Reports from the Economic Front

a blog by Marty Hart-Landsberg

Category Archives: Health Care

We Need To Once Again Take “The Working Class” Seriously

The great majority of working people in the US have experienced tough times over the last few decades.  And all signs point to the fact that those in power are committed to policies that will mean a further deterioration in majority living and working conditions.

One obvious response to this situation is organizing; working people need strong organizations that are capable of building the broad alliances and advancing the new visions necessary to challenge and transform existing political-economic relationships and institutions. Building such organizations requires, as a first step, both acknowledging the existence of the working class and taking the concerns of its members seriously.

Unfortunately, as Reeve Vanneman shows in a Sociological Images blog post, writers appear to have largely abandoned use of the term “working class.”  One indicator is the trend illustrated in the chart below, which is derived from Google Books’ Ngram Viewer.  The Ngram Viewer is able to display a graph showing how often a particular word or phrase appears in a category of books over selected years.  In this case, the chart below shows how often the two-word phrase “working class” (a bigram) appears as a percentage of all two word phrases used in all books written in American English.

google

As Vanneman explains:

a Google ngram count of the phrase “working class” in American books shows a spike in the Depression Thirties and an even stronger growth from the mid-1950s to the mid-1970s. But after the mid-1970s, there is a steady decline, implying a lack of discussion just as their problems were growing.

A similar overall trend emerges from “a count of the frequencies of ‘working class’ in the titles or abstracts of articles in the American Journal of Sociology and the American Sociological Review.”  As we see in the chart below, there was a rapid growth in the use of the phrase from the late 1950s through most of the 1960s, followed by a slow but steady decline until the mid-1980s, and then, after a brief resurgence, a dramatic fall off in its use.

sociology

As Vanneman comments: “These articles on the working class were not insignificant; even through the 21st century, the authors include a number of ASA presidents. But overall, working-class issues seem to have lost their salience, as if even American sociology was also telling them that they didn’t matter.”

While there is no simple relationship between working class activism and scholarship on the working class, the synergy is important.  Now is the time to take working class issues seriously.  Given current trends, we desperately need a revival of labor activism and the development of labor-community alliances around issues such as housing, health care, discrimination, and the environment.  And we also need new scholarship that shines a light on as well as engages the challenges of our time from a working class standpoint.

The Trump Victory

The election of Donald Trump as president of the United States is the latest example of the rise in support for right-wing racist and jingoistic political forces in advanced capitalist countries.  Strikingly this rise has come after a sustained period of corporate driven globalization and profitability.

As highlighted in the McKinsey Global Institute report titled Playing to Win: The New Global Competition For Corporate Profits:

The past three decades have been uncertain times but also the best of times for global corporations–and especially so for large Western multinationals. Vast markets have opened up around the world even as corporate tax rates, borrowing costs, and the price of labor, equipment, and technology have fallen. Our analysis shows that corporate earnings before interest and taxes more than tripled from 1980 to 2013, rising from 7.6 percent of world GDP to almost 10 percent.  Corporate net incomes after taxes and interest payments rose even more sharply over this period, increasing as a share of global GDP by some 70 percent.

global-profit-pool

As we see below, it has been corporations headquartered in the advanced capitalist countries that have been the biggest beneficiaries of the globalization process, capturing more than two-thirds of 2013 global profits.

advanced-economies-dominate

More specifically:

On average, publicly listed North American corporations . . . increased their profit margins from 5.6 percent of sales in 1980 to 9 percent in 2013. In fact, the after-tax profits of US firms are at their highest level as a share of national income since 1929. European firms have been on a similar trajectory since the 1980s, though their performance has been dampened since 2008. Companies from China, India, and Southeast Asia have also experienced a remarkable rise in fortunes, though with a greater focus on growing revenue than on profit margins.

And, consistent with globalizing tendencies, it has been the largest corporations that have captured most of the profit generated.  As the McKinsey report explains:

The world’s largest companies (those topping $1 billion in annual sales) have been the biggest beneficiaries of the profit boom. They account for roughly 60 percent of revenue, 65 percent of market capitalization, and 75 percent of profits. And the share of the profit pool captured by the largest firms has continued to grow. Among North American public companies, for instance, firms with $10 billion or more in annual sales (adjusted for inflation) accounted for 55 percent of profits in 1990 and 70 percent in 2013. Moreover, relatively few firms drive the majority of value creation. Among the world’s publicly listed companies, just 10 percent of firms account for 80 percent of corporate profits, and the top quintile earns 90 percent.

bigger-the-better

Significantly, most large corporations have chosen not to use their profits for productive investments in new plant and equipment.  Rather, they built up their cash balances.  For example, “Since 1980 corporate cash holdings have ballooned to 10 percent of GDP in the United States, 22 percent in Western Europe, 34 percent in South Korea, and 47 percent in Japan.”  Corporations have often used these funds to drive up share prices by stock repurchase, boost dividends, or strengthen their market power through mergers and acquisitions.

In short, it has been a good time for the owners of capital, especially in core countries.  However, the same is not true for most core country workers.  That is because the rise in corporate profits has been largely underpinned by a globalization process that has shifted industrial production to lower wage third world countries, especially China; undermined wages and working conditions by pitting workers from different communities and countries against each other; and pressured core country governments to dramatically lower corporate taxes, reduce business regulations, privatize public assets and services, and slash public spending on social programs.

The decline in labor’s share of national income, illustrated below, is just one indicator of the downward pressure this process has exerted on majority living and working conditions in advanced capitalist countries.labor-share

Tragically, thanks to corporate, state, and media obfuscation of the destructive logic of contemporary capitalist accumulation dynamics, worker anger in the United States has been slow to build and largely unfocused.  Things changed this election season.  For example, Bernie Sanders gained strong support for his challenge to mainstream policies, especially those that promoted globalization, and his call for social transformation.  Unfortunately, his presidential candidacy was eventually sidelined by the Democratic Party establishment that continues, with few exceptions, to embrace the status-quo.

However, another “politics” was also gaining strength, one fueled by a racist, xenophobic, misogynistic right-wing movement that enjoyed the financial backing of the most reactionary wing of the capitalist class.  That movement, speaking directly to white (and especially male) workers, offered a simplistic and in its own way anti-establishment explanation for worker suffering: although corporate excesses were highlighted, the core message was that white majority decline was caused by the growing demands of “others”—immigrants, workers in third world countries, people of color, women, the LGBTQ community, Muslims, and Jews—which in aggregate worked to drive down wages, slow growth, and misuse and bankrupt governments at all levels.  Donald Trump was its political representative, and Donald Trump is now the president of the United States.

His administration will no doubt launch new attacks on unions, laws protecting human and civil rights, and social programs, leaving working people worse off.  Political tensions are bound to grow, and because capitalism is itself now facing its own challenges of profitability, the new government will find it has little room for compromise.

According to McKinsey,

After weighing various scenarios affecting future profitability, we project that while global revenue could reach $185 trillion by 2025, the after-tax profit pool could amount to $8.6 trillion. Corporate profits, currently almost 10 percent of world GDP, could shrink to less than 8 percent–undoing in a single decade nearly all the corporate gains achieved relative to world GDP over the past three decades. Real growth in corporate net income could fall from 5 percent to 1 percent per year. Profit growth could decelerate even more sharply if China experiences a more pronounced slowdown that reverberates through capital-intensive sectors.

future

History has shown that we cannot simply count on “hard times” to build a powerful working class movement committed to serious structural change.  Much depends on the degree of working class organization, solidarity with all struggles against exploitation and oppression, and clarity about the actual workings of contemporary capitalism.  Therefore we need to redouble our efforts to organize, build bridges, and educate. Our starting point must be resistance to the Trump agenda, but it has to be a resistance that builds unity and is not bounded in terms of vision by the limits of a simple anti-Trump alliance.   We face great challenges in the United States.

Yes on Oregon Measure 97

Straight Talk About Measure 97

If we want Oregon to prosper we need to dramatically improve our state’s badly underfunded public schools, health care system, and senior services.  Here are some of the consequences of current funding levels: Oregon ranks 38th in school funding, has the 3rd largest class sizes, and has the 4th lowest graduation rate in the country.  Growing numbers of working people are unable to afford health care or financially survive a medical emergency; Oregon ranks 39th in the country for public health funding.  The number of seniors being forced to leave their homes because of a lack of social services also continues to grow.

The primary reason our state doesn’t have the funds it needs is that corporations operating in Oregon have quietly but steadily found ways to stop paying state income taxes.  As the Oregon Center for Public Policy pointed out in a recent study, “In the 1973-75 budget period, corporations paid 18.5 percent of all Oregon income taxes. Today they pay just 6.7 percent, a decline of nearly two-thirds. Absent any significant policy change, corporations are projected to pay just 4.6 percent of all Oregon income taxes by the mid 2020s.”  A study funded by The Council On State Taxation, a business lobbying group, found Oregon tied with Connecticut for the lowest “total effective business tax rate” in the country.

There is no point in beating around the bushes.  The only reasonable way to generate the tax revenue we need to fund critical state programs is by forcing corporations to pay more in taxes. If we don’t, as bad as things are now, they will get worse.  The state Chief Financial Officer, George Naughton, reports that the state of Oregon is facing a $1.4 billion gap between projected revenue and what it needs to maintain existing service levels.  State officials are talking possible 7 percent cuts across state programs.

There is an answer: Pass Measure 97 in November.

The virtues of Measure 97

Measure 97 will tax few corporations and the heaviest burden will fall on large out of state corporations.  Measure 97 makes one change to the existing Oregon tax code: it raises the corporate minimum tax on Oregon sales over $25 million for the largest C-corporations selling in the state.

Currently, the state minimum tax for C-corporations with sales of 25 to 50 million is $30,000 and tops out at $100,000 for C-corporations with sales above $100 million.  Measure 97 would impose a new tax rate of 2.5% on sales above the $25 million threshold.  The Oregon Legislative Revenue Office (LRO) offers the following example: “a C-corporation with Oregon sales of $50 million would pay a corporate minimum tax of $30,001 for the first $25 million in sales (the current tax) plus 2.5% on the second $25 million ($625,000) for a total minimum tax of $655,001.”

Oregon has some 400,000 businesses, 30,000 of which are classified as C-corporations.  According to the LRO, only 1051 of these corporations have more than $25 million in state sales and would be required to pay the higher minimum tax; that is approximately one-quarter of one percent of all businesses and 3 percent of all C-corporations selling in the state.  The real burden of the tax will fall on even fewer firms: the LRO estimates that the top 50 C-corporations would likely be responsible for more than 50 percent of the resulting increase in tax revenue.  And most of the money raised by the tax, more than 80 percent, will come from companies headquartered outside the state.

Measure 97 is an effective tax that will raise significant funds.  Measure 97 raises the minimum tax on large C-corporation sales, not profits.  By taxing sales rather than profits firms will not be able to fudge accounts and escape their responsibilities.  And Measure 97 taxes large C-corporations on their sales in Oregon.  Because the tax is on where the sales take place rather than where the goods are produced, firms cannot escape the tax by shifting production outside the state.  As for revenue, the LRO estimates that the tax would raise some $6 billion each biennium, which would boost the state budget by more than 15 percent; we are talking real money.

Measure 97 also makes clear where the money is to be spent.  The measure says that the funds generated by the tax are to be used to “provide additional funding for: public early childhood and kindergarten through twelfth grade education; health care; and services for senior citizens.” While it is true that the legislature will have the final say, passage of the measure will send a clear signal of our priorities to our elected leaders.

Misleading controversies over Measure 97’s effectiveness

The Oregon Legislative Revenue Office studied the likely impact of Measure 97 on the Oregon economy.  Some who oppose the measure have drawn on parts of its report to buttress their opposition.  Unfortunately, most of their objections to Measure 97 have been based on a misunderstanding of both the LRO’s methodology and the report’s conclusions.

Let’s be clear on what the report does say:

First, the report finds that Measure 97 will raise more than $6 billion in each of the next two budget cycles and that the new tax will ensure a more stable funding base for the state going forward.

Second, the report also shows that there is little reason to fear tax pyramiding.  Tax pyramiding is a common consequence of what are called gross receipt taxes, which are taxes that are levied on all business transactions.  As goods and services are sold from one business to another the tax tends to pyramid, growing larger and larger.  Measure 97 is not a typical gross receipts tax.  First, it is not levied on all business transactions.  As we saw above, only 1000 firms will likely pay the tax.  Competition within the economy will make it difficult for these firms to pass on the cost of the tax and other firms that may purchase their products will not be responsible for paying an additional tax.  Second, the LRO report shows that the tax will fall heaviest on large firms that are engaged in “final” rather than “intermediate sales,” for example, retail sales.  Thus, there is no evidence to support fears that Measure 97 will result in significant tax pyramiding and escalating tax rates.

Third, the report also concludes that the gains from greater and more stable funding of vital services come with minimal negative economic consequences.  The LRO study does find, as critics of Measure 97 point out, that the Oregon economy with Measure 97 in place will grow more slowly and create fewer jobs over the next five years than if the measure were not passed.  However, the negative impact of the tax is quite small.  For example, the LRO model predicts that there will be 20,000 fewer jobs in Oregon if Measure 97 is passed, but this is out of a projected labor force of some 2.7 million.  In reality we are talking about rounding errors.  This is highlighted by the results of a study of the effects of Measure 97 by the Northwest Economic Research Center (NERC) at Portland State University.  The NERC, using a similar methodology, concluded that adoption of the measure would generate a small overall gain in employment.

Most importantly, critics of Measure 97 do not appear to understand the LRO’s methodology and the biases that shape its conclusions.  The LRO did not use a forecasting model to assess the economic consequences of Measure 97.  In other words, the LRO never actually tried to predict what would happen to the Oregon economy if we passed or didn’t pass Measure 97.  For example, it did not try to model the consequences of slashing state budgets if the measure does not pass; it did not take the looming budget deficit into account at all.

Rather the LRO used an idealized model of the 2012 Oregon economy that operates in its own time and space, with firms that keep no profit (since all earnings are distributed to their owners) and full employment.  The authors of the study introduced the tax, made assumptions about firm responses, and used their model to simulate their created economy’s return to a new equilibrium state over a five year period.

While this model has its uses when comparing two different tax proposals, it is not very helpful for modeling the actual economic consequences of Measure 97.  In fact, its structure is such that its predicted results overestimate the costs and underestimate the benefits of the measure.  One serious flaw in the model is its assumption that businesses have no retained profits.  This means that firms will automatically seek to pass the entire tax along to consumers, leading to higher prices and declines in real income.

However, there are many reasons to think that this outcome is unlikely.  First, competitive pressures will, in many cases, make it difficult for large firms to raise their prices.  After all, only some firms in each industry will be required to pay the new tax.  Second, studies have shown, including a recent one jointly authored by the Oregon Consumer League and Our Oregon, that large firms tend to have national pricing strategies.  In other words, these firms charge the same prices for the same products in every state in which they operate.  The study also found no relationship between state tax policies and the cost of living in each state.  Thus, it is likely that large multi-state firms operating in Oregon will simply absorb much of the new tax, accepting slightly lower profits, rather than try to pass it on to consumers through higher prices.

When you hear opponents of Measure 97 confidently predict that its passage will lead to higher prices and real income losses for consumers because businesses will simply pass on the cost of the tax to consumers, take a minute to investigate who is bankrolling the opposition to the measure.  Among the leading contributors to the no campaign are companies like Comcast, Standard Insurance, Procter and Gamble, Weyerhaeuser, Walmart, Well Fargo, and US Bank.  Would they be pouring tens of thousands of dollars each into the campaign if they didn’t fear that the tax will cost them profits?

Another serious flaw in that the model is that it does not try to capture any of the broader social benefits that would accrue to the state and its citizens from passage of Measure 97.  For example, the model does not account for the fact that a better educated and healthier population will likely attract new businesses and employment opportunities.  Or that well-funded social services would enable more people to work, boosting their incomes, or help families better weather hard times and plan and save for the future.   If the LRO had adjusted its model to compensate for these flaws, there is no doubt that its assessment of the effects of Measure 97 would have been far more positive.

In sum, most Oregonians know that many people are hurting.  And we are facing a huge budget deficit that will, if nothing is done, require more cuts to education and critical social services, leading to more suffering.  Measure 97 is a game changer.  Yes, this measure will force a large tax increase on some of the country’s biggest corporations.  But the reason that we need such a large increase is that these corporations have essentially been using our public services for close to nothing.  Until 2010 the state minimum tax was $10.  Even now, many corporations find ways to completely avoid paying even the minimum tax.  Measure 97 will put an end to that.  It will go a long way to creating an Oregon that works for the great majority.

Support For Taxing The Rich Growing

For years now the wealthy and their media have hammered on the need for lower taxes on their income, arguing that this would encourage investment, job creation, and growth.  The tax burden on the wealthy has indeed been lowered in one way or the other, but only the wealthy have benefited.  In particular, our public sector and the activities it supports—public infrastructure, education, health care and human services, etc.—have suffered.

Apparently, people are starting to draw the right lesson from this experience.  As the Washington Post reports:

The results from the Public Religion Research Institute and the Brookings Institution [survey] show that 54 percent of Republicans support increasing taxes on those with incomes over $250,000 a year, an increase of 18 percentage points since the last presidential election in 2012. Among Americans as a whole, 69 percent support an increase.

While the change in opinion was greatest for Republicans, as the figure below shows the survey also found increased support for greater taxes on the rich among both Democrats and Independents.  The fact that this support began spiking early in the year suggests that the change is tied to the election process, although it is unclear whether the campaigns are driving the growing support for higher taxes on the wealthy or people are just taking advantage of the process to express their desire for change.

tax increase

Regardless of cause, this is a hopeful development for progressive movement building.

TTIP Dangers Revealed

The US government and and the European Commission are negotiating a major so-called free trade agreement, the Transatlantic Trade and Investment Partnership (T-TIP).

According to the US government:

T-TIP will help unlock opportunity for American families, workers, businesses, farmers and ranchers through increased access to European markets for Made-in-America goods and services. This will help to promote U.S. international competitiveness, jobs and growth.

However, it is hard to see great benefits from expected tariff reductions since both sides already have low average tariff rates.  For example, the average tariff rate for manufactured products in the European Union was 1.43 in 2013.  Its highest value over the past 25 years was 5.86 in 1990; its lowest value was 1.41 in 2012.

But of course much more is at stake than simply lowering already low tariffs.  The secret negotiations are really about removing regulatory barriers that get in the way of large corporations maximizing their profits, barriers like food safety law, environmental legislation, banking regulations and the sovereign powers of individual nations.

This may sound extreme, but judge for yourself thanks to Greenpeace Netherlands.  On May 1st,  it published 248 pages of leaked T-TIP negotiating texts.  According to Greenpeace, these “classified documents represent more than two-thirds of the overall TTIP text as of April, at the 13th round of TTIP negotiations in New York. They cover 13 chapters addressing issues ranging from telecommunications to regulatory cooperation, from pesticides, food and agriculture to trade barriers.”

Among other things they highlight the aggressive US attempt to dramatically weaken already low European Union safety and health regulations.

The following excerpts from a Guardian article provide some of the specifics:

Talks for a free trade deal between Europe and the US face a serious impasse with “irreconcilable” differences in some areas, according to leaked negotiating texts.

The two sides are also at odds over US demands that would require the EU to break promises it has made on environmental protection. . . .

“Discussions on cosmetics remain very difficult and the scope of common objectives fairly limited,” says one internal note by EU trade negotiators. Because of a European ban on animal testing, “the EU and US approaches remain irreconcilable and EU market access problems will therefore remain,” the note says.

Talks on engineering were also “characterised by continuous reluctance on the part of the US to engage in this sector,” the confidential briefing says.

These problems are not mentioned in a separate report on the state of the talks, also leaked, which the European commission has prepared for scrutiny by the European parliament.

These outline the positions exchanged between EU and US negotiators between the 12th and the 13th round of TTIP talks, which took place in New York last week.

The public document offers a robust defence of the EU’s right to regulate and create a court-like system for disputes, unlike the internal note, which does not mention them.

Jorgo Riss, the director of Greenpeace EU, said: “These leaked documents give us an unparalleled look at the scope of US demands to lower or circumvent EU protections for environment and public health as part of TTIP. The EU position is very bad, and the US position is terrible. The prospect of a TTIP compromising within that range is an awful one. The way is being cleared for a race to the bottom in environmental, consumer protection and public health standards.”

US proposals include an obligation on the EU to inform its industries of any planned regulations in advance, and to allow them the same input into EU regulatory processes as European firms.

American firms could influence the content of EU laws at several points along the regulatory line, including through a plethora of proposed technical working groups and committees.

“Before the EU could even pass a regulation, it would have to go through a gruelling impact assessment process in which the bloc would have to show interested US parties that no voluntary measures, or less exacting regulatory ones, were possible,” Riss said.

The US is also proposing new articles on “science and risk” to give firms greater regulatory say. Disputes over pesticides residues and food safety would be dealt with by the UN Food and Agriculture Organisation’s Codex Alimentarius system.

Environmentalists say the body has loose rules on corporate influence, allowing employees of companies such as BASF, Nestle and Coca Cola to sit on – and sometimes lead – national delegations. Some 44% of its decisions on pesticides residues have been less stringent than EU ones, with 40% of rough equivalence and 16% being more demanding, according to Greenpeace.

GM foods could also find a widening window into Europe, with the US pushing for a working group to adopt a “low level presence initiative”. This would allow the import of cargo containing traces of unauthorised GM strains. The EU currently blocks these because of food safety and cross-pollination concerns.

The EU has not yet accepted the US demands, but they are uncontested in the negotiators’ note, and no counter-proposals have been made in these areas.

In January, the EU trade commissioner Cecilia Malmström said the precautionary principle, obliging regulatory caution where there is scientific doubt, was a core and non-negotiable EU principle. She said: “We will defend the precautionary approach to regulation in Europe, in TTIP and in all our other agreements.” But the principle is not mentioned in the 248 pages of TTIP negotiating texts. . . .

The EU negotiators internal note says “the US expressed that it would have to consult with its chemical industry on how to position itself” on issues of market access for non-agricultural goods.

Where industry lobbying in regulatory processes is concerned, the US also “insisted” that the EU be “required” to involve US experts in its development of electrotechnical standards.

Of course, this might be a one-sided look.  No doubt European corporations are pushing hard to undermine US regulations that they find objectionable.   One can imagine a terrible compromise where the two sides split the difference, leaving majorities on both sides of the Atlantic less healthy and safe.

17ttip-glynthomas

US Households Experience Growing Insecurity

People are angry about economic trends and are searching, as voting trends reveal, for ways to communicate their strong desire for change. A recent Pew Charitable Trusts issue brief on Household Expenditure and Income provides powerful insight into those trends.

The issue brief focuses on households in which survey respondents or their spouses are between the ages of 20 and 60.  The households are then divided into thirds based on income.  The key takeaway is the growing economic insecurity of US households.

Figure 1 shows that it took until 2014 for inflation-adjusted median and mean household expenditures to return to their pre-recession levels.

Fig_1_Expen

However, as Figure 2 shows, the median rise in household expenditure was not matched by a corresponding increase in median pre-tax household income.

Fig_2_Expen

As the authors of the issue brief explain:

By 2014, median income had fallen by 13 percent from 2004 levels, while expenditures had increased by nearly 14 percent. This change in the expenditure-to-income ratio in the years following the financial crisis is a clear indication of why and how households feel financially strained.

Figure 4 highlights the recent upswing in costs of housing, food and transportation.

Fig_4_Expen

The housing squeeze has become especially severe for low income renters.  As Figure 6 shows, in 2014, low income renter households spent almost half of their pre-tax income on housing.

Fig_6_Expen

More generally, as Figure 10 reveals, households in all three income groups are experiencing budget tightening; they have significantly less money left over after meeting their regular annual expenditures than they did in 2004.

Fig_10_ExpenIn the words of the study:

The amount of slack that families had in their budgets declined for all income groups between 2004 and 2014. . . . In 2004, the typical household in the lower third had a little less than $1,500 left over after accounting for annual outlays. Just 10 years later, this amount had fallen to negative $2,300, a $3,800 decline. These households may have had to use savings, get help from family and friends, or use credit to meet regular annual household expenditures. The typical household in the middle third saw its slack drop from $17,000 in 2004 to $6,000 in 2014. Of note, because income is measured before taxes, some families will have had even less slack in their budgets than this figure implies.

Sadly, there is no reason to believe that majority economic prospects will take a turn for the better.

Surprise: Corporations Write Our Trade Agreements

Opposition to the Transpacific Partnership continues to grow.  Public concern centers on potential job loss and the ways in which corporations are likely to use their enhanced mobility to lower worker wages and benefits, weaken unions, and escape taxation.  More knowledge of the agreement would produce outrage at the way its terms are also designed to block progress on climate change, raise the cost of health care, overturn efforts to regulate the financial industry . . . .  well you get the idea.

If it sounds like this so-called trade agreement was designed to serve corporate interests that is because it was largely written by those who represent those interests.

The Washington Post published some great infographics which highlight the corporate-heavy network of official trade advisers that helped shape the US negotiating position and final agreement.

As you can see in the first graphic below, private industry and trade groups (which represent private industry) make up 85 percent of all the official advisers.

advisers

This overall breakdown, while revealing, does not fully capture the actual influence of the corporate sector.  As we see in the next infographic, labor and ngo representatives are basically excluded from the key committees where the US Trade Representative’s positions on trade, investment, and finance policies are hammered out.  The one committee dominated by labor, the Trade Negotiations and Labor Policy, is largely irrelevant since there are no binding labor accords in the agreement.  The same is basically true of the Trade and Environment committee.

committees

Searching for the Global Middle Class

The latest hype, designed no doubt to take attention away from declining living and working conditions in core economies, is that a new global middle class is emerging.  The implication is that capitalist globalization continues to work its “magic,” although now it is happening in the so-called third world.  Reality doesn’t match the hype.  Search all you want—it is hard to find real evidence of the emerging new global middle class.

Steve Knauss highlights the talk:

Over half the world will be middle class by 2030, predicts the United Nations Development Program (UNDP) in its report on “the Rise of the South.” The Economist, not known to be shy, claims we’re already there, thanks to “today’s new bourgeoisie of some 2.5 billion people” across the global South that have become middle class since 1990. The OECD, perhaps the boldest of all, postulates that India – currently one of the poorest countries on earth – could find more than 90 percent of its population joining this “global middle class” within 30 years, from around 5 or 10 percent today.

It all sounds pretty impressive until you learn how membership in the new global middle class is determined.  It includes those whose real income (in purchasing power parity dollars) is at least $10 per day.  That means at least $3650 in annual earnings gets you membership in the new global middle class.

To appreciate how low that figure is one has to know what purchasing power parity means and how it is used to calculate income.  There are two main ways to make comparisons in earnings across countries, something needed for global claims.  One is to convert national earnings into dollars using the exchange rate.  However, this is not considered very reliable.  Exchange rates move all the time, making comparisons unreliable.  Even more problematic, many of the goods and services people consume are not internationally traded so changes in exchange rates do not affect their well-being.

The other method, the one most commonly used, relies on purchasing power parity calculations.  In brief, the World Bank constructs a basket of consumer goods and services and determines its dollar cost in the United States in a particular year; the most recent year was 2011.  Then, it determines the national cost of a similar basket in other countries.  Finally, it calculates a purchasing power parity exchange rate for the dollar and the currencies of these other countries using these relative costs.

An example: suppose that the constructed basket of goods costs $200 in the US.  And suppose that the “equivalent” basket of goods costs 800 Rupees in India.  We can then can construct a purchasing power exchange rate between the two currencies.  In my example, 1 Rupee equals $0.25.  Or said differently an Indian with 4 Rupees is said to be able to command the same value of goods and services as someone in the US who has $1.  Thus, an Indian earning 8000 Rupees would be said to earn the equivalent of $2000.

Of course this method has its own difficulties.  For example, imagine how hard it is to develop national indices that are equivalent.  How do we calculate the average price of a good or service in a country?  And are the goods and services in one country, say the US, really equivalent to the goods and services in another country, say India?

Regardless, putting doubts about the methodology aside, we can now return to our standard for reaching the global middle class.  Our international agencies seek to count individuals who earn the annual equivalent of $3650 in the US as middle class.  That certainly seems like a stretch!

The following chart highlights the distribution of global income in purchasing power dollars using development agency categories.

earnings

As Knauss explains:

Even taking the data at face value, 71 percent of humanity is poorer in real terms than the $10 PPP threshold. . . . This is compared to 79 percent in 2001, owing to a modest increase in families crossing the $10 PPP line but remaining concentrated very close to it . . . . There was consequently an expansion of those living on between $10 and $20 per day from 7 percent of humanity in 2001 to 13 percent today.

That’s it. That’s the whole basis for the “global middle class” hype. If one were to select even a slightly more reasonable standard – for example, $20 PPP, or the real living standard equivalent of a family of four in the United States with a total income above $29,200 – there is no global middle class to speak of whatsoever. Only 16 percent of humanity – 13 percent in 2001 – enjoys this standard of living, composed of the majority of the population across the West, where real substantial middle classes exist, and the elites in the South, very rarely more than 15 or 20 percent of the population, and much more often substantially less.

Still, a look at the chart does show a significant fall in the share of world population that made less than $3 a day.  This however appears largely due to “the historic wave of ‘depeasantization’ throughout the neoliberal era.”  In other words, as people are forced off the land and into urban areas they become part of the cash economy.  Whether their higher money wage compensates for their loss of access to land is another issue, one that should make us pause before declaring them better off.

More generally, the gains over the 2001 to 2011 period were driven by international processes that are now moving in reverse.  The global economy is clearly slowing.  Already declines in exports of manufactures and commodity prices are undoing past gains in poverty reduction in Asia, Africa, and Latin America.

Capitalist globalization does indeed appear to be working magic.  But, as Oxfam’s recent report shows, only for the benefit of those at the top of the income scale.

  • In 2015, just 62 individuals had the same wealth as 3.6 billion people – the bottom half of humanity. This figure is down from 388 individuals as recently as 2010.
  • The wealth of the richest 62 people has risen by 44% in the five years since 2010 – that’s an increase of more than half a trillion dollars ($542bn), to $1.76 trillion. Meanwhile, the wealth of the bottom half fell by just over a trillion dollars in the same period – a drop of 41%.
  • Since the turn of the century, the poorest half of the world’s population has received just 1% of the total increase in global wealth, while half of that increase has gone to the top 1%.
  • The average annual income of the poorest 10% of people in the world has risen by less than $3 each year in almost a quarter of a century. Their daily income has risen by less than a single cent every year.

inequality

 

World Poverty Rates Remain High

The World Bank has a new international poverty line and is celebrating the rapid decrease in the percentage of people living in poverty.  According to the World Bank, the world poverty rate will fall below 10% this year; we are on our way to ending world poverty. Unfortunately, this is a story based on misleading measurements, one that largely serves to buttress the status quo and blunt demands for real change in global economic processes.

The World Bank’s new international poverty line, announced in October 2015, is set at $1.90 per day in 2011 purchasing power parity dollars.  Before discussing the origins of that line, it is worth taking a moment to consider how low that level truly is.  As Jason Hickley explains:

How much is $1.90 per day, adjusted for purchasing power? Technically, it represents the international equivalent of what $1.90 could buy in the United States in 2011. But we know that this amount of money is inadequate to achieve even the most basic nutrition. The US Department of Agriculture calculates that in 2011 the very minimum necessary to buy sufficient food was $5.04 per day. And that’s not taking account of other requirements for survival, such as shelter and clothing.

If you multiply $1.90 times 365 you get the princely annual sum of $693.50.  Imagine living on that in the United States in 2011, and then imagine that according to the World Bank if you make more than that (or its equivalent in other countries) you are no longer to be classified as poor.

Calculating the global poverty line

Countries have their own poverty line calculated in their own respective currencies.  Having a global poverty line means (1) converting national poverty lines to a common standard and (2) finding a way to devise a single number that would have relevance for every country.

While it might be tempting to overcome the first challenge by converting every country’s national poverty line into a dollar value using the existing exchange rate between the country’s currency and the dollar, this would produce widely and rapidly fluctuating poverty lines.  Moreover many goods and services are not traded internationally and so their prices are not actually changed by exchange rate movements.

Therefore, the World Bank employs a different approach.  In broad brush, it constructs a so-called basket of consumer goods and services and determines its cost in the United States in a particular year.  Next, it attempts to determine the national costs of a similar basket in most third world countries.  Finally, it calculates a purchasing power parity exchange rate for the dollar and the currencies of these countries using these relative costs.  In theory, at least, one can then talk about a standardized purchasing power expressed in dollars.

The Bank sought to overcome the second challenge by first using purchasing power parity exchange rates to convert national poverty lines denominated in local currencies into dollars.  Bank researchers then selected, somewhat arbitrarily, the newly converted poverty lines of 15 of the lowest income countries, and determined a consensus poverty line.  It is this consensus poverty line that serves as the Bank’s international poverty line.  Finally, the Bank attempts to estimate the number of people in each country with earnings below that line.

Because the measurement process is expensive and time consuming, the Bank only makes periodic updates to its poverty line.  The 1993 purchasing power parity international poverty line was set at $1.08 a day.  The 2005 purchasing power parity international poverty line was set at $1.25 a day.  And the newly released 2011 purchasing power parity international poverty line was determined to be $1.90 a day.

The figure below, taken from a study by Rahul Lahoti and Sanjay Reddy, highlights the percentage of the world population living below the poverty line for a number of different poverty lines.  As one can see, the percentage of those living in poverty according to the Bank’s latest poverty line is rapidly falling.  In fact, the gains are even greater using the new poverty line than the previous one.

percent poverty


Problems with the Bank’s work

There are many problems with the Bank’s methodology, most importantly its framework is rather arbitrary.  Why should the Bank choose the poorest countries to set a poverty line?  As Hickley points out:

The World Bank picked the $1.90 line because it’s the average of the national poverty lines of the very poorest countries in the world, like Chad and Burundi. But it tells us very little about what poverty is like in most other countries. The bank itself admits that poverty in Latin America, for example, should be measured at about $6 a day. And yet for some reason it persists with the $1.90 line.

Perhaps even more telling there is little reason to have confidence that national poverty lines accurately capture poverty status or that the basket of goods and services used to construct the purchasing power parity exchange rates truly measure basic needs.

And then there are all the difficulties of the computations.  Many of the poorest countries do not have poverty that clearly differentiate between rural and urban poverty or national consumer price indicies, all of which require the Bank to make a number of estimates and/or use adhoc measures to make its calculations.

Moreover, it is tricky to use international poverty lines calculated in one year to measure poverty rates in past or future years.  The international poverty lines are based on prices in a base year which are shaped by the structure of the world economy in that year, while prices in different countries shift yearly in response to changing local and international conditions.  For a more complete discussion of these and other points see the above cited study by Lahoti and Reddy.

Alternative measures and poverty trends

While Lahoti and Reddy call for the construction of an alternative measure of poverty, one that relies not on income but a concrete measure of the goods and services required to live a non-poverty life, they do offer, using U.S. Department of Agricultural data, an alternative estimate of international poverty to illustrate the problematic nature of the World Bank’s work.

As they explain:

The Thrifty Food Plan produced by the US Dept. of Agriculture Center of Nutrition Policy and Promotion established, with great care, the minimum cost of achieving “Recommended Dietary Allowances” in the United States. It does so for a model family of a specified size and composition by collecting “scanner” price data from markets around the US and calculating the mathematical least cost of achieving the allowances at these prices (using linear programming techniques) and by subsequently modestly adjusting the amount to make some allowance for prevailing tastes. It then verifies that the amount suffices for cooking model recipes in a test kitchen. The allowance is based entirely on the supposition of home cooking and makes no reference to the costs of the kitchen or the cooking pots. By definition, the Thrifty Food Plan allowance does not suffice for any non-food requirement (e.g. for shelter, clothing, transportation etc.). It can therefore be taken as a lower bound on real requirements in the US. However, to take note of the possible criticism that the Thrifty Food Plan allowances are overly generous, we consider expenditure levels corresponding both to those allowances (based on per person per day costs in a family of four with two children of intermediate ages) and to half their value. In 2011, these amounts were respectively $5.04 and $2.52. These can be thought of as food poverty lines to which non-food requirements must be added, but have not been. Further, we apply both general consumption PPPs (as does the Bank) and food PPPs more appropriate to food requirements in particular. Combining these possibilities leads to four alternative poverty lines and resulting poverty estimates.

Looking at poverty trends using the $5.04 2011 Food PPP and 2011 PPP we see in the figure above that declines in poverty are quite recent, dating to 2000.  These gains no doubt reflect the high country growth rates powered by soaring commodity prices.  Those prices are now in sharp decline as are growth rates.  Regardless, the percentage of the world population below the poverty line remains extremely high, well over 50%.

The figure below shows numbers of poor rather than percentages.  These two alternative measures show increases, not decreases, in the number of poor people relative to 1980 and 1990.

number poor

Hickley offers two other poverty estimates, both of which also show levels of world poverty far higher than that claimed by the World Bank:

One option is to count poverty country-by-country using each nation’s own poverty line, with $1.90 as an absolute floor. If we did that, we would see that about 1.7 billion people remain in poverty today, which is more than 70% higher than the World Bank would have us believe.

If we want to stick with a single international line, we might use the “ethical poverty line” devised by Peter Edward of Newcastle University. He calculates that in order to achieve normal human life expectancy of just over 70 years, people need roughly 2.7 to 3.9 times the existing poverty line. In the past, that was $5 a day. Using the bank’s new calculations, it’s about $7.40 a day. As it happens, this number is close to the average of national poverty lines in the global south.

Challenges ahead

The UN and the World Bank are strongly committed to the World Bank’s results because it allows both organizations to declare the success of their efforts.  The UN, for example, recently declared its Millennium Development Goals successfully met, thanks in large part to World Bank poverty estimates.  Now, it has launched its Sustainable Development Goals, which includes the eradication of world poverty.

The bankruptcy, perhaps better said danger, in this concerted effort to legitimate business as usual is clearly expressed in the following public letter to the UN by Noam Chomsky and other leading scholar/activists:

As the UN and the world’s governments ratify the Sustainable Development Goals (SDGs) today (September 25), we must be clear that they do not represent the best interests of the world’s majority — those that are currently exploited and oppressed within the current economic and political order.

The SDGs claim they can eradicate poverty in all its forms by 2030. But they rely primarily on global economic growth to achieve this tremendous task. If such growth resembles that seen in recent decades, it will take 100 years for poverty to disappear, not the15 years the SDGs promise. And even if this were possible in a shorter timescale, we would need to increase the size of the global economy by a factor of 12, which, in addition to making our planet uninhabitable, will obliterate any gains against poverty.

Rather than paper over such obvious madness with false hopes, we must address two critical issues head on: income inequality and endless material growth.

If poverty is to be truly overcome by 2030, then much of the improvement in the position of the impoverished must come through reduction in the enormous inequality that has accumulated in the last 200 plus years. The richest 1 percent of humanity will very soon own over half of the world’s private wealth. It would take only modest reductions in inequality to deliver large increases in the socio-economic position of the poorer half of humanity.

The SDGs do talk about reducing inequality. However, their prescription is technocratic, obscure and wholly incommensurate to the task at hand. For example, Target 10.1 states that by 2030 they will “progressively achieve and sustain income growth of the bottom 40 per cent of the population at a rate higher than the national average.” It is hard to imagine a less robust or ambitious goal. This commitment allows inequality to grow without limit until 2029, so long as it then begins to be reduced. The SDGs thus fail to endorse the only means that can achieve their stated goal of ending poverty: substantial inequality reduction, starting now. In effect, they perpetuate severe poverty and leave this fundamental problem to future generations.

The other essential task is for the world’s nations to adopt a saner measure of human progress; one that gears us not towards endless GDP growth based on extraction and consumption, but towards the wellbeing of humanity and our planet as a whole. There are plenty of options to choose from, all of which have been ignored in the SDGs. Instead, Target 17.19 says only that they will, “by 2030, build on existing initiatives to develop measurements of progress on sustainable development that complement GDP”. Another urgent challenge passed down to the next generation.

It is possible to overcome poverty in a way that respects the Earth and helps tackle climate change. The planet is abundant in wealth and its people infinitely resourceful. In order to do so, however, we must be prepared to challenge the logic of endless growth, greed and destruction enshrined in neoliberal capitalism.

It is time to envision a new operating system, based on social justice and symbiosis with the natural world. As currently formulated, the SDGs merely distract us from addressing the challenges we face.

Signed by:

Noam Chomsky, MIT
Thomas Pogge, Yale University
Naomi Klein, Author and activist
Eve Ensler, Playwright and activist
Chris Hedges, Pullitzer-prize winning journalist and author
Helena Norberg-Hodge, International Society for Ecology and Culture
Anuradha Mittal, Oakland Institute
Tom Goldtooth, Indigenous Environmental Network
Maude Barlow, Author and human rights activist
David Graeber, London School of Economics
Medha Patkar, National Alliance of People’s Movments, India
Alnoor Ladha, The Rules

 

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.