Capitalist Globalization Is Not Unwinding: TNCs Continue To Increase Their Power and Profits

The Great Recession of 2008 marked the end of a lengthy period of international economic growth and rapidly increasing international trade.  Now, some ten years later, economic activity, including trade and foreign direct investment, remains far below pre-crisis levels with little sign of revival.  In fact, with growth falling in Europe and Japan, and many third world countries struggling to deal with ever larger trade deficits and worsening currency instability, the weak recovery is likely on its last legs.

Some analysts now question whether the transnational corporate created globalization system, which the United Nations Conference on Trade and Development (UNCTAD) calls hyperglobalization, is in the process of unwinding.  While real tensions, compounded by US-initiated trade conflicts, do exist, UNCTAD’s 2018 Trade and Development Report provides evidence showing that the system still serves the interests of the core country transnational corporations that established it and they continue to strengthen their hold over it.

Global trends: slowing growth and international trade

As panel A in the figure below shows, the years 1986 to 2008 were marked by strong global growth and export activity, with so-called “developing countries” accounting for a significant share of both, thanks to the spread of Asian-centered, cross-border production networks under the direction of core country transnational corporations. It also shows the decline in global growth and tremendous contraction in trade in the post-crisis period, 2008 to 2016.

It is this contraction in global trade, along with the decline in foreign direct investment, that has fueled discussion about the future of the current system of globalization, and whether it is unwinding.  However, trends in the export elasticity of economic output, illustrated in Panel B, are an important indicator that the system is evolving, not fraying, and in ways that benefit core country transnational corporations.

The export elasticity is a way of measuring the effect of exports on national economic activity; the greater the elasticity the more responsive national production is to exports.  What we see in Panel B is that the export elasticity of developed countries rose in the post-crisis period, while that of developing countries continued its downward trend.  This trend highlights the fact that core country transnational corporations continue to craft new ways to capture an ever-greater share of the value created by their production networks, and more often than not, at the expense of working people in both developed and developing countries.

Transnational corporate gains

Exports are dominated by large companies, overwhelmingly transnational corporations.  As the authors of the Trade and Development Report explain:

recent evidence from aggregated firm-level data on goods exports (excluding the oil sector, as well as services) shows that, within the very restricted circle of exporting firms, the top 1 per cent accounted for 57 per cent of country exports on average in 2014. Moreover, while the share of the top 5 per cent exceeded 80 per cent of country export revenues on average, the top 25 per cent accounted for virtually all country exports.

Moreover, as we can see in the figure below, the share of exports controlled by the top 1 percent of developed country and of G20 firms has actually grown in the post-crisis period.

Studies cited by the Trade and Development Report found that concentration is even greater than the above figures suggest. One found that “the 5 largest exporting firms account, on average, for 30 per cent of a country’s total exports.” Another concluded that “in 2012, the 10 largest exporting firms in each country accounted, on average, for 42 per cent of a country’s total exports.”

The next figure looks at earnings for a group composed of the 2000 largest transnational corporations, a group that includes firms from all sectors.  Not surprisingly, their earnings closely track global trade and have recently declined in line with the downturn in world trade.  However, as the table that follows makes clear, that is not true as far as their rate of profit is concerned.  It has actually been higher in the post-crisis period.

In other words, despite a slowdown in world trade, the top transnational corporations have found ways to boost what matters most to them, their rate of profit.  Thus, it should come as no surprise that transnational capital remains invested in the global system of accumulation it helped shape.

Transnational capital strengthens its hold over the system

A powerful indicator of transnational capital’s continuing support for the existing system is the steady increase, as highlighted in the figure below, in new trade and investment agreements between countries of the so-called “north” and “south.”  These agreements anchor the existing system of globalization and, while negotiated by governments, they obviously reflect corporate interests.

In fact, these new agreements have played an important role in boosting the profitability of transnational corporate operations.  That is because they increasingly include new policy areas that include “increased legal pro­tection of intellectual property and the broadening scope for intangible intra-firm trade.”  This development has allowed core country transnational corporations to secure greater protection and thus payment for use of intangible assets such as patents, trademarks, rights to design, corporate logos, and copyrights from the subcontracted or licensed firms that produce for them in the third world.  These new agreements have also made it easier for them to shift their earnings from higher-tax to lower-tax jurisdictions since the geographical location of services from most intangible assets “can be determined by firms almost at will.”

According to the authors of the Trade and Development Report,

Returns to knowledge-intensive intangible assets proxied by charges for the use of foreign [intellectual property rights] IPR rose almost unabated throughout the [global financial crisis] and its after­math, even as returns to tangible assets declined. At the global level, charges (i.e. payments) for the use of foreign IPR rose from less than $50 billion in 1995 to $367 billion in 2015. . . . a growing share of these charges represent payments and receipts between affiliates of the same group, often merely intended to shift profit to low-tax jurisdictions. Recent leaks from fiscal authorities, banks, audit and consulting or legal firms’ records, revealing corporate tax-avoidance scandals involv­ing large TNCs, have made clear why major offshore financial centers (such as Ireland, Luxembourg, the Netherlands, Singapore or Switzerland) that account for a tiny fraction of global production, have become major players in terms of the use of foreign IPR.

The growing use of this tax avoidance strategy by US transnational corporations, as captured in the figure below, highlights its strategic value to transnational capital.

Social costs continue to grow

The globalization process launched in the late 1980s transformed and knitted together national economies in ways that generated growth but also serious global trade and income imbalances that eventually led to the 2008 Great Recession.  The weak post-crisis recovery in global economic activity is a result of the fact that without the massive debt-based consumption by the US that helped temporarily paper over past imbalances, the globalized system is unable to overcome its structural tensions and contradictions.

However, as we have seen, transnational capital has still found ways to boost its profitability.  Unfortunately, but not surprisingly, their success has only intensified competitive pressures on working people, raising the costs they must pay to maintain the system.  An UNCTAD press release for the Trade and Development Report emphasizes this point:

Empirical research in the report suggests that the surge in the profitability of top transnational corporations, together with their growing concentration, has acted as a major force pushing down the global income share of labor, thus exacerbating income inequality.

It is of course impossible to predict the future.  A new crisis might explode unexpectedly, disrupting existing patterns of global production.  Or workers in one or more countries might force a national restructuring, triggering broader changes in the global economy.

What does seem clear is that current economic problems have not led to the unwinding of what UNCTAD calls hyperglobalization.  In fact, the Trade and Development Report finds that “many advanced countries have since 2008 abandoned domestic sources of growth for external ones.”  The current system of globalization was structured to benefit transnational capital, and they continue to profit from its operation.  Unless something dramatic happens, we can expect that they will continue to use their extensive powers to maintain it.

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A Critical Look at China’s One Belt, One Road Initiative

China’s growth rate remains impressive, even if on the decline. The country’s continuing economic gains owe much to the Chinese state’s (1) still considerable ability to direct the activity of critical economic enterprises and sectors such as finance, (2) commitment to policies of economic expansion, and (3) flexibility in economic strategy.  It appears that China’s leaders view their recently adopted One Belt, One Road Initiative as key to the country’s future economic vitality.  However, there are reasons to believe that this strategy is seriously flawed, with working people, including in China, destined to pay a high price for its shortcomings.

Chinese growth trends downward

China grew rapidly over the decades of the 1980s, 1990s, and 2000s with production and investment increasingly powered by the country’s growing integration into regional cross-border production networks.  By 2002 China had become the world’s biggest recipient of foreign direct investment and by 2009 it had overtaken Germany to become the world’s biggest exporter.  Not surprisingly, the Great Recession and the decline in world trade that followed represented a major challenge to the county’s export-oriented growth strategy.

The government’s response was to counter the effects of declining external demand with a major investment program financed by massive money creation and low interest rates. Investment as a share of GDP rose to an all-time high of 48 percent in December 2011 and remains at over 44 percent of GDP.

But, despite the government’s efforts, growth steadily declined, from 10.6% in 2010 to 6.7% in 2016, before registering an increase of 6.9% in 2017.  See the chart below. Current predictions are for a further decline in 2018.

Beginning in 2012, the Chinese government began promoting the idea of a “new normal”— centered around a target rate of growth of 6.5%. The government claimed that the benefits of this new normal growth rate would include greater stability and a more domestically-oriented growth process that would benefit Chinese workers.

However, in contrast to its rhetoric, the state continued to pursue a high grow rate by promoting a massive state-supported construction boom tied to a policy of expanded urbanization.  New roads, railways, airports, shopping centers, and apartment complexes were built.

As might be expected, such a big construction push has left the country with excess facilities and infrastructure, highlighted by a growing number of ghost towns.  As the South China Morning Post describes:

Six skyscrapers overlooking a huge, man-made lake once seemed like a dazzling illustration of a city’s ambition, the transformation of desert on the edge of Ordos in Inner Mongolia into a gleaming residential and commercial complex to help secure its future prosperity.

At noon on a cold winter’s day the reality seemed rather different.

Only a handful of people could be seen entering or exiting the buildings, with hardly a trace of activity in the 42-storey skyscrapers.

The complex opened five years ago, but just three of its buildings have been sold to the city government and another is occupied by its developer, a bank and an energy company. The remaining two are empty – gates blocked and dust piled on the ground.

Ordos, however, was just one project in China’s rush to urbanize. The nation used more cement in the three years from 2011 to 2013 than the United States used in the entire 20th century. . . .

Other mostly empty ghost towns can be found across China, including the Yujiapu financial district in Tianjin, the Chenggong district in Kunming in Yunnan and Yingkou in Liaoning province.

This building boom was financed by a rapid increase in debt, creating repayment concerns. Corporate debt in particular soared, as shown below, but local government and household debt also grew substantially.

The boom also caused several industries to dramatically increase their scale of production, creating serious overcapacity problems.   As the researcher Xin Zhang points out:

Over the past decade, scholars and government officials have held a stable consensus that “nine traditional industries” in China are most severely exposed to the excess capacity problem: steel, cement, plate glass, electrolytic aluminium, coal, ship-building, solar energy, wind energy and petrochemical. All of these nine sectors are related to energy, infrastructural construction and real estate development, reflecting the nature of a heavily investment-driven economy for China.

Not surprisingly, this situation has also led to a significant decline in economy-wide rates of return.  According to Xin Zhang:

despite strong overall growth performance, the capital return rate of the Chinese economy has started to be on a sharp decline recently. Although the results vary by different estimation methods, research in and outside China points out a recent downward trend. For example, two economists show that all through the 1980s and the first half of the 1990s, the capital return rate of the Chinese economy had been relatively stable at about 0.22, much higher than the US counterpart. However, since the mid-1990s, the capital return rate experienced more ups and downs, until the dramatic drop to about 0.14 in 2013.  Since then, the return to capital within Chinese economy has decreased even further, creating the phenomenon of a “capital glut”.

In other words, it was becoming increasingly unlikely that the Chinese state could stabilize growth pursuing its existing strategy.   In fact, it appears that many wealthy Chinese have decided that their best play is to move their money out of the country.  A China Economic Review article highlights this development:

Since 2015, the specter of capital flight has been haunting the Chinese economy. In that year, faced with the threat of a currency devaluation and an aggressive anti-corruption campaign, investors and savers began moving their wealth out of China. The outflow was so large that the central bank was forced to spend more than $1 trillion of its foreign exchange reserves to defend the exchange rate.

The Chinese government was eventually able to dam up the flow of capital out of its borders by imposing strict capital controls, and China’s balance of payments, exchange rate and foreign currency reserves have all stabilized. But even the largest dam cannot stop the rain; it can only keep water from flowing further downstream. There are now several signs that the conditions that originally led to the first massive wave of capital flight have returned. The strength of China’s capital controls might soon be put to the test.

Chinese leaders were not blind to the mounting economic difficulties. Limits to domestic construction were apparent, as was the danger that unused buildings and factories coupled with excess capacity in key industries could easily trigger widespread defaults on the part of borrowers and threaten the stability of the financial sector. Growing labor activism on the part of workers struggling with low salaries and dangerous working conditions added to their concern.

However, despite earlier voiced support for the notion of a “new normal” growth tied to slower but more worker-friendly and domestically-oriented economic activity, the party leadership appears to have chosen a new strategy, one that seeks to maintain the existing growth process by expanding it beyond China’s national borders: its One Belt and One Road Initiative.

The One Belt, One Road Initiative

Xi Jinping was elected President by the National People’s Congress in 2013.  And soon after his election, he announced his support for perhaps the world’s largest economic project, the One Belt, One Road Initiative (BRI).  However, it was not until 2015, after consultations between various commissions and Ministries, that an action plan was published and the state aggressively moved forward with the initiative.

The initial aim of the BRI was to link China with 70 other countries across Asia, Africa, Europe, and Oceania.  There are two parts to the initial BRI vision: The “Belt”, which seeks to recreate the old Silk Road land trade route, and the “Road,” which is not actually a road, but a series of ports creating a sea-based trade route spanning several oceans. The initiative was to be given form through a number of separate but linked investments in large-scale gas and oil pipelines, roads, railroads, and ports as well as connecting “economic corridors.” Although there is no official BRI map, the following provides an illustration of its proposed territorial reach.

One reason that there is yet no official BRI map is that the initiative has continued to evolve.  In addition to infrastructure it now includes efforts at “financial integration,” “cooperation in science and technology,”, “cultural and academic exchanges,” and the establishment of trade “cooperation mechanisms.”

Moreover, its geographic focus has also expanded.  For example, in September 2018, Venezuela announced that the country “will now join China’s ambitious New Silk Road commercial plan which is allegedly worth U.S. $900 billion.”  Venezuela follows Uruguay, which was the first South American country to receive BRI funds.

Xi’s initiative did not come out of the blue.  As noted above, Chinese economic growth had become ever more reliant on foreign investment and exports.  And, in support of the process, the Chinese government had used its own foreign investment and loans to secure markets and the raw materials needed to support its export activity.  In fact, Chinese official aid to developing countries in 2010 and 2011 surpassed the value of all World Bank loans to these countries.  China’s leading role in the creation of the BRICs New Development Bank, Asia Infrastructural Investment Bank and the proposed Shanghai Cooperation Organization Bank demonstrates the importance Chinese leaders place on having a more active role in shaping regional and international economic activity.

But, the BRI, if one is to take Chinese state pronouncements at their word, appears to have the highest priority of all these efforts and in fact serves as the “umbrella project” for all of China’s growing external initiatives.  In brief, the BRI appears to represent nothing less than an attempt to solve China’s problems of overcapacity and surplus capital, declining trade opportunities, growing debt, and falling rates of profit through a geographic expansion of China’s economic activity and processes.

Sadly this effort to sustain the basic core of the existing Chinese growth model is far from worker friendly. The same year that the BRI action plan was published, the Chinese government began a massive crackdown on labor activism.  For example, in 2015 the government launched an unprecedented crackdown on several worker-centers operating in the southern part of the country, placing a number of its worker-activists in detention centers. This move coincided with renewed repression of the work of worker-friendly journalists and activist lawyers.  The Financial Times noted that these actions may well represent “the harshest crackdown against organized labor by the Chinese authorities in two decades.”

And attacks against workers and those who support them continue.  A case in point: in August of this year, police in riot gear broke into a house in Huizhou occupied by recent graduates from some of China’s top universities who had come to the city to support worker organizing efforts. Some 50 people were detained; 14 remain in custody or under house arrest.

A flawed strategy                                            

To achieve its aims, the BRI has largely involved the promotion of projects that mandate the use of Chinese enterprises and workers, are financed by loans that host countries must repay, and either by necessity or design lead to direct Chinese ownership of strategic infrastructure.  For example, the Center for Strategic Studies recently calculated that approximately 90% of Belt and Road projects are being built by Chinese companies.

While BRI investments might temporarily help sustain key Chinese industries suffering from overcapacity, absorb surplus capital, and boost enterprise profit margins, they are unlikely to serve as a permanent fix for China’s growing economic challenges; they will only push off the day of reckoning.

One reason for this negative view is that in the rush to generate projects, many are not financially viable.  Andreea Brinza, writing in Foreign Policy, illustrates this problem with an examination of European railway projects:

If one image has come to define the Belt and Road Initiative (BRI), China’s ambitious, amorphous project of overseas investment, it’s the railway. Every few months or so, the media praises a new line that will supposedly connect a Chinese city with a European capital. Today it’s Budapest. Yesterday it was London. They are the newest additions to China’s iron network of transcontinental railway routes spanning Eurasia. But the vast majority of these routes are economically pointless, unlikely to operate at a profit, and driven far more by political need than market demand. . . .

Chongqing-Duisburg, Yiwu-London, Yiwu-Madrid, Zhengzhou-Hamburg, Suzhou-Warsaw, and Xi’an-Budapest are among the more than 40 routes that now connect China with Europe. Yet out of all these, only Chongqing-Duisburg, connecting China with Germany, was created out of a genuine market need. The other routes are political creations by Beijing to nourish its relations with European states like Poland, Hungary, and Britain.

The Chongqing-Duisburg route has been described as a benchmark for the “Belt,” the part of the project that crosses Eurasia by land. (The “Road” is a series of nominally linked ports with little coherence.) But paradoxically enough, the Chongqing-Duisburg route was created before Chinese President Xi Jinping announced what has become his flagship project, then “One Belt, One Road” and now the BRI. It was an existing route reused and redeveloped by Hewlett-Packard and launched in 2011 to halve the time it took for the computing firm’s laptops to reach Europe from China by sea. . . .

Unlike the HP route, in which trains arrived in Europe full of laptops and other gadgets, the containers on the new routes come to Europe full of low-tech Chinese products — but they leave empty, as there’s little worth transporting by rail that Chinese consumers want. With only half the route effectively being used, the whole trip often loses money. For Chinese companies that export toys, home products, or decorations, the maritime route is far more profitable, because it comes at half the price tag even though it’s slower.

The Europe-China railroads are unproductive not only because of the transportation price, as each container needs to be insulated to withstand huge temperature differences, but also because Russia has imposed a ban on both the import and the transport of European food through its territory. Food is one of the product categories that can actually turn a profit on a Europe-China land run — without it, filling China-bound containers isn’t an easy job. For example, it took more than three months to refill and resend to China a train that came to London from Yiwu, although the route was heavily promoted by both a British government desperate for post-Brexit trade and a Chinese one determined to talk up the BRI.

Today, most of the BRI’s rail routes function only thanks to Chinese government subsidies. The average subsidy per trip for a 20-foot container is between $3,500 and $4,000, depending on the local government. For example, Chinese cities like Wuhan and Zhengzhou offer almost $30 million in subsidies every year to cargo companies. Thanks to this financial assistance, Chinese and Western companies can pay a more affordable price per container. Without subsidies, it would cost around $9,000 to send a 20-foot container by railway, compared with $5,000 after subsidies. Although the Chinese government is losing money on each trip, it plans to increase the yearly number of trips from around 1,900 in 2016 to 5,000 cargo trains in 2020.

Another reason to doubt the viability of the BRI is that a growing number of countries are becoming reluctant to participate because it means that they will have to borrow funds for projects that may or may not benefit the country and/or generate the foreign exchange necessary to repay the loans.  As a result, the actual value of projects is far less than reported in the media.  Thomas S. Eder and Jacob Mardell make this point in their discussion of BRI activities with 16 Central and Eastern European countries (the 16+1):

Numbers on Chinese investment connected to the Belt and Road Initiative tend to be inflated and misleading. Only a fraction of the reported sums is connected to actual infrastructure projects on the ground. And most of the projects that are underway are financed by Chinese loans, exposing debt-ridden governments to additional risks. . . .

Depending on the source, BRI is called either a 900 billion USD or an up to 8 trillion USD global initiative. Yet only a fraction of the lower number is backed up by actual projects on the ground. BRI investments in 16+1 countries are similarly plagued by confusion over figures and a tendency towards inflation.

Media reports often arrive at their figures for the sum of “deals announced” by collating planned projects based on vague Memoranda of Understanding (MoUs) and expressions of interest by Chinese companies. Many parties share an interest to push Belt and Road-related figures upwards: local officials in BRI target countries like to impress constituencies, journalists like to capture readers, and Chinese officials are keen to cultivate the hype surrounding BRI.

The Banja Luka – Mlinište Highway in Bosnia Herzegovina, for example, is strongly associated with 16+1 investment. Sinohydro signed a preliminary agreement on implementing the project in 2014, for 1.4 billion USD, and this figure was then widely reported in English-language media. Four years later, though, final approval for an Export-Import Bank loan financing the highway section was still pending. This highway is actually one of the projects emerging in the region that we have fairly good information on, but the preliminary nature of the agreement is not reflected in media reports on the project.

Also in 2014, China Huadian signed an agreement on the construction of a 500MW power station in Romania, reportedly for 1 billion USD. Talks faltered, appeared to resume in 2017, and there has been no progress reported since. It is unclear whether and when this project will materialize, but it is the sort of “deal” counted by those totting up the value of Chinese investment in 16+1 countries. An even larger figure – 1.3 billion – was reported in connection with Kolubara B, though it was later claimed that a cooperation agreement with Italian company Edison had already been signed, three years prior to the expression of interest by Sinomach.

Another important point is that Chinese “investment” in the region – and this very clearly emerges from the MERICS database – often refers to concessional loans from Chinese policy banks. This is financing that needs to be paid back, with interest, whether the project delivers commensurate economic benefits or not.

As with Belt and Road projects elsewhere in the world, loans made by Beijing to CEE countries create potential for financial instability. Smaller countries, which might lack the institutional capacity to assess agreements (such as risks associated with currency fluctuation), are particularly vulnerable.

The Bar-Boljare motorway in Montenegro illustrates this point. It is being built by the China Road and Bridge Corporation (CRBC) with an 809 million EUR loan from Exim Bank. The IMF claims that, without construction of the highway, Montenegro’s debt would have declined to 59% of GDP, rather than rising to 78% of GDP in 2019. It warns that continued construction of the highway “would again endanger debt sustainability.”

The motorway is typical of many BRI projects in that it is being built by a Chinese state-owned company, using mostly Chinese workers and materials, and with a loan that the Montenegrin government must pay back, but which a Chinese policy bank will earn interest on. On top of this, Chinese contractors working on the highway are exempt from paying VAT or customs duties on imported materials.

Because of these investment requirements, many countries are either canceling or scaling back their BRI projects.  The South China Morning Post recently reported that the Malaysian government decided to:

cancel two China-financed mega projects in the country, the US$20 billion East Coast Rail Link and two gas pipeline projects worth US$2.3 billion. Malaysian Prime Minister said his country could not afford those projects and they were not needed at the moment. . . .

Indeed, Mahathir’s decision is just the latest setback for the plan, as politicians and economists in an increasing number of countries that once courted Chinese investments have now publicly expressed fears that some of the projects are too costly and would saddle them with too much debt.

Myanmar is, as Reuters reports, one of those countries:

Myanmar has scaled back plans for a Chinese-backed port on its western coast, sharply reducing the cost of the project after concerns it could leave the Southeast Asian nation heavily indebted, a top government official and an advisor told Reuters.

The initial $7.3 billion price tag on the Kyauk Pyu deepwater port, on the western tip of Myanmar’s conflict-torn Rakhine state, set off alarm bells due to reports of troubled Chinese-backed projects in Sri Lanka and Pakistan, the official and the advisor said.

Deputy Finance Minister Set Aung, who was appointed to lead project negotiations in May, told Reuters the “project size has been tremendously scaled down”.

The revised cost would be “around $1.3 billion, something that’s much more plausible for Myanmar’s use”, said Sean Turnell, economic advisor to Myanmar’s civilian leader, Aung San Suu Kyi.

A third reason for doubting the viability of the BRI to solve Chinese economic problems is the building political blowback from China’s growing ownership position of key infrastructure that is either the result of, or built into, the terms of its BRI investment activity.  An example of the former outcome: the Sri Lankan government was forced to hand over the strategic port of Hambantota to China on a 99-year lease after it could not repay its more than $8 billion in loans from Chinese firms.

Unfortunately, Africa offers many examples of both outcomes, as described in a policy brief survey of China-Africa BRI activities:

In BRI projects, Chinese SOEs overseas are moving away from ‘turnkey’ engineering, procurement, and construction (EPC) projects, towards longer term Chinese participation as managers and stakeholders in running projects. China Merchants Holding, which constructed the new multipurpose port and industrial zone complex in Djibouti, is also a stakeholder and will be jointly managing the zone, in a consortium with Djiboutian port authorities, for ten years. Likewise, SOE contractors for new standard gauge railway projects in Ethiopia and Kenya will also be tasked with railway maintenance and operations for five to ten years after construction is completed. . . .

Beyond transportation, the BRI is spurring expansion of digital infrastructure through an “information silk road”. This is an extension of the ‘going out’ of China’s telecommunications companies, including private mobile giants Huawei and ZTE, who have constructed a number of telecommunications infrastructure projects in Africa, but also the expansion of large SOEs such as China Telecoms. China Telecoms has established a new data center in Djibouti that will connect it to the company’s other regional hubs in Asia, Europe, and to China, and potentially facilitate the development of submarine fibre cable networks in East Africa. . . .

Countries linked to the BRI, including Morocco, Egypt, and Ethiopia, have also been singled out [as] ‘industrial cooperation demonstration and pioneering countries’ and ‘priority partners for production capacity cooperation countries’; these countries have seen a rapid expansion of Chinese-built industrial zones, presaging not only greater trade but also industrial investment from China. . . .

However, the rapid expansion in infrastructure credit that the BRI offers also brings significant risks. Many of these large infrastructure projects are supported through debt -based finance, raising questions over African economies’ rising debt levels and its sustainability. For resource-rich economies, low commodity values have strained government revenues and precipitated exchange rate crises—both of which constrain a government’s ability to repay external borrowing.

In Tanzania, the BRI-associated Bagamoyo Deepwater Port was suspended by the government in 2016 due to lack of funds. The port was originally a joint investment between Tanzanian and Chinese partners China Merchants Holding, which would construct the port and road infrastructure, along with a special economic zone. While project construction has continued, funding constraints have meant that the government has had to forego its equity stake. This represents a case where African governments may risk losing ownership of projects, as well as the long-term revenues they bring.

Adding to political tensions is the fact that many BRI projects “displace or disrupt existing communities or sensitive ecological areas.”   It is no wonder that China has seen a rapid growth in the number of private security companies that serve Chinese companies participating in BRI projects.  In the words of the Asia Times, these firms are:

described as China’s ‘Private Army.’ Fueled by growing demand from domestic companies involved in the multi-trillion-dollar Belt and Road Initiative, independent security groups are expanding in the country.

In 2013, there were 4,000-registered firms, employing more than 4.3 million personnel. By 2017, the figure had jumped to 5,000 with staff numbers hovering around the five-million mark.

What lies ahead?

The reasons highlighted above make it highly unlikely that the BRI will significantly improve Chinese long-term economic prospects.  Thus, it seems likely that Chinese growth will continue to decline, leading to new internal tensions as the government’s response to the BRI’s limitations will likely include new efforts to constrain labor activism and repress wages.  Hopefully, the strength of Chinese resistance to this repression will create the space for meaningful public discussion of new options that truly are responsive to majority needs.

The US Is A World Leader In Income and Wealth Inequality

A recent article published in the American Economic Review, “Global Inequality Dynamics: New Findings from WID.world,” draws upon the World Wealth and Income Database to examine trends in global inequality.

Two main takeaways:

  • US economic dynamics have greatly enriched those at the top at the expense of the great majority.
  • Chinese elites, thanks to China’s post-Mao capitalist transformation, are hard at work replicating US patterns of inequality.

While US and Chinese political leaders threaten each other with talk of trade wars, there has certainly been a lot of win-win for those at the top in both countries.

Income inequality

Figure 1, below, highlights the sharp rise in the income share of the top 1 percent and the sharp fall in the income share of the bottom 50 percent in the United States.  It also shows that while China’s elite have also found globalization dynamics beneficial, especially after the country’s 2001 entrance into the WTO, their relative income position has changed little since the Great Recession.  Perhaps most striking is the steady fall in the income share going to the bottom 50 percent of Chinese since the late 1970s start of the country’s process of marketization and privatization.  In contrast to both countries, income shares in France have been remarkably stable.

As shown in Table 1, real income growth for those at the top is positively correlated with earnings—the greater the income, the greater the percentage gain. Things were not so positive for the bottom 50 percent in the US, as the group actually lost income over the period despite overall economic growth.

In the case of China, it appears that growth was so great over the period 1978 to 2015, that even the bottom 50 percent benefited, with that group’s income growing by 401 percent.  However, that figure needs to be treated with caution.  Before the reform period, most Chinese workers earned low salaries but that was balanced by the fact that the Chinese government provided them with a vast array of goods and services at little or no cost.  Everything changed with the country’s capitalist transformation.  Thus, while Chinese workers now earn far more money from their work than in the past, their costs for housing, health care, food, transportation, education, and the like, has also soared.  As a result, income gains for most Chinese likely overstate the benefits they have received from their country’s high rates of growth.

Privatization and concentration of wealth

The article also highlighted trends in the share of private wealth.  As the authors comment:

We observe a general rise of the ratio between net private wealth and national income in nearly all countries in recent decades. It is striking to see that this phenomenon was largely unaffected by the 2008 financial crisis. The unusually large rise of the ratio for China is notable: net private wealth was a little above 100 percent of national income in 1978, while it is above 450 percent in 2015. The private wealth-income ratio in China is now approaching the levels observed in the United States (500 percent), United Kingdom, and France (550–600 percent).

Figure 2 illustrates trends in the share of public wealth in national wealth. China’s downward trend reflects the country’s capitalist transformation, which has led to an increase in the share of national wealth in private hands.  More striking is the fact that “Net public wealth has become negative in the United States, Japan, and the United Kingdom, and is only slightly positive in Germany and France.”

Figure 3 reveals a sharp and sustained rise in the share of wealth held by the top 1 percent in the United States and China in recent decades, and more moderate increases in France and the United Kingdom.

It remains to be seen whether these trends in income and wealth inequality will continue. The fact that inequality trends in France differ greatly from those in the US and China strongly suggests that while capitalist globalization exerts a strong pull in favor of the rich and powerful everywhere, national institutions and relations of power also matter.  And that means that future developments will likely depend heavily on the actions of workers in the US and China, the two countries whose accumulation dynamics appear to exert the strongest force on the international economy.

US Health Care: Profits Over People

The US health care system produces healthy profits while leaving growing numbers of people without access to affordable, quality health care.

The US is one of the only advanced capitalist countries without a system of universal health coverage.  Tens of millions are uninsured, and many millions more pay for insurance that is either too limited in its coverage or too expensive to use.  What we need, and could implement if political realities change, is a “Medicare for all,” single-payer system of national health insurance.

As the organization Physicians for a National Health Program explains:

Single-payer national health insurance, also known as “Medicare for all,” is a system in which a single public or quasi-public agency organizes health care financing, but the delivery of care remains largely in private hands. Under a single-payer system, all residents of the U.S. would be covered for all medically necessary services, including doctor, hospital, preventive, long-term care, mental health, reproductive health care, dental, vision, prescription drug and medical supply costs.

The program would be funded by the savings obtained from replacing today’s inefficient, profit-oriented, multiple insurance payers with a single streamlined, nonprofit, public payer, and by modest new taxes based on ability to pay. Premiums would disappear; 95 percent of all households would save money. Patients would no longer face financial barriers to care such as co-pays and deductibles, and would regain free choice of doctor and hospital. Doctors would regain autonomy over patient care.

Bad health care outcomes

Our health care system fails to deliver affordable, accessible, quality health care. Even a writer for Forbes magazine, a publication that proclaims itself to be a “capitalist tool,” acknowledges this:

It’s fairly well accepted that the U.S. is the most expensive healthcare system in the world, but many continue to falsely assume that we pay more for healthcare because we get better health (or better health outcomes). The evidence, however, clearly doesn’t support that view.

For example, take a look at the exhibit below, which comes from a 2014 Commonwealth Fund study on health care in the eleven listed nations.

As you can see, the US ranked last in the overall ranking, thanks to its relative poor performance in the category of access and last place standing in the categories of efficiency, equity, and healthy lives.

The Forbes article summarizes the reasons given by the Commonwealth Fund for the poor US performance:

Access: Not surprisingly — given the absence of universal coverage — people in the U.S. go without needed health care because of cost more often than people do in the other countries.

Efficiency: On indicators of efficiency, the U.S. ranks last among the 11 countries, with the U.K. and Sweden ranking first and second, respectively. The U.S. has poor performance on measures of national health expenditures and administrative costs as well as on measures of administrative hassles, avoidable emergency room use, and duplicative medical testing.

Equity: The U.S. ranks a clear last on measures of equity. Americans with below-average incomes were much more likely than their counterparts in other countries to report not visiting a physician when sick; not getting a recommended test, treatment, or follow-up care; or not filling a prescription or skipping doses when needed because of costs. On each of these indicators, one-third or more lower-income adults in the U.S. said they went without needed care because of costs in the past year.

Healthy lives: The U.S. ranks last overall with poor scores on all three indicators of healthy lives — mortality amenable to medical care, infant mortality, and healthy life expectancy at age 60. Overall, France, Sweden, and Switzerland rank highest on healthy lives.

What accounts for this outlier status in health care?  According to the report:

The most notable way the U.S. differs from other industrialized countries is the absence of universal health insurance coverage. Other nations ensure the accessibility of care through universal health systems and through better ties between patients and the physician practices that serve as their medical homes.

A Guardian article on the US health care system provides further confirmation of US outlier status:

Broadly speaking, the World Health Organization (WHO) defines universal health coverage as a system where everyone has access to quality health services and is protected against financial risk incurred while accessing care. . . . Among the 35 OECD member countries, 32 have now introduced universal healthcare legislation that resembles the WHO criteria.

And yet we pay the most

The graphic below, from the Guardian article, provides a stark picture of just how much we pay to get our poor health care outcomes.

Significantly, it was in the early 1980s that our per capita health care spending began to soar compared with all other developed capitalist countries, a period marked by the government’s growing embrace of pro-market, neoliberal policies designed to promote corporate profitability. And as the graphic also makes clear, we have seen limited gains in life expectancy despite dramatically outspending the other listed developed countries.

So what gives?

So, you might ask, where is all the money we spend on health care going if not to improve our health care outcomes?  Well, the answer is simple: higher profits for the health care industry.

The headline of a New York Times article says it all: “Gripes About Obamacare Aside, Health Insurers Are in a Profit Spiral.”  As a result:

Since March 2010, when the Affordable Care Act was signed into law, the [stock prices of] managed care companies within the Standard & Poor’s 500-stock index — UnitedHealth, Aetna, Anthem, Cigna, Humana and Centene — have risen far more than the overall stock index. This is no small matter: The stock market soared during that period.

The numbers are astonishing. The Standard & Poor’s stock index returned 135.6 percent in those seven years through Thursday, a performance that we may not see again in our lifetimes. But the managed care stocks, as a whole, have gained nearly 300 percent including dividends, according to calculations by Bespoke Investment Group.

These and other leading health care corporations oppose a Medicare for all system because its adoption would put an end to their massive profits.  And these companies have many allies in the rest of the corporate community because any policy that strengthens the principle of putting people before profits is a threat to them all.

Hopefully, however, the importance of health care and the obviously poor performance of our health care system as a health care system (as opposed to a profit center) will motivate people to keep pressing for real change.  And, who knows, a health care victory might also encourage a broader public discussion about how best to organize the rest of our economy.

Unions Fight Inequality

The decline in unionization is one of the most important factors promoting the concentration of income at the upper end of the income distribution.  The statement may not surprise you, but the fact that this was the conclusion of an IMF study of the causes of inequality might.

Here is how the authors of Inequality and Labor Market Institutions summarize their main findings:

The results indicate that the rise of inequality in the advanced economies included in this study has been driven by the upper part of the income distribution, owing largely to the increase in income shares of top 10 percent earners. We find evidence that the decline in union density—the fraction of union members in the workforce—is strongly associated with the rise of top income shares. . . . Our empirical results also indicate that unions can affect income redistribution through their influence on public policy. We further find that reductions in the minimum wage relative to the median wage are related to significant increases in inequality.

Of course, the authors of the study were quick to add: “These findings, however, should not be seen as a blanket recommendation for strengthening these labor market institutions.”

While we should never count on the IMF to promote progressive policies, the findings of the study do highlight the importance of a strong trade union movement if we want to build an economy that works for the great majority of working people.  The fact that unionization has been in decline in the great majority of the twenty advanced capitalist countries studied by the IMF researchers strongly suggests that elites know exactly what they want.

Trends in inequality and labor market institutions

Inequality has been on the rise in almost all advanced capitalist economies, with attention increasingly focused on the growing concentration of income at the top of the distribution.  Common explanations for this trend include globalization, skill-based technological change, financial deregulation, and the decline in top marginal personal tax rates.  In their study for the IMF, Florence Jaumotte and Carolina Osorio Buitron investigate whether labor market institutions, in particular the degree of unionization and relative value of minimum wage, might also be responsible.

The authors examine inequality trends in twenty advanced capitalist countries over the period 1980 to 2010 using two main measures of inequality, the income share of the top 10 percent earners and the Gini coefficient (which ranges from 0 to 1 with higher numbers showing greater inequality).  The former is most useful for capturing changes at the top of the income distribution.  The latter, because of data limitations, is better at showing changes at the middle and bottom of the income distribution.  They therefore use Gini coefficients of gross and net income to test whether the strength of labor market institutions affects redistribution.

Figure 2 below illustrates the growth in inequality in the sample of advanced capitalist economies, and the importance of income concentration at the top of the income distribution.  As the authors explain:

Gross earnings differentials between the 9th and 5th deciles of the distribution have increased over four times as much as the differential between the 5th and 1st deciles. Moreover, data from the Luxembourg Income Survey on net income shares indicate that income shares of the top 10 percent earners have increased at the expense of all other income groups.

Figure 3 looks at trends in union density and relative minimum wage values, the authors’ proxies for the strength of labor market institutions.  As we can see, the degree of unionization has fallen steadily over the period, while the decline in the relative value of the minimum wage has been far more modest.  However, national experiences differ greatly.  In the case of union density, some countries actually registered an increase while in others density declined by almost 50 percent. Interestingly, the authors find no evidence of a relationship between changes in union density and changes in the minimum wage.

Union strength reduces inequality

The authors begin their test of the relationship between labor market institutions and inequality by running simple correlations between the two.  They find

a strong negative relation between the top 10 percent income share and union density, both within and across countries. The Gini of gross income is also negatively related with union density, but the relationship is somewhat weaker and mostly present within countries. The correlation coefficients for the minimum wage and the various inequality measures are more mixed. A similar exercise suggests a positive association between union density and redistribution: while the correlation between union density and the Gini coefficient of gross income is weak, its correlation with the Gini of net income is clearly negative.

While these correlation results suggest that greater union density helps workers claw back income from those at the top and improve the overall income distribution, simple correlations are far from conclusive because they do not hold other factors that might influence the variables constant.

Therefore, the authors use sophisticated econometric methods to try and isolate the importance of labor market institutions on inequality.  Among the factors they control for are:

technology (the share of information and communications technology capital in the total capital stock); globalization (the share of China in world exports interacted with the country’s lagged level of income per capita); financial reform (the index constructed by Abiad, Detragiache, and Tressel, 2008, which varies with changes in credit controls and reserve requirements, interest rate controls, entry barriers, state ownership, securities market policies, banking regulations, and capital account restrictions); the top marginal personal income tax rate; and a banking crisis dummy variable.

The authors find, consistent with the literature, that technology, globalization, financial liberalization, and tax reductions all increase inequality, with the latter two variables positively associated with an increase in top income shares.  But they also find a significant negative relationship between union strength and inequality and income concentration:

Our benchmark estimates of gross income inequality indicate that the weakening of unions is related to increases in the top 10 percent income share. A 10 percentage point decline in union density is associated with a 5 percent increase in the top 10 percent income share. The relation between union density and the Gini of gross income is also negative and significant.

At the other end of the income distribution, the minimum wage is closely associated with the Gini coefficient of gross income but not with the top income share. A 10 percentage point decline in the ratio of the minimum wage to the median wage is related to a 5 percent increase in the Gini coefficient of gross income.

The authors then test the robustness of their results by adding additional labor market, economic, and social variables, but with little change in outcome.  Their strong conclusion remains: an increase in union density reduces the share of income going to the top 10 percent and improves the overall distribution of income.

Magnitude of the effects

The authors illustrate the relative importance union density and the minimum wage to the growth in inequality in Figure 7, below. “The height of each bar measures the contribution of a variable to the rise in inequality over the period 1980–2010—calculated as the product of the change in the variable over the period and its coefficient—averaged across countries.”

More specifically, as the authors explain:

On average, the decline in union density explains about 40 percent of the 5 percentage point increase in the top 10 percent income share (top panel). . . . By contrast, the decline in unionization contributes more modestly to the rise of the gross income Gini, reflecting the somewhat weaker relation between these variables. However, about half of the increase in the Gini of net income is explained by the decline in union density, evidencing the additional and statistically significant relation between this institution and redistribution. The decline in union density was a widespread phenomenon which, as our estimation results suggest, could be an important contributing factor to the rise in top income shares (middle panel).

Contributions of changes in the minimum wage to inequality appear close to zero on average. However, averaging its contribution across countries hides the important role the minimum wage has played in driving inequality in some countries, as its evolution has been highly heterogenous. Bottom panel in Figure 7 shows the country-specific impact of changes in the minimum wage on the Gini of gross income. In countries where the minimum wage declined the most, it accounts for about 2 percentage points of the increase in the Gini coefficient. Conversely, where the minimum wage rose substantially, it appears to have contributed to reduce the Gini coefficient by 2 percentage points. Overall, these illustrative calculations suggest that changes in labor market institutions are key drivers of the evolution of inequality, alongside other determinants.

Next steps: Movement building

Living conditions have deteriorated for majorities in most advanced capitalist countries.  The rise in inequality, driven by the ever-increasing concentration of income at the top of the distribution, is one major reason.  The IMF has laid out a clear program of action to improve things: strengthen unions and boost minimum wages.  Of course, our fight against inequality would be greatly enhanced if we also intensified our efforts to stop the advance of capitalist globalization, reverse the financialization of economic activity, and raise taxes on the wealthy.

I am not sure that we needed IMF researchers to clarify our tasks, but thanks anyway IMF!

The Sorry State Of The US Economy

Although reluctant to say it, a recent IMF report on the state of US economy makes clear that US policy makers have failed to protect majority living conditions.

When a country joins the IMF, it agrees to have its economic and financial policies evaluated, in most cases annually, by an IMF team of economists.  As the IMF explains:

The IMF’s regular monitoring of economies and associated provision of policy advice is intended to identify weaknesses that are causing or could lead to financial or economic instability. . . The consultations are known as “Article IV consultations” because they are required by Article IV of the IMF’s Articles of Agreement.

The IMF recently concluded and published a summary of its Article IV consultations with the United States.  While the IMF generally pulls no punches in criticizing the policies of most member governments if it determines that they threaten to slow capitalist globalization dynamics, it tends to tap dance around disagreements when it comes to the policies of its more powerful member countries, especially the United States.  As Adam Tooze points out in his commentary on the IMF statement:

With respect to the US, the stakes are particularly high. The US has the largest vote on the IMF’s board and Congress controls the largest part of the IMF’s budget.

Not surprisingly, then, the IMF went the extra mile in finding nice ways of talking about the state of the US economy and even more importantly the wisdom of Trump administration policies. Even so, US economic challenges could not be completely hidden.  For example, after noting that the “The U.S. economy is in its third longest expansion since 1850,” the IMF goes on to comment:

However, the outlook is clouded by important medium-term imbalances. The U.S. economic model is not working as well as it could in generating broadly shared income growth. It is burdened by a rising public debt. The U.S. dollar is moderately overvalued (by around 10-20 percent). The external position is moderately weaker than implied by medium term fundamentals and desirable policies. The current account deficit is expected to be around 3 percent of GDP over the medium-term and the net international investment position has deteriorated markedly in the past several years. Most critically, relative to historical performance, post-crisis growth has been too low and too unequal.

To address these shortcomings, the administration intends a wide-ranging overhaul of policies, although a fully articulated policy plan has yet to emerge. The administration’s budget proposes to reduce the fiscal deficit and debt, to reprioritize public spending, and to revamp the tax system. However, during the Article IV consultation it became evident that many details about these plans are still undecided. Given these policy uncertainties, the IMF’s macroeconomic forecast uses a baseline assumption of unchanged policies. Specifically, it neither builds in the effect of tax reform nor the expenditure reductions proposed in the administration’s budget. Under this forecast, growth is expected to rise modestly above 2 percent this year and next, driven by continued solid consumption growth and a cyclical rebound in private investment. Growth is forecast to subsequently converge to the underlying potential growth rate of 1.8 percent.

However, IMF concerns over an uncertain US economic outlook and an unclear Trump administration policy plan pale in importance compared to the decline in US living standards illustrated in the following chart that was also in the report.

In broad brush, the US ranking on most of the selected living standards indicators has declined, which means that the US economy is losing ground relative to the other OECD countries in the sample.  But what really cries out for notice is how low the US is on such key indicators as: life expectancy at birth, overall mortality rate, health coverage, poverty rate, and secondary school graduation.  On these indicators, the US is approaching the bottom of the group of 24.  And of course, Trump administration policies, which aim to reduce spending on Medicare and Medicaid, gut worker-protecting health and safety and labor laws, slash taxes on corporations and the wealthy, and weaken unions will only intensify downward trends.

The IMF could easily have pointed out that, because of competitiveness pressures, US policies harm the well-being of workers in other countries as well as in the US, and pressed the US government to reverse course.  But majority living standards are not the most important thing to the IMF or the US government, and that is not how consultations work.

If we want improved living conditions we are going to have to fight for them.  Perhaps greater awareness of just how bad things are in the United States will help speed the effort.

President Trump’s Hollow Job Promises

President Trump’s election success rested to a considerable degree on his pre-election attack on globalization and verbal pledge to bring manufacturing jobs back to the United States. However, as I argued in a previous post, there is no reason to believe that President Trump is serious about wanting to restrict corporate mobility or fashion new, more domestically-centered, worker-friendly trade relations.

In fact, several of his appointees to key economic policy positions are people whose past work was promoting the very globalization he criticized.

Still, there are some in the labor and progressive communities who continue to hold out hope that they can find common ground with the Trump administration on trade.  Unfortunately, it appears that these people are ignoring what we do know about the nature of existing manufacturing jobs in the globalized industries that President Trump claims he will target for restructuring.  Sadly, the experience of workers in many of those jobs reveals the hollowness of Trump’s promises to working people.

The Southern Strategy of the Automobile Industry

The automobile industry, one of the most globalized of US manufacturing industries, offers a powerful example of the dangers of thinking simply about employment numbers. As an Economic Policy Institute report describes:

Political and market pressure on Japanese and European (and later, Korean) manufacturers to reduce imports to the United States has led to a rising number of “transplants” supplying auto components and assembling autos.

Initially, the transplants operated in the Midwest, including assembly plants in Illinois (Mitsubishi), Michigan (Mazda), Ohio (Honda), and Pennsylvania (Volkswagen), along with California (Toyota’s joint venture with General Motors, now a Tesla facility). More recently, however, the growth has been in Southern states, including assembly plants in Alabama (Honda, Hyundai, and Mercedes-Benz), Georgia (Kia), Kentucky (Toyota), Mississippi (Nissan and Toyota), South Carolina (BMW and Mercedes-Benz), Tennessee (Nissan and Volkswagen), and Texas (Toyota).

As a result of these trends, the weight of motor vehicle manufacturing employment (including parts suppliers) in the United States has shifted from the Midwest to the South.  And what kind of jobs has this investment brought?  The title of a Bloomberg Businessweek article – Inside Alabama’s Auto Jobs Boom: Cheap Wages, Little Training, Crushed Limbs – sums it up all too well.

As the article explains:

Alabama has been trying on the nickname “New Detroit.” Its burgeoning auto parts industry employs 26,000 workers, who last year earned $1.3 billion in wages. Georgia and Mississippi have similar, though smaller, auto parts sectors. This factory growth, after the long, painful demise of the region’s textile industry, would seem to be just the kind of manufacturing renaissance President Donald Trump and his supporters are looking for.

Except that it also epitomizes the global economy’s race to the bottom. Parts suppliers in the American South compete for low-margin orders against suppliers in Mexico and Asia. They promise delivery schedules they can’t possibly meet and face ruinous penalties if they fall short. Employees work ungodly hours, six or seven days a week, for months on end. Pay is low, turnover is high, training is scant, and safety is an afterthought, usually after someone is badly hurt. Many of the same woes that typify work conditions at contract manufacturers across Asia now bedevil parts plants in the South.

“The supply chain isn’t going just to Bangladesh. It’s going to Alabama and Georgia,” says David Michaels, who ran OSHA for the last seven years of the Obama administration. Safety at the Southern car factories themselves is generally good, he says. The situation is much worse at parts suppliers, where workers earn about 70¢ for every dollar earned by auto parts workers in Michigan, according to the Bureau of Labor Statistics. (Many plants in the North are unionized; only a few are in the South.)

In 2014, OSHA’s Atlanta office, after detecting a high number of safety violations at the region’s parts suppliers, launched a crackdown. The agency cited one year, 2010, when workers in Alabama parts plants had a 50 percent higher rate of illness and injury than the U.S. auto parts industry as a whole. That gap has narrowed, but the incidence of traumatic injuries in Alabama’s auto parts plants remains 9 percent higher than in Michigan’s and 8 percent higher than in Ohio’s. In 2015 the chances of losing a finger or limb in an Alabama parts factory was double the amputation risk nationally for the industry, 65 percent higher than in Michigan and 33 percent above the rate in Ohio.

The article provides several stories of low paid workers forced to work in unsafe conditions who suffered devastating injuries.  “OSHA records obtained by Bloomberg document burning flesh, crushed limbs, dismembered body parts, and a flailing fall into a vat of acid. The files read like Upton Sinclair, or even Dickens.”

The Story of Reco Allen

Here is one story from the article: in 2013 Reco Allen, a 35 year old father of three, with a wife working at Walmart, took at $9 an hour job with Surge Staffing, a temp agency that provides workers to Matsu Alabama, a Honda parts supplier.  Allen sought and was given a janitorial position at Matsu.  But after six weeks on the job, he was pressured by a supervisor to finish his shift by working on a metal-stamping press.  Matsu was in danger of not meeting its parts quota and the company “could have been fined $20,000 by Honda for every minute its shortfall held up the company’s assembly line.”

Allen received no training on operating the machine.  Moreover, there were known problems with the vertical safety beam that was supposed to keep the machine from operating if a worker was in danger of being caught in the stamping process.  Tragically, Allen’s arm was indeed caught by the die that stamped the metal parts.  As Businessweek reports:

He stood there for an hour, his flesh burning inside the heated press. Someone brought a fan to cool him off. . . . When emergency crews finally freed him, his left hand was “flat like a pancake,” Allen says, and parts of three fingers were gone. His right hand was severed at the wrist, attached to his arm by a piece of skin. A paramedic cradled the gloved hand at Allen’s side all the way to the hospital. Surgeons removed it that morning and amputated the rest of his right forearm to avert gangrene several weeks later.

The company had been told by the plant’s safety committee several times that the machine needed horizontal as well as vertical safety beams. In fact, one year before Allen’s accident, another worker suffered a crushed hand on the same machine.  Moreover, the company’s treatment of Allen was far from unusual.  Matsu “provided no hands-on training, routinely ordered untrained temps to operate machines, sped up presses beyond manufacturers’ specifications, and allowed oil to leak onto the floor.”

And what happened to the company?  They received a $103,000 fine from an Occupational Safety and Health Review Commission.

The Businessweek article includes several other stories of workers maimed because of unsafe work conditions at firms with long histories of safety violations.  And they all ended in much the same way: with corporations paying minimal fines.  And, apparently with little change in corporate behavior.

Known Knowns

We know that most employers will push production as hard as they can to cut costs, with little regard for worker safety.  We also know that union jobs are better than non-union jobs in terms of wages and benefits, and safety.

We also know that President Trump is taking steps to weaken labor laws and unions, as well as gut federal and state agencies charged with protecting worker health and safety and the environment.

Thus, even if President Trump does succeed in enticing some globalized corporations to shift parts of their respective production networks back to the US, the experience of the auto industry demonstrates that the resulting job creation is unlikely to satisfy worker demands for safe, living wage jobs.

In sum, no matter the campaign rhetoric, and no matter the twists and turns in policy, it should be clear to all that President Trump is committed to an anti-worker agenda.