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Daily Archives: January 23, 2012
The International Labor Office (ILO) has just released a sobering report on the growing crisis in world labor markets. We began the year with 1.1billion people – one out of every three people in the global labor force – either unemployed or among the 900 million working poor who earn less than US$2 a day. On top of the existing glut of 200 million unemployed, global labor markets will see an average of 40 million new entrants each year. That means that an additional 400 million jobs will need to be created over the next decade in order to prevent a further increase in unemployment. To employ everyone who wants to work, the world needs 600 million new jobs.
The concern, however, is that global growth is decelerating,which means it will be difficult for global labor markets to keep up with the growth of the labor force, much less make up any lost ground. In 2011, global growth slowed from 5.1 percent to just 4 percent, and the IMF is warning of a further deceleration in 2012. The ILO report warns that even a modest slowdown in 2012, say 0.2 percent points, would mean an additional 1.7 million unemployed by 2013. The report also highlights the impact that overly tight fiscal policies have had on growth and employment, beginning with the job-killing austerity programs that have become especially common within the Eurozone. Elsewhere, in nations with ample policy space, governments have lost their appetite for fiscal stimulus, even as heightened insecurity and depressed consumer confidence keep private sector demand weak.
Analytically, the report begins on a high note, with an analysisthat employs the sectoral balance approach that is central to the MMT framework. Here, the report draws out the (negative) implications of declining public budgets on private net savings. Unfortunately, the authors of the report fail to grasp enough MMT to develop a cogent analysis throughout, particularly whenit comes to distinguishing between currency issuers and currency users. As aresult, the report concludes with a weak-kneed policy prescription to address “the urgent challenge of creating 600 million productive jobs over the next decade.”
Below are some excerpts (my emphasis) to give you a sense of the study’s main conclusions:
Even though only a few countries are facing serious and long-term economic and fiscal challenges, the global economy has weakened rapidly as uncertainty spread beyond advanced economies. As a result, the world economy has moved even further away from the pre-crisis trend path and, at the current juncture, evena double dip remains a distinct possibility.
There is growing evidence of a negative feedback loop between the labour market and the macro-economy, particularly in developed economies: high unemployment and low wage growth are reducing demand for goods and services, which further damages business confidence and leaves firms hesitant to invest and hire. Breaking this negative loop will be essential if a sustainable recovery is to take root. In much of the developing world, such sustainable increases in productivity will require accelerated structural transformation – shifting to higher value added activities while moving away from subsistence agriculture as a main source of employment and reducing reliance on volatile commodity markets for export earnings.
Further gains in education and skills development, adequate social protection schemes that ensure a basic standard of living for the most vulnerable, and strengthened dialogue between workers, employers and governments are needed to ensure broad-based development built on a fair and just distribution of economic gains.
Housing and other asset price bubbles prior to the crisis created substantial sectoral misalignments that need to be fixed and which will requirelengthy and costly job shifts, both across the economy and across countries.
To address the protracted labour market recession and put the world economy on a more sustainable recovery path, several policy changes are necessary.
First, global policies need to be coordinated more firmly. Deficit-financed public spending and monetary easing simultaneously implemented by many advanced and emerging economies at the beginning of the crisis is no longer a feasible option for all of them. Indeed, the large increase in public debt and ensuing concerns about the sustainability of public finances in some countries have forced those most exposed to rising sovereign debt risk premiums to implement strict belt-tightening. However, cross-country spillover effects from fiscalspending and liquidity creation can be substantial and – if used in a coordinated way – could allow countries that still have room for maneuver to support both their own economies as well as the global economy. It is such coordinated public finance measures that are now necessary to support global aggregate demand and stimulate job creation going forward.
Second, more substantial repair and regulation of the financial system would restore credibility and confidence…
Third, what is most needed now is to target the real economy to support job growth. The ILO’s particular concern is that despite large stimulus packages, these measures have not managed to roll back the 27 million increase in unemployed since the initial impact ofthe crisis. Clearly, the policy measures have not been well targeted and need reassessment in terms of their effectiveness. … policies that have proven very effective in stimulating job creation and supporting incomes include: the extension of unemployment benefits and work sharing programmes, there-evaluation of minimum wages and wage subsidies as well as enhancing public employment services, public works programmes and entrepreneurship incentives – show impacts on employment and incomes.
Fourth, additional public support measures alone will not be sufficient to foster a sustainable jobs recovery. Policy-makers must act decisively and in a coordinated fashion to reduce the fear and uncertainty that is hindering private investment so that the private sector can restart the main engine of global job creation. Incentives to businesses to invest in plant and equipment and to expand their payrolls will be essential to stimulate a strong and sustainable recovery in employment.
Fifth, to be effective, additional stimulus packages must not put the sustainability of public finances at risk by further raising public debt. In this respect, public spending fully matched by revenue increases can still provide a stimulus to the real economy, thanks to the balanced budget multiplier. In times of faltering demand, expanding the role of government in aggregate demand helps stabilize the economy and sets forth a new stimulus, even if the spending increase is fully matched by simultaneous rises in tax revenues. As argued in this report, balanced-budget multipliers can be large, especially in the current environment of massively underutilized capacities and high unemployment rates. At the same time, balancing spending with higher revenues ensures that budgetary risk is kept low enough to satisfy capital markets.
The report concludes with the following sentence:
At the same time, balancing spending with higher revenues ensures that budgetary risk is kept low to satisfy capital markets. Interest rates will therefore remain unaffected by such a policy choice, allowing the stimulus to develop its full effect on the economy.
And this is my biggest problem with the report: there is no attempt to distinguish countries that must satisfy capital markets from those that need not. As MMT makes clear, governments that issue “modern money” (i.e. non-convertible fiat currencies) can help restore growth by permitting their deficits to expand to the point where the private sector is satisfied with its net saving position. Only governments that that operate with fixed exchange rates or other incarnations of a gold standard must cow-tow to capital markets. A far bolder jobs program could be advanced if people understood the importance of monetary sovereignty.
I wrote recently about Apple’s release ofinformation from its “audits” of its major suppliers. Apple constructed the release to deny thepublic information on the identity of the suppliers that defrauded andendangered the lives and health of their workers. I explained that criminologists classifythese as “anti-employee control frauds.” Control frauds occur when the persons who control a seemingly legitimateentity use it as a “weapon” to defraud. Anti-employee control frauds defraud the workers. Apple’s audit, and I explained why it was farfrom vigorous, showed endemic anti-employee control fraud by itssuppliers. Apple overwhelminglypurchases components from Asian suppliers that are criminal enterprises. The control frauds operate in fraud-friendlynations with non-Western managers selected for their willingness to cheat theworkers.
Apple creates a criminogenic environment in itssupplier selection process that leads it to, pervasively, hire criminalsuppliers. Honest manufacturers cannotcompete with firms that force their workers to work more than the maximum 60hour work week and fraudulently refuse to pay them for the extra time theywork. Firms that provide minimal safetyprotections also find it difficult to compete with fraudulent rivals. This is known as a “Gresham’s dynamic” inwhich bad ethics drives good ethics out of the workplace. The perverse dynamic is not limited toApple’s suppliers. Any honest Westernfirm that seeks to compete with Apple’s suppliers will be driven to slash itsworkers’ wages, benefits, working conditions, and pensions while increasingtheir workload. I call this the “Road toBangladesh” strategy.
I explained that the fact that Apple’s supplierskeep records proving that they are cheating their workers, even though theyknow that Apple will audit those records and their governments could do sodemonstrates that they have no fear that their frauds will be sanctioned. Apple obviously does not stop dealing withsuppliers it knows to be criminal enterprises that cheat their workers. I urge reporters to ask Apple how manycriminal and regulatory referrals it has made to the relevant governments aboutthe endemic anti-employee fraud it has documented among its suppliers. I am willing to bet that the number iscurrently zero.
Jon Stewart has shown pictures of one of the mostinfamous Apple suppliers’ workplace – Foxconn. The most unusual feature is the nets strung between the dormitorieswhere the workers live. The nets arethere to reduce the suicides among the workers. Foxconn is so dehumanizing a place to work that suicide is a leadingcause of deaths among the workers and workers protest the inhumane conditionsby threatening to engage in mass suicide.
It was certain that there would be push back onApple’s suppliers, but it is revealing that it came in the New York Times on January 21, 2012 in an article entitled “How U.S.Lost Out on iPhone Work.”
I address one the article’s weaknesses, itsdiscussion of Foxconn. The article isover 4,500 words, so its failure to discuss Foxconn’s anti-employee actions wasnot compelled by space constraints. Indeed, Foxconn’s anti-employee practices are of central importance tothe issue that the article purports to discuss – why Apple rarely employs U.S.suppliers based in the U.S. Instead, thearticle alludes to an illegal act by Foxconn, in tones of amazed praise, withno discussion of the illegality.
“Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.
A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.
“The speed and flexibility is breathtaking,” the executive said. “There’s no American plant that can match that.””
Ah yes, what “speed” and “flexibility.” Indeed, it could not be matched in the U.S. –or any other nation that enforced its laws. What the authors are describing was unlawful under Chinese law. The article eventually gets back to Foxconn.
To Apple executives, Foxconn City was furtherevidence that China could deliver workers — and diligence — that outpaced theirAmerican counterparts.
“That’s because nothing like Foxconn City exists in the United States.
The facility has 230,000 employees, many working six days a week, often spending up to 12 hours a day at the plant. Over a quarter of Foxconn’s work force lives in company barracks and many workers earn less than $17 a day. When one Apple executive arrived during a shift change, his car was stuck in a river of employees streaming past. “The scale is unimaginable,” he said.
Foxconn employs nearly 300 guards to direct foot traffic so workers are not crushed in doorway bottlenecks. The facility’s central kitchen cooks an average of three tons of pork and 13 tons of rice a day. While factories are spotless, the air inside nearby teahouses is hazy with the smoke and stench of cigarettes.
“They could hire 3,000 people overnight,” said Jennifer Rigoni, who was Apple’s worldwide supply demand manager until 2010, but declined to discuss specifics of her work. “What U.S. plant can find 3,000 people overnight and convince them to live in dorms?””
Yes, “convince” them to live them in dorms complete with anti-suicide netting at no extra charge. Foxconn truly is convincing. It’s probably the pork and rice. Alternatively, it could be the fact that rural China is still extremely poor, the rule of law is a fiction in China, and it is a crime to start a real labor union. It could also be that the “300 guards” have broader duties than guiding traffic flow.
So, the workers had already generally worked a 12 hour shift and were then woken up at midnight to be ordered (unlawfully) to work another 12 hour shift. In case this is not obvious, some of the workers’ tasks are dangerous and exhaustion endangers their health and lives. Indeed, the facts are likely far worse than what I have just related. Apple’s refusal to identify the suppliers that violated the maximum work week rules and the suppliers that stole their workers’ overtime pay makes it impossible to say for sure how bad things are at Foxconn. Apple’s audits found that both forms of anti-employee control fraud were common among its suppliers. Given Foxconn’s problem with suicide one is entitled to demand that Apple identify what violations its audits found at Foxconn.
The article later comes back to the Foxconn tale fora third time to add this passage.
“Foxconn, in statements, declined to speak about specific clients.
“Any worker recruited by our firm is covered by a clear contract outlining terms and conditions and by Chinese government law that protects their rights,” the company wrote. Foxconn “takes our responsibility to our employees very seriously and we work hard to give our more than one million employees a safe and positive environment.”
The company disputed some details of the former Apple executive’s account, and wrote that a midnight shift, such as the one described, was impossible “because we have strict regulations regarding the working hours of our employees based on their designated shifts, and every employee has computerized timecards that would bar them from working at any facility at a time outside of their approved shift.” The company said that all shifts began at either 7 a.m. or 7 p.m., and that employees receive at least 12 hours’ notice of any schedule changes.
Foxconn employees, in interviews, have challenged those assertions.”
I doubt that the average reader could tell from thedisjointed article that the actions that Apple’s officers ascribe to Foxconnwere unlawful, but Foxconn obviously understood that such actions would beunlawful and fraudulent. Apple’s auditfound that over 60% of its suppliers violated its policy limiting the workweekto 60 hours. That means that thesuppliers kept records that on their face demonstrated that they had violated(a) their contracts with their workers, (b) their contracts with Apple, and (c)Chinese law. If Foxconn keeps“computerized timecards” that prove that the unlawful and fraudulent actionsthat both Apple and its employees say it committed that would not make theaction “impossible” – it would make it the norm for Apple’s suppliers. The fact, demonstrated by Apple’s audit, thatmost Apple suppliers maintain a papertrail proving that they engage in anti-employee control fraud proves that theyknow that can defraud their employees with impunity. Neither their governments nor Apple hasestablished even such a minimal threat of sanctioning their violations that ithas become cost-effective for the suppliers to hide their frauds.
Consider another fact that the NYT article ignores. TheApple officers were describing an action by Foxconn that violated Apple’sstandards, which it had imposed on Foxconn by contract. Apple’s corporate response – and the responseof the Apple officials that the authors interviewed about the incident – was togush with enthusiasm about Foxconn’s violation of Apple’s standards. What conclusion would Foxconn draw fromApple’s reaction as to the importance of not defrauding the workers or havingthem work in inhumane and exceptionally dangerous conditions?
The NYT ombudsmanhas heaped derision on the concept, formerly known as journalism, that itsreporters should inform the reader that they have strong reason to doubt theveracity of a source’s statement. Thismay explain why the reporters felt there was no need to inform the reader thatthe quoted claim that Foxconn “takes our responsibility to our employees very seriously and we workhard to give our more than one million employees a safe and positiveenvironment” is demonstrated most graphically by its provision of anti-suicidenetting in its dormitory complex.
Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.
Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.