Reports from the Economic Front

a blog by Marty Hart-Landsberg

Monthly Archives: September 2015

Uruguay Withdraws From The Trade In Services Agreement

You probably don’t know that 52 countries are engaged in secret negotiations over a proposed Trade in Services Agreement (TISA), or that the Government of Uruguay, responding to massive domestic opposition to the agreement, has withdrawn from the negotiations.  And that is too bad because it’s all a big deal.

TISA negotiations have been on-going for two years and according to the agreement’s provisional text, the document is supposed to remain secret for at least five years after it is has been signed.  The only reason we know about the negotiations is because of WikiLeaks, which called the TISA the “largest component of the United States’ strategic trade ‘treaty’ triumvirate.  The other two treaties are the Transpacific Partnership (TPP) and the TransAtlantic Trade and Investment Pact (TTIP).

As Don Quijones explains: 

TiSA involves more countries than TTIP and TPP combined: The United States and all 28 members of the European Union, Australia, Canada, Chile, Colombia, Costa Rica, Hong Kong, Iceland, Israel, Japan, Liechtenstein, Mexico, New Zealand, Norway, Pakistan, Panama, Paraguay, Peru, South Korea, Switzerland, Taiwan and Turkey.

Together, these 52 nations form the charmingly named “Really Good Friends of Services” group, which represents almost 70% of all trade in services worldwide. Until its government’s recent u-turn Uruguay was supposed to be the 53rd Good Friend of Services. . . .

Here’s a brief outline of what is known to date (for more specifics click herehere and here):

1.TiSA would “lock in” the privatization of services – even in cases where private service delivery has failed – meaning governments can never return water, energy, health, education or other services to public hands.

2.TiSA would restrict signatory governments’ right to regulate stronger standards in the public’s interest. For example, it will affect environmental regulations, licensing of health facilities and laboratories, waste disposal centers, power plants, school and university accreditation and broadcast licenses.

 3.TiSA would limit the ability of governments to regulate the financial services industry, at a time when the global economy is still struggling to recover from a crisis caused primarily by financial deregulation. More specifically, if signed the trade agreement would:

  • Restrict the ability of governments to place limits on the trading of derivative contracts — the largely unregulated weapons of mass financial destruction that helped trigger the 2007-08 Global Financial Crisis.
  • Bar new financial regulations that do not conform to deregulatory rules. Signatory governments will essentially agree not to apply new financial policy measures which in any way contradict the agreement’s emphasis on deregulatory measures.
  • Prohibit national governments from using capital controls to prevent or mitigate financial crises. The leaked texts prohibit restrictions on financial inflows – used to prevent rapid currency appreciation, asset bubbles and other macroeconomic problems – and financial outflows, used to prevent sudden capital flight in times of crisis.
  • Require acceptance of financial products not yet invented. Despite the pivotal role that new, complex financial products played in the Financial Crisis, TISA would require governments to allow all new financial products and services, including ones not yet invented, to be sold within their territories.

4. TiSA would ban any restrictions on cross-border information flows and localization requirements for ICT service providersA provision proposed by US negotiators would rule out any conditions for the transfer of personal data to third countries that are currently in place in EU data protection law. In other words, multinational corporations will have carte blanche to pry into just about every facet of the working and personal lives of the inhabitants of roughly a quarter of the world’s 200-or-so nations.

Uruguay’s withdrawal is unlikely to do much to slow down the negotiations, especially since the story has largely been ignored by the media in other countries, including the United States.  However, the government’s decision does demonstrate the power of education and organizing.  The Uruguayan government took action only because of massive popular political pressure.  As Viviana Barreto and Sam Cossar-Gilbert describe:

After months of intense pressure led by unions and other social movements—including a general strike on the issue—the Uruguayan President listened to public opinion and left the US-led trade agreement. The overwhelming majority of members of the ruling Frente Amplio party believe that the deal would undermine the government’s national development strategy and therefore considered it “unadvisable to continue participating in the TISA negotiations”. . . .

By leaving the TISA negotiations, Uruguay has created a blueprint of how to beat these corporate-driven agreements. A strong coalition of trade unions, environmentalists and farmers working together on an effective public campaign were able to take on the interests of the world’s biggest companies and win.

Information and clear communication was key to the campaign. The negotiation texts released by WikiLeaks and assessments by international experts helped to break the secrecy surrounding the negotiations. Then when Uruguay entered the TISA negotiations in February [2015] social movements were able to launch a public awareness campaign that gave rise to ongoing public debate in the media.

The Stop TISA campaign was able to successfully lobby and engage the government on the issue. It exposed the negative effects that Uruguay’s participation in the trade deal would have on key government policies in health and education, as well as the role of the State to address inequality.

For example, TISA attempts to transform healthcare into a tradable commodity would “raise health care costs in developing countries and lower quality in developed countries,”  according to Dr. Odile Frank of Public Services International.

Building a strong coalition of social movements and non-profits  against TISA enabled a popular opposition to the agreement to grow rapidly across diverse sections of society, from doctors to train drivers. The Workers’ Trade Union Federation of Uruguay (PIT-CNT) played a crucial role in organizing mass mobilization. Thousands marching in the streets and a general strike against TISA increased pressure on the government and led it to walk away from the deal.

Stopping TISA in its tracks is a huge victory for the Uruguayan people and their fight for a more just and sustainable future. It is time for all other countries involved in the negotiation to do the same and end this bad trade deal.

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Down, Down Goes Income

The Federal Reserve has announced that it is holding off on an interest rate hike; the last time it raised rates was in 2006.  The reason for the lack of action: the Federal Reserve believes the economy remains fragile and, since inflation remains low, it doesn’t want to do anything that might bring the expansion to a halt.

In reality our economic problems go much deeper than slow growth and economic fragility.  Bluntly said, most workers are losing ground regardless of whether the economy is in recession or expansion.

The following chart, from a New York Times article, shows the movement in real, inflation adjusted, median household income from 1999 to 2014.

income trends

The median household income was $53.657 in 2014.  That was 1.5 percent below what it was in 2013.  Perhaps even more disturbing, as the New York Times article notes:

The 2014 real median income number is 6.5 percent below its 2007, pre-crisis level. It is 7.2 percent below the number in 1999.

A middle-income American family, in other words, makes substantially less money in inflation-adjusted terms than it did 15 years ago. And there is no evidence that is reversing. . . .

The depressing data on middle-class wages is true across almost all groups based on race and age. (One exception is a 5.3 percent gain in median wages among Hispanics in 2014, though that is within the statistical margin of error and so may not be meaningful).

And there is good reason for believing that things are unlikely to improve in the near future.  As a recent study by the National Employment Law Project makes clears, real wages are continuing to fall for most workers.

The authors of the National Employment Law Project study “calculated the percentage change in real median hourly wages from 2009 to 2014 for 785 occupations, which were grouped into quintiles, each representing approximately one-fifth of total employment in 2014.”  Figure 1 shows the change in real wages for each of the five quintiles over the period.  As we can see, real median hourly wages fell across the board, with the overall median wage falling by 4 percent.

occupation 1

Figure 2 keeps the same wage groupings but shows the change in wages for both the highest (90th percentile) and lowest (10th percentile) earners in each wage quintile. As we can see, with the exception of occupations in the lowest paid quintile, the fall in wages was greater for those in the bottom percentile than for those in the top percentile.  That said, the most striking fact is that all suffered declines in real wages.

occupation 2

Steady as she goes, which seems to be the strategy of most policy-makers, is unlikely to turn things around.

Not A Happy Labor Day

Sadly most working people in the U.S. continue to lose ground despite overall economic growth.  As an Economic Policy Institute report makes clear, wage stagnation has deep roots in the workings of the economy and policies simply designed to spur growth are unlikely to change things.

Figure A from the report shows trends in economy wide net productivity and average hourly compensation for production/non-supervisory workers over the period 1948-2014.

Figure A

Productivity is a measure of the national output produced by an average hour of work.  Its increase over time highlights the potential for raising majority living standards.  Here, and in the following figure, we are actually looking at net productivity, which shows output after subtracting depreciation of plant and equipment.  The “typical” worker is represented by production/non-supervisory workers who comprise approximately 80 percent of the U.S. labor force.  Their real hourly compensation includes wages and employer-paid benefits.

The trends in Figure A show that over the period 1948 to 1973 the typical worker enjoyed gains in real compensation commensurate with the increase in productivity.  However, the situation from 1973 to 2014 is far different. In this latter period, the typical worker received little if any benefit from their contribution to increased net output.  Said differently, they suffered from wage stagnation despite a growing economy.

We can learn more about why from Figure B, which covers only the latter period.

Figure B

While Figure B has the same measure of productivity as Figure A it includes two different measures of compensation: the real average hourly and the real median hourly compensation for all workers.

Median hourly compensation is probably the variable that best captures the “typical” worker’s earnings.  It was not used in Figure A because data for this variable only dates to 1973.  Figure B shows that real median compensation for all workers has actually been trending down over the last few years of our so-called expansion.

Growing income inequality is one reason for this wage stagnation.  As we can see, there is an ever larger gap between hourly average and median compensation.  This gap reflects the fact that a growing share of labor compensation is going to a small percentage of the labor force, thus driving the average up but not the median.  This divergence between the two compensation series is not surprising since we are looking at wage trends for all workers, which means we are including the salaries paid to managers and CEOs and their earnings from stock options and bonus pay.

But, as we can also see, there still remains a widening gap between compensation and productivity even accounting for the explosion in compensation inequality.  This remaining gap is explained by two developments.  The first is that there has been a change in power relations between owners of capital and workers, which has enabled the former to shift the distribution of national income to their favor at the expense of the latter. In other words, corporations are now keeping a larger share of national income for their own use, increasingly to fund mergers, stock buy-backs, and dividend payments.

The second is the divergence between consumer and output prices.  Real labor compensation is measured relative to the prices of consumer goods and services.  Real output, the basis for the productivity calculation, is measured relative to the prices of all goods and services produced, consumer and non-consumer.  Since consumer goods prices have been rising faster than overall prices, real labor compensation grows more slowly than productivity.

The authors of the Economic Policy Institute report estimate the relative importance of these three factors in explaining the overall gap between median labor compensation and net productivity.  Over the entire 1973–2014 period, 58.9 percent of the gap was due to compensation inequality, 11.5 percent to the loss of labor’s share of income, and 29.6 percent to the price divergence.  Looking just at the period 2000-2014, the totals were 45.2 percent, 38.8 percent, and 16 percent, respectively.  The results for the latter period make clear that wage stagnation is increasingly caused by the growing strength of corporate power.

The takeaway: an end to wage stagnation will require worker organizing aimed at curtailing the power of corporations and those at the top of the income scale, who of course largely represent business interests.  The increasingly successful struggles across the country to win $15 an hour minimum wages and new rulings by the National Labor Relations Board that strengthen worker and union rights are important steps in the right direction.

Inequality Grows Worse: The Oregon Experience

The Oregon experience, as presented in the following charts from the Oregon Center for Public Policy, provides one illustration of the skewed nature of the workings of our economy.

As we can see in the chart below, which draws on state tax records, the average inflation-adjusted income of the state’s top 1 percent income earners has soared since the 1980s.  By contrast the state’s real median income actually declined over the same period.

one percent

In case you are wondering, one had to make at least $336,420 in 2013, the year with the most recent data, to be in the top group; the group’s average income that year was $770,000.  The median income in 2013 was $32,537, which was approximately $141 less than in 1980 adjusted for inflation.

Moreover, while the average income of the top group rose by $80,697 over the period 2009 to 2013, median income actually fell by $388 over the same time period.  In other words the average worker has not benefited from the post-2009 expansion.

Even this picture of inequality understates the extent of the problem.  Next we see the rise in the income of the top 1/10 of 1 percent compared to the rest of the top 1 percent.

one tenth percent

It took about $1.3 million in 2013 to make the top group.  The average income of the top one-tenth of 1 percent was approximately $3.1 million.

Can we put a rough price tag on the cost of this inequality?  The Oregon Center for Public Policy had this to say:

In 1980, the median household income was about 10 percent of the average income of the top 1 percent.  By 2013, because the top 1 percent had such big gains, the median household income had shrunk to just four percent of the top 1 percent’s average income.

Had income inequality remained at its 1980 level, the 2013 median income would have been $78,125 or more than twice what it actually was ($32,537).

shares

Economic analysts are now debating whether the Federal Reserve should raise interest rates to cool down the economy, as if most Americans have been enjoying a healthy recovery.  Instead we should be debating the best ways to restructure ownership and work relations to ensure an appropriate distribution of the fruits of our collective labor.