Economic Crisis: An Historic Opportunity - Robert Chernomas
Posted: Sun Oct 11, 2009 12:16 pmThe Economic Crisis: An Historic Opportunity
By Robert Chernomas
September 2009
About the Author
Robert Chernomas is a Professor of Economics at the University of Manitoba. He received his Ph.D. from the New School for Social Research in New York. Robert is the co-author (with Ian Hudson) of Social Murder and Other Shortcomings of Conservative Economics. He has published in both academic and popular literature with respect to macroeconomics, the history of economic thought, health care economics, and in the area of the socio-economic determinants of health. He has lectured in Canada, the U.S., China, Africa and Europe. He has spoken and written numerous times on these topics and others in the media on behalf of unions, church groups and other activist groups, including the Council of Canadians and the Canadian Association of University Teachers. He has been co-chair of the Alternative Federal Budget, active in his own union for twenty years (President, Chief Bargainer), and is currently a member of the Council of Canadians’ Board of Directors. His next book, set for release in December 2009, is titled The Gatekeeper: 60 Years of Economics According to the New York Times and is co-authored with Ian Hudson.
Introduction
“The brave new world of neoliberalism lies in ruins. Its wealth turned out to be based on robbery, sham and deceit. The Left is in a new situation. Without its self-transformation and development of a capacity to act that is adequate for these times, it will squander for a long time any possibility of becoming a force of social, ecological, democratic and peace-promoting social transformation beyond capitalism.” - Socialist Project • E-Bulletin No. 202 - April 11, 2009
The purpose of this discussion paper is to provide a brief description of Canada’s economic circumstances, and then provide policy options that would range from resting control over the economy as a whole down to micro initiatives.
This information does not repeat current analysis available on existing Council of Canadians’ campaigns, but rather focuses on the crisis itself and key ways to move forward. Some of these policy options are more problematic for a relatively small open economy like Canada’s. The same policy options for the U.S. or the EU would be easier to implement without creating as much economic and political disadvantage. However, as this paper argues, the time to act is now. The progressive Left has a unique opportunity to lead economic discussions and to create a citizens’ movement to push our government and others beyond capitalism.
This paper will be the topic of further discussion at the Council of Canadians’ 24th Annual General Meeting, which will be held in Saint John, New Brunswick October 23-25, 2009. From further discussion with Council members, chapter activists and those concerned about progressive issues and pursuing new policies in communities across Canada, we hope this paper will be used a tool to effect positive change. The intent is to share, discuss and build on ideas, moving them into concrete actions that through the Council of Canadians’ grassroots network will bring new meaning and dialogue to the pressing economic issues facing all Canadians.
As stated in the concluding remarks of this paper: resistance is not futile – it is essential.
The Economic Crisis As Class Warfare.
In a rather remarkable article for the Globe and Mail last year Peter J. Nicholson observes1 it is “not so much the rich are getting richer; it’s the very, very rich.”
“Statistics Canada reported the earned income of the "average" Canadian – the so-called median income – was the same in 2004 as in 1982. It turns out that median income, before taxes, did not rise at all over 22 (Mulroney and Liberal) years. Yet during that same time the Canadian economy grew, in real per capita terms, by more than half. But only the very well-paid – those above the 90th percentile of the income distribution – saw any significant increase in earned income; and the higher up the earnings ladder, the greater the growth.”
Canadians are working harder and smarter, contributing to a growing economy, but their paycheques have been stagnant for the past 30 years, says a new study by the Canadian Centre for Policy Alternatives (CCPA). Rising Profit Shares, Falling Wage Shares finds that Canada’s economy grew steadily and workers’ productivity improved by 51 per cent in the past 30 years, but workers’ average real wages have been stuck in a holding pattern all this time.
“Canadians are constantly being told they need to improve their productivity and grow the economy – which is exactly what they’ve done, but their pay cheques aren’t growing to reflect their work effort,” says study co-author Ellen Russell, CCPA senior economist.
The study finds that Canadian workers’ wage share of national income is the lowest it’s been in 40 years. If workers’ real wages had increased to reflect improved productivity and economic growth, they could be earning an average of $10,000 more each year on their pay cheques (in 2005 dollars).
Instead, corporations – not workers – have been banking the lion’s share of the benefits of economic growth and improved productivity. “Corporate profit shares are the highest they’ve been in 40 years, and we’re not talking peanuts here,” says Russell. “In 2005, corporations banked $130 billion more in gross profits than they would have if the profit share had remained at 1991 levels. Sharing those earnings with workers could have gone a long way to reducing Canada’s growing income gap.”
It Isn’t Just Health Care Where American Workers are Worse Off
According to economist Lester Thurow, U.S. real per capita GDP rose 36 per cent from 1973 to 1995, yet the real hourly wages of non-supervisory workers declined by 14 per cent. In the decade of the 1980s, all of the earnings gains went to the top 20 per cent of income earners and an amazing 64 per cent to the already massively wealthy top one per cent. Economists Thomas Piketty and Emmanuel Saez provide evidence2 that between 1973 and 2000 the average income of the bottom 90 per cent of American taxpayers fell by seven per cent. Incomes of the top one per cent rose by 148 per cent, the top 0.1 per cent by 343 per cent, and extremely well off in the top 0.01 per cent by an amazing 599 per cent.
Joel Rogers, director of the Center on Wisconsin Strategy, has made a recent stunning calculation: Had wages tracked productivity as they have over the past 30 years, “median family income in the U.S. would be about $20,000 higher today than it is.”3
How Did They Manage This?
An explanation for this phenomenon begins long, long ago in the hearts and minds of political leaders and the class of voters they represent. Profits had been falling in the U.S., Canada and the UK and the capitalist class in each country responded in the 1980s with a new set of policies with the idea of improving profitability. These policies, as we are seeing now, brought us to this new point of financial crisis.
In the UK, Alan Budd, professor of economics at the London Business School and chief economic advisor to Margaret Thatcher, describes what occurred during the 1980s in astonishingly candid terms. He says conservative monetary and fiscal policy was seen by the Thatcher government as “a very good way to raise unemployment. And raising unemployment was an extremely desirable way of reducing the strength of the working classes…” What was engineered, in Marxist terms, he explains, was “a crisis of capitalism which re-created the reserve army of labour, and has allowed the capitalist to make high profits ever since.”
The state using central bank and fiscal policy deliberately created unemployment so that the 80 per cent or so of the population could not defend their wages because of the threat of being replaced by those unemployed. And it worked. That is not all it did.4
Government taxes and spending
The Organisation for Economic Co-operation and Development (OECD) attributes the widening gap between the rich and not-rich in part to the Canadian government's spending policies.
“Canada spends less on cash benefits such as unemployment benefits and family benefits than most OECD countries,” reports the OECD. “Partly as a result, taxes and transfers do not reduce inequality by as much as in many other countries. Furthermore, their effect on inequality has been declining over time.”
Trade Agreements
Trade agreements also helped in this class warfare. Competing with cheap overseas labour helps the bottom line for employers, but not for workers who compete for jobs. The effect of these trade agreements for American workers, according to Josh Bivens, an economist with the Economic Policy Institute, is that the annual losses for a full-time median-wage earner in 2006 were approximately $1,400. For a typical household with two earners, the loss is more than $2,500.
“Financialization” and the financial crisis
How can you maintain family spending in face of falling income? You borrow money. Who makes profits from borrowing money? Clearly, it’s the banks.
Capitalists increased profits by providing access to debt and spreading the risk (toxic assets) to anyone who would be willing to play the game. This process is called “financialization.” Credit card debt, subprime mortgages and speculation on food and oil prices are all ways of increasing profits. It’s not about producing more, but making us pay more for what was produced, whether it’s houses, food or oil.
The problem is as household debts rise faster than household income, the possibility of being able to pay off these debts declines. A recent Globe and Mail article suggested the number of "vulnerable households" could double by the end of next year under the central bank's scenario of a deepening economic slowdown. That, in turn, would cause "significant" losses in the banking sector.
The report painted a picture of a negative feedback loop where banks become reluctant to lend, businesses cut costs, lay-offs result and consumers stop spending – a vicious circle that creates loan losses for banks and makes them more cautious about lending.
What can be said of the likely outcome of these political economic events? As some economic pundits have pointed out there is a curious absence of class struggle. We need to be aware and cautious. Lenin probably said it best: capitalists can buy themselves out of any crisis, as long as they can make the workers pay. It is up to us to make sure that doesn’t happen.
Policy Options
“The Neoliberal revolution in economics and public policy that began around 1980 has finally collapsed. The massive shift of wealth and power to wealthy households and to the financial sector, legitimated and supported by this ideological and policy mix, was unsustainable.”5 Out of these ruins arise various attempts to reconstitute institutional changes to save capitalism. This is an epoch moment in our history where change will take place. The question becomes: in whose interest?
In Canada, the Harper government acknowledges little of this. Instead, the government is mostly sitting back and waiting for the Americans to fix their mess so that Canada’s dependence on an expanding and unsustainable U.S. economy can resume as soon as possible. Of course our Canadian conservative government has not hesitated to pour billions of dollars of taxpayer money to bolster the financial sector, while using the crisis to attack labour, expand free trade agreements and cut taxes. In the other countries the crisis is being treated much more seriously and the policy options reflect this.
“From Zurich and Washington to Frankfurt, London, and Tokyo, all the king's horses and all the king's men-bankers, economists, policy analysts, and government leaders are trying to put capitalism back together again. But none of them has stopped to ask whether capitalism is worth saving in the first place.”6
I begin with the idea that capitalism (at least as we know it) is not worth saving and suggest briefly how we might democratically transform the system as a whole. Short of that this paper then moves on to somewhat more modest and detailed accounts of how to limit or replace capitalism’s power in specific sectors.
Here is how we can do it:
1. A Systemic Policy Option: The Meidner Plan of Socialist Democracy
To rest control over the very core of the economic system social movements must coalesce around the idea that they want more control over profits. It is the ownership, possession and control of profits that allows capitalists to determine and/or influence economic, political and social outcomes. Why and where they invest, what they invest in – and how – goes a long way in explaining the conditions under which we live.
Much greater social and political control over the production, utilization and distribution of profits can be achieved in part by building schools, hospitals and infrastructure owned by the public sector. However, the question here is not simply the rejection of public-private partnerships (P3s) in an expanded public sector, but how to carry this idea into those sectors of the economy that have traditionally been the bastion of the private sector.
Sweden’s Rudolf Meidner was the chief economist of the LO, the main trade union federation in Sweden. In the 1970s he introduced the idea of a highly progressive corporate tax – one that could over time be used to rest control of the larger enterprises in the for-profit sector.7
Unlike traditional corporate taxation, it did not subtract from the cash-flow or resources, which the enterprise needed for investment. It diluted shareholder wealth without weakening the corporation as a productive concern. According to the original plan every company with more than fifty employees was obliged to issue new shares every year equivalent to 20 per cent of its profits. The newly issued shares – which could not be sold – were to be given to the network of “wage earner funds,” representing workplaces and local authorities. The latter would hold the shares, and reinvest the income they yielded from dividends, in order to finance future social expenditure. As the wage earner funds grew they would be able to play an increasing part in directing policy in the corporations that they owned.
In the original mid-1970s proposal, firms would have been required to issue new shares in amounts equal to 20 per cent of their annual profits, to funds representing wage-earners as a collective. In the space of a decade or two, these funds would acquire dominant, and eventually controlling, interests in corporate Sweden.
All of the historical debates about what kind of socialism would emerge from this transfer of power over the means of production would follow from this initiative. It was a debate over market socialism versus a planned economy.
2. Fixing The Wage Productivity Gap
The World Economic Forum (WEF) is a Geneva-based foundation whose Annual Meeting of chief executives and political leaders – held in Davos, Switzerland – is a gathering of the truly rich and powerful. The WEF is a think-tank funded by 1,000 corporations. Member companies must have annual revenues of more than $1 billion. Every year the WEF produces its Global Competitiveness Report, which ranks the competitiveness of the world’s economies.
The top country in the World Economic Forum Growth Competitiveness Index Rankings for 2005 was Finland.8
Pay determination in Finland is considered as having been “solidaristic” since the 1970s. This is due to the fact that two core principles have successfully been established to guide pay policy decision-making. The aim of these has been to combine economic stability and growth with a relatively equal distribution of incomes. The first of the principles is that the wages of all employees whose work requires equal skills and is similar in intensity should be the same.9
Centralized bargaining continues to be vital for Central Organisation of Finnish Trade Unions (SAK) aims and objectives concerning pay determination, because the application of the equal pay principle presupposes a centralized or coordinated bargaining structure. This is also the case with the other key idea behind the solidaristic pay policy endorsed by SAK - the limiting of wage variation between workers in dissimilar jobs. This principle is based on the notion that a low level of income inequality is necessary for social justice. It also makes civil society more stable, which SAK sees as necessary for economic development. Moreover, according to SAK, modern growth theory has showed that equality of incomes as such is not an obstacle to growth.
Centralized incomes policy agreements have formed the core of collective bargaining in Finland for most of the past 30 years. The agreements have largely been based on the solidaristic principles of pay policy discussed above. In achieving this, various mechanisms (pay norms) have been used to determine the amount and distribution of wage increases. Since 1995, the pay norm in use has been the “Tuposeto model.” The margin for pay rises in this model is calculated by adding together the target inflation rate and the average productivity increase of the national economy, and by subtracting from that any increases in employers’ social insurance contributions. The margin is then normally divided between a general pay rise and provisions to grant higher rises for groups whose wages have lagged behind. In this way it has been possible, for example, effectively to bring the incomes of women closer to those of men.
The Tuposeto model was specially designed to curb inflation and to produce a wage development that is both stable and predictable. This is achieved because its application does not alter the relationship between wages and capital gains at the national level, as average unit labour costs rise in line with the target inflation rate. However, due to the fact that pay rises are based on the average growth rate of productivity, unit labour costs do rise for firms whose productivity change has not reached the average rate. The contrary happens for companies with better than average rise in productivity. Therefore, the pay norm favours the most dynamic sectors of the economy and puts pressure on unproductive ones to modernise.
Employers have expressed their wish to scrap the current pay norm. They would like to replace it with a model in which pay rises would be determined independently in each sector based on the particular productivity gains that the sector has achieved. This would increase pay differentiation between sectors. Employers insist this is vital for the economy. Furthermore, more jobs would be created in low-productivity sectors, they argue, as the cost of labour in them would come closer to its market price and would not be kept “artificially” high.
Solidaristic pay policy, which has favoured the most dynamic sectors of industry, has no doubt played an important role in increasing the productivity of the national economy. Currently Finnish industry has the most productive labour in the world, and, also partly thanks to the pay policy that has “discounted” labour for the most productive sectors, its labour costs are only average among the EU’s 15 nations. The success has a downside however; after decades of moving resources to productive sectors and practices, investments have started stagnating.
Growth is easier to produce through structural change or by moving from very inefficient technologies to the best ones, but now, as these processes have come this far, those in possession of capital seem unwilling to continue at the same pace as before. This is partly due to companies and investors being freer than before to decide where in the world to allocate their resources, and gains tend to be highest in countries going through major structural change, such as China at the moment.
3. Finance - Reforming the Bank of Canada
Through most of the ‘80s and ‘90s, the Bank of Canada was the real power in Ottawa. By drastically limiting the growth of the money supply, thereby forcing interest rates up to 20 per cent, it induced one punishing recession in the '80s. Then, using the same techniques, it did the same thing a decade later.
For those thrown out of work, both recessions were disasters. But for the conservatives, they did the job. Double-digit interest rates forced inefficient companies out of business, pushed down wages and, eventually, tamed inflation.
At the same time, high interest rates (along with tax cuts) on government debt sent deficits soaring, creating a political climate of fear in which all governments – to the applause of the country's right-leaning editorial boards – could begin dismantling Canada's social safety net.
The importance attached by the Bank of Canada to inflation fighting, (or using the interest rate as a tool of incomes policy to discipline labour during economic expansion) has to be reduced and appropriate weight given to more pressing economic needs such as job creation, investments in sustainable technology, infrastructure and anti-poverty measures that government should initiate.
The Bank of Canada’s Board of Directors should be opened up to broader representation: of women (only two of the 14 current members are female), and also of ordinary workers and representatives of organizations whose members bear the brunt of ill-considered monetary policy.
Any bank policy must include capital controls, controls over domestic investment, a tax on financial transactions (Tobin tax), and a commitment to full employment (with a maximum of four per cent unemployment rate.)10
Private Banks?
The current economic crisis has shown both the importance and the vulnerability of a banking system driven by competition and short-term profit motives, as well as the folly of managing the economy through abrupt changes in the interest rate as a way of disciplining labour. In the early years of this decade, economic expansion was fuelled significantly by cheap mortgages and consumer credit, which helped create jobs and drive up housing prices. This, in turn, enabled workers to borrow against their housing equity, further stimulating economic expansion. In the process the banks earned huge profits and senior managers paid themselves outrageous bonuses. Since 2007, after interest rates were raised to dampen demand and hold off threatened inflation, (i.e. by laying off workers thereby reducing their wage demands), there has been a global loss of confidence in banking systems as the full extent of the folly of unregulated credit expansion has become clear. Millions of mortgage holders who were given excessive amounts of credit, or who were lured into borrowing at rates that they thought they could afford but ultimately could not, and are now without homes, are a stark testimony to unregulated banking systems. The house of cards built on mortgage-backed securities has collapsed with an enormous amount of damage to the security of ordinary people whose pension funds were invested in these assets. Throughout the world, banks have been bailed out by governments and in many cases they have been nationalized.
To prevent the recurrence of such a financial crisis and its attendant human toll, banks should, indeed, be nationalized and regulated similar to public utilities. Banking profits would be reinvested into social services and social infrastructure. Terms of borrowing and lending would need to be defined and justified through a public process driven by public interest. Interac and other banking fees would be regulated and reduced while interest rates on credit cards would be tightly regulated. This type of regulation should be instated even if banks are to remain in private hands. But if banks need assistance from government, government should demand share ownership in return. Representatives of the public would then sit on the banks’ boards of directors, ensuring that public interest is always factored into decisions. The location of bank branches would be subject to public input and banks closing down in inner city locations would be required to offer financial support to credit unions and alternative financial institutions moving in to fill the gap.
Should banks remain in private hands, payment of salaries and bonuses to banking executives should be subject to public review, failing which only a portion of such payments would be allowed as an operating expense of banks, with the rest subject to taxation.
4. FISCAL STIMULUS
A new role for the banking system must be part of an industrial strategy that ensures full employment and sustainable growth. There are many of these proposals in the Alternative Federal Budget (AFB). What must be emphasized is how little we can depend on the private sector to spend the time and money to invent what we really need. It is the public sector that must provide us with the technology for a sustainable economy.
"The government can't pick winners, but losers pick government," said Canadian Deputy Industry Minister V. Peter Harder, cited in The New York Times, August 28, 2001.11
What do maxipads, Deet bug repellent, permanent-press cotton, shrink-proof wool, the soybean ink used in USA Today, disposable diapers, frozen foods and lactose-free milk have in common? None of them were invented by the corporations that currently profit from them. These and many other products we associate with corporate brands were actually invented by the Agricultural Research Service of the U.S. government.12 If the previous list of food, cloths and dyes was not suitably impressive, U.S. federal funding was directly responsible for the cross country railroad, the exploration of space, atomic energy, the internet, the Global Positioning System (GPS), lasers, computers, magnetic resonance imaging (MRI), Teflon and other advanced materials and composites, communications satellites, jet aircraft, microwave ovens, solar-electric cells, modems, semiconductors, storm windows, genetic medicine and biotechnology.13
According to a Joint Economic Committee of Congress report, among the 21 drugs that had the most impact on therapeutic practice between 1965 and 1992, publicly funded research was instrumental to the development of 16 of them, or 76 per cent.14
We are told that we owe our current affluent lifestyles to the innovations in both production techniques and products brought about by the dynamism of capitalism. Competitive, profit-maximizing firms need to continuously innovate if they are to lower costs and provide new products to their customers. While this is undeniably true, what is often neglected in this standard tale is the crucial role played by the state in our dynamic economy. The preceding examples are only a few of the countless major inventions brought to you, not by the benefits of profit maximizing and competitiveness, but by the public ownership of the state. As we shall see, this is not a coincidence. There are crucial reasons that profit-maximizing firms will not sufficiently invest in many areas of research and development, necessitating state intervention. The idea that the private sector is dynamic and innovative while the state sector is stagnant and moribund does not stand up to either good economic theory or historical evidence.
5. Trade Agreements
There were many labour, environmental and social justice organizations that supported the proposed US Trade Reform, Accountability, Development and Employment Act of 2008 including:
AFL-CIO
Change to Win
Communications Workers of America (CWA)
American Federation of State, County and Municipal Workers (AFSCME)
International Association of Machinists and Aerospace Workers (IAM)
International Brotherhood of Boilermakers
International Brotherhood of Electrical Workers (IBEW)
International Brotherhood of Teamsters (IBT)
International Union of Painters and Allied Trades
United Steelworkers (USW)
Sierra Club
National Farmers Union
National Family Farm Coalition
UNITE-HERE
United Methodist Church
General Board of Church and Society
Friends of the Earth
Public Citizen; Citizens Trade Campaign
Institute for Agriculture and Trade Policy
Americans for Democratic Action.
The TRADE Act requires a review of existing trade agreements, including NAFTA, the WTO and others, and sets forth what must and must not be included in future trade deals. It also provides for the renegotiation of existing trade agreements and describes the key elements of a new trade negotiating and approval mechanism to replace “Fast Track” – the undemocratic negotiating system that got us into WTO and NAFTA – that would enhance the U.S. Congress’ role in the formative aspects of agreements and promote future deals that could enjoy broad support among the American public.
The TRADE Act shifts the debate to discussing a new trade and globalization model. It moves the repeated fights against expansions of the old failed model and sets a marker for where discussion should have started with a new U.S. Congress and president in 2009. One of our greatest challenges is to create new rules for globalization that ensure economic security and the creation of quality jobs here, while offering opportunities for sustainable development in poor countries. Such rules would counter rising income inequality and the threats our current policies pose to national security, our shared global environment, public health and safety, and democratic accountability. We must take action now to shape the future debate. The TRADE Act recognizes U.S. President Barack Obama’s past calls to renegotiate some trade agreements, and to bring Congress and the public into this process.
The TRADE Act includes:
Section 3 - Review:
This section requires the Government Accountability Office (GAO) to conduct a comprehensive review of existing major trade agreements by June 10, 2010, including economic outcomes in the U.S. and abroad, as well as various security, human rights, social and environmental indicators. The GAO must also report on how the current deals measure up against the bill’s listing of what must and must not be included in future U.S. trade agreements.
Section 4 - Agreement details:
This section sets forth the food and product safety, environmental and labour standards; federalism protections; agriculture rules; national security exceptions; and currency anti-manipulation and trade remedy rules that must be included in all American trade pacts. And, because WTO-NAFTA-model trade agreements extend far beyond traditional trade matters, this section also lists what cannot be included in future American trade agreements, including service sector privatization and deregulation requirements; bans on “Buy American” and anti-sweat shop or environmental procurement policies; new rights and privileges for foreign investors to promote offshoring and expose domestic health and environmental laws to attacks in foreign tribunals; and special protections for Big Pharma to limit affordable access of generic medicines. (These outrages are in WTO, NAFTA and similar trade deals.)
Section 5 - Renegotiation:
This section requires the president to submit renegotiation plans to Congress to remedy the gaps identified by the GAO between current pacts and the criteria for good agreements listed in section 4 prior to negotiating new agreements and prior to congressional consideration of pending agreements.
Section 6 - Expanding Congressional Oversight:
This section establishes a committee of the chairs and ranking members of all congressional committees whose jurisdiction is implicated by current expansive “trade” pacts to review the renegotiation plan.
Section 7 - Replacing Fast Track:
This section lays out criteria for a new mechanism to replace the anti-democratic “Fast Track” negotiating process. To obtain agreements that benefit a wider array of interests, this new process includes U.S. Congress setting readiness criteria to select future negotiating partners; mandatory negotiating objectives based on the Section 4 criteria of what must and must not be in future trade pacts; and the requirements that Congress must certify that the objectives were met, and then vote on an agreement before it can be signed.
6. Fair Trade
Fair trade15 is a movement that is attempting to make the social and the environmental conditions in which commodities are produced a very visible part of the product. Fair trade’s primary goal is to improve the livelihoods of low-income producers by increasing the income from their products and by improving other social conditions of workers such as health and education. This is accomplished by attempting to distinguish fair trade products from other commodities at the retail level by explicitly advertising their conditions of production. It is an attempt to dramatically change the relations of both production and exchange and, crucially, to render the process of production visible at the point of exchange.
Although many of the measures, such as administrative transparency, are fairly mundane, cooperatives must also primarily consist of small-scale producers not dependent on hired labour and must be democratically controlled by their members. Fair trade, in this example, is actually attempting to foster an alternative structure of ownership in the coffee industry, for example, away from larger scale farms with their attendant relationships between landless labourer and landowner and toward an industry in which those who produce are those who own. In addition, producers must strive to follow several general principles or objectives. Among the more radical include reduced dependency on single cash crops; a commitment to social development through financing education, health, housing, and water supplies; and the conservation and sustainable use of natural resources.
The relationship between producers and importers is based on entirely different principles than those that usually govern market relationships. Importers are interested not only in the product as a commodity, isolated from the conditions in which it was produced, but are also equally (or perhaps even more) concerned with the producers themselves, their social relations of production, and the ecological character of the interactive process of transformation between humans and nature.
Fair trade thus tries to break down the isolation endemic in a commodity-driven society and begins to differentiate on the basis of production processes rather than (or at least, in addition to) the characteristics of the final product. At the final point of sale, fair trade attempts to increase the visibility of long-term and global economic connections involved in day-to-day economic transactions through the education of the final consumer. Using histories, descriptions, and pictures of producer groups, as well as explanations of production processes, fair trade works to reinstate, at least partially, the information about process that is so lacking in conventional trade. This is an extremely important distinction between conventional and fair trade, and works to ensure that North American consumers can choose to avoid products made under exploitative, dangerous, or ecologically damaging conditions.
Fair trade has always been treated as a voluntary option, dependent on a moral imperative. It could become a pre-condition for trade and for many tradable goods.
7. Health Care
Theoretically Medicare provides access for all Canadians to hospital and physician care on a not-for profit basis. Steven Shrybman, a renowned trade lawyer and member of the Council of Canadians’ board of directors, at once characterizes this as socialist as he warns of attempts to undermine the system. Seventy per cent (the share of our health care system that is paid for by the public system) of health care distribution in Canada can be characterized, as Karl Marx once popularized, from each according to their ability, to each according to their need.16
Much of the rest of the distribution of health care would be socialized by policies that the Council of Canadians already have policy prescriptions for: by incorporating drugs, dentistry and home care into Medicare publicly funded access to health care would be all but complete.
What’s missing?
The products used by our public health care system are purchased from for-profit manufacturers of drugs, diagnostic equipment, hospital supplies, etc. at very high prices. Our hospitals are profit conduits for a medical-industrial-complex located mainly in the U.S. An alternative would be to consider a crown corporation that would, for instance, produce generic drugs and possibly look to invent new drugs. Such an operation would be a not-for-profit publicly regulated alternative to the multinational drug companies we now depend on. The public sector would need to greatly bolster its assessment of which drugs are effective and safe. The same review is necessary for the diagnostic technology that we are always charged with not having enough of. In order to invent new drugs more public money would have to be invested in research and development if we chose to compete with the multinationals. It is important to note a few facts here.
A. Contrary to the claims in drug companies’ advertisements, 75 per cent of the new drugs that provide real clinical medical benefits have been invented by and paid for by the public sector in the U.S. and handed to the multinationals for production and sale for profit.
B. Public funding in Canada for the evaluation of drugs and technology would be best accomplished as part of an international effort. In this case doing the job locally, provincially, regionally or even nationally is inefficient. Why repeat the same analysis in Canada, the U.S., Japan, and the EU on the same drug?
The same must be said of investment in research and development for drugs and diagnostic technology. Redundancy becomes necessary because either no government is willing to challenge the medical-industrial-complex and/or there is no mechanism to coordinate these research efforts internationally.
Conclusion
A young son of a friend of mine, after hearing a lecture on global warming, concluded that people could sooner see the end of the world than the end of capitalism.
I have often thought that if aliens landed in Toronto, London or New York in 1929 they would be stunned at the sheer irrationality of factories, mines and farms lying idle while children searched for food in garbage dumps and workers were paid to dig holes and fill them in again. If they landed again in 2007 they would find the very richest people ordering $80 million private submarines while billions went without clean water. If these aliens looked in their rear view mirror in 2008 for another glimpse, they would once again see the massive underutilization of an even greater capacity to meet people’s needs than in 1929, while trillions of almost totally unfettered dollars of citizens’ money is poured in to prop up a private banking system that was largely responsible for the crisis. It seems that some of us can’t even conceive of an alternative to the worst kind of crony capitalism.
Privatization, deregulation, free trade, balanced budgets, anti-inflation policy and tax cuts have all been used as weapons against workers, citizens and our environment.
Democratic control over production and distribution, a reduction in exploitation and inequality, full employment and a sustainable economy are all possible. The barriers to accomplishing a better world are not created by economic or technological constraints, but by political power.
Resistance is not futile – it is essential.
End Notes:
1 Inequality of income: The curious absence of class struggle, Peter J. Nicholson, Globe and Mail, January 5, 2008
2 "Income Inequality in the United States, 1913-1998" with Thomas Piketty, Quarterly Journal of Economics, 118(1), 2003, 1-39
3 See Bankruptcies and Bailouts, Fernwood Press, for more background and references.
4 See Bankruptcies and Bailouts, Fernwood Press, for more background and references.
5 David Harvey, Neoliberalism and the Restoration of Class Power
6 Why Capitalism Shouldn’t Be Saved, John Sanbonmatsu, Tikkun May/June 2009
7 Information based on an article in Counterpunch by Robin Blackburn Dec. 22, 2005
8 See Social Murder and Other Shortcomings of Conservative Economics, by Robert Chernomas and Ian Hudson for more on this topic.
9 European Industrial Relations Observatory, http://www.eurofound.europa.eu/eiro/structure.htm
10 This approach can be found in various Alternative Federal Budgets over time.
11 See Social Murder and Other Shortcomings of Conservative Economics, by Robert Chernomas and Ian Hudson for more on this topic.
12 Where the Best Ideas Take Wing, Time Magazine, J. Rawe October 11, 2004, 68
13 Office of Science and Technology Policy, 2000
14 Joint Economic Committee, 2000
15 The source for this section is Organization and Environment, Ian Hudson and Mark Hudson, Vol. 16 No. 4, December 2003, pgs 413-430.
16 “From each according to his ability, to each according to his need (or needs)” is a slogan popularized by Karl Marx in his 1875 Critique of the Gotha Program. The phrase summarizes the principles that, under a communist system, every person should contribute to society to the best of his ability and consume from society in proportion to his needs, regardless of how much he has contributed.
Sources and Further Reading
Alternative Federal Budgets: www.ccpa.ca
Bankruptcies and Bailouts, Fernwood Press, edited by Wayne Antony and Julie Guard
Income Inequality in the United States, 1913-1998, with Thomas Piketty, Quarterly Journal of Economics, 118(1), 2003.
Neoliberalism and the Restoration of Class Power, David Harvey
Organization and Environment, Ian Hudson and Mark Hudson, Vol. 16 No. 4, December 2003
Rising Profit Shares, Falling Wage Shares, Canadian Centre for Policy Alternatives: www.ccpa.ca
Social Murder and Other Shortcomings of Conservative Economics, Robert Chernomas and Ian Hudson
Why Capitalism Shouldn’t Be Saved, John Sanbonmatsu, Tikkun May/June 2009
By Robert Chernomas
September 2009
About the Author
Robert Chernomas is a Professor of Economics at the University of Manitoba. He received his Ph.D. from the New School for Social Research in New York. Robert is the co-author (with Ian Hudson) of Social Murder and Other Shortcomings of Conservative Economics. He has published in both academic and popular literature with respect to macroeconomics, the history of economic thought, health care economics, and in the area of the socio-economic determinants of health. He has lectured in Canada, the U.S., China, Africa and Europe. He has spoken and written numerous times on these topics and others in the media on behalf of unions, church groups and other activist groups, including the Council of Canadians and the Canadian Association of University Teachers. He has been co-chair of the Alternative Federal Budget, active in his own union for twenty years (President, Chief Bargainer), and is currently a member of the Council of Canadians’ Board of Directors. His next book, set for release in December 2009, is titled The Gatekeeper: 60 Years of Economics According to the New York Times and is co-authored with Ian Hudson.
Introduction
“The brave new world of neoliberalism lies in ruins. Its wealth turned out to be based on robbery, sham and deceit. The Left is in a new situation. Without its self-transformation and development of a capacity to act that is adequate for these times, it will squander for a long time any possibility of becoming a force of social, ecological, democratic and peace-promoting social transformation beyond capitalism.” - Socialist Project • E-Bulletin No. 202 - April 11, 2009
The purpose of this discussion paper is to provide a brief description of Canada’s economic circumstances, and then provide policy options that would range from resting control over the economy as a whole down to micro initiatives.
This information does not repeat current analysis available on existing Council of Canadians’ campaigns, but rather focuses on the crisis itself and key ways to move forward. Some of these policy options are more problematic for a relatively small open economy like Canada’s. The same policy options for the U.S. or the EU would be easier to implement without creating as much economic and political disadvantage. However, as this paper argues, the time to act is now. The progressive Left has a unique opportunity to lead economic discussions and to create a citizens’ movement to push our government and others beyond capitalism.
This paper will be the topic of further discussion at the Council of Canadians’ 24th Annual General Meeting, which will be held in Saint John, New Brunswick October 23-25, 2009. From further discussion with Council members, chapter activists and those concerned about progressive issues and pursuing new policies in communities across Canada, we hope this paper will be used a tool to effect positive change. The intent is to share, discuss and build on ideas, moving them into concrete actions that through the Council of Canadians’ grassroots network will bring new meaning and dialogue to the pressing economic issues facing all Canadians.
As stated in the concluding remarks of this paper: resistance is not futile – it is essential.
The Economic Crisis As Class Warfare.
In a rather remarkable article for the Globe and Mail last year Peter J. Nicholson observes1 it is “not so much the rich are getting richer; it’s the very, very rich.”
“Statistics Canada reported the earned income of the "average" Canadian – the so-called median income – was the same in 2004 as in 1982. It turns out that median income, before taxes, did not rise at all over 22 (Mulroney and Liberal) years. Yet during that same time the Canadian economy grew, in real per capita terms, by more than half. But only the very well-paid – those above the 90th percentile of the income distribution – saw any significant increase in earned income; and the higher up the earnings ladder, the greater the growth.”
Canadians are working harder and smarter, contributing to a growing economy, but their paycheques have been stagnant for the past 30 years, says a new study by the Canadian Centre for Policy Alternatives (CCPA). Rising Profit Shares, Falling Wage Shares finds that Canada’s economy grew steadily and workers’ productivity improved by 51 per cent in the past 30 years, but workers’ average real wages have been stuck in a holding pattern all this time.
“Canadians are constantly being told they need to improve their productivity and grow the economy – which is exactly what they’ve done, but their pay cheques aren’t growing to reflect their work effort,” says study co-author Ellen Russell, CCPA senior economist.
The study finds that Canadian workers’ wage share of national income is the lowest it’s been in 40 years. If workers’ real wages had increased to reflect improved productivity and economic growth, they could be earning an average of $10,000 more each year on their pay cheques (in 2005 dollars).
Instead, corporations – not workers – have been banking the lion’s share of the benefits of economic growth and improved productivity. “Corporate profit shares are the highest they’ve been in 40 years, and we’re not talking peanuts here,” says Russell. “In 2005, corporations banked $130 billion more in gross profits than they would have if the profit share had remained at 1991 levels. Sharing those earnings with workers could have gone a long way to reducing Canada’s growing income gap.”
It Isn’t Just Health Care Where American Workers are Worse Off
According to economist Lester Thurow, U.S. real per capita GDP rose 36 per cent from 1973 to 1995, yet the real hourly wages of non-supervisory workers declined by 14 per cent. In the decade of the 1980s, all of the earnings gains went to the top 20 per cent of income earners and an amazing 64 per cent to the already massively wealthy top one per cent. Economists Thomas Piketty and Emmanuel Saez provide evidence2 that between 1973 and 2000 the average income of the bottom 90 per cent of American taxpayers fell by seven per cent. Incomes of the top one per cent rose by 148 per cent, the top 0.1 per cent by 343 per cent, and extremely well off in the top 0.01 per cent by an amazing 599 per cent.
Joel Rogers, director of the Center on Wisconsin Strategy, has made a recent stunning calculation: Had wages tracked productivity as they have over the past 30 years, “median family income in the U.S. would be about $20,000 higher today than it is.”3
How Did They Manage This?
An explanation for this phenomenon begins long, long ago in the hearts and minds of political leaders and the class of voters they represent. Profits had been falling in the U.S., Canada and the UK and the capitalist class in each country responded in the 1980s with a new set of policies with the idea of improving profitability. These policies, as we are seeing now, brought us to this new point of financial crisis.
In the UK, Alan Budd, professor of economics at the London Business School and chief economic advisor to Margaret Thatcher, describes what occurred during the 1980s in astonishingly candid terms. He says conservative monetary and fiscal policy was seen by the Thatcher government as “a very good way to raise unemployment. And raising unemployment was an extremely desirable way of reducing the strength of the working classes…” What was engineered, in Marxist terms, he explains, was “a crisis of capitalism which re-created the reserve army of labour, and has allowed the capitalist to make high profits ever since.”
The state using central bank and fiscal policy deliberately created unemployment so that the 80 per cent or so of the population could not defend their wages because of the threat of being replaced by those unemployed. And it worked. That is not all it did.4
Government taxes and spending
The Organisation for Economic Co-operation and Development (OECD) attributes the widening gap between the rich and not-rich in part to the Canadian government's spending policies.
“Canada spends less on cash benefits such as unemployment benefits and family benefits than most OECD countries,” reports the OECD. “Partly as a result, taxes and transfers do not reduce inequality by as much as in many other countries. Furthermore, their effect on inequality has been declining over time.”
Trade Agreements
Trade agreements also helped in this class warfare. Competing with cheap overseas labour helps the bottom line for employers, but not for workers who compete for jobs. The effect of these trade agreements for American workers, according to Josh Bivens, an economist with the Economic Policy Institute, is that the annual losses for a full-time median-wage earner in 2006 were approximately $1,400. For a typical household with two earners, the loss is more than $2,500.
“Financialization” and the financial crisis
How can you maintain family spending in face of falling income? You borrow money. Who makes profits from borrowing money? Clearly, it’s the banks.
Capitalists increased profits by providing access to debt and spreading the risk (toxic assets) to anyone who would be willing to play the game. This process is called “financialization.” Credit card debt, subprime mortgages and speculation on food and oil prices are all ways of increasing profits. It’s not about producing more, but making us pay more for what was produced, whether it’s houses, food or oil.
The problem is as household debts rise faster than household income, the possibility of being able to pay off these debts declines. A recent Globe and Mail article suggested the number of "vulnerable households" could double by the end of next year under the central bank's scenario of a deepening economic slowdown. That, in turn, would cause "significant" losses in the banking sector.
The report painted a picture of a negative feedback loop where banks become reluctant to lend, businesses cut costs, lay-offs result and consumers stop spending – a vicious circle that creates loan losses for banks and makes them more cautious about lending.
What can be said of the likely outcome of these political economic events? As some economic pundits have pointed out there is a curious absence of class struggle. We need to be aware and cautious. Lenin probably said it best: capitalists can buy themselves out of any crisis, as long as they can make the workers pay. It is up to us to make sure that doesn’t happen.
Policy Options
“The Neoliberal revolution in economics and public policy that began around 1980 has finally collapsed. The massive shift of wealth and power to wealthy households and to the financial sector, legitimated and supported by this ideological and policy mix, was unsustainable.”5 Out of these ruins arise various attempts to reconstitute institutional changes to save capitalism. This is an epoch moment in our history where change will take place. The question becomes: in whose interest?
In Canada, the Harper government acknowledges little of this. Instead, the government is mostly sitting back and waiting for the Americans to fix their mess so that Canada’s dependence on an expanding and unsustainable U.S. economy can resume as soon as possible. Of course our Canadian conservative government has not hesitated to pour billions of dollars of taxpayer money to bolster the financial sector, while using the crisis to attack labour, expand free trade agreements and cut taxes. In the other countries the crisis is being treated much more seriously and the policy options reflect this.
“From Zurich and Washington to Frankfurt, London, and Tokyo, all the king's horses and all the king's men-bankers, economists, policy analysts, and government leaders are trying to put capitalism back together again. But none of them has stopped to ask whether capitalism is worth saving in the first place.”6
I begin with the idea that capitalism (at least as we know it) is not worth saving and suggest briefly how we might democratically transform the system as a whole. Short of that this paper then moves on to somewhat more modest and detailed accounts of how to limit or replace capitalism’s power in specific sectors.
Here is how we can do it:
1. A Systemic Policy Option: The Meidner Plan of Socialist Democracy
To rest control over the very core of the economic system social movements must coalesce around the idea that they want more control over profits. It is the ownership, possession and control of profits that allows capitalists to determine and/or influence economic, political and social outcomes. Why and where they invest, what they invest in – and how – goes a long way in explaining the conditions under which we live.
Much greater social and political control over the production, utilization and distribution of profits can be achieved in part by building schools, hospitals and infrastructure owned by the public sector. However, the question here is not simply the rejection of public-private partnerships (P3s) in an expanded public sector, but how to carry this idea into those sectors of the economy that have traditionally been the bastion of the private sector.
Sweden’s Rudolf Meidner was the chief economist of the LO, the main trade union federation in Sweden. In the 1970s he introduced the idea of a highly progressive corporate tax – one that could over time be used to rest control of the larger enterprises in the for-profit sector.7
Unlike traditional corporate taxation, it did not subtract from the cash-flow or resources, which the enterprise needed for investment. It diluted shareholder wealth without weakening the corporation as a productive concern. According to the original plan every company with more than fifty employees was obliged to issue new shares every year equivalent to 20 per cent of its profits. The newly issued shares – which could not be sold – were to be given to the network of “wage earner funds,” representing workplaces and local authorities. The latter would hold the shares, and reinvest the income they yielded from dividends, in order to finance future social expenditure. As the wage earner funds grew they would be able to play an increasing part in directing policy in the corporations that they owned.
In the original mid-1970s proposal, firms would have been required to issue new shares in amounts equal to 20 per cent of their annual profits, to funds representing wage-earners as a collective. In the space of a decade or two, these funds would acquire dominant, and eventually controlling, interests in corporate Sweden.
All of the historical debates about what kind of socialism would emerge from this transfer of power over the means of production would follow from this initiative. It was a debate over market socialism versus a planned economy.
2. Fixing The Wage Productivity Gap
The World Economic Forum (WEF) is a Geneva-based foundation whose Annual Meeting of chief executives and political leaders – held in Davos, Switzerland – is a gathering of the truly rich and powerful. The WEF is a think-tank funded by 1,000 corporations. Member companies must have annual revenues of more than $1 billion. Every year the WEF produces its Global Competitiveness Report, which ranks the competitiveness of the world’s economies.
The top country in the World Economic Forum Growth Competitiveness Index Rankings for 2005 was Finland.8
Pay determination in Finland is considered as having been “solidaristic” since the 1970s. This is due to the fact that two core principles have successfully been established to guide pay policy decision-making. The aim of these has been to combine economic stability and growth with a relatively equal distribution of incomes. The first of the principles is that the wages of all employees whose work requires equal skills and is similar in intensity should be the same.9
Centralized bargaining continues to be vital for Central Organisation of Finnish Trade Unions (SAK) aims and objectives concerning pay determination, because the application of the equal pay principle presupposes a centralized or coordinated bargaining structure. This is also the case with the other key idea behind the solidaristic pay policy endorsed by SAK - the limiting of wage variation between workers in dissimilar jobs. This principle is based on the notion that a low level of income inequality is necessary for social justice. It also makes civil society more stable, which SAK sees as necessary for economic development. Moreover, according to SAK, modern growth theory has showed that equality of incomes as such is not an obstacle to growth.
Centralized incomes policy agreements have formed the core of collective bargaining in Finland for most of the past 30 years. The agreements have largely been based on the solidaristic principles of pay policy discussed above. In achieving this, various mechanisms (pay norms) have been used to determine the amount and distribution of wage increases. Since 1995, the pay norm in use has been the “Tuposeto model.” The margin for pay rises in this model is calculated by adding together the target inflation rate and the average productivity increase of the national economy, and by subtracting from that any increases in employers’ social insurance contributions. The margin is then normally divided between a general pay rise and provisions to grant higher rises for groups whose wages have lagged behind. In this way it has been possible, for example, effectively to bring the incomes of women closer to those of men.
The Tuposeto model was specially designed to curb inflation and to produce a wage development that is both stable and predictable. This is achieved because its application does not alter the relationship between wages and capital gains at the national level, as average unit labour costs rise in line with the target inflation rate. However, due to the fact that pay rises are based on the average growth rate of productivity, unit labour costs do rise for firms whose productivity change has not reached the average rate. The contrary happens for companies with better than average rise in productivity. Therefore, the pay norm favours the most dynamic sectors of the economy and puts pressure on unproductive ones to modernise.
Employers have expressed their wish to scrap the current pay norm. They would like to replace it with a model in which pay rises would be determined independently in each sector based on the particular productivity gains that the sector has achieved. This would increase pay differentiation between sectors. Employers insist this is vital for the economy. Furthermore, more jobs would be created in low-productivity sectors, they argue, as the cost of labour in them would come closer to its market price and would not be kept “artificially” high.
Solidaristic pay policy, which has favoured the most dynamic sectors of industry, has no doubt played an important role in increasing the productivity of the national economy. Currently Finnish industry has the most productive labour in the world, and, also partly thanks to the pay policy that has “discounted” labour for the most productive sectors, its labour costs are only average among the EU’s 15 nations. The success has a downside however; after decades of moving resources to productive sectors and practices, investments have started stagnating.
Growth is easier to produce through structural change or by moving from very inefficient technologies to the best ones, but now, as these processes have come this far, those in possession of capital seem unwilling to continue at the same pace as before. This is partly due to companies and investors being freer than before to decide where in the world to allocate their resources, and gains tend to be highest in countries going through major structural change, such as China at the moment.
3. Finance - Reforming the Bank of Canada
Through most of the ‘80s and ‘90s, the Bank of Canada was the real power in Ottawa. By drastically limiting the growth of the money supply, thereby forcing interest rates up to 20 per cent, it induced one punishing recession in the '80s. Then, using the same techniques, it did the same thing a decade later.
For those thrown out of work, both recessions were disasters. But for the conservatives, they did the job. Double-digit interest rates forced inefficient companies out of business, pushed down wages and, eventually, tamed inflation.
At the same time, high interest rates (along with tax cuts) on government debt sent deficits soaring, creating a political climate of fear in which all governments – to the applause of the country's right-leaning editorial boards – could begin dismantling Canada's social safety net.
The importance attached by the Bank of Canada to inflation fighting, (or using the interest rate as a tool of incomes policy to discipline labour during economic expansion) has to be reduced and appropriate weight given to more pressing economic needs such as job creation, investments in sustainable technology, infrastructure and anti-poverty measures that government should initiate.
The Bank of Canada’s Board of Directors should be opened up to broader representation: of women (only two of the 14 current members are female), and also of ordinary workers and representatives of organizations whose members bear the brunt of ill-considered monetary policy.
Any bank policy must include capital controls, controls over domestic investment, a tax on financial transactions (Tobin tax), and a commitment to full employment (with a maximum of four per cent unemployment rate.)10
Private Banks?
The current economic crisis has shown both the importance and the vulnerability of a banking system driven by competition and short-term profit motives, as well as the folly of managing the economy through abrupt changes in the interest rate as a way of disciplining labour. In the early years of this decade, economic expansion was fuelled significantly by cheap mortgages and consumer credit, which helped create jobs and drive up housing prices. This, in turn, enabled workers to borrow against their housing equity, further stimulating economic expansion. In the process the banks earned huge profits and senior managers paid themselves outrageous bonuses. Since 2007, after interest rates were raised to dampen demand and hold off threatened inflation, (i.e. by laying off workers thereby reducing their wage demands), there has been a global loss of confidence in banking systems as the full extent of the folly of unregulated credit expansion has become clear. Millions of mortgage holders who were given excessive amounts of credit, or who were lured into borrowing at rates that they thought they could afford but ultimately could not, and are now without homes, are a stark testimony to unregulated banking systems. The house of cards built on mortgage-backed securities has collapsed with an enormous amount of damage to the security of ordinary people whose pension funds were invested in these assets. Throughout the world, banks have been bailed out by governments and in many cases they have been nationalized.
To prevent the recurrence of such a financial crisis and its attendant human toll, banks should, indeed, be nationalized and regulated similar to public utilities. Banking profits would be reinvested into social services and social infrastructure. Terms of borrowing and lending would need to be defined and justified through a public process driven by public interest. Interac and other banking fees would be regulated and reduced while interest rates on credit cards would be tightly regulated. This type of regulation should be instated even if banks are to remain in private hands. But if banks need assistance from government, government should demand share ownership in return. Representatives of the public would then sit on the banks’ boards of directors, ensuring that public interest is always factored into decisions. The location of bank branches would be subject to public input and banks closing down in inner city locations would be required to offer financial support to credit unions and alternative financial institutions moving in to fill the gap.
Should banks remain in private hands, payment of salaries and bonuses to banking executives should be subject to public review, failing which only a portion of such payments would be allowed as an operating expense of banks, with the rest subject to taxation.
4. FISCAL STIMULUS
A new role for the banking system must be part of an industrial strategy that ensures full employment and sustainable growth. There are many of these proposals in the Alternative Federal Budget (AFB). What must be emphasized is how little we can depend on the private sector to spend the time and money to invent what we really need. It is the public sector that must provide us with the technology for a sustainable economy.
"The government can't pick winners, but losers pick government," said Canadian Deputy Industry Minister V. Peter Harder, cited in The New York Times, August 28, 2001.11
What do maxipads, Deet bug repellent, permanent-press cotton, shrink-proof wool, the soybean ink used in USA Today, disposable diapers, frozen foods and lactose-free milk have in common? None of them were invented by the corporations that currently profit from them. These and many other products we associate with corporate brands were actually invented by the Agricultural Research Service of the U.S. government.12 If the previous list of food, cloths and dyes was not suitably impressive, U.S. federal funding was directly responsible for the cross country railroad, the exploration of space, atomic energy, the internet, the Global Positioning System (GPS), lasers, computers, magnetic resonance imaging (MRI), Teflon and other advanced materials and composites, communications satellites, jet aircraft, microwave ovens, solar-electric cells, modems, semiconductors, storm windows, genetic medicine and biotechnology.13
According to a Joint Economic Committee of Congress report, among the 21 drugs that had the most impact on therapeutic practice between 1965 and 1992, publicly funded research was instrumental to the development of 16 of them, or 76 per cent.14
We are told that we owe our current affluent lifestyles to the innovations in both production techniques and products brought about by the dynamism of capitalism. Competitive, profit-maximizing firms need to continuously innovate if they are to lower costs and provide new products to their customers. While this is undeniably true, what is often neglected in this standard tale is the crucial role played by the state in our dynamic economy. The preceding examples are only a few of the countless major inventions brought to you, not by the benefits of profit maximizing and competitiveness, but by the public ownership of the state. As we shall see, this is not a coincidence. There are crucial reasons that profit-maximizing firms will not sufficiently invest in many areas of research and development, necessitating state intervention. The idea that the private sector is dynamic and innovative while the state sector is stagnant and moribund does not stand up to either good economic theory or historical evidence.
5. Trade Agreements
There were many labour, environmental and social justice organizations that supported the proposed US Trade Reform, Accountability, Development and Employment Act of 2008 including:
AFL-CIO
Change to Win
Communications Workers of America (CWA)
American Federation of State, County and Municipal Workers (AFSCME)
International Association of Machinists and Aerospace Workers (IAM)
International Brotherhood of Boilermakers
International Brotherhood of Electrical Workers (IBEW)
International Brotherhood of Teamsters (IBT)
International Union of Painters and Allied Trades
United Steelworkers (USW)
Sierra Club
National Farmers Union
National Family Farm Coalition
UNITE-HERE
United Methodist Church
General Board of Church and Society
Friends of the Earth
Public Citizen; Citizens Trade Campaign
Institute for Agriculture and Trade Policy
Americans for Democratic Action.
The TRADE Act requires a review of existing trade agreements, including NAFTA, the WTO and others, and sets forth what must and must not be included in future trade deals. It also provides for the renegotiation of existing trade agreements and describes the key elements of a new trade negotiating and approval mechanism to replace “Fast Track” – the undemocratic negotiating system that got us into WTO and NAFTA – that would enhance the U.S. Congress’ role in the formative aspects of agreements and promote future deals that could enjoy broad support among the American public.
The TRADE Act shifts the debate to discussing a new trade and globalization model. It moves the repeated fights against expansions of the old failed model and sets a marker for where discussion should have started with a new U.S. Congress and president in 2009. One of our greatest challenges is to create new rules for globalization that ensure economic security and the creation of quality jobs here, while offering opportunities for sustainable development in poor countries. Such rules would counter rising income inequality and the threats our current policies pose to national security, our shared global environment, public health and safety, and democratic accountability. We must take action now to shape the future debate. The TRADE Act recognizes U.S. President Barack Obama’s past calls to renegotiate some trade agreements, and to bring Congress and the public into this process.
The TRADE Act includes:
Section 3 - Review:
This section requires the Government Accountability Office (GAO) to conduct a comprehensive review of existing major trade agreements by June 10, 2010, including economic outcomes in the U.S. and abroad, as well as various security, human rights, social and environmental indicators. The GAO must also report on how the current deals measure up against the bill’s listing of what must and must not be included in future U.S. trade agreements.
Section 4 - Agreement details:
This section sets forth the food and product safety, environmental and labour standards; federalism protections; agriculture rules; national security exceptions; and currency anti-manipulation and trade remedy rules that must be included in all American trade pacts. And, because WTO-NAFTA-model trade agreements extend far beyond traditional trade matters, this section also lists what cannot be included in future American trade agreements, including service sector privatization and deregulation requirements; bans on “Buy American” and anti-sweat shop or environmental procurement policies; new rights and privileges for foreign investors to promote offshoring and expose domestic health and environmental laws to attacks in foreign tribunals; and special protections for Big Pharma to limit affordable access of generic medicines. (These outrages are in WTO, NAFTA and similar trade deals.)
Section 5 - Renegotiation:
This section requires the president to submit renegotiation plans to Congress to remedy the gaps identified by the GAO between current pacts and the criteria for good agreements listed in section 4 prior to negotiating new agreements and prior to congressional consideration of pending agreements.
Section 6 - Expanding Congressional Oversight:
This section establishes a committee of the chairs and ranking members of all congressional committees whose jurisdiction is implicated by current expansive “trade” pacts to review the renegotiation plan.
Section 7 - Replacing Fast Track:
This section lays out criteria for a new mechanism to replace the anti-democratic “Fast Track” negotiating process. To obtain agreements that benefit a wider array of interests, this new process includes U.S. Congress setting readiness criteria to select future negotiating partners; mandatory negotiating objectives based on the Section 4 criteria of what must and must not be in future trade pacts; and the requirements that Congress must certify that the objectives were met, and then vote on an agreement before it can be signed.
6. Fair Trade
Fair trade15 is a movement that is attempting to make the social and the environmental conditions in which commodities are produced a very visible part of the product. Fair trade’s primary goal is to improve the livelihoods of low-income producers by increasing the income from their products and by improving other social conditions of workers such as health and education. This is accomplished by attempting to distinguish fair trade products from other commodities at the retail level by explicitly advertising their conditions of production. It is an attempt to dramatically change the relations of both production and exchange and, crucially, to render the process of production visible at the point of exchange.
Although many of the measures, such as administrative transparency, are fairly mundane, cooperatives must also primarily consist of small-scale producers not dependent on hired labour and must be democratically controlled by their members. Fair trade, in this example, is actually attempting to foster an alternative structure of ownership in the coffee industry, for example, away from larger scale farms with their attendant relationships between landless labourer and landowner and toward an industry in which those who produce are those who own. In addition, producers must strive to follow several general principles or objectives. Among the more radical include reduced dependency on single cash crops; a commitment to social development through financing education, health, housing, and water supplies; and the conservation and sustainable use of natural resources.
The relationship between producers and importers is based on entirely different principles than those that usually govern market relationships. Importers are interested not only in the product as a commodity, isolated from the conditions in which it was produced, but are also equally (or perhaps even more) concerned with the producers themselves, their social relations of production, and the ecological character of the interactive process of transformation between humans and nature.
Fair trade thus tries to break down the isolation endemic in a commodity-driven society and begins to differentiate on the basis of production processes rather than (or at least, in addition to) the characteristics of the final product. At the final point of sale, fair trade attempts to increase the visibility of long-term and global economic connections involved in day-to-day economic transactions through the education of the final consumer. Using histories, descriptions, and pictures of producer groups, as well as explanations of production processes, fair trade works to reinstate, at least partially, the information about process that is so lacking in conventional trade. This is an extremely important distinction between conventional and fair trade, and works to ensure that North American consumers can choose to avoid products made under exploitative, dangerous, or ecologically damaging conditions.
Fair trade has always been treated as a voluntary option, dependent on a moral imperative. It could become a pre-condition for trade and for many tradable goods.
7. Health Care
Theoretically Medicare provides access for all Canadians to hospital and physician care on a not-for profit basis. Steven Shrybman, a renowned trade lawyer and member of the Council of Canadians’ board of directors, at once characterizes this as socialist as he warns of attempts to undermine the system. Seventy per cent (the share of our health care system that is paid for by the public system) of health care distribution in Canada can be characterized, as Karl Marx once popularized, from each according to their ability, to each according to their need.16
Much of the rest of the distribution of health care would be socialized by policies that the Council of Canadians already have policy prescriptions for: by incorporating drugs, dentistry and home care into Medicare publicly funded access to health care would be all but complete.
What’s missing?
The products used by our public health care system are purchased from for-profit manufacturers of drugs, diagnostic equipment, hospital supplies, etc. at very high prices. Our hospitals are profit conduits for a medical-industrial-complex located mainly in the U.S. An alternative would be to consider a crown corporation that would, for instance, produce generic drugs and possibly look to invent new drugs. Such an operation would be a not-for-profit publicly regulated alternative to the multinational drug companies we now depend on. The public sector would need to greatly bolster its assessment of which drugs are effective and safe. The same review is necessary for the diagnostic technology that we are always charged with not having enough of. In order to invent new drugs more public money would have to be invested in research and development if we chose to compete with the multinationals. It is important to note a few facts here.
A. Contrary to the claims in drug companies’ advertisements, 75 per cent of the new drugs that provide real clinical medical benefits have been invented by and paid for by the public sector in the U.S. and handed to the multinationals for production and sale for profit.
B. Public funding in Canada for the evaluation of drugs and technology would be best accomplished as part of an international effort. In this case doing the job locally, provincially, regionally or even nationally is inefficient. Why repeat the same analysis in Canada, the U.S., Japan, and the EU on the same drug?
The same must be said of investment in research and development for drugs and diagnostic technology. Redundancy becomes necessary because either no government is willing to challenge the medical-industrial-complex and/or there is no mechanism to coordinate these research efforts internationally.
Conclusion
A young son of a friend of mine, after hearing a lecture on global warming, concluded that people could sooner see the end of the world than the end of capitalism.
I have often thought that if aliens landed in Toronto, London or New York in 1929 they would be stunned at the sheer irrationality of factories, mines and farms lying idle while children searched for food in garbage dumps and workers were paid to dig holes and fill them in again. If they landed again in 2007 they would find the very richest people ordering $80 million private submarines while billions went without clean water. If these aliens looked in their rear view mirror in 2008 for another glimpse, they would once again see the massive underutilization of an even greater capacity to meet people’s needs than in 1929, while trillions of almost totally unfettered dollars of citizens’ money is poured in to prop up a private banking system that was largely responsible for the crisis. It seems that some of us can’t even conceive of an alternative to the worst kind of crony capitalism.
Privatization, deregulation, free trade, balanced budgets, anti-inflation policy and tax cuts have all been used as weapons against workers, citizens and our environment.
Democratic control over production and distribution, a reduction in exploitation and inequality, full employment and a sustainable economy are all possible. The barriers to accomplishing a better world are not created by economic or technological constraints, but by political power.
Resistance is not futile – it is essential.
End Notes:
1 Inequality of income: The curious absence of class struggle, Peter J. Nicholson, Globe and Mail, January 5, 2008
2 "Income Inequality in the United States, 1913-1998" with Thomas Piketty, Quarterly Journal of Economics, 118(1), 2003, 1-39
3 See Bankruptcies and Bailouts, Fernwood Press, for more background and references.
4 See Bankruptcies and Bailouts, Fernwood Press, for more background and references.
5 David Harvey, Neoliberalism and the Restoration of Class Power
6 Why Capitalism Shouldn’t Be Saved, John Sanbonmatsu, Tikkun May/June 2009
7 Information based on an article in Counterpunch by Robin Blackburn Dec. 22, 2005
8 See Social Murder and Other Shortcomings of Conservative Economics, by Robert Chernomas and Ian Hudson for more on this topic.
9 European Industrial Relations Observatory, http://www.eurofound.europa.eu/eiro/structure.htm
10 This approach can be found in various Alternative Federal Budgets over time.
11 See Social Murder and Other Shortcomings of Conservative Economics, by Robert Chernomas and Ian Hudson for more on this topic.
12 Where the Best Ideas Take Wing, Time Magazine, J. Rawe October 11, 2004, 68
13 Office of Science and Technology Policy, 2000
14 Joint Economic Committee, 2000
15 The source for this section is Organization and Environment, Ian Hudson and Mark Hudson, Vol. 16 No. 4, December 2003, pgs 413-430.
16 “From each according to his ability, to each according to his need (or needs)” is a slogan popularized by Karl Marx in his 1875 Critique of the Gotha Program. The phrase summarizes the principles that, under a communist system, every person should contribute to society to the best of his ability and consume from society in proportion to his needs, regardless of how much he has contributed.
Sources and Further Reading
Alternative Federal Budgets: www.ccpa.ca
Bankruptcies and Bailouts, Fernwood Press, edited by Wayne Antony and Julie Guard
Income Inequality in the United States, 1913-1998, with Thomas Piketty, Quarterly Journal of Economics, 118(1), 2003.
Neoliberalism and the Restoration of Class Power, David Harvey
Organization and Environment, Ian Hudson and Mark Hudson, Vol. 16 No. 4, December 2003
Rising Profit Shares, Falling Wage Shares, Canadian Centre for Policy Alternatives: www.ccpa.ca
Social Murder and Other Shortcomings of Conservative Economics, Robert Chernomas and Ian Hudson
Why Capitalism Shouldn’t Be Saved, John Sanbonmatsu, Tikkun May/June 2009