Reports from the Economic Front

a blog by Marty Hart-Landsberg

Category Archives: Organizing

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.

Gender, Race, Ethnicity and Labor Unity

There was a lot of talk this election season about the worsening economic conditions of White males.

The chart below, from an Economic Policy Institute report by Alyssa Davis and Elise Gould titled Closing the Pay Gap and Beyond, shows the hourly median wage growth for workers of different gender, race, and ethnicity compared with the economy-wide growth in productivity over the period 1979 to 2014.  As we can see, White male workers do indeed have something to complain about; in contrast to worker productivity, which grew by 62.7 percent over the period, their hourly median wage actually fell by 3.1 percent.

all-worker-decline

But, all this talk about White male workers distracts from the fact that Hispanic and Black men, who on average make significantly less than White men, suffered an even greater decline in their respective hourly median wages.  Thus, relatively speaking, White male workers have far less to complain about than Black and Hispanic male workers.

At the same time, the chart does show positive gains in hourly median wages for women, with White women enjoying the largest gain over the period, 30.2 percent.   However, these gains need to be put in perspective.

As the chart below shows, the earnings gap between men and women remains significant.  The gender gap narrowed over the decades of the 1980s and 1990s, partly because women’s wages rose and partly because men’s wages fell.  However, the size of the gap has not changed much since.  In fact, the most striking thing is that the median hourly wages of both men and women have been in decline.

gender-gap

It is also worth noting, as we can see in the chart below, that this gender gap exists at all levels of education, and in fact grows with the level of education.

education-and-gender

And, just as with men, it is important to recognize that the experience of women workers is also shaped by race and ethnicity. As we saw in the first chart above, White women did far better than Black and Hispanic women over the period 1979 to 2014.  And they did so from a higher earnings base: while White women earn approximately 81.8 percent of the White male median wage level, the corresponding percentage for Black women is 65.1 percent, and for Hispanic women only 58.9 percent.  Clearly, there is not a lot for women to cheer about either, despite their relatively better wage performance over the entire period.

Unfortunately, the media focus on White males and their economic difficulties works to weaken the unity, and by extension power, of the labor movement.  One reason is that it marginalizes non-White workers by making them invisible, despite the fact that they confront, as we saw above, far worse economic conditions than White males. Another is that it divides the labor movement into competing groups, setting up a gender conflict in which White male losses are explained by female gains, even though both male and female hourly median wages are falling.

The fact is that the great majority of workers are struggling, even during this so-called period of economic recovery.  As the chart below shows, while productivity grew by 62.7 percent over the period 1979 to 2014, the overall hourly compensation (which includes both wages and benefits) of a typical worker grew by only 8 percent.  This growing gap between productivity and compensation, created by corporate and state policies, helps to explain why profits and the income of the wealthy are growing so rapidly while worker earnings stagnate at best.

pay-and-productivity

There is no shortcut to confronting and reversing existing trends.  Only a strong united labor movement can anchor the broader movement for change that we need.  Building that unity requires developing a shared understanding of the way discrimination produces pay gaps based on gender, race, and ethnicity, gaps that disproportionately benefit corporate bottom lines.  It also requires prioritizing struggles that help to close those gaps in ways that strengthen worker power in both the workplace and community.

The authors of the EPI study provide a useful list of demands that point in the right direction:

Besides doing everything we can to eradicate labor market disparities based on gender and race, to maximize women’s economic security, we should pursue policies that spur broad-based wage growth by giving workers more leverage to secure higher pay. These policies include bringing about full employment, restoring the right to collective bargaining, raising the minimum wage and tipped minimum wage, guaranteeing access to paid sick leave and paid family leave, providing accessible and high-quality child care, ensuring that hourly workers can get the number of hours they need and curtailing employers’ irregular scheduling practices, increasing retirement security, updating  and enforcing labor standards (e.g., raising the overtime salary threshold and cracking down on wage theft), enacting comprehensive immigration reform and providing undocumented workers a path to citizenship, and strengthening the social safety net.

The new Trump administration has made clear its anti-worker agenda and determination to break unions.  Our response has to include serious efforts to revitalize the trade union movement and build popularly-led labor-community alliances in support of good jobs, a strong and accountable public sector, and sustainable and healthy cities.  Cutting through the misinformation about the divisions within and conditions facing US workers is a small but necessary step.

The Devastating Transformation Of Work In The US

Two of the best-known labor economists in the US,  Lawrence F. Katz and Alan B. Krueger, recently published a study of the rise of so-called alternative work arrangements.

Here is what they found:

The percentage of workers engaged in alternative work arrangements – defined as temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers – rose from 10.1 percent [of all employed workers] in February 2005 to 15.8 percent in late 2015.

That is a huge jump, especially since the percentage of workers with alternative work arrangements barely budged over the period February 1995 to February 2005; it was only 9.3 in 1995.

But their most startling finding is the following:

A striking implication of these estimates is that all of the net employment growth in the U.S. economy from 2005 to 2015 appears to have occurred in alternative work arrangements. Total employment according to the CPS increased by 9.1 million (6.5 percent) over the decade, from 140.4 million in February 2005 to 149.4 in November 2015. The increase in the share of workers in alternative work arrangements from 10.1 percent in 2005 to 15.8 percent in 2015 implies that the number of workers employed in alternative arrangement increased by 9.4 million (66.5 percent), from 14.2 million in February 2005 to 23.6 million in November 2015. Thus, these figures imply that employment in traditional jobs (standard employment arrangements) slightly declined by 0.4 million (0.3 percent) from 126.2 million in February 2005 to 125.8 million in November 2015.

Take a moment to let that sink in—and think about what that tells us about the operation of the US economy and the future for working people.  Employment in so-called traditional jobs is actually shrinking. The only types of jobs that have been growing in net terms are ones in which workers have little or no security and minimal social benefits.

Figure 2 from their study shows the percentage of workers in different industries that have alternative employment arrangements.  The share has grown substantially over the last ten years in almost all of them.  In Construction, Professional and Business Services, and Other Services (excluding Public Services) approximately one quarter of all workers are employed using alternative work arrangements.

distribution

The study

Because the Bureau of Labor Statistics has not updated its Contingent Work Survey (CWS), the authors contracted with the RAND institute to do their own study.  Thus, Rand expanded its own American Life Panel (ALP) surveys in October and November 2015 to include questions similar to those asked in the CWS.   They surveys only collected information about the surveyed individual’s main job.  And, to maintain compatibility with the CWS surveys, day laborers were not included in the results.  Finally, the authors only included information from individuals who had worked in the survey reference week.

People were said to be employed under alternative work arrangements if they were “independent contractors,” “on-call workers,” “temporary help agency workers,” or “workers provided by contract firms.  The authors defined these terms as follows:

“Independent Contractors” are individuals who report they obtain customers on their own to provide a product or service as an independent contractor, independent consultant, or freelance worker. “On-Call Workers” report having certain days or hours in which they are not at work but are on standby until called to work. “Temporary Help Agency Workers” are paid by a temporary help agency. “Workers Provided by Contract Firms” are individuals who worked for a company that contracted out their services during the reference week.

The results in more detail

All four categories of nonstandard work recorded increases:

Independent contractors continue to be the largest group (8.9 percent in 2015), but the share of workers in the three other categories more than doubled from 3.2 percent in 2005 to 7.3 percent in 2015. The fastest growing category of nonstandard work involves contracted workers. The percentage of workers who report that they worked for a company that contracted out their services in the preceding week rose from 0.6 percent in 2005 to 3.1 percent in 2015.

Table 4 shows the percentage of workers in different categories that are employed for their main job in one of the four nonstandard work arrangements.  The relevant comparisons over time are with the two CPS studies and the Alternative Weighted results from the Rand study.

4b

Here are some of the main findings:

There is a clear age gradient that has grown stronger, with older workers more likely to have nonstandard employment than younger workers.  In 2015, 6.4 percent of those aged 16 to 24 were employed in an alternative work arrangement, while 14.3 percent of those aged 25-54 and 23.9 percent of those aged 55-74 had nonstandard work arrangements.

The percentage of women with nonstandard work arrangements grew dramatically from 2005 to 2015, from 8.3 percent to 17 percent.  Women are now more likely to be employed under these conditions than men.

Workers in all educational levels experienced a jump in nonstandard work, with the increase greatest for those with a bachelor’s degree or higher.  “Occupational groups experiencing particularly large increases in the nonstandard work from 2005 to 2015 include computer and mathematical, community and social services, education, health care, legal, protective services, personal care, and transportation jobs.”

The authors also tested to determine “whether alternative work is growing in higher or lower wage sectors of the labor market.”  They found that “workers with attributes and jobs that are associated with higher wages are more likely to have their services contracted out than are those with attributes and jobs that are associated with lower wages. Indeed, the lowest predicted quintile-wage group did not experience a rise in contract work.”

The take-away

The take-away is pretty clear.  Corporate profits and income inequality have grown in large part because US firms have successfully taken advantage of the weak state of unions and labor organizing more generally, to transform work relations.  Increasingly workers, regardless of their educational level, find themselves forced to take jobs with few if any benefits and no long-term or ongoing relationship with their employer.  Only a rejuvenated labor movement, one able to build strong democratic unions and press for radically new economic policies will be able to reverse existing trends.

The Importance Of Solidarity

As we begin to take stock of the political moment in the United States and strategize ways to build a movement strong enough to resist the policies of the Trump administration and confident enough to project a new social vision, it is important to learn from the efforts of people in other countries facing similar challenges.  South Korea for example.

Park Geun-hye, the current president of South Korea, took office in February 2013.  The daughter of Park Chung-Hee, the brutal military dictator who ruled the country from 1961 until his assassination in 1979, Park Geun-hye presented herself as a “soft” conservative during the presidential campaign.  But once elected she moved quickly and decisively, with the support of the country’s security forces, to expand the neoliberal and anti-democratic policies of her conservative predecessor and crush any opposition.

The consequences of her rule have been devastating for the great majority of Koreans.  Some highlights: her deregulation of health and safety standards led directly to the sinking of a ferry carrying over 400 students; more than 300 of whom drowned.  Her labor initiatives include laws to increase the precariousness of work and difficulty of unionization, and lower the wages of regular workers.  Her education policies require that public school teachers use only state written history books.  Her militarist policies include the construction of a new naval base for US warships on Jeju island, over the objections of the residents; an intensification of war games directed against North Korea; the closure of the Kaesong industrial zone; and the welcoming of a US THAAD anti-missile battery aimed at China and Russia on South Korean soil.  And she has advanced her policies by outlawing demonstrations, arresting hundreds of union leaders, and dissolving a political party.

Korean social movements, led by the Korean Confederation of Trade Unions, have responded to this rightward movement with ever larger demonstrations, despite the jailing of many labor leaders.  Now, the balance of forces appears to be decisively shifting against the government.  The reason: new revelations point to the fact that many of Park’s policies were made either in consultation with or in response to the dictates of an unelected confidant, the daughter of a now deceased cult leader.

As the website Zoom in Korea explains:

Since late October, when news broke of the government corruption scandal involving South Korean president Park Geun-hye, South Korean citizens have demanded the removal of Park and her administration from office. Last week on November 5, close to 200,000 people took to the streets of Seoul to demand her resignation. A diverse range of people from different social enclaves of South Korean society joined together to send a common message to their government – “Park Geun-hye, step down.”

Throughout the streets of Seoul, one could see recently politicized high school students marching side by side with elderly folks who had experienced past revolutionary moments in South Korean history.

Here is a short clip which shows what it looks like when 200,000 people crowd the streets of Seoul to demand change.

For more on the growing movement in South Korea, its demands and its challenges, read the rest of the Zoom in Korea article here.

 

We are not alone in facing powerful dictatorial rightwing political forces.  As we develop our own response here in the United States we need to keep solidarity in mind, which means both supporting and learning from struggles elsewhere.

 

November 12 update

Zoom in Korea reports:

1 Million in Historic Protest to Oust Park Geun-hye
As of 8:30 pm (Seoul time) on Saturday, November 12, 2016

South Korean media report 1 million gathered at Gwanghwamun Plaza to demand Park Geun-hye’s resignation. This is the largest protest South Korea has seen since the democratic uprising of June 1987. People from across the country, including conservative strongholds Busan and Daegu have traveled to Seoul to join the protest. Youth in school uniforms and mothers with children are among the protest.

Protesters on the way to the Blue House are blocked by a barricade of police buses near Gyeongbok Palace. The police have also blocked off entrances to subway stations between the police barricade and the presidential residence. Protesters are intent on reaching the Blue House but so far remain peaceful.

Seoul Mayor Park Won-soon refused to supply water from the city’s fire hydrants to the police, which had threatened to use water cannons to block protesters.  Referring to the death of farmer Baek Nam-gi, hit by a high-pressure water cannon at a mass demonstration in November 2015, Mayor Park said in a radio interview, “No more.” He added, “Water from fire hydrants is intended for putting out fires, not peaceful protests.”  A reporter outside the Blue House says protesters can be heard from the Blue House, which has been in a state of emergency since Saturday morning but has not issued an official response to the calls for the president’s resignation.

The Korean Confederation of Trade Unions has vowed a general strike if Park Geun-hye refuses to resign.

Corporations On The Move

While the fate of the Transpacific Partnership agreement remains uncertain, one thing is clear: Vietnam’s embrace of the agreement has singled transnational corporations that the country is open for business.  And with labor militancy growing in the Asian region, especially in China, South Korea, Indonesia, and Thailand, transnational corporations appear eager to shift operations to that country.

An article in the South Korean newspaper, the Hankyoreh, highlighted the findings of a recent report by the Korea Trade-Investment Promotion Agency (KOTRA) titled: “Changes in the International Trade Environment and Global Production Bases.”

The report looked at 31 cases involving 27 major transnational corporations that had either invested in China, Vietnam, Indonesia, Thailand, Malaysia, or Mexico in the preceding two years or had announced plans to do so.  According to the Hankyoreh, the report found that:

15 of the companies – accounting for nearly half of the cases – had either relocated their production bases to Vietnam or were planning to. With just one company planning to exit Vietnam, the data mean a net influx of 14 companies.

Meanwhile, signs pointed to a production base exodus from the “world’s factory” in China, with a negative net influx of eight companies (three entries, eleven departures).

The most commonly cited reason for relocating was to take advantage of trade agreements, which was mentioned in 23 cases. Changes in the business environment were cited in 12 cases.  Among business environment changes, the most frequently mentioned was “to cut personnel costs,” which was cited in nine cases.

Such moves put new pressures on Asian governments to intensify their respective efforts to slash wages, weaken labor protections, and cut taxes.  Whether they can succeed is another matter.

For example, working conditions are already terrible in many Chinese export factories—see here for a recent report on living and working conditions at a factory outside Shanghai where workers assembled Apple products.

Moreover, strikes and workplace actions are on the rise as Chinese workers grow increasingly militant in the face of worsening economic conditions.  In fact, the China Labor Bulletin reported a doubling of strikes in 2015 compared to the previous year.

As the Wall Street Journal explained in an article titled “China’s Workers Are Fighting Back as Economic Dream Fades“:

Factory employment in China has fallen for 25 months, according to a business-sentiment index released by Caixin, a Chinese magazine. China’s labor ministry says it expects employment to remain stable near term but says the impact of China’s slowdown and restructuring can’t be ignored. . . .

Chinese researchers and business executives say chances are rising that the Communist government may face the kind of social unrest that it has long feared. Chinese authorities recently detained and interrogated over a dozen labor activists, mainly in Guangdong.

“They definitely see protests as threatening social security, and are concerned,” says Anita Chan, a visiting fellow with the Political and Social Change Department of Australian National University.

The KOTRA report demonstrates that transnational corporations remain committed to their strategy of using mobility (or the threat of it) to force down production costs despite the fact that this strategy will only intensify global stagnation tendencies.  Hopefully, the pressures generated by capitalist globalization will strengthen worker organizing and encourage the building of cross-border solidarity and demands for greater control over corporate investment and production decisions.

Globalization and Precarious Work In Asia

The Asia-Pacific region is regularly celebrated as the bright spot in the world economy, especially East Asia.  This is largely because the region has been the most successful in attracting foreign direct investment and producing exports of manufacturers.

Generally overlooked is the fact that these “accomplishments” have done little to create adequate formal sector employment opportunities for the region’s workers.  In fact, it is likely that the region’s preeminent position in global production networks is closely tied to government policies which have kept workers in a weak bargaining position.

LOW SHARE OF WORKERS IN WAGE EMPLOYMENT

Perhaps the most basic labor market division is between those that work for wages and those that don’t.  As the International Labor Organization explains:

Poor job quality is pervasive in developing Asia and the Pacific and hinders progress towards improving living standards. One indicative measure is the low share of workers in wage employment which typically is more productive and provides higher earnings. Conversely, the bulk of those workers not in salaried jobs are less likely to have formal employment arrangements and social protection coverage.

In the developing Asia-Pacific region, the estimated number of wage employees totaled 766 million in 2015.  While this represents a remarkable increase of 63.4 per cent since 2000, salaried workers still accounted for only two in five of the region’s workforce. Taken by sub-region, the wage employment rate was lowest in South Asia (a ratio of one in four workers). In East Asia the share was around three in five and in South-East Asia and the Pacific approximately two in five.

Here is a look at the situation in some individual countries:

wage labor

The large number of non-wage workers, many of who are desperate for wage work, have given employers and the state a powerful lever which they have used to weaken worker efforts at unionization and wage bargaining.

THE SLOWDOWN IN FORMAL SECTOR JOB CREATION

University of the Philippines professor Rene E. Ofreneo summarizes recent employment trends, highlighting the slowdown in job creation which began in the 1990s:

Since the 1990s, the UNDP has been pointing out that the outcomes of deeper integration and globalization have been unequal and uneven for most countries, especially for China. The UNDP Report for Asia-Pacific (2006) said that growth has been jobless for some Asian countries, as reflected in East Asia’s job record: 337 million jobs created in the l980s and only 176 million jobs in the l990s. The ILO Report for Asia-Pacific in 2011 also highlights the remarkable divergence between high GDP growth and low employment growth. Note that China has the highest GDP growth and yet it also has the lowest employment growth, with the exception of slumping Japan. . . .

The ILO’s observations on low employment elasticities [which show the increase in employment from an increase in growth] are supported by the study of Jesus Felipe and Rana Hasan (2005), who undertook a labor market survey for the ADB. They estimated a sharp decline in employment elasticities for Asia’s fast-growing economies – China (from 0.33 in the l980s to 0.129 in the l990s), India (from 0.384 to 0.312), Malaysia (from 0.683 to 0.406), Thailand (from 0.315 to 0.193) and Taiwan (from 0.242 to 0.193).  However, Singapore doubled its employment elasticity (from 0.375 to 0.711), while the Philippines registered substantial increase (from 0.535 to 0.711). South Korea’s elasticity hardly changed (from 0.223 to 0.225). One implication of the above statistics is that growth in the fast-growing economies like China and India is indeed accounted for by the increased use of labor-displacing technology, which explains why Felipe and Hasan also found a substantial increase in informal sector employment in these two countries.

While the ILO focus on wage employment is important, it also matters whether the jobs being created represent formal or informal employment. In broad brush, formal sector employment refers to jobs covered by national labor law.  In these jobs, workers are supposed to receive established social benefits, like unemployment compensation or pensions, and work conditions are supposed to be covered by established health and safety regulations.  Wage workers employed in the informal sector are normally not entitled to such benefits or protected by such regulations.  The informal sector can include both wage and nonwage workers.

The definition of formal employment varies greatly across the region.  As Professor Ofreneo describes:

In Bangladesh, formal employment applies only to establishments with 10 or more employees, meaning jobs in enterprises with less than 10 employees are by implication considered informal. Similarly, in Pakistan, the measurement for formal employment is in terms of the number of employees – 20 or more for nonindustrial and 10 or more for industrial establishments. In India, informal employment is simply any employment outside the “organized sector” consisting of the public sector, recognized educational institutions and enterprises registered under the Indian Factories, Co-operative Societies and Provident Fund Acts. In Indonesia, the informals are the own-account workers, self-employed assisted by family members, farmer employees and unpaid family workers. In the case of the Philippines, informal employment includes the self-employed, unpaid family workers and those employed in enterprises with less than 10 people. Thailand, on the other hand, has introduced a more nuanced definition: “informal sector” includes enterprises operating with a low level of organization on a small scale, with low and uncertain wages and with no social welfare and security. Malaysia’s informal definition is focused on the individual workers – the unprotected workers who are not covered by the social security system or the Employees Provident Fund and the self-employed, including unpaid family workers. China defines the informal sector as the totality of small-scale economic units that are not legally established or registered, consisting mainly of micro enterprises, family enterprises and independent service persons.

According to ILO estimates, approximately 65 percent of non-agricultural employment in the Asia-Pacific region is informal employment. More alarming is the fact that formal sector wage employment appears to be shrinking in many countries, often both absolutely and relatively.

THE CHINESE EXPERIENCE

The situation in China is striking.  The following is an excerpt from a past blog post:

In “Misleading Chinese Legal and Statistical Categories: Labor, Individual Entities, and Private Enterprises,” a 2013 article published in the journal Modern China, Philip C.C. Huang describes the evolution and application of Chinese labor law, highlighting its relevance for and growth of different categories of labor.  As he explains, Chinese statistical categories recognize four main types of labor activity based on the legal standing of the employing firm: labor by “employee-workers,” labor by workers employed by legally registered “private enterprises,” labor by people in legally registered “individual entities,” and “unregistered” labor.

Only “employee-workers” are considered formal sector workers and covered by the country’s labor law. . . .

Significantly, as the next table illustrates, both the number and percentage of workers employed in the formal urban economy are shrinking.  The number employed in the formal economy in 2010 was less than the number employed in 1990.  As of 2010, only 36.8% of all workers in the urban economy were employed in formal sector jobs.  In short, all the growth in urban employment over recent decades has been in categories not covered by Chinese labor law, which means that those workers are not covered by legally established minimum wage, overtime regulations, and social benefit requirements.

china

Who are the workers employed outside the formal sector?  “Private enterprises” are mainly legally registered small-scale businesses averaging 13-15 people.  As Huang describes: “They are also as a rule not formally incorporated as a limited liability entity with separate ‘legal person’ status and are therefore not considered legal ‘employing units’ that are involved in ‘labor relations’. . . . These small businesses rely mainly on the cheapest labor available, the majority of them on disemployed workers and peasant-workers, who are considered to be only in a casual work relationship with them and for whom they need provide no benefits.”

“Individual entities” include legally registered small scale operations employing one or perhaps two people, usually the owner and a family member or friend.  In the largest cities, these workers are “largely engaged in wholesale and retail trade (mainly of daily necessities and clothing), followed by small and modest eateries and hostels, domestic and other services, and transport work. . . .Regardless, the great majority of the people operating the individual entities come from the ranks of the disemployed urban workers and the migrant peasant-workers.”

“Unregistered” workers are those, as the category name implies, whose work is unregistered and therefore largely illegal or extralegal.  They are primarily “newer and less established peasants-workers working in the lowest levels of the informal economy, as temporary construction workers, janitors, itinerant peddlers or stall keepers, guards standing outside residential compounds and commercial buildings the help in eateries and hostels domestic servants manual transport and loading-unloading workers, and the like, many of whom work in the shadow of the law without permits, truly members of the so-called floating population.”

Unregistered workers “appear in the official state statistical tallies only as the difference between those who have registered with the official state administrative entities and the actual numbers of laborers counted up by the decennial population censuses (which have made every effort to enumerate every person living and working in the cities).”  As we can see from the table above, the number of unregistered urban workers are quickly catching up to the number of formal sector urban workers.

The critical point here is that despite record rates of growth few formal sector jobs have been created in urban areas.  That means that official Chinese labor laws and regulations cover a relatively small and declining share of Chinese urban sector workers. . . .

At the same time, things are far from rosy for most formal sector workers.  For example, many companies, especially foreign owned companies, have been actively seeking to weaken formal sector job rights by employing so-called dispatched workers and student interns to avoid paying the wages and benefits mandated by Chinese labor law.  It is therefore not surprising, as recent labor struggles make clear, that even workers in the formal sector have been forced to take direct action to ensure compliance with their country’s labor laws and improve their working conditions.

THE KOREAN EXPERIENCE

In Korea, workers are said to have regular or irregular rather than formal or informal labor market status.  The category of irregular workers includes limited-term workers “whose termination of employment is predetermined or fixed”; part-time workers “who work less than 36 hours a week”; and atypical workers who are dispatched workers, subcontracted workers, specially-employed persons, independent contractors, and home-based workers.

A recent story on the rise of irregular workers in South Korea explains the difference between regular and irregular work as follows:

According to attorney S. Nathan Park these terms “are shorthand rather than precise legal definitions. Broadly speaking, a regular worker is a worker who receives the fullest benefits afforded by Korea’s labor laws; an irregular workers is a worker who does not.” The latter could be anything from a sub-contracted worker doing a one-off job to an office worker on a short, two-year contract.

Irregular workers are, in short, precariously employed people. What makes them precarious, Park indicates, is that they aren’t guaranteed the “’four major insurances’” that corporations are legally obligated to provide regular workers — health insurance, occupational hazard insurance, unemployment insurance, and the national pension. These insurances were the legal accomplishments of the labor unions’ post-1987 democratic transition legal victories.

Additionally, and perhaps most importantly, irregular workers aren’t guaranteed employment unlike regular workers. The latter category of employment, Park adds, “cannot be subject to a defined end date of their employment other than the mandatory retirement age, nor can they be terminated without cause.”

The Korean government has been actively promoting, in concert with large Korean firms, the growth of irregular employment.  In many cases this is being achieved through the introduction of laws that allow corporations to transform work relations, converting regular into irregular work.  For example, until the late 1990s, labor regulations made it difficult for corporations to fire workers or to make significant use of sub-contracted workers, workers dispatched from a temp agency, or workers hired on a temporary contract.  The regulations were changed, enabling large companies to aggressively shed their regular workers, either replacing them with or rehiring them as subcontracted, dispatched, or temporary labor.

A South Korean newspaper article highlights the outcome of this process:

“Each company and industry makes its own determination as to what percentage of irregular workers represents an optimal balance in terms of performance, and that forms the basis of their hiring strategy,” explained Lee Kwang-ho, head of the employment policy team for the Korea Employers’ Federation.

The overall number of irregular workers in South Korea has hovered between 8.18 million and 8.65 million for the seven years since the Fixed-Term Worker Act was enacted in July 2007. The increase has appeared to level off at times, but the number has been more or less set in stone, with legislation, institutional changes, and labor union struggles failing to put a dent in it.

The recent data now show one possible explanation: identical hiring strategies by chaebol [large Korean conglomerates], all of which maintained set percentages of irregular workers through large-scale hiring of “unaffiliated” dispatch workers and subcontractors.

In the past, employers’ groups have pointed to the low percentage of irregular workers hired by companies with over 300 employees as indicating the situation is basically unfixable. They noted that such large companies accounted for just 5.6% of irregular workers in August 2013, while most of the rest were at small workplaces with a staff of 30 or fewer.

But the employment information data now shows that the companies have been breeding grounds for irregular hiring practices.

“Analysis of the data provided by the companies shows that 1,910,000 of the 4,358,000 salaried workers at companies with over 300 employees, or about 43.8%, are irregular workers,” said Kim Yu-seon, a senior research fellow at the Korea Labour and Society Institute (KLSI).

The nearly identical percentages of overall irregular workers – 45.4% of all salaried workers or 8.52 million people as of August, according to KLSI – and irregular workers at large companies suggests that those companies are at the heart of both the problem and its resolution.

This 45.4 percent figure doesn’t capture the full extent of irregular work in South Korea.  Adding self-employed independent contractors, home based workers, and day laborers brings the share of irregular workers to approximately 55 percent of the waged workforce.

Moreover, the Korean government is now aggressively promoting still new changes to the country’s labor laws which will further the growth of irregular work.  For example, proposed reforms will increase the number of industries allowed to use temporary workers and double the length of time that a worker can be employed on a temporary basis, from two years to four years.  And there is nothing in the law that prevents a company from continually rehiring the same worker on the same temporary contract.

This transformation of Korean work relations has greatly increased corporate power at worker expense.  First, workers are being stripped of their job security and their ability to organize and negotiate over their working conditions.  Second, companies are able to greatly reduce their wage and benefit costs.  For example, irregular workers currently earn approximately 54 percent of what regular employees earn for similar work; it was 65 percent in 2004.

PRECARIOUSNESS AND RESISTANCE

China and South Korea are just two examples.  Similar trends exist in the majority of countries in the region.

The takeaway: capitalist globalization dynamics are not leading to the creation of stable, formal labor sector jobs, even in the region with the most dynamic economies.  In fact, current trends in many countries suggest that the reverse is happening, that the drive for profit is encouraging the growth of ever more precarious work and the associated worsening of majority living and working conditions.

At the same time, there is growing labor resistance to this development.  Examples include the recent general strike in Indonesia, widespread labor actions in China, massive demonstrations in Korea, and general strike organizing in India.  In sum, the Asia-Pacific is becoming a region of active national labor struggles for change.

 

 

 

 

 

 

Political And Economic Struggle In South Korea

Tens of thousands are expected to gather in Seoul on December 5 to protest South Korean President Park Geun-hye’s proposed anti-worker labor market reforms, as well as her pursuit of new free trade agreements and plans for public schools to use a state authored history book. They hope to build on the momentum generated by the November 14 rally, when nearly 100,000 people, mostly farmers, workers, and students, marched in the country’s capital to call for her ouster.

South_Korea_Protests-3

The South Korean National Police Agency has banned the upcoming gathering but the Korean Confederation of Trade Unions (KCTU), calling the ban “unconstitutional,” remains committed to the protest.  Workers see the fight to stop the labor market reforms as critical to the future of the South Korean economy. The reforms are designed to make it easier for companies to fire workers and unilaterally restructure work conditions, as well as increase their use of temporary and sub-contracted labor.

The South Korean government has responded to the protest movement by cracking down on organizers and protesters. It has come under widespread criticism for its excessive use of force against demonstrators on November 14.  A 69-year old farmer remains in critical condition after being doused with tear gas and water cannons. Since November 14, the government has intensified police raids on labor unions and issued an arrest warrant for the president of the KCTU, Han Sang-gyun, for his role in organizing the protest. The police have surrounded the Jogyesa Buddhist Temple, where Han has sought sanctuary.

Han has said he will voluntarily turn himself in to the police if the government will abandon its labor market reform plans. However, if the government refuses to change course, the KCTU vows to launch a general strike. According to Han, “We’re talking about stopping production, freight trucks stopping in their tracks, railroad and subway workers on illegal strikes, and immobilizing the country so that the government will feel the outrage of the workers.”

President Park has also come under fire for comments she made likening protesters to Islamic State (IS) terrorists.  At a recent National Assembly meeting to discuss new counterterrorism bills she is reported to have said, “Rallies where protesters wear face masks should be banned. Isn’t that how IS does it? Hiding their faces….”.

The South Korean experience is far from unique. With the deepening of corporate-led globalization processes, governments everywhere seek to weaken labor movements and worker protections and restrict options for public education and democratic debate. As a consequence, the KCTU’s efforts to revitalize its own union structures through its first ever direct election for top officers and renewed internal education and anchor a broad coalition of social forces around an alternative social vision deserves widespread support and serious study.

Union-Community Victory In Seattle

Seattle teachers deserve praise for their recent contract victory.  It highlights how unions can and should defend both their members and the public interest.

From Valerie Strauss who covers education for the Washington Post:

Seattle teachers went on strike for a week this month [September] with a list of goals for a new contract. By the time the strike officially ended this week, teachers had won some of the usual stuff of contract negotiations — for example, the first cost-of-living raises in six years — but also less standard objectives.

For one thing, teachers demanded, and won, guaranteed daily recess for all elementary school students — 30 minutes each day. In an era when recess for many students has become limited or non-existent despite the known benefits of physical activity, this is a big deal, and something parents had sought.

What’s more, the union and school officials agreed to create committees at 30 schools to look at equity issues, including disciplinary measures that disproportionately affect minorities. Several days after the end of the strike, the Seattle School Board voted for a one-year ban on out-of-school suspensions of elementary students who commit specific nonviolent offenses, and called for a plan that could eliminate all elementary school suspensions.

Other wins for students in Seattle’s nearly 100 traditional public schools include:

Teachers won an end to the use of student standardized test scores to evaluate them — and now, teachers will be included in decisions on the amount of standardized testing for students. This evaluation practice has been slammed by assessment experts as invalid and unreliable, and has led to the narrowing of curriculum, with emphasis on the two subjects for which there are standardized tests, math and English Language arts.

Special education teachers will have fewer students to work with at a time. In addition, there will be caseload limits for other specialists, including psychologists and occupational therapists.

Seattle teachers had said they were not only fighting for pay raises but to make the system better for students. It sounds like they did.

Lessons From A Defeat In Europe

The Troika are celebrating the end of negotiations with Greece, proclaiming that thanks to their tireless efforts the Eurozone remains whole.  And why wouldn’t they celebrate.  They have demonstrated their power to crush, at least for now, the Greek effort to end austerity and its associated devastating social consequences.  Tragically, Syriza has not only surrendered, the nature of its defeat is likely to leave the country worse off, at least both economically and very likely politically as well.

At this point, one of the most important things we can do is try to draw lessons from the Greek experience.

  • Perhaps one of the most obvious lessons is that visions of a more humane Europe are not real.  European leaders were more than willing to pursue the complete collapse of the Greek economy in order to break Syriza and the movement that gave it power for fear of the demonstration effect a successful Syriza might have had on broader European politics.  Using the lever of a European Central Bank cut off of funding for Greek banks, the Troika pressed Syriza to the wall.

  Here is how a Guardian blog post described the nature of the discussions leading up to the final Greek surrender:

Alexis Tsipras was given a very rough ride in his meeting with Tusk, Merkel and Hollande, our Europe editor Ian Traynor reports.

Tsipras was told that Greece will either become an effective “ward” of the eurozone, by agreeing to immediately implement swift reforms this week.

Or, it leaves the euro area and watches its banks collapse.

One official dubbed it “extensive mental waterboarding”, in an attempt to make the Greek PM fall into line.

An unpleasant image that highlights just how far we have now fallen from those European standards of solidarity and unity.

  • Second, the vicious nature of the European response to the Greek government’s initial offer of moderate austerity, symbolized by the stance of its dominant power Germany, reflects more than ignorance or petty mindedness on the part of European leaders.  It reflects the increasingly exploitive nature of contemporary capitalism everywhere.  Capitalists, pursuing profits in an increasingly competitive and unstable global system, demand ever greater power to intensify the exploitation of workers everywhere and that is how dominant states approach social policy in their respective countries and international institutions.
  • Third, class interests dominate so-called “economic rationality”.  A case in point: in the period before the July 5 referendum we learned that IMF staff believed that Greece would be unable to pay its debts under the best of conditions and that therefore any agreement with Greece had to include debt relief while at the very same time the head of the IMF was aggressively joining with European leaders to reject Greek government pleas for just such relief.
  • Fourth, since dominant powers will do everything in their power to block meaningful social transformation, those seeking to lead it must prepare people as best they can for the expected class struggle and opposition.  In this case Syriza can and should be faulted for not engaging people about the difficulty of achieving both an end to austerity and Eurozone membership under current conditions and doing its best to develop the technical and political capacities necessary for a break from the Euro on its own terms if and when the situation called for it.

 

Greeks elected a progressive government, voting Syriza into power in January 2015, on the basis of the party’s commitment to both anti-austerity and continuing Eurozone membership.  The leadership of Syriza never wavered from encouraging Greeks to believe that both were possible and most Greeks, for many reasons, were eager to believe that this was true.  Although the results of the July 5 referendum showed that the Greek working class has a strong fighting spirit, polling also revealed that most of those who voted No hoped that their vote against the European austerity plan would lead to a better deal from Europe, not a break from the Eurozone.  They no doubt felt this way because of government pronouncements.

For example, below are the results of polling done the day before the referendum:

consequencesNO

 

eurovsEU

Tragically, immediately after the vote the Greek government surprised everyone by returning to negotiations with the Troika with an offer to accept an austerity program much like the one that had been originally placed before the people and rejected.  The only meaningful addition was that it included the long held Greek proposal for debt relief.  This decision was a serious mistake for two reasons—it generated serious confusion on the part of the Greek population and perhaps even more importantly convinced the Troika that the Greek government was not prepared to use its new domestic support to challenge the status quo.  This only emboldened the Troika to proclaim that the referendum had changed everything and now that trust had been lost between the Troika and Syriza leaders, the austerity demands had to be intensified.

In fact, we have learned that Syriza’s leaders did not expect to win the referendum and were prepared to and in fact perhaps hoped to be able to resign and let more conservative forces negotiate and approve a new austerity package.  Here is part of an interview with James K. Galbraith, a strong Syriza supporter:

The recent Ambrose Evans Pritchard piece is very much on the mark (” Europe is blowing itself apart over Greece – and nobody seems able to stop it“). The Greek government, and particularly the circle around Alexis, were worn down by this process. They saw that the other side does, in fact, have the power to destroy the Greek economy and the Greek society — which it is doing — in a very brutal, very sadistic way, because the burden falls particularly heavily on pensions. They were in some respects expecting that the yes would prevail, and even to some degree thinking that that was the best way to get out of this. The voters would speak and they would acquiesce. They would leave office and there would be a general election.

It all went downhill from there.  In short, Syriza leadership had no plan B.  The Troika knew that Syriza was unwilling to pursue its own break from the Eurozone, which meant that its leadership would do anything to remain in the Eurozone.  The following is from an interview with Yanis Varoufakis, the former Greek finance minister, that provides insight into the somewhat self-inflicted weakness in Syriza’s bargaining stance:

The referendum of 5 July has also been rapidly forgotten. It was preemptively dismissed by the Eurozone, and many people saw it as a farce – a sideshow that offered a false choice and created false hope, and was only going to ruin Tsipras when he later signed the deal he was campaigning against. As Schäuble supposedly said, elections cannot be allowed to change anything. But Varoufakis believes that it could have changed everything. On the night of the referendum he had a plan, Tsipras just never quite agreed to it.

The Eurozone can dictate terms to Greece because it is no longer fearful of a Grexit. It is convinced that its banks are now protected if Greek banks default. But Varoufakis thought that he still had some leverage: once the ECB forced Greece’s banks to close, he could act unilaterally.

He said he spent the past month warning the Greek cabinet that the ECB would close Greece’s banks to force a deal. When they did, he was prepared to do three things: issue euro-denominated IOUs; apply a “haircut” to the bonds Greek issued to the ECB in 2012, reducing Greece’s debt; and seize control of the Bank of Greece from the ECB.

None of the moves would constitute a Grexit but they would have threatened it. Varoufakis was confident that Greece could not be expelled by the Eurogroup; there is no legal provision for such a move. But only by making Grexit possible could Greece win a better deal. And Varoufakis thought the referendum offered Syriza the mandate they needed to strike with such bold moves – or at least to announce them.

He hinted at this plan on the eve of the referendum, and reports later suggested this was what cost him his job. He offered a clearer explanation.

As the crowds were celebrating on Sunday night in Syntagma Square, Syriza’s six-strong inner cabinet held a critical vote. By four votes to two, Varoufakis failed to win support for his plan, and couldn’t convince Tsipras. He had wanted to enact his “triptych” of measures earlier in the week, when the ECB first forced Greek banks to shut. Sunday night was his final attempt. When he lost his departure was inevitable.

“That very night the government decided that the will of the people, this resounding ‘No’, should not be what energised the energetic approach [his plan]. Instead it should lead to major concessions to the other side: the meeting of the council of political leaders, with our Prime Minister accepting the premise that whatever happens, whatever the other side does, we will never respond in any way that challenges them. And essentially that means folding. … You cease to negotiate.”

Of course, it is easy to call for a break with the Eurozone but in reality such a break would not be a walk in the park.  For example, Varoufakis makes clear that there were no certainties for what would happen if the government decided on a break:

“He [Tsipras] wasn’t clear back then what his views were, on the drachma versus the euro, on the causes of the crises, and I had very, well shall I say, ‘set views’ on what was going on. A dialogue begun … I believe that I helped shape his views of what should be done.”

And yet Tsipras diverged from him at the last. He understands why. Varoufakis could not guarantee that a Grexit would work. After Syriza took power in January, a small team had, “in theory, on paper,” been thinking through how it might. But he said that, “I’m not sure we would manage it, because managing the collapse of a monetary union takes a great deal of expertise, and I’m not sure we have it here in Greece without the help of outsiders.” More years of austerity lie ahead, but he knows Tsipras has an obligation to “not let this country become a failed state”.

To be a bit more specific, a break from the Eurozone would require nationalization of the banks—an act that would immediately draw the country into a serious legal test with Europe since the banks are technically under the control of the European Central Bank.  It would require the government to quickly issue new script as it prepared a new currency, and aggressively engage in an expanded public works program.  At the same time it was unclear whether the new script would be accepted and whether the country would have sufficient foreign exchange to maintain minimum purchases of key import items such as food and medicine.  Moreover, many businesses, holding debts denominated in euros, would likely be forced into bankruptcy necessitating government takeover.  And, all this would take place in a relatively hostile international environment.  No doubt some countries would offer words of solidarity, but it appears unlikely that any would or could offer meaningful financial or technical assistance.   Still, with proper preparation the possibilities for success could have been greatly enhanced.

Strikingly, Varoufakis mentioned that Syriza had established a small team to think about what a break would mean shortly after their January 2015 election, a team that no doubt was kept small because the government wanted to keep the planning secret.  But that was a mistake.  Planning should have happened on a large scale and in a visible way.  Discussions should have been held with international legal experts as well as with the Brics countries concerning possible use of their new lending and investment facilities.  There was no need to keep this planning quiet, quite the opposite—Eurozone leaders should have been made aware that Syriza was seriously studying its alternatives.  And the population should have been brought along—that the government would do all in its power to stay in the eurozone as long as this was consistent with an end to austerity.

As it was, Tsprias went back into negotiations unarmed, desperate for a bailout.  Once the ECB tightened its support for Greece’s banking system it should have been clear, if not before then, that a German-led Europe was only interested in total surrender on the part of Greece.  And as far as I can tell total surrender is what they got.

Greece has agreed to austerity program that is far worse than any previously rejected.  Here is the Guardian summary of what was agreed:

Greek assets transfer

Up to €50bn (£35bn) worth of Greek assets will be transferred to a new fund, which will contribute to the recapitalisation of the country’s banks. The fund will be based in Athens, not Luxembourg as Germany had originally demanded.

The location of the fund was a key sticking point in the marathon overnight talks. Transferring the assets out of Greece would have meant “liquidity asphyxiation”, Tsipras said.

As the statement puts it: “Valuable Greek assets will be transferred to an independent fund that will monetise the assets through privatisations and other means.”

The “valuable assets” are likely to include things such as planes, airports, infrastructure and banks, analysts say.

Some of the fund will be used to recapitalise banks and decrease debt, but analysts are sceptical about how much money there will really be to work with.

“Given the experience of the last few years’ privatisation programme, these targets appear overtly optimistic, serving as a signalling mechanism of Greek government commitment to privatisation rather than a meaningful source of financing for bank recapitalisation, growth and debt reduction,” said George Saravelos, a strategist at Deutsche Bank.

Pensions

Greece has been told that it needs to pass measures to “improve long-term sustainability of the pension system” by 15 July.

The country’s pensions system, and its perceived generosity relative to other eurozone states, has been a key sticking point in the past five months of negotiations with creditors.

The so-called troika of lenders believes that Athens can save 0.25% to 0.5% of GDP in 2015 and 1% of GDP in 2016 by reforming pensions.

Greece had wanted to draw out reform of early retirement rules, starting in October and running until 2025, when everyone would retire at 67. The EU wants the process to start immediately, by imposing huge costs on those who want to retire early to discourage them from doing so. The lenders also say Athens must bring forward the reform programme so it completes in 2022.

VAT and other taxes

Another source of contention in the months of failed negotiations that preceded Monday’s tentative deal, VAT is now also on the block for immediate reform.

The latest agreement demands measures, again by 15 July, for “the streamlining of the VAT system and the broadening of the tax base to increase revenue”.

One of the key objections from Greece’s creditors to its VAT system is a 30% discount for the Greek islands. Athens proposed a compromise on 10 July under which the exemptions for the big tourist islands – where the revenue opportunities are greatest – would end first, with the more remote islands following later.

The onus on Greece to “increase revenue” is likely to mean more items will be covered by the top VAT rate of 23%, including restaurant bills, something that had until recently been a red line for Tsipras.

Statistics office

Another demand for legislation by 15 July is on “the safeguarding of the full legal independence of ELSTAT”, the Greek statistics office.

Balancing the books

Greece has been told it must legislate by 15 July to introduce “quasi-automatic spending cuts” if it deviates from primary surplus targets. In other words, if it cannot cut enough to balance the books, it should cut some more.

In the past, the troika has demanded that Greece commit to a budget surplus of 1% in 2015, rising to 3.5% by 2018.

Bridging finance

Talks will begin immediately on bridging finance to avert the collapse of Greece’s banking system and help cover its debt repayments this summer. Greece must repay more than €7bn to the European Central Bank (ECB) in July and August, before any bailout cash can be handed over.

Debt restructuring

Greece has been promised discussions on restructuring its debts. A statement from Sunday night also ruled out any “haircuts”, leaving the €240bn Greece owes to Brussels, the ECB and the International Monetary Fund (IMF) on the books.

Angela Merkel, the German chancellor, said the Eurogroup was ready to consider extending the maturity on Greek loans. She argues that a delay in loan repayments and a lower interest rate act in the same way as a write-off, which is why many analysts point out that the Greek debt mountain is worth the equivalent of 90% of GDP in real terms and not the 180% commonly quoted. Merkel said that for this reason there was no need for a Plan B.

Radical reforms

Tsipras pledged to implement radical reforms to ensure the Greek oligarchy finally makes a fair contribution. The agreement thrashed out overnight would allow Greece to stand on its feet again, he said.

Implementation of the reforms would be tough, he said, but “we fought hard abroad, we must now fight at home against vested interests”.

He added: “The measures are recessionary, but we hope that putting Grexit to bed means inward investment can begin to flow, negating them.”

Liberalising the economy

The new deal also calls for “more ambitious product market reforms” that will include liberalising the economy with measures ranging from bringing in Sunday trading hours to opening up closed professions.

Greece’s labour markets must also be liberalised, the other eurozone leaders say. Notably, they are demanding Athens “undertake rigourous reviews and modernisation” of collective bargaining and industrial action.

Pharmacy ownership, the designation of bakeries and the marketing of milk are also up for reform, all as recommended in a “toolkit” from the Paris-based Organisation for Economic Co-operation and Development.

IMF support

The statement from the euro summit stipulates that Greece will request continued IMF support from March 2016. This is another loss for Tsipras, who had reportedly resisted further IMF involvement in Greece’s rescue.

Energy market

Greece has been told to get on with privatising its energy transmission network operator (ADMIE).

Financial sector

Greece has been told to strengthen its financial sector, including taking “decisive action on non-performing loans” and eliminating political interference.

Shrinking the state

Athens has been told to depoliticise the Greek administration and to continue cutting the costs of public administration.

The Guardian highlights one of the hidden landmines in the agreement:

Our economics editor Larry Elliott has been going through the details of this morning’s deal and concludes it will deepen the country’s recession, make its debt position less sustainable and that it “virtually guarantees that its problems come bubbling back to the surface before too long.”

He continues:

One line in the seven-page euro summit statement sums up the thinking behind this act of folly, the one that talks about “quasi-automatic spending cuts in case of deviations from ambitious primary surplus targets”.

Translated into everyday English, what this means is that leaving to one side the interest payments on its debt, Greece will have to raise more in revenues than the government spends each and every year. If the performance of the economy is not strong enough to meet these targets, the “quasi-automatic” spending cuts will kick in. If Greece is in a hole, the rest of the euro zone will hand it a spade and tell it to keep digging.

This approach to the public finances went out of fashion during the 1930s but is now back. Most modern governments operate what are known as “automatic stabilisers”, under which they run bigger deficits (or smaller surpluses) in bad times because it is accepted that raising taxes or cutting spending during a recession reduces demand and so makes the recession worse.

At least according to press reports, Tsprias put up his greatest fight over inclusion of the IMF in monitoring the agreement and privatization.  The IMF is definitely in.  As for privatization or what the Guardian calls “Asset Transfer,” gains were minimal.  One can question in fact whether at least the latter area is one where Tsprias should have tried to draw lines.  At least on the face of it, it would seem that it would have made more sense to fight the demand to “liberalize” labor markets.  A victory here would have given the state freedom to encourage the development of a strong labor movement, regardless of ownership.

Moreover, as noted in the summary, Greece is still not guaranteed new loans or debt relief.  Its parliament has to pass all of the above and then the government gets to start negotiations again.

As the Guardian reports:

European leaders lined up to say Grexit has been averted, but this snappy soundbite glides over the fact the eurozone has simply agreed to open negotiations on an €86bn (£62bn) bailout. Although this is a step to shoring-up confidence in the euro, it is only a promise to have more talks with no guarantee of success.

Talks on the bailout plan are forecast to last around four weeks. “We know time is critical for Greece, but there are no shortcuts,” said Klaus Regling, the official in charge of the the European Stability Mechanism, the eurozone’s permanent bailout fund that Greece hopes to tap.

But these formal talks can only begin, if eurozone leaders avoid several political and financial tripwires. The Greek government has until the end of Wednesday to ensure that sweeping reforms to its pension system and VAT rates are written into law. If Greek lawmakers meet this eurozone-imposed deadline, the baton will pass to the creditors. At least five countries, including Germany, the Netherlands and Finland, will have to put the idea of opening negotiations on a bailout to a parliamentary vote.

Politics could be overtaken by financial deadlines. Athens faces demands to repay €7bn of debts in July, including €3.5bn due to the European Central Bank on Monday (20 July).

Eurozone officials are working round the clock to come up with emergency funds that will help Greece bridge the gap before a permanent bailout kicks in. “It’s not going to be easy,” said Jeroen Dijsselbloem, the hawkish Dutch politician, who was re-elected chair of the eurozone group of finance ministers on Monday. Several options were being discussed on bridge finance, but no one had found “the golden key to solve the problem”, he said, although he hopes to see progress by Wednesday.

The ECB will also continue to maintain a choke hold on the Greek economy perhaps for months, tightening if any deviations take place.

They told clients tonight that the European Central Bank is unlikely to cut Greece much slack until the third bailout is agreed.

We suspect the ECB will stall an ELA decision until Greece begins to legislate the new deal later this week.

Greece would still face a tight ELA cap, however. We expect the ELA cap will remain carefully calibrated and controlled at least until the new ESM loan is fully in place. Access to banks could be fully normalised only in the fall.

It is hard to see this agreement as anything but failure.  Clearly the main responsibility for this disaster rests with the leaders of Germany and the European Union.  They showed that they had no interest in meaningful, honest negotiations, fearing that they would likely lead to a real challenge to their power.  But unfortunately Syriza’s leadership did not make the best of the bad hand they were dealt.  They needed to talk more truthfully to the population about the political/class nature of and reasons for the difficult challenges they faced and do the maximum possible to strengthen their negotiating position and prepare the population for the failure that they thought likely.

Hopefully, the Greek people will find the time and space necessary to digest and learn the lessons from this struggle and successfully regroup. We all must.

Victory: Greece Over The Troika

It seems certain that the political economy textbooks of the future will include a chapter on the experience of Greece in 2015.

July 5, 2015, the people of Greece overwhelmingly voted NO to the Troika’s austerity ultimatum.  According to the Greek government, “61.31% of the votes for the 5th of July Referendum voted “NO” whereas 38.69% voted “YES”.  There was also a 5.8% of invalid/blank votes.  Turnout was 62.5%.”

The Greek government, led by its prime minister, Alexis Tsipras, refused to accept Troika dictates.  Instead, recognizing how important the decision was, he put the Troika’s “take it or leave it” ultimatum up to referendum.  Win or lose, that was an inspiring vote of confidence in the Greek people.  And by the extent of their participation and choice in the vote the Greek people showed that his confidence was not misplaced.

Background To The Referendum

Greece has experienced six consecutive years of recession and the social costs have been enormous.  The following charts provide only the barest glimpse into the human suffering:

Infographics / Unemployment

Infographics / Unemployment

Infographics / Social Impact

Infographics / Social Impact

Infographics / Poverty

Infographics / Poverty

While the Troika has always been eager to blame this outcome on the bungling and dishonesty of successive Greek governments and even the Greek people, the fact is that it is Troika policies that are primarily responsible.  In broad brush, Greece grew rapidly over the 2000s in large part thanks to government borrowing, especially from French and German banks.  When the global financial crisis hit in late 2008, Greece was quickly thrown into recession and the Greek government found its revenue in steep decline and its ability to borrow sharply limited.  By 2010, without its own national currency, it faced bankruptcy.

Enter the Troika.  In 2010, the European Commission, European Central Bank, and the IMF penned the first bailout agreement with the Greek government.  The Greek government received new loans in exchange for its acceptance of austerity policies and monitoring by the IMF.  Most of the new money went back out of the country, largely to its bank creditors.  And the massive cuts in public spending deepened the country’s recession.   By 2011 it had become clear that the Troika’s policies were self-defeating.  The deeper recession further reduced tax revenues, making it harder for the Greek government to pay its debts.  Thus in 2012 the Troika again extended loans to the Greek government as part of a second bailout which included . . . wait for it . . . yet new austerity measures.

Not surprisingly, the outcome was more of the same.  By then, French and German banks were off the hook.  It was now the European governments and the International Monetary Fund that worried about repayment.  And the Greek economy continued its downward ascent.

Significantly, in 2012, IMF staff eventually acknowledged that the institution’s support for austerity in 2010 was a mistake.  Simply put, if you ask a government to cut spending during a period of recession you will only worsen the recession.  And a country in recession will not be able to pay its debts.  It was a pretty clear and obvious conclusion.

But, significantly this acknowledgement did little to change Troika policy to Greece.

By the end of 2014, the Greek people were fed up.  Their government had done most of what was demanded of it and yet the economy continued to worsen and the country was deeper in debt than it had been at the start of the bailouts.  And, once again, the Greek government was unable to make its debt payments, now to Troika institutions, without access to new loans. So, they elected Syriza in January 2015 because of the party’s commitment to negotiate a new understanding with the Troika, one that would enable the country to return to growth, which meant an end to austerity and debt relief.

Syriza entered the negotiations hopeful that the lessons of the past had been learned.  But no, the Troika refused all additional financial support unless Syriza agreed to implement yet another round of austerity.  What started out as negotiations quickly turned into a one way scolding.  The Troika continued to demand significant cuts in public spending to boost Greek government revenue for debt repayment.  Syriza eventually won a compromise that limited the size of the primary surplus required, but when they proposed achieving it by tax increases on corporations and the wealthy rather than spending cuts, they were rebuffed, principally by the IMF.

The Troika demanded cuts in pensions, again to reduce government spending.  When Syriza countered with an offer to boost contributions rather than slash the benefits going to those at the bottom of the income distribution, they were again rebuffed.  On and on it went.  Even the previous head of the IMF penned an intervention warning that the IMF was in danger of repeating its past mistakes, but to no avail.

Finally on June 25, the Troika made its final offer.  It would provide additional funds to Greece, enough to enable it to make its debt payments over the next five months in exchange for more austerity.   However, as the Greek government recognized, this would just be “kicking the can down the road.”  In five months the country would again be forced to ask for more money and accept more austerity.  No wonder the Greek Prime Minister announced he was done, that he would take this offer to the Greek people with a recommendation of a no vote.

Here is the New York Times version of events:

ATHENS — Last Friday morning [June 26], the Greek prime minister, Alexis Tsipras, gathered his closest advisers in a Brussels hotel room for a meeting that was meant to be secret. All the participants had to leave their phones outside the door to prevent leaks.

A week of tense negotiations between Greece and its creditors was coming to an end. And it was becoming increasingly clear to the left-leaning prime minister that he could not accept the tough economic terms that his lenders were demanding in exchange for new loans.

As Mr. Tsipras paced and listened on the 25th floor of the hotel, his top aides argued that neither Germany nor the International Monetary Fund wanted an agreement and that they were instead pushing Greece into default and out of the euro.

The night before, at a meeting of eurozone leaders at the European Union’s headquarters, Mr. Tsipras had asked Chancellor Angela Merkel of Germany about including debt relief with a deal, only to be rebuffed again.

This is going nowhere, the 40-year-old Greek leader said in frustration, according to people who were in the room with him. The more we move toward them, the more they are moving away from us, Mr. Tsipras said.

After hours of arguing back and forth about possible responses, Mr. Tsipras made a decision to get on a plane and go home to call a referendum, according to the people who were in the room. . . .

But a close look at the events of the last week — based on interviews with some of the participants and others briefed on the discussions — reveals an accumulation of slights, insults and missed opportunities between Greece and its creditors that led the prime minister to conclude that a deal was not possible, regardless of any concessions he might make.

Greece’s creditors see it differently, of course. In their view, Mr. Tsipras, who swept into power on a wave of anti-austerity support, was only interested in a deal that would go light on austerity measures and deliver maximum debt relief. He could not and would not comply with any agreement that required more sacrifices from the Greek people.

Still, for a week that ended with so much enmity, its start was auspicious.

That Monday, June 22, Greece’s technical team in Brussels submitted an eight-page proposal to their counterparts. The paper was an effort to bridge a six-month divide on how Greece planned to sort out its future finances.

For political reasons, the Tsipras government had said it would not cut pensions or do away with tax breaks that favored businesses serving tourists on the Greek islands. Instead, the new Greek plan envisaged a series of tax increases and increases in pension contributions to be borne by corporations.

The initial response seemed positive. Both Pierre Moscovici, a senior finance official at the European Commission who is known to be sympathetic toward Greece, and Jeroen Dijsselbloem, the head of Europe’s working group of finance ministers who is one of Greece’s harshest critics, said on Tuesday that the plan was promising.

The Greek team was elated. For the first time, the Greek numbers were adding up.

The next morning, though, that optimism evaporated.

Greece’s creditors — the I.M.F., the other eurozone nations and the European Central Bank — sent the Greek paper back and marked it in red where there were disagreements.

The criticisms were everywhere: too many tax increases, unifying value-added taxes, not enough spending cuts and more cuts needed on pension reforms.

The Greek team couldn’t believe it. The creditors had seemed to dial everything back to where the talks were six months ago. . . .

Instead of bending as the deadline neared for Greece to make a payment of 1.5 billion euros to the I.M.F., Germany and the fund appeared to be hardening their positions.

On Wednesday night, Greece was presented with a counterproposal. At the behest of the I.M.F., the tax increases had been reduced and, crucially, the government was told that it needed to increase value-added taxes on hotels.

Moreover, several requests by the Greeks to discuss debt relief had been rejected — you need to agree to reforms first, they were told.

On Thursday, Mr. Varoufakis and Mr. Tsipras agreed that they could not present this latest proposal to their cabinet back in Athens. In recent weeks, radical factions within the ruling Syriza party in Greece had become more vocal in opposing any deal that crossed certain lines on pensions and taxes.

Moreover, some within Syriza were even pushing Mr. Tsipras to walk away from Europe altogether and return to the drachma, an approach that the prime minister and Mr. Varoufakis had promised never to consider. . . .

Mr. Schäuble began criticizing Mr. Moscovici, the senior European Commission official, over his positive comments regarding the Greek offer.

Even the latest proposal from the creditors was too lenient toward the Greeks, Mr. Schäuble argued, saying that he saw little chance that he could get it past the German Bundestag, the national parliament of the Federal Republic of Germany.

The only solution here is capital controls, he said, his voice rising.

But Mr. Varoufakis persisted on the issue of Greece’s staggering debt load, ignoring the admonitions of Mr. Dijsselbloem and others.

Then Mr. Varoufakis turned on Christine Lagarde, the French director of the I.M.F.

Five years ago, the fund had given its blessing to the first bailout, doling out loans alongside Europe despite internal misgivings that Greece would be in no position to repay them.

Now the I.M.F. was pushing Greece to sign up to yet another austerity program to access more loans even though the fund had now concluded that their initial misgivings were correct: Greece’s debt was unsustainable.

I have a question for Christine, Mr. Varoufakis said to the packed hall: Can the I.M.F. formally state in this meeting that this proposal we are being asked to sign will make the Greek debt sustainable?

Yanis has a point, Ms. Lagarde responded — the question of the debt needs to be addressed. (A spokesman for the fund later said that this was not an accurate description of the exchange.)

But before she could explain, she was interrupted by Mr. Dijsselbloem.

It’s a take it or leave it offer, Yanis, the Dutch official said, peering at him through rimless spectacles.

In the end, Greece would leave it.

The Referendum

Almost immediately after the Greek government announced its plans for a referendum, the leaders of the Troika intervened in the Greek debate.  For example, as the New York Times reported:

By long-established diplomatic tradition, leaders and international institutions do not meddle in the domestic politics of other countries. But under cover of a referendum in which the rest of Europe has a clear stake, European leaders who have found Mr. Tsipras difficult to deal with have been clear about the outcome they prefer.

Many are openly opposing him on the referendum, which could very possibly make way for a new government and a new approach to finding a compromise. The situation in Greece, analysts said, is not the first time that European politics have crossed borders, but it is the most open instance and the one with the greatest potential effect so far on European unity. . . .

Martin Schulz, a German who is president of the European Parliament, offered at one point to travel to Greece to campaign for the “yes” forces, those in favor of taking a deal along the lines offered by the
creditors.

On Thursday, Mr. Schulz was on television making clear that he had little regard for Mr. Tsipras and his government. “We will help the Greek people but most certainly not the government,” he said.

European leaders actually actively worked to distort the terms of the referendum.  Greeks were voting on whether to accept or reject Troika austerity policies yet the Troika leaders claimed the vote was on whether Greece should remain in the Eurozone.  In fact, there is no mechanism for kicking a country out of the Eurozone and Syriza was always clear that it was not seeking to leave the zone.   As the Guardian explained:

One day before Greece’s bailout ends and the country’s financial lifeline melts away, Europe’s big guns have lined up one after another to tell the Greeks unequivocally that voting no in Sunday’s referendum means saying goodbye to the euro.

There was no mistaking the gravity of the situation now facing both Greece and Europe on Monday. Leaders were by turns ashen-faced, resigned, desperate and pleading with Athens to think again and pull back from the abyss.

There were also bitter attacks on Alexis Tsipras, the young Greek prime minister whose brinkmanship has gone further than anyone believed possible and left the eurozone’s leaders reeling.

One measure of the seriousness of the situation could be gleaned from the leaders’ schedules. In Berlin, Brussels, Paris and London, a chancellor, two presidents and a prime minister convened various meetings of cabinet, party leaders and top officials devoted solely to Greece.

The French president, François Hollande, was to the fore. “It’s the Greek people’s right to say what they want their future to be,” he said. “It’s about whether the Greeks want to stay in the eurozone or take the risk of leaving.”

Athens insists that this is not what is at stake in the highly complicated question the Greek government has drafted for the referendum, but Berlin, Paris and Brussels made plain that the 5 July vote will mean either staying in the euro on their tough terms or returning to the drachma.

In what was arguably the biggest speech of his career, the president of the European commission, Jean-Claude Juncker, appeared before a packed press hall in Brussels against a giant backdrop of the Greek and EU flags.

He was impassioned, bitter and disingenuous in appealing to the Greek people to vote yes to the euro and his bailout terms, arguing that he and the creditors – rather than the Syriza government – had the best interests of Greeks at heart.

Tsipras had lied to his people, deceived and betrayed Europe’s negotiators and distorted the bailout terms that were shredded when the negotiations collapsed and the referendum was called, he said.

“I feel betrayed. The Greek people are very close to my heart. I know their hardship … they have to know the truth,” he said.

“I’d like to ask the Greek people to vote yes … no would mean that Greece is saying no to Europe.”

In a country where the hardship wrought by austerity brought a sharp increase in suicides, Juncker offered unfortunate advice. “I say to the Greeks, don’t commit suicide because you’re afraid of dying,” he said.

Juncker’s extraordinary performance sounded and looked as if he were already mourning the passing of a Europe to which he has dedicated his long political career. His 45-minute speech was both proprietorial and poignant about his vision, which seems to be giving way to a rawer and rowdier place.

That was clear from the trenchant remarks of Sigmar Gabriel, Germany’s vice-chancellor and the head of the country’s Social Democratic party. He coupled the Greek situation with last week’s foul tempers over immigration and said that Europe faces its worst crisis since the EU’s founding treaty was signed in Rome in 1957.

Gabriel was the first leading European politician to voice what many think and say privately about Tsipras – that the Greek leader represents a threat to the European order, that his radicalism is directed at the politics of mainstream Europe and that he wants to force everyone else to rewrite the rules underpinning the single currency.

The unspoken message was that Tsipras is a dangerous man on a mission who has to be stopped.

Standing alongside his boss, Angela Merkel, as if to send a joint nonpartisan national signal from Germany, Gabriel said that if the Greek people vote no on Sunday, they would be voting “against remaining in the euro”.

Unlike Juncker and Hollande, who pleaded with the Greek people to reject Tsipras’s urging of a no vote, the German leaders sounded calmly resigned to the rupture.

For Merkel, it was clear that the single currency’s rulebook was much more important than Greece. In this colossal battle of wills, Tsipras could not be allowed to prevail.

Having whipped up popular fears of an end to the euro, some Greeks began talking their money out of the banks.  On June 28, the European Central Bank then took the aggressive step of limiting its support to the Greek financial system.

This was a very significant and highly political step.  Eurozone governments do not print their own money or control their own monetary systems.  The European Central Bank is in charge of regional monetary policy and is duty bound to support the stability of the region’s financial system.  By limiting its support for Greek banks it forced the Greek government to limit bank withdrawals which only worsened economic conditions and heightened fears about an economic collapse.  This was, as reported by the New York Times, a clear attempt to influence the vote, one might even say an act of economic terrorism:    

Some experts say the timing of the European Central Bank action in capping emergency funding to Greek banks this week appeared to be part of a campaign to influence voters.

“I don’t see how anybody can believe that the timing of this was coincidence,” said Mark Weisbrot, an economist and a co-director of the Center for Economic and Policy Research in Washington. “When you restrict the flow of cash enough to close the banks during the week of a referendum, this is a very deliberate move to scare people.”

Then on July 2, 3 days before the referendum, an IMF staff report on Greece was made public.  Echos of 2010, the report made clear that Troika austerity demands were counterproductive.  Greece needed massive new loans and debt forgiveness.  The Bruegel Institute, a European think tank, offered the following summary and analysis of the report:

On July 2, the IMF released its analysis of whether Greek debt was sustainable or not.  The report said that Greek debt was not sustainable and deep debt relief along with substantial new financing were needed to stabilize Greece. In reaching this new assessment, the IMF stated it had learned many lessons. Among them: Greeks would not take adequate structural reforms to spur growth, they would not sell enough of their assets to repay their debt, and they were unable to undertake sufficient fiscal austerity. That left no choice but to grant Greece greater debt relief and to provide new financing to tide Greece over till it could stand on its own feet. The relief, the IMF, says must be provided by European creditors while the IMF is repaid in whole.

The IMF’s report is important because it reveals that the creditors negotiated with Greece in bad faith.  For months, a haze was allowed to settle over the question of Greek debt sustainability. The timing of the report’s release—on the eve of a historic Greek referendum, well after the technical negotiations have broken down—suggests that there was no intention to allow a sober analysis of the Greek debt burden. Paul Taylor of Reuters tells us that the European authorities worked hard to suppress it and Landon Thomas of the New York Times reports that, until a few days ago, the IMF had played along.

As a result, the entire burden of adjustment was to fall on the Greeks before any debt reduction could even be contemplated. This conclusion was based on indefensible economic logic and the absence of the IMF’s debt sustainability analysis intentionally biased the negotiations. . . .

But, of course, as the IMF now makes clear, if a country has to repay about 4 percent of its income each year over the next 40 years and that country has poor growth prospects precisely because repaying that debt will lower growth, then debt is not sustainable. If this report had been made public earlier, the tone of the public debate and the media’s boorish stereotyping of Greeks and its government would have been balanced by greater clarity on the Greek position.

But the problem with the IMF report is much more serious. Its claims to having learned lessons from the past years are as self-serving as its call on other creditors to provide the debt relief. The report insistently points at the Greek failings but fails to ask if the creditors misdiagnosed the Greek patient and continued to damage Greek economic recovery. Protected by the authority and respect that the IMF commands, it is easy to lay the blame on the Greeks whose rebuttals are treated as more hysterical outbursts of an (ultra) “radical” government. . . .

This is why the IMF’s latest report is disingenuous. The report says that growth in Greece has failed to materialize because Greeks are incapable of undertaking sustained structural reforms. There is so much that is wrong with that statement. First, my colleague Zsolt Darvas of Bruegel argues persuasively that the Greeks have, in fact, undertaken significant structural reform. He notes that the “Doing Business” index has improved materially and labor markets are now more flexible than in Germany. Second, the IMF had set unrealistically high expectations of structural reforms: productivity was to jump from the lowest in the euro area to among the highest in a short period of time and labor participation rates were to jump to the German level. Again, the IMF’s own research department cautions that the dividends from structural reforms are weak and take time to work their way through (see box 3.5 in this link). The debt-deflation cycle works immediately. If it has taken decades for Greece to reach its low efficiency levels, it was irresponsible to assume that early reforms would turn it around in a few years. Finally, when an economy spirals down in a debt-deflation cycle, demand falls and that, in itself, will show up in the less productive use of resources. So, it is even possible that productivity has increased more but is being drowned by shrinking demand.

In other words, the leaders of the Troika were insisting on policies that the IMF’s own staff viewed as misguided.  Moreover, as noted above, European leaders desperately but unsuccessfully tried to kill the report.  Only one conclusion is possible: the negotiations were a sham.

The Troika’s goals were political: they wanted to destroy Syriza because it represented a threat to a status quo in which working people suffer to generate profits for the region’s leading corporations.  It apparently didn’t matter to them that what they were demanding was disastrous for the people of Greece.  In fact, quite the opposite was likely true: punishing Greece was part of their plan to ensure that voters would reject insurgent movements in other countries, especially Spain.

The Vote

And despite, or perhaps because of all of the interventions and threats highlighted above, the Greek people stood firm.  As the headlines of a Bloomberg news story proclaimed: “Varoufakis: Greeks Said ‘No’ to Five Years of Hypocrisy.”

The Greek vote was a huge victory for working people everywhere.

Now, we need to learn the lessons of this experience.  Among the most important are: those who speak for dominant capitalist interests are not to be trusted.  Our strength is in organization and collective action.  Our efforts can shape alternatives.