588-7445).

Kenneth C. Wenzer, ed. Land Value Taxation. M.E. Sharpe, 1999.

Georgist paradigm articles and links to other sites: Earth Rights Institute.

The Council of Georgist Organizations 2004 conference will be held in Albuquerque, New Mexico, July 21 - 25. For details: www.progress.org/cgo.

The International Union for Land Value Taxation conference is scheduled for May 27 - 30 in Madrid, Spain. For details: www.interunion.org.uk/.

Leo Tolstoy’s novel Resurrection can be read online.

(c) 2004 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

By Geert Dhondt, Staff Economist

Madness surrounds all of us. Luckily the world is full of contradictions. While capitalism, barbarism and madness might seem all around us, so is its opposite, its negation. Thus, if we look hard enough we can recognize the new society in the present and we will be able to see the emergence of revolutionary possibilities. In the U.S., C.L.R. James was one of the first to clearly articulate the importance of independent Black struggles in creating these openings.

C.L.R. James was born in 1901 in Trinidad. In 1932 he left Trinidad for England where he immersed himself in the Pan-African and Trotskyist movements and worked as a cricket reporter. In 1938, on Trotsky’s request, he came to the U.S. to reinvigorate the American Trotskyist movement. By the time James was deported in 1952, he had broken with Trotsky’s conception of the Soviet Union as a degenerated workers’ state and developed instead a critique of state capitalism; he had broken with Lenin’s conception of the vanguard party and emphasized a different role for Marxist organizations and intellectuals; he also developed an important analysis of the role of independent Black struggle.

By Jim Crotty, CPE Staff Economist

The Keynesian economics that Paul Samuelson popularized in the United States after World War II was a sanitized version of the radical critique of capitalism offered by Keynes himself. John Maynard Keynes’s deep-seated attack on free-market economics led him to call for direct government control of the lion’s share of investment spending, industrial policy, a confiscatory wealth tax, strict control over cross-border financial flows and managed trade. But US “Keynesians” defanged his attack, arguing that if the government regulated interest rates and budget deficits, all other decisions could be left to market forces.

In the aftermath of World War I, the British economy experienced sluggish growth and high unemployment until war preparations began in the late 1930s. The conventional analysis of the time was that high unemployment was caused by high wages that priced British products out of the global markets they traditionally dominated. The conventional solution was to smash the
strong unions in these industries.

Keynes argued that the correct policy was for the government to initiate a large long-term program of government infrastructural investment. This would reduce unemployment not only through government employment, but also by the spending of the newly employed - the famous Keynesian “multiplier” effect that has puzzled generations of students. Focus on large-scale government investment was not just a post-war expedient for Keynes. He supported this policy until his death in 1946.

Keynes believed that free-market capitalism was subject to extreme instability primarily because business investment spending was inherently volatile. To build a factory, a firm must gamble that the future profits from the factory will more than compensate for its cost. But firms cannot know what future profits will be. As Keynes put it, “About such matters, we simply do not know.” Therefore, investment can only be based on hunches or guesses about the future, and these are profoundly influenced by waves of optimism and pessimism in market psychology. Boom euphoria leads to over-investment and excess capacity, while fear of loss in the downswing causes investment to plummet. Keynes considered stock markets to be “gambling casinos” whose instability only made investment more volatile.

Keynes thought that there were almost unlimited opportunities for productive state investment - in education, housing, transportation, utilities, health, culture and so forth. He believed that if the government could keep public investment on a steady growth path, this would provide a center of gravity for private profit expectations that would drastically lower private investment instability. In 1928, he proposed a “National Investment Board” to plan and control a massive investment program, arguing that “an era of rapid progress in equipping the country with all the
material adjuncts of modern civilization might be inaugurated which would rival the great Railway Age of the nineteenth century.”

In 1935 in The General Theory he said: “I expect to see the state … taking an ever greater responsibility for directly organizing investment.” In 1943 he argued that “if the bulk of investment is under public or semi-public control and we go in for a stable long-term programme, serious fluctuations are less likely to occur.” Keynes specifically rejected the idea that government should rely on changing interest rates and budget deficits to control instability, the macro policy attributed to him by Samuelson.

Keynes understood that capitalists and renters would be likely to ‘run away’ from Britain in reaction against his program, causing skyrocketing interest rates and plummeting investment. To prevent this, he called for an ironclad regime of government control of financial flows into and out of Britain, and saw to it that every country was given the right to control capital movements by the Bretton Woods Agreement that created the International Monetary Fund in 1944.

The economic prospects of the majority of people would be greatly improved if government policy followed Keynes’ more radical vision, rather than the timid version promoted in nearly all college textbooks.

Reference:

Jim Crotty. “Was Keynes a Corporatist: Keynes’s Radical Views on Industrial Policy and Macro Policy in the 1920s,” Journal of Economic Issues, September 1999. [pdf]

Keynes’ most famous book, The General Theory of Employment, Interest, and Money, is available online.

(c) 2004 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

By Alejandro Reuss

Mention the name of Leon Trotsky and you might be asked, “Didn’t he have an affair with Frida Kahlo?” (He did.) Or, “Wasn’t he murdered with an ice pick?” (He was.)

He was also, however, known to dabble in revolutionary politics.

The triumph of Stalin and his falsification of history have obscured Trotsky’s importance, writing him out of the Russian Revolution and airbrushing him from photos of the era (especially those showing him with Lenin). Trotsky was a principal leader of the workers’ council, or soviet, movement in Petrograd (St. Petersburg) during the revolutions of 1905 and 1917, the main strategist of the October 1917 insurrection and the principal architect of the Red Army, Lenin’s most prominent lieutenant until the latter’s death in 1924, and a leading opponent of Stalin’s rise to dictatorial power. In short, he was one of the major figures of the 20th century.

Trotsky is mainly known for his thought on two key issues: the possibility of socialist revolution in “backward” Russia, and the rise of the bureaucratic dictatorship led by Stalin. Trotsky did not just apply Marxist theory by rote, but added new and “heretical” ideas needed to explain new phenomena. His balance sheet on the 1905 revolution, Results and Prospects (1906), argued that Russia’s leaps-and-bounds industrialization had set the stage for a revolution in which the proletariat - rather than the bourgeoisie - would be the protagonist. He would be vindicated by the October Revolution of 1917.

His masterpiece, The Revolution Betrayed (1936), presented a withering critique of the Soviet bureaucracy. In the long run, Trotsky argued, either the working class would overthrow the bureaucracy and clear the way for renewed progress toward socialism or the bureaucracy would formalize its privileges by reinstituting private property and restoring capitalism outright. Trotsky did not imagine that the system of bureaucratic rule would last another half century, but of course, he was eventually vindicated on this point as well.

Exiled from Russia in 1929, Trotsky lost the power and prestige of high position in a revolutionary government, and his efforts to build a new world party of socialist revolution (the “Fourth International”) could offer little to rival the rising tide of reaction worldwide. Nonetheless,
he considered this “the most important work of my life - more important than 1917, more important than the Civil War.”

In the founding program of the Fourth International, known as the Transitional Program for Socialist Revolution (1938), Trotsky emphasized that while mass struggles continued to rage, they were not imbued with the perspective of overturning capitalism and creating a new society. He argued, therefore, that the central task for revolutionaries was to build “bridges” from current consciousness to revolutionary politics. This did not mean, in Trotsky’s view, repeating radical-sounding slogans from the past, postponing revolutionary aims in favor of immediately “winnable” struggles, or pining for a reformed version of capitalism. Rather, it meant that revolutionaries must frame their positions on the burning issues of the day in a way that connected these issues to the aim of revolution.

Trotsky’s life and politics ought to be viewed critically, especially in light of his role (with Lenin and the Bolsheviks in general) in building a state machine that would grow into a totalitarian juggernaut. Ideas like those in the Transitional Program, however, should be put to work in the
present whatever we conclude about the author’s past. Trotsky was not the only, or even the first, theorist to insist on drawing the connections from every immediate issue to the fundamental problems of capitalist society. I learned this lesson from the writings of Trotsky and from his disciples. Today’s revolutionaries need not learn this from Trotsky as well - but those who do not learn it from him should make sure to learn it from someone else.

Further reading by and about Trotsky:

Two good short introductions to Trotsky’s life and thought are:
Phil Evans and Tariq Ali, Introducing Trotsky and Marxism, Icon Books, 2000.
Ernest Mandel, Trotsky as Alternative, New Left Books, 1995.

The following are Trotsky’s most important books (all published by Pathfinder Press):
The History of the Russian Revolution.
My Life: An Attempt at an Autobiography.
The Permanent Revolution and Results and Prospects.
The Revolution Betrayed: What Is the Soviet Union and Where Is It Going?
The Transitional Program for Socialist Revolution.
For an excellent collection of these and other writings online, see The Leon Trotsky Internet Archive.

Isaac Deutcher’s monumental three-volume biography of Trotsky (Oxford University Press, 1970) is the definitive work on the subject:
The Prophet Armed - Trotsky: 1879-1921
The Prophet Unarmed - Trotsky: 1921-1929
The Prophet Outcast - Trotsky: 1929-1940

(c) 2004 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

By Zhaochang Peng

Y.C. James Yen (1893-1990), a Chinese educator and social activist, developed a fourfold “rural reconstruction” approach to rural development in China during the 1920s. A resurgence of interest in his approach to development is currently underway in China, while his work has been continuously promoted by the institute he established in the Philippines in 1960.

James Yen’s Rural Reconstruction Movement promotes an integrated program of education, livelihood, public health and self-governance, which targets the interlocking problems of illiteracy, poverty, disease and civic inertia found among peasants in developing countries. While the four aspects of the program could be designed to address the problems in a one-for-one way, James Yen intended them to be an organic whole, to be carried out in close cooperation with one another.

Yen’s first experimental project, which began in 1926, was in rural Ding Xian (in China’s Hebei Province). With the help of external funds and volunteers, the reconstruction unfolded over a ten-year span. In the first three years, illiteracy was eliminated; for the next three years, more productive farming methods were disseminated and the local public health system was established; and finally, on the basis of the cultural, economic and social improvements already achieved, peasants were able to set up a local system of self-governance. The results of this experiment were positive and encouraging, and had begun to impact other parts of China.

From 1950 till his death in 1990, James Yen devoted his life to adaptation of this approach to peasant communities in developing countries in Asia, Africa and Latin America. His lifetime pursuit of the betterment of the life of peasants in developing countries won him world reputation and numerous awards, including the Copernican Citation as one of ten outstanding “modern revolutionaries” of the world together with Albert Einstein, Henry Ford, John Dewey and others in 1943, and the U.S. Presidential End Hunger Award for Lifetime Achievement in 1987.

However, there is one major limitation inherent in James Yen’s Rural Reconstruction method: its local approach relies on the prevailing political, economic and social relationships that already exist, rather than transforming them. For example, it provides aids to peasants, and to
some extent even organizes local peasants into cooperatives in order to make them more competitive in the market, but it does not attempt to abolish market forces, thus keeping rural economy in a structurally disadvantageous position to be subject to unfavorable market vicissitudes. Another example is that the “experiment sites” of James Yen’s approach are restricted to peasant communities dominated by self-employed households. Thus, in rural localities where feudal landlords and capitalists exploit poor peasants, problems of underdevelopment for those poor peasants persist.

In contrast to James Yen’s “rural reconstruction” approach, Mao Zedong’s “rural revolution” approach provides a better solution to rural development issues in developing countries. Under Mao’s leadership, feudal and capitalist forms of peasant exploitation were abolished through land reform, peasants were organized into cooperatives through guided and voluntary rural collectivization, and the rural economy got extensive aids from the state in a planned economy context where market forces were limited or completely eliminated.

In the past quarter century, the return of the market economy to China, the degeneration of the state into a predator on peasants, and the increasing integration of China with the capitalist world economy have subjected Chinese peasants to higher market risks and exploitation rates. In this context, an increasing number of Chinese social activists and expert volunteers are getting involved in reviving James Yen’s approach, with the hope that organized peasants will be less vulnerable to market risk and state coercion. Although it may still be some years before we can assess the influence of the revival of James Yen’s approach on Chinese peasants, we know from historical experience that there is a better solution to problems of rural development.

Sources and Resources:

The International Institute of Rural Reconstruction

James Yen’s biography by the Magsaysay Award

The Hunger Project’s brief comments on James Yen

“James Yen-inspired new Rural Reconstruction Movement in China” (in Chinese)

(c) 2004 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

By Suresh Naidu, CPE Staff Economist

Piotr Kropotkin is famous within two groups that one never sees at the same party. The biologists and evolutionary anthropologists who derive inspiration from Kropotkin’s research into the evolution of human sociality rarely intersect with the anarchists and political theorists who respect Kropotkin’s views on revolutionary change and the abolition of the state and private property. However, there was no disparity for Kropotkin, who derived many of his political beliefs from his studies of human and animal evolution.

Kropotkin had a long and interesting life. Born in 1842 to Russian nobility, he began his career as an exemplar of his class, serving in the military during the Crimean War, but eventually wound up working with the revolutionary Jura Federation. His politicization followed lengthy and difficult travels, during which he developed a deep affinity for the Russian peasants and workers he encountered. Later cut off from any political influence by Lenin, Kropotkin’s last writings were notable predictions of the tyranny that would result from the Bolshevik retention of wage labor and reliance on state coercion.

A large portion of contemporary social and biological science follows in the footsteps of Kropotkin’s academic work. Responding to the social Darwinism of his day, he wrote his primary scientific work, Mutual Aid: A Factor of Evolution, arguing that a major factor in the evolutionary success of humans was a predisposition to cooperate and share, without the need for institutions such as the market or the state.

Modern day research has provided overwhelming evidence to corroborate Kropotkin’s thesis. Anthropologists and archaeologists have found widespread decentralized cooperation within many non-industrial societies. Experimental economists have definitively shown that people are not classically selfish, with people often giving away substantial amounts of money and actively cooperating in laboratory settings, even against their narrow self-interest. This is not merely “enlightened self-interest,” rather a deeply seated desire for fairness as an end in itself (this desire may or may not have roots in biology). Biologists have acknowledged that competition among early human groups could have contributed to the evolution of cooperative behavior on the part of individuals.

Much of this literature has paralleled Kropotkin in refuting a naive socio-biological theory of human behavior. Rather than concocting stories that rationalize the current order in terms of fitness, it points to potential ways of organizing human interactions that can replace the dominant institutions of our day with something more democratic and egalitarian. Kropotkin built his belief in anarchism on the knowledge that people can organize their lives without self-interest or governmental coercion as prerequisites for large-scale cooperation.

There are many current examples of such cooperation. Elinor Ostrom and colleagues are documenting community management of scarce resources and public goods provision without the aid of governments or market pricing systems. Steve Lansing examines how Balinese rice farmers coordinate their complex ecological interactions with a few simple rules. Yochai Benkler identifies Open-Source Software as an example of large-scale non-market, non-state coordination. Erik Olin Wright and others study how participatory directly democratic institutions function to solve practical problems from Kerala to Chicago. Human institutions that harness the natural propensity to cooperate (and sometimes punish those who do not) are quite pervasive.

The political implications Kropotkin drew from his work are not the ravings of a lunatic egghead. Anarchism is commonly caricatured as naive, or worse, a haven for would-be terrorists. Instead, the politics advocated by Kropotkin are best interpreted as general principles. First is an ethical imperative, that there is no policy substitute for social norms and ideals of behavior - a belief that one’s personal behavior can either reinforce or undermine the status quo. The second is a deep suspicion of facile state or market fixes to social problems. Together, these imply respecting and considering people’s abilities to develop community solutions and autonomously self-organize before suggesting “policy” or “market” solutions. Kropotkin’s mix of science and politics are not vestiges of a bygone age, but very relevant ideas deserving greater intellectual and political engagement.

References:

Stephen Jay Gould, “Kropotkin Was No Crackpot,” Natural History, July 1997.

For experimental fairness, see Ernst Fehr et. al., “Fairness and Retaliation: The Economics of Reciprocity,” Journal of Economic Perspectives, Summer 2000.

For group selection giving rise to cooperation, see Elliott Sober and David Sloan Wilson, Unto Others, Harvard University Press, 1998.

For egalitarian cooperation in hunter-gatherers, see Christopher Boehm, Hierarchy in the Forest, Harvard University Press, 1999.

The remarkable case of Balinese rice farming is found in Steven Lansing and John Miller, “Cooperation in Balinese Rice Farming.”

For community solutions to public goods problems, see Elinor Ostrom’s classic Governing the Commons, Cambridge University Press, 1990 and Trust and Reciprocity, Russell Sage Foundation, 2003.

For Open-Source Software, see Yochai Benkler, “Coase’s Penguin, or Linux and the Nature of the Firm,” 112 Yale Law Journal 369 (2002).

For the efficacy of direct democracy, see Erik Olin Wright and Archon Fung, Deepening Democracy, Verso, 2003.

(c) 2004 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

By Gerald Friedman, Professor of Economics, University of Massachusetts, Amherst

The strength of conservative economics comes from methodological individualism. By treating economic outcomes as the product of individual choice subject to constraint, conservatives treat all social interference, either by government or by concentrations of private power, as illegitimate interference with individuals’ choices. Any reformist economics must begin by challenging this individualist premise.

Beginning in the 1880s, Richard Ely (1854-1943) articulated a different vision for a reformist economics built on Aristotle’s dicta that man “was formed for society.” Ely led a group of younger economists who founded the American Economic Association in 1885 to promote economics as a social science, uniting labor, scholarship, and the church to advance social reform. Ely declared that the “younger political economy no longer permits the science to be used as a tool in the hands of the greedy and the avaricious for keeping down and oppressing the laboring classes. It does not acknowledge laissez faire as an excuse for doing nothing while people starve.”

By Noah Enelow

Few economists of the last fifty years have offered more striking alternatives to mainstream economic thinking than Ernest Friedrich Schumacher. Born in Germany but spending the bulk of his working life in England, Schumacher’s career afforded him the ability to critique the economic system from within, and propose alternatives - not primarily through policy prescriptions, but through a radically different attitude towards life. He spent twenty years as the Chief Economic Advisor to the National Coal Board of Britain, and through that organization became intimately acquainted with problems of energy supply and environmental sustainability. Meanwhile, his interest in gardening, his study of Buddhist and Taoist thought, and his admiration for the work and philosophy of Gandhi led him to expand his economic thinking towards a wider set of values that he called “meta-economic.”

Several of Schumacher’s ideas are particularly relevant to contemporary economic life. Perhaps the foremost among these is the idea of decentralization. Schumacher’s idea of decentralization is more complex than simply breaking up a larger unit into smaller units. Rather, Schumacher proposed the idea of “smallness within bigness”; in other words, for a large organization to work it must behave like a related group of small organizations. In discussing economic development and poverty alleviation, this philosophy prescribes an orientation toward “regional” development strategies, which involve primarily local production for local use. In the era of globalization, this philosophy entails a radical rethinking of the orientation towards exports so often prescribed by international economic institutions.

Schumacher’s most radical break with the mainstream of economic thought, however, comes with his willingness to sacrifice economic growth - for so long the Holy Grail of economic policy and strategy - for a more fulfilling working life. Perhaps more than any economist since Karl Marx, Schumacher called attention to the quality of people’s lives as producers, even stressing its importance over their lives as consumers. Work, rather than being, as in neoclassical theory, a “disutility,” becomes in Schumacher’s philosophy a means towards satisfaction, fulfillment, and personal development.

In order to bring about these more fulfilling working lives, Schumacher proposes a radically different relationship between human beings and technology. The purpose of technology up until this point, he argues, has been to produce as much output per labor input as possible. The devices invented for this purpose, however, have not only served the dubious end of making many workers redundant, but their prohibitively high cost discourages self-employment. As a solution, Schumacher proposes an “intermediate technology,” one which can be easily purchased and used by poor people, and which can lead to greater productivity while minimizing social dislocation. Today, the Intermediate Technology Development Group works with agriculturists, food producers, small miners, and small manufacturers throughout the world to develop these tools.

Schumacher’s ideas have taken root in multiple forms and remain an ongoing and vital part of the discourse of economics. The E. F. Schumacher Society, in Great Barrington, Massachusetts, is the foremost center for the spread of Schumacher’s ideas in the United States. Founded in 1980 by a group of Schumacher’s friends and students, the Society contains a vast library of Schumacher’s works and a repository for communities currently putting his ideas into practice. The Society’s three top priorities are to stimulate the production of local currencies, to promote affordable access to and sustainable use of land through community land trusts, and to encourage and provide assistance to worker ownership and management of firms. Visit the website below to learn more.

Sources and Resources:

Schumacher, E. F. Small Is Beautiful: Economics As If People Mattered. New York: Harper and Row, 1973.

E. F. Schumacher Society. Special thanks go to Susan Witt, Executive Director of the E. F. Schumacher Society, for her assistance on this essay.

Intermediate Technology Development Group.

(c) 2004 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

By Sevinc Rende, UMass Amherst Department of Economics

Child labor was once considered a problem of the past, but with 186 million children working as laborers across the world, it is very much a problem of today. Activists, the media, academics, and those discussing labor standards in international institutions have all played a part in creating awareness around this issue.

Around 110 million of child laborers - almost 60% - are under the age of twelve. More than half of all child laborers work with hazardous chemicals or in confined spaces. The Asia-Pacific region harbors the most child laborers in terms of absolute numbers, but the sub-Saharan Africa has the highest percentage of its children at work. Yet, if 129 nations have agreed to the elimination of child labor, why is child labor so widespread? What do we actually know about these children and their economic circumstances? As a result of decade long research and data collection, today we can outline broadly what we know about the world’s child laborers.

By Brenda Wyss, CPE Staff Economist

Jamaica is hemorrhaging nurses and teachers. The Jamaica Gleaner reports that Jamaica loses roughly 8% of its RNs and more than 20% of its specialist nurses annually. Most go to the US or the UK. The US, with 97.2 nurses per 10,000 people, actively recruits nurses from Jamaica, a country with only 11.3 nurses per 10,000 people. Meanwhile, US and British schoolteacher work programs recruit Jamaican teachers for inner city schools in New York City and London. In 2001 alone, 3% of Jamaica’s teachers (almost 500 educators) left the island to accept temporary assignments abroad. Jamaica’s Ministry of Education estimates the country
lost 2,000 teachers between 2000 and 2002. And Jamaica’s brain drain is not limited to nurses and teachers. In fact, an IMF report estimates that more than 60% of all Jamaicans with tertiary education have migrated to the US.

Jamaica’s chronically under-resourced health and education sectors can ill afford the loss of skill. In its 2001 Annual Report, Jamaica’s Ministry of Health reported nationwide vacancy rates of 37% for RN positions, 28% for public health nurses, 17% for nurse practitioners, and 61% for assistant nurses. At the same time, a shortage of trained teachers threatens educational quality. While Jamaica has trained increasing numbers of teachers over the years, the fraction of teachers serving in Jamaica’s schools who are fully trained has declined. Between the 1990-91 and 1996-97 school years, the total share of trained teachers decreased by 11%.

By Jonathan Elsberg, CPE Staff Economist

One of the more attention-grabbing ideas that has crossed academic disciplinary boundaries, as well as entered into everyday language, is the notion of the “tragedy of the commons.” Made most famous by late Professor of Human Ecology Garrett Hardin in an essay by that name, the idea is not too complicated, very powerful–and rather alarming.

The tragedy describes a situation in which there is public access to a resource. It is to the advantage of each individual to use a little bit extra of the resource, but when all individuals do this simultaneously, the resource is ruined for everyone. Dozens of references to the “tragedy” can be found in newspapers in just the last year, dealing with issues such as depleted fisheries, email spam, risky growth in hedge-fund investing, and worker migration and associated destruction of local communities.

While resources available “in common” sometimes have been tragically exploited, reality is (happily) more complicated, and tragedy is not destiny. One aspect sometimes overlooked by pessimistic analysts is that there are different kinds of common property resources. Some resources are totally open to any and all users, and are properly called “open access” rather than “commons”. These are the ones that are most likely to suffer tragic overuse. The earth’s atmosphere, and its ability to absorb global warming pollution, is one example.

Often, the “cure” recommended for these tragic commons is either strict government control or the conversion of the resource into pure private property. Under the ruling ideology of our times, it is the latter that gets the most promotion.

However, many resources are held in common by a group which is able to sustainably use the resource without resorting to the use of strict private property. The members of the group, be it a local community, professional organization, or national society, control and share access to the resource, yet establish and follow rules of behavior that override greedy urges and keep individual’s use of the resource to an acceptable level. These successful cases of working social rules and norms are arguments against the call for knee-jerk privatization of common properties, or for total government control.

Some examples include the sharing of fishing zones in Alanya, Turkey, maintenance of acequia irrigation systems around New Mexico, U.S.A., and the Ozone Transport Commission NOx Budget established among eight northeastern U.S. states to reduce smog-related air pollution.

These are important lessons, because some potentially tragic commons cannot be fully privatized or put entirely into the hands of the government. For example, avoiding global warming will require extensive international cooperation (there is disagreement on whether this cooperation can be built from the ground up, or must be imposed by a powerful, central world power). Not only will the citizens and businesses of each country have to take responsibility for their CO2 emissions, but each government will have to help establish a working institutional framework for such responsibility within its borders. However, each government, business and individual faces the tragic temptation - allow all the others to control their CO2, while we fake compliance and reap the economic advantages.

No international treaty will hold if the signers don’t want to follow it. Only through combined dedication to the well-being of the whole along with creative, yet feasible, new institutions to guard against cheating will the individual community members make triumphant rather than tragic choices. It is through the study of past common property success and failures that we can learn to succeed more often.

Sources:

Herman Daly, “Logic that leads to a plundered world,” The Guardian (London, England), September 1, 2003, pg. 25. www.guardian.co.uk/wto/article/0,2763,1033054,00.html

Nives Dolšak and Elinor Ostrom, eds., The Commons in the New Millennium: Challenges and Adaptations, MIT Press, 2003. (I especially recommend the chapter by Einar Eythórsson on Icelandic fisheries. It is an excellent analysis of a privatization scheme with mixed positive and negative results.)

Garrett Hardin, “The Tragedy of the Commons,” Science, Vol. 162, No. 3859, Issue of 13 Dec 1968, pp. 1243-1248. (Also available online at www.garretthardinsociety.org/articles/art_tragedy_of_the_commons.html.)

Tor Hundloe and Daryl McPhee, “No reason why we can’t have our fishcake and eat it,” Courier Mail (Queensland, Australia), August 25, 2003, pg. 11.

Barney Jopson, “Don’t turn to hedge funds when depressed,” Financial Times (London, England), March 31, 2003, pg. 25.

Las Vegas (New Mexico) Citizens’ Committee for Historic Preservation, “Historic Acequias of Las Vegas, New Mexico” web-brochure. www.nmhu.edu/research/cchp/tours/acequias/default.htm.

Elinor Ostrom, Governing the Commons: The Evolution of Institutions for Collective Action, Cambridge University Press, 1990.

Jonathan Turley, “Uncle Sam and spam,” Milwaukee Journal Sentinel, (Wisconsin, USA), April 28, 2003, pg. 13A.

(c) 2003 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

By Noah Enelow

You would think the discovery of massive natural gas deposits in the heart of a developing country would present itself as an enormous windfall. All this country would have to do is find a source of financing, extract and refine the gas, sell part of it on the world market, and keep the rest, along with the profits, for domestic development.

Unfortunately, in Bolivia it hasn’t worked out quite so rosily. The battle over natural gas has exacerbated the country’s class and ethnic tensions to the point of warfare. Dozens of people have been killed in massive street protests; the president has resigned; the country is in chaos. What happened?

Upon first glance at the problem, there appear to be two root causes. The first issue was that the gas would have had to be exported through Chile, a longtime rival of Bolivia, which usurped Bolivia’s only seaport over a hundred years ago. The deal would thus enrich Chilean export companies at the expense of the Bolivians. The second issue was that the extraction and refining of the gas were to be undertaken entirely by a multinational company, Repsol-YPF. Their contract, signed long before the latest and largest gas deposits were discovered, was to provide the Bolivian public sector with 18% of the profits from sales. The rest would leave the country - a typical pattern for extractive industries in underdeveloped countries.

But those two issues are the just the tip of the iceberg. The peasants who make up the bulk of the protesters have good reason to believe they’d never see a dime of even those meager profits. Over the last two centuries, numerous raw materials have been extracted from Bolivia: silver, rubber, guano, and tin. The result? Underdevelopment, poverty, and disease. The leading cash crop of Bolivia, coca leaf, has been targeted for eradication by both the domestic government and the United States, as part of the “War on Drugs”.

Furthermore, as Bolivia has become increasingly beholden to the IMF’s structural adjustment program, life has steadily grown worse for the poor. In the last 3 years, the poorest 10% of the people have seen their incomes decline 15%, as the wealthiest 10% have seen their incomes increase 16%. Social services have been slashed while taxes have increased, to pay off the country’s high debt. How far can one expect a country to tighten its belt when its poverty rate is 70%?

Finally, the entire conflict is rife with ethnic and class tensions. The Bolivian elites are overwhelmingly of Spanish descent, while the poor are overwhelmingly indigenous. As a group, the former have proven untrustworthy, unaccountable, and corrupt; the latter grow more irate by the day.

The resignation of the U.S.-endorsed president, Gonzalo Sanchez de Lozada, who supported the gas plan, thus represents a victory for the poor. But the struggle is not over. The primary representative of the indigenous people, the self-described socialist and coca grower Evo Morales, in a recent speech declared the West a “culture of death”; meanwhile, in Sanchez’s resignation speech, he referred to Morales as a “narco-syndicalist” and warned of the power of the coca growers.

Is an agreement possible? A broad, highly organized coalition of labor and indigenous groups, the National Coalition in Defense of our Gas, has drawn up a list of demands. These include the formation of a constituent assembly to ensure greater popular participation in government, and the re-nationalization of Bolivia’s gas resources. The coalition has given the new president, Carlos Mesa, a 90-day truce to allow him to implement their demands. Will the two sides of Bolivia forge a new social contract, or will the country’s exports continue to enrich the few while leaving the many impoverished? Stay tuned.

References:

The Americas.org website contains a fantastic wealth of information about Bolivia. Numerous alternative sources and viewpoints are present alongside updates from the BBC and mainstream media.

Laura Carlsen. “Resources War: Lessons From Bolivia.”

Newton Garver, “Bolivia in Turmoil“, Counterpunch 10/17/03.

Keith Slack, “Poor Vs. Profit in Bolivian Revolt.”

(c) 2003 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

(6/25/03)
By Anita Dancs, Staff Economist for the Center for Popular Economics and Research Director of the National Priorities Project

With great fanfare, President Bush signed the ‘No Child Left Behind Act’ in 2001. Contrary to Administration claims, this Act will leave many children behind. The Act sets out requirements on public schools in an effort to raise student achievement, but it also promises additional funding. Despite these promises, the Bush Administration’s proposed budget for the coming year would underfund the Act by $7 billion. State and local governments mired in fiscal crises in recent years, will have to find ways of meeting the Act’s requirements while also dealing with rising Medicaid costs, underfunded homeland security mandates, and neglected roads.

By Holly Sklar

You know CEO pay is still out of control when Fortune magazine puts a smiling pig in a suit on the cover and headlines its pay roundup, “Have they no shame? Their performance stank last year, yet most CEOs got paid more than ever.”

Fortune, remember, is a leading business magazine, not a union publication.

Median CEO pay at the 100 large companies in Fortune’s survey rose 14 percent last year to $13.2 million. Half earn more than the median, half earn less. Median CEO pay at the 365 large companies measured by BusinessWeek rose 6 percent to $3.7 million, including salary, bonus and long-term compensation such as exercised stock options.