Interview with Emmanuel Farhi: Global Safe Assets and Macro as Aggregated Micro [feedly]

I view this as an important piece. Imperialism led to a shortage, not a surplus, of safety, which weakens hegemony. There are some important implications to that argument.

Interview with Emmanuel Farhi: Global Safe Assets and Macro as Aggregated Micro
http://conversableeconomist.blogspot.com/2019/10/interview-with-emmanuel-farhi-global.html

Add note

David A. Price interviews Emmanuel Farhi in Econ Focus (Regional Federal Reserve Bank of Richmond, Second/Third Quarter 2019, pp. 18-23). Here are some tidbits:

On global safe assets

If you look at the world today, it's very much still dollar-centric ... The U.S. is really sort of the world banker. As such, it enjoys an exorbitant privilege and it also bears exorbitant duties. Directly or indirectly, it's the pre-eminent supplier of safe and liquid assets to the rest of the world. It's the issuer of the dominant currency of trade invoicing. And it's also the strongest force in global monetary policy as well as the main lender of last resort.

If you think about it, these attributes reinforce each other. The dollar's dominance in trade invoicing makes it more attractive to borrow in dollars, which in turn makes it more desirable to price in dollars. And the U.S. role as a lender of last resort makes it safer to borrow in dollars. That, in turn, increases the responsibility of the U.S. in times of crisis. All these factors consolidate the special position of the U.S.

But I don't think that it's a very sustainable situation. More and more, this hegemonic or central position is becoming too much for the U.S. to bear.

The global safe asset shortage is a manifestation of this limitation. In my view, there's a growing and seemingly insatiable global demand for safe assets. And there is a limited ability to supply them. In fact, the U.S. is the main supplier of safe assets to the rest of the world. As the size of the U.S. economy keeps shrinking as a share of the world economy, so does its ability to keep up with the growing global demand for safe assets. The result is a growing global safe asset shortage. It is responsible for the very low levels of interest rates that we see throughout the globe. And it is a structural destabilizing force for the world economy. ... 

In my view, the global safe asset shortage echoes the dollar shortage of the late 1960s and early 1970s. At that time, the U.S. was the pre-eminent supplier of reserve assets. The global demand for reserve assets was growing because the rest of the world was growing. And that created a tension, which was diagnosed by Robert Triffin in the early '60s: Either the U.S. would not satisfy this growing global demand for reserve assets, and this lack of liquidity would create global recessionary forces, or the U.S. would accommodate this growing global demand for reserve assets, but then it would have to stretch its capacity and expose itself to the possibility of a confidence crisis and of a run on the dollar. In fact, that is precisely what happened. Eventually, exactly like Triffin had predicted, there was a run on the dollar. It brought down the Bretton Woods system: The dollar was floated and that was the end of the dollar exchange standard.

Today, there is a new Triffin dilemma: Either the U.S. does not accommodate the growing global demand for safe assets, and this worsens the global safe asset shortage and its destabilizing consequences, or the U.S. accommodates the growing global demand for safe assets, but then it has to stretch itself fiscally and financially and thereby expose itself to the possibility of a confidence crisis. ...
Basically, I think that the role of the hegemon is becoming too heavy for the U.S. to bear. And it's only a matter of time before powers like China and the eurozone start challenging the global status of the dollar as the world's pre-eminent reserve and invoicing currency. It hasn't happened yet. But you have to take the long view here and think about the next decades, not the next five years. I think that it will happen. 

For a readable overview of Farhi's views on global safe assets, a useful start is "The Safe Assets Shortage Conundrum," which he wrote with Ricardo J. Caballero and Pierre-Olivier Gourinchas, in the Summer 2017 issue of the Journal of Economic Perspectives (31:3, pp. 29-46. )

On some implications for public finance if many economic agents aren't fully rational and don't pay full attention to taxes 

There is a basic tenet of public taxation called the dollar-for-dollar principle of Pigouvian taxation. It says that if the consumption of a particular good generates a dollar of negative externality, you should impose a dollar of tax to correct for this exter­nality. For example, if consuming one ton of carbon generates a certain number of dollars of externalities, you should tax it by that many dollars.

But that relies on the assumption that firms and households correctly perceive this tax. If they don't — maybe they aren't paying attention — then you have to relax this principle. For example, if I pay 50 percent attention to the tax, the tax needs to be twice as big. That's a basic tenet of public finance that is modified when you take into account that agents are not rational.

In public finance, there is also a traditional presumption that well-calibrated Pigouvian taxes are better than direct quantity restriction or regulations because they allow people to express the intensity of their preferences. Recognizing that agents are behavioral can lead you to overturn this prescription. It makes it hard to calibrate Pigouvian taxes, and it also makes them less efficient. Cruder and simpler remedies, such as regulations on gas mileage, are more robust and become more attractive.

Aggregate production functions, the disaggregation problem, and the Cambridge-Cambridge controversy

There's an interesting episode in the history of economic thought. It's called the Cambridge-Cambridge controversy. It pitted Cambridge, Massachusetts — Solow, Samuelson, people like that — against Cambridge, U.K. — Robinson, Sraffa, Pasinetti. The big debate was the use of an aggregate production function.

Bob Solow had just written his important article on the Solow growth model. That's the basic paradigm in economic growth. To represent the possibility frontiers of an economy, he used an aggregate production function. What the Cambridge, U.K., side attacked about this was the idea of one capital stock, one number. They argued that capital was very heterogeneous. You have buildings, you have machines. You're aggregating them up with prices into one capital stock. That's dodgy.

It degenerated into a highly theoretical debate about whether or not it's legitimate to use an aggregate production function and to use the notion of an aggregate capital stock. And the Cambridge, U.K., side won. They showed that it was very problematic to use aggregate production functions. Samuelson conceded that in a beautiful paper constructing a disaggregated model that you could not represent with an aggregate production function and one capital stock.

But it was too exotic and too complicated. It went nowhere. The profession moved on. Today, aggregate production functions are pervasive. They are used everywhere and without much questioning. One of the things David [Baqaee] and I are trying to do is to pick up where the Cambridge-Cambridge controversy left. You really need to start with a completely disaggregated economy and aggregate it up. ... 

We have a name for our vision. We call it "macro as explicitly aggregated micro." The idea is you need to start from the very heterogeneous microeconomic environment to do justice to the heterogeneity that you see in the world and aggregate it up to understand macroeconomic phenomena. You can't start from macroeconomic aggregates. You really want to understand the behavior of economic aggregates from the ground up.
For example, you can't just come up with your measure of aggregate TFP [total factor productivity] and study that. You need to derive it from first principles. You need to understand exactly what aggregate TFP is. I talked about aggregate TFP and markups, but the agenda is much broader than that. It bears on the elasticity of substitution between factors: between capital and labor, or between skilled labor, unskilled labor, and capital. It bears on the macroeconomic bias of increasing automation. It bears on the degree of macroeconomic returns to scale underlying endogenous growth. It bears on the gains from trade and the impact of tariffs. In short, it is relevant to the most fundamental concepts in macroeconomics.

For a retrospective recounting of what happened in the Cambridge-Cambridge controversies, a useful starting point is Avi J. Cohen and G. C. Harcourt. 2003. "Retrospectives: Whatever Happened to the Cambridge Capital Theory Controversies?" Journal of Economic Perspectives, 17 (1): 199-214.

 -- via my feedly newsfeed

Brad DeLong: The best thing I have yet seen on how industrial organization, concentration, and monopsony drive the conclusion that i... [feedly]

Very interesting new research on minimum wage changes and their impact on employment. That impact varies in effect in different labor markets, with the most positive overall effects in very dense markets. The study helps explain why previous studies keep coming up with noisy results. 

Helpful definition: MONOPSONY: a market situation in which there is only one buyer. Most examples of monopsony have to do with the purchase of workers' time in the labor market, where a firm is the sole purchaser of a certain kind of labor. ... The classic example of a monopsony is a company coal town, where the coal company acts the sole employer and therefore the sole purchaser of labor in the town.

___________________________

Brad DeLong: The best thing I have yet seen on how industrial organization, concentration, and monopsony drive the conclusion that i... [feedly]

The best thing I have yet seen on how industrial organization, concentration, and monopsony drive the conclusion that i...
https://www.bradford-delong.com/2019/10/jos%C3%A9-azar-emiliano-huet-vaughn-ioana-marinescu-bledi-taska-and-till-von-wachter-_minimum-wage-employment-effects-a.html

 -- via my feedly newsfeed

Dani Rodrik: Should We Worry About Income Gaps Within or Between Countries? [feedly]

Should We Worry About Income Gaps Within or Between Countries?
https://www.globalpolicyjournal.com/blog/24/10/2019/should-we-worry-about-income-gaps-within-or-between-countries

Cambridge - The rise of populist nationalism throughout the West has been fueled partly by a clash between the objectives of equity in rich countries and higher living standards in poor countries. Yet advanced-economy policies that emphasize domestic equity need not be harmful to the global poor, even in international trade.

At the beginning of classes every autumn, I tease my students with the following question: Is it better to be poor in a rich country or rich in a poor country? The question typically invites considerable and inconclusive debate. But we can devise a more structured and limited version of the question, for which there is a definitive answer.

Let's narrow the focus to incomes and assume that people care only about their own consumption levels (disregarding inequality and other social conditions). "Rich" and "poor" are those in the top and bottom 5% of the income distribution, respectively. In a typical rich country, the poorest 5% of the population receive around 1% of national income. Data are a lot sparser for poor countries, but it would not be too much off the mark to assume that the richest 5% there receive 25% of national income.

Similarly, let's assume that rich and poor countries are those in the top and bottom 5% of all countries, ranked by per capita income. In a typical poor country (such as Liberia or Niger), that is around $1,000, compared to $65,000 in a typical rich country (say, Switzerland or Norway). (These incomes are adjusted for cost-of-living, or purchasing-power, differentials so that they can be directly compared.)

Now, we can calculate that a rich person in a poor country has an income of $5,000 ($1,000 x 0.25 x 20) while a poor person in a rich country earns $13,000 ($65,000 x 0.01 x 20). Measured by material living standards, a poor person in a rich country is more than twice as well off as a rich person in a poor country.

This result surprises my students; most of them expect the reverse to be true. When they think of wealthy individuals in poor countries, they imagine tycoons living in mansions with a retinue of servants and a fleet of expensive cars. But while such individuals certainly exist, a representative of the top 5% in very poor countries is likely to be a mid-level government bureaucrat.

The larger point of this comparison is to underscore the importance of income differences across countries, relative to inequalities within countries. At the dawn of modern economic growth, before the Industrial Revolution, global inequality derived almost exclusively from inequality within countries. Income gaps between Europe and poorer parts of the world were small. But as the West developed in the nineteenth century, the world economy underwent a "great divergence" between the industrial core and the primary-goods-producing periphery. During much of the postwar period, income gaps between rich and poor countries accounted for the greater part of global inequality.

From the late 1980s on, two trends began to alter this picture. First, led by China, many parts of the lagging regions began to experience substantially faster economic growth than the world's rich countries. For the first time in history, the typical developing-country resident was getting richer at a faster pace than his or her counterparts in Europe and North America.

Second, inequalities began to increase in many advanced economies, especially those with less-regulated labor markets and weak social protections. The rise in inequality in the United States has been so sharp that it is no longer clear that the standard of living of the American "poor" is higher than that of the "rich" in the poorest countries (with rich and poor defined as above).

These two trends went in offsetting directions in terms of overall global inequality – one decreased it while the other increased it. But they have both raised the share of within-country inequality in the total, reversing an uninterrupted trend observed since the nineteenth century.

Given patchy data, we cannot be certain about the respective shares of within- and between-country inequality in today's world economy. But in an unpublished paper based on data from the World Inequality Database, Lucas Chancel of the Paris School of Economics estimates that as much as three-quarters of current global inequality may be due to within-country inequality. Historical estimates by two other French economists, François Bourguignon and Christian Morrison, suggest that within-country inequality has not loomed so large since the late nineteenth century.

These estimates, if correct, suggest that the world economy has crossed an important threshold, requiring us to revisit policy priorities. For a long time, economists like me have been telling the world that the most effective way to reduce global income disparities would be to accelerate economic growth in low-income countries. Cosmopolitans in rich countries – typically the wealthy and skilled professionals – could claim to hold the high moral ground when they downplayed the concerns of those complaining about domestic inequality.

But the rise of populist nationalism throughout the West has been fueled partly by the tension between the objectives of equity in rich countries and higher living standards in poor countries. Advanced economies' increased trade with low-income countries has contributed to domestic wage inequality. And probably the single best way to raise incomes in the rest of the world would be to allow a massive influx of workers from poor countries into rich countries' labor markets. That would not be good news for less educated, lower-paid rich-country workers.

Yet advanced-economy policies that emphasize domestic equity need not be harmful to the global poor, even in international trade. Economic policies that lift incomes at the bottom of the labor market and diminish economic insecurity are good both for domestic equity and for the maintenance of a healthy world economy that provides poor economies a chance to develop.

 

 

Dani Rodrik is Global Policy's General Editor and Professor of International Political Economy at Harvard's John F. Kennedy School of Government. he is also the author of Straight Talk on Trade: Ideas for a Sane World Economy.

This post first appeared on Project Syndicate and was reposted with permission.

Image: W H via Flickr (CC BY-ND 2.0)

 -- via my feedly newsfeed

Trump Wellness Programs Would Gut Protections for People With Pre-Existing Conditions [feedly]

Trump Wellness Programs Would Gut Protections for People With Pre-Existing Conditions
https://www.cbpp.org/blog/trump-wellness-programs-would-gut-protections-for-people-with-pre-existing-conditions

The Trump Administration has invited states to set up so-called wellness programs, with individual-market insurers creating plans with higher premiums and out-of-pocket costs for people who don't meet certain health targets. Such programs would gut protections for people with pre-existing health conditions.

The Affordable Care Act (ACA) barred individual-market insurers from charging higher premiums to people based on their health status, but the Administration is inviting states to undo that protection. Under its recent bulletin, up to ten states can establish a wellness program under which insurers, for example, charge premiums up to 30 percent higher to people who don't hit a weight-loss target or to reduce their cholesterol by a certain amount. (If the wellness program varies premiums based on tobacco use, insurers could raise premiums by up to 50 percent overall.)

A 30 percent premium differential could mean a significant financial hit of hundreds or thousands of dollars a year for those who don't achieve the targets. And such treatment would begin to look a lot like the discrimination that people with health conditions faced before the ACA.

States that want to establish a "health-contingent" wellness program would have to submit an application to the federal government, including an analysis showing that the state doesn't expect the wellness program to increase federal costs or reduce overall health coverage levels. But the federal government apparently wouldn't reject programs that are expected to drive sicker people out of the insurance market as long as more healthy people enroll to make up the difference.

Seema Verma, Administrator of the Centers for Medicare & Medicaid Services, which would decide whether to approve a state wellness program, said that this initiative would give states "the opportunity to not only improve the health of their residents but also to help reduce healthcare spending." But extensive research on wellness programs that employers have set up has failed to show that they do either. For example, a large randomized trial of an employer wellness program found that it had no effect on health outcomes or health behaviors, but it did reduce costs for people who were already healthier. That makes wellness programs a potential tool for employers looking to recruit or retain healthy over sick employees, the authors of that study note.

Individual-market wellness programs would have to meet the standards that apply to similar programs that employers offer, such as being made available to all individuals and providing a "reasonable alternative standard" for individuals to meet if they don't meet the initial health target. But as the research on employer programs shows, these standards don't prevent cost shifts from healthy to sick people.

And the consequences of such cost shifts would likely be worse in the individual market, where consumers may be paying all or most of their premium amount, and those who don't get the wellness discounts are more likely to find their premiums unaffordable and end up uninsured. Plus, if one individual-market insurer launches a wellness program that affects people's costs, the state's other insurers would have to follow suit or risk losing out to competitors that use the new program to attract healthier enrollees or discourage sicker customers from picking their plan. This sort of race to the bottom, where insurers compete on the health status of their customers instead of the price and quality of their plans, could leave people who have health issues with fewer affordable options in the individual market.

The wellness bulletin is just the latest example of how the Trump Administration is encouraging states to take steps that undermine the ACA. But, so far, no state has responded to the Administration's guidance encouraging states to use 1332 waivers to gut pre-existing condition protections, nor has any state weakened essential health benefits in response to the federal loosening of those rules. And more than a dozen states have stepped in to protect consumers against the spread of short-term health plans that don't cover pre-existing conditions, rather than letting federal rule changes expanding the availability of these plans carry the day.

The ACA's pre-existing condition protections are among the law's more popular and important elements. They help make the individual market accessible for people who had health issues in the past or may have them in the future. As they've previously done when the federal government has offered them the chance to undermine protections for people with pre-existing conditions, states should reject the invitation to set up discriminatory wellness programs.

 -- via my feedly newsfeed

China Leapfrogs France for Ease of Business as Emerging World Gains [feedly]

Is it wrong that a socialist country has the most improved "business environment"?  .... or is that "scientific" socialism?

China Leapfrogs France for Ease of Business as Emerging World Gains
https://www.bloomberg.com/news/articles/2019-10-24/china-tops-france-for-ease-of-business-as-emerging-world-gains

text only verson

China leapfrogged France in the World Bank's annual rankings for ease of doing business, a shift that underscores the broader trend of developing economies catching up with their more advanced peers.

The world's second-largest economy catapulted from 46 last year to 31, just ahead of France, which was unchanged at 32, according to the report released Wednesday in Washington. The Middle East showed new strength with Saudi Arabia, Jordan, Bahrain and Kuwait among the top 10 gainers. That most-improved group also included India, Pakistan and Nigeria, three of the most populous nations.

Taking Care of Business

Hong Kong moves up as Sweden joins the top 10

Source: Doing Business 2020, World Bank

Note: Doing Business measures getting a building permit, obtaining an electricity connection, transferring property, getting access to credit, protecting minority investors, paying taxes, engaging in international trade, enforcing contracts and resolving insolvency

Doing business more easily is associated with higher levels of entrepreneurship, which supports better employment opportunities, higher government tax revenues and personal income gains, according to the report. Such outcomes could help lend needed support to the flagging global economy, which the International Monetary Fund projects will slow this year to 3%, the weakest since the financial crisis.

Removing obstacles to businesses can be a positive force for fostering economic expansion, though they're among many of the factors that can affect outcomes, according to Rita Ramalho, a senior manager in the World Bank's global indicators group and one of the main authors of the "Doing Business 2020" report.

"Improving in this can have positive impacts on growth," she said in an interview. "We've done research on that and it does show that there are positive patterns and associations between having simpler, better business regulations and having higher growth rates, but it's not a silver bullet."

Some 115 of 190 economies made it easier to do business, though progress has been uneven: The top 50 include no Latin American economies and just two African nations. It takes entrepreneurs nearly six times longer on average to start a business in the in the bottom 50 economies than in the top 20.

Leader Board

New Zealand kept the top spot and Singapore held No. 2. Hong Kong moved up a notch to third, trading places with Denmark, while South Korea stayed in fifth. The U.S. moved up two spots to No. 6, knocking Georgia back to seventh, while the U.K., Norway and Sweden rounded out the top 10.

The best performers generally have "sound business regulation with a high degree of transparency," and a common theme across the highest-scoring economies was widespread use of electronic systems, according to the report. All of the top 20 offer online business incorporation, electronic tax filing, and online property transfers.

The study evaluates how regulations enhance or constrain activity for smaller firms by measuring 10 variables, including the ease of starting a business, obtaining construction permits, getting electricity connections, access to credit, paying taxes, cross-border trade and enforcing contracts.

The report said a considerable disparity persists between low- and high-income economies for starting a business: Entrepreneurs in low-income economies typically spend the equivalent of 50% of income per capita to start a company, compared with just 4.2% for their counterparts in high-income economies.

'Ample Room'

"There's ample room for developing economies to catch up with developed countries on most of the doing business indicators," World Bank President David Malpass wrote in the report. "Performance in the area of legal rights, for example, remains weakest among low- and middle-income economies."

The development lender credited leaders in both China and India for adopting the indicators outlined in the annual report as a core part of their reforms, according to the report.

Indian Prime Minister Narendra Modi's years-long push to make life easier for companies showed more progress as the country's ranking rose to 63 from 130 in 2016. The report cited a "remarkable reform effort" and said the changes are particularly commendable given the size of the economy.

China has made it easier to obtain construction permits, getting electricity, and resolve insolvency, reflecting government efforts to created working groups focused on each of the report's indicators. "The use of 'Doing Business' as a benchmark aligns with the central government's ambition to improve the competitiveness of the Chinese economy," according to the report.

The improvement in the U.S. was based on changes in New York City and Los Angeles, the two largest cities. Both cut corporate taxes, while Los Angeles made starting a business easier by introducing more online filing and rolled out electronic filing that made enforcing contracts easier.

The six nations rounding out the bottom of the list remained in the same spots as last year: South Sudan, Libya, Yemen, Venezuela, Eritrea and, in last place, Somalia.
 -- via my feedly newsfeed

Brexit is a denial of economics as knowledge [feedly]

Brexit is a denial of economics as knowledge
http://mainlymacro.blogspot.com/2019/10/brexit-is-denial-of-economics-as.html

A well known Brexiters said it was almost worth doing Brexit because of the anger I feel about it. He is right about the anger. The prospect of Brexit has filled me with the same horror as austerity did. The connection between the two is obvious. Both involve subjecting the whole country to a policy that basic economic ideas tell you will do nearly everyone harm.

We have seen nothing like this in my lifetime. The only person to try austerity (by which I mean fiscal consolidation in a recession) was Thatcher, and the policy was reversed (not stopped, but the consolidation was undone) within two years. Every government, and especially Thatchers, has pursued regulatory harmonisation and tariff reductions to increase trade. Now in just one decade we have seen both austerity for seven years and an attempt to dramatically increase trade barriers.

Imagine you were a doctor, and the government had appointed anti-vaxers to key positions who proceeded to reduce the vaccination programme. How would you feel as more children fell ill. Imagine you are a climate scientist and your government says it does not believe in man made climate change and encourages coal production. You don't have to imagine of course, because exactly that is happening in the US and elsewhere. And you can ask the doctors and the climate scientists how they feel about it.

What we have seen since 2010 in the UK is the equivalent for economics. I would argue that this is no accident, but comes from the same source as climate change denial and anti-vaxers. Some people may not accept that comparison, and argue that economics is not a real science or some-such. And I agree that with austerity they had ammunition from within economics itself. There are still some macro economists around, nowhere near a majority but because they say things right wing politicians like they are 'prominent in the public debate', who deny the validity of what Keynes wrote after the Great Depression. But we see the proof that Keynes was right today: a Great Recession followed by a limp recovery as the government squeezed demand. A minority of academic economists supporting austerity was no reason to largely exclude the views of the majority of academic economists, and all the evidence is that their views were almost completely excluded from the broadcast media. 

There is no such ambiguity with trade. We know trade between two people benefits those people because otherwise the trade would not happen. The very basis of the economy is trade. Every day we go to work we trade our labour for goods that go to someone else. Our work represents specialisation that allows everyone to benefit. If we had to produce everything we consume ourselves we would be much poorer.

This is why governments try to encourage trade agreements between countries to make trade between them easier. Greater trade is like technical progress, because it allows countries to focus on producing things they are good at producing. Now it is possible that such agreements, although they make the country better off, may not make everyone in the country better off. But every academic trade economist agrees that getting rid of the EU Customs Union and Single Market will make almost everyone in the UK a lot poorer. (Patrick Minford, whose analysis has an uncanny habit of always supporting hard right policies, is not a trade economist.)

Brexiters know this, which is why they came up with the idea of global Britain. It is a farce, which can be refuted in at least two ways. First, every analysis based on academic research I have seen suggests the gains from trade deals with other countries outside the EU come nowhere near the loss due to less trade with the EU. Nowhere near. Second, if you want good trade deals with other countries, the best way to achieve them is to get the EU to negotiate them on your behalf, because the EU is more experienced and has much more clout in any negotiations than the UK. That is why the EU has so many trade agreements with other countries. 

All this knowledge about the impact of trade on productivity and incomes was dismissed by Brexiters with two words: Project Fear. All the knowledge that Keynesians have accumulated for 80 years was dismissed with a few more: the government has maxed out its credit card. Others have dismissed the knowledge of doctors and climate scientists with similar home-spun homilies.

Yet many, including many in the media, still refuse to think of economics as knowledge. People who wouldn't think twice about saying a fall in the supply of coffee will raise its price say all economics is just dressed up political opinion. People who would not dream of ignoring doctors just because they cannot predict when you get a cold say all economics forecasts are worthless. Of course there are some things, like whether the Euro was a good idea in economic terms, where there are pros and cons and therefore economists' views may differ or change. But the evidence that making trade substantially more difficult with our immediate neighbours will be harmful is so overwhelming that only 1 in 22 UK economists disagree. I have yet to meet an economist who specialises in trade who disagrees. 

So when a woman on Question Time saidwe just do not know what will happen after Brexit, she was repeating an idea pushed repeatedly by the Brexit press and implicitly supported by most broadcasters. The BBC accepts that climate change is happening (most of the time) because that knowledge comes from 'proper scientists'. The BBC does not accept that Brexit will make the UK worse off in economic terms because it is knowledge predicted by economists, and they think economics is not knowledge.

The right in the UK and US are now set on a course where they are prepared to defy science itself for their own interests. But this can only succeed when some of those who think of themselves as in the centre let them. In this case it has been allowed to happen in part because political journalists and those above them at the BBC decided economics where the overwhelming majority of economists agree was not knowledge but just another opinion. As I have spent my working life examining how economics can improve policy choices it is hardly surprising I find that simple ignorance outrageous.

 -- via my feedly newsfeed

Mark Anner: The Struggle for Work with Dignity through Broad Campaigns and Social Alliances [feedly]

Strengthening global labor organization would make it much easier to pressure the WTO and other trade institutions to add labor representation based on adding INTERNATIONAL LABOR INTERESTS of trade agreement discussions and negotiations.

The Struggle for Work with Dignity through Broad Campaigns and Social Alliances
https://www.globalpolicyjournal.com/blog/22/10/2019/struggle-work-dignity-through-broad-campaigns-and-social-alliances

Improving the lot of global supply chain workers involves not only organising local and migrant workers to pressure suppliers, brands and retailers, but leveraging the financial sector and state institutions.

Power imbalances in global supply chains are used by multinational corporations to squeeze suppliers, and by suppliers to squeeze workers. Yet, supply chains involve far more than buyers, suppliers, and factory workers. Above buyers sit a range of financial sector actors demanding ever increasing returns on their investments, and above them are powerful states and inter-state institutions setting the rules of the game. In the past several decades, those rules have encouraged the proliferation of global supply chains through trade liberalisation and other policies.

At the same time, local factory workers are not the only ones squeezed at the bottom. So are informal sector workers, particularly women, and internal and external migrant workers. Many workers rely on family remittances to survive. They also purchase their goods from workers in the informal sector, whose under-valued labour helps to subsidise the dramatic profits and income of those at the top.

Tackling the challenges facing labour in global supply chains thus involves issues of factory work, the informal sector, and migrant labour. Efforts to achieve sustained improvements will require broad, strategic alliances that bring together labour unions, advocacy organisations for workers in the formal and informal sectors, migrant workers' rights groups, and the philanthropic groups who support these efforts. This broad social coalition will furthermore need to leverage all aspects of the supply chain structure, including suppliers, brands, retailers, the financial sector, states, and international institutions, to achieve positive and lasting change.

Wealth and power at the top of global supply chains

We now live in a world in which the CEO of Amazon, Jeff Bezos, earns $3,181 per second, which is more than the majority of supply chain workers in the global south earn in an entire year. Amancio Ortega, founder of clothing retailer Zara, has an estimated net worth of $62.7 billion. That is more than the total annual value of Bangladesh's apparel exports ($32 billion) and Vietnam's mobile phone and related components exports ($49 billion). The finance sector – whether it is via shareholders, private equity firms, or other financial instruments – wields enormous power and influence. It has been vital to this dramatic concentration at the top. Amazon's market valuation of $910 billion is more than that of the its next seven major competitors, including Walmart.

The top of the global supply chain does not end with the finance sector. One step higher are those who make the rules of the game that allow for this massive concentration of wealth and power. States in the Global North made the decisions to deregulate financial markets, especially in the United States. And inter-state institutions, such as the World Trade Organization in the 1990s, made the decisions that liberalised trade in sectors such as apparel, contributing to the further global dispersion of production.

The International Monetary Fund and the World Bank also have used their power and influence to deregulate labour markets and weaken freedom of association rights, which further facilitated the growth of supply chains by increasing downward pressure on wages and workers' rights. Hence, addressing worker rights problems in global supply chains also necessarily entails leveraging powerful state and inter-state actors to change the rules of the game.

Local, migrant, and informal workers in supply chains

While the role of buyers, the financial sector, and powerful states force us to look more closely at the top of supply chains, diverse worker experiences require us to examine how local labour, informality, and migrant workers all contribute to profit generation in supply chains. In the Dominican Republic, Haitian workers have been used for decades on sugar plantations to keep wages low and unions weak. In India, informal workers – many of them children facing horrifically unsafe conditions – mine the mica that goes into the makeup sold at considerable profit by multinational beauty products corporations. In Bangalore, India, internal migrant workers from northeast India increasingly make up the army of underpaid apparel export workers.

Informal markets for informal workers also help to subsidise those at the top of supply chains. Underpaid supply chain workers do not buy their goods in supermarkets. They shop in the informal sector, where the low income of market vendors reduces the cost of food and other basic goods. How often do we hear factory owners, brands, and retailers justifying the low wages paid to workers as acceptable because living expenses are relatively 'cheap' in producer countries? It's a common but deceptive argument. What is really happening is that underpaid supply chain workers are buying underpriced goods from underpaid informal sector workers. That is, underpaid informal sector work artificially deflates the costs of living, which permits suppliers to pay workers lower salaries, buyers to pay suppliers less for the products they make, and investors to enjoy better returns. The bottom of supply chains once again subsidises the top.

Worker remittances: subsidising supply chains

Completing this picture is the role of remittances. In 2018 migrant workers sent $482 billion back home to low- and middle-income countries. In El Salvador, remittances are approximately ten times the value of apparel exports. In Bangladesh, while four million garment workers receive less than $5 billion in annual wages, the country takes in over $15 billion in worker remittances. In Mexico, where workers labour in apparel, electronics and auto-parts supply chains, firms deliberately seek out communities with high levels of remittances in order to more easily pay less than a living wage. Migrant workers through their remittances (just like informal sector vendors) are thus partially subsidising the firms that sit at the top of global supply chains. Despite corporations' claims of the long-term development benefits of global supply chains, poverty reduction in many developing countries is far more likely to be the result of workers receiving remittances from poor workers abroad than it is a result of work in many global supply chains.

The structure of global supply and the role of factory, informal, and migrant workers. | Provided by author.

The way forward?

The problems facing workers in global supply chains are enormous. They include below subsistence wages, sexual harassment, verbal and physical abuse, inhumane production targets, unsafe buildings, and systematic and often violent efforts to deny workers their rights to organise, collectively bargain, and strike. Yet, the figure above provides some indication of what a comprehensive strategy for change might entail. To start, it requires continued and constant pressure on supplier factories, farms, and mines, and on brands and retailers to ensure respect of workers' rights in supply chains.

The figure also suggests that change entails targeting and leveraging the financial sector. This may include leveraging pension funds as part of campaigns or pushing for effective social investment standards. And it certainly entails targeting state and inter-state institutions that set the rules of the game for supply chains. This requires greater regulation of the financial sector, trade rules for sustainable development, immigration reform, comprehensive mandatory due diligence legislation, and binding treaties.

Private governance, such as the binding accords in Bangladesh and Lesotho, are also powerful and necessary instruments for change. The analysis above also points to myriad ways in which a full range of workers – local and migrant, formal and informal – contribute to the considerable wealth generated by supply chains. This highlights the crucial need to achieve full respect for freedom of association rights and organise all these workers through better labour laws and more effective enforcement so that they are empowered and engaged in collective responses to the enormous challenges they face.

 

 

The author thanks Catherine Bowman and Cathy Feingold for helpful feedback on earlier versions of this article.

Mark Anner is Associate Professor of Labour and Employment Relations and Political Science at Penn State University, and Director of the Center for Global Workers' Rights. He is also chair of the Program on Labour and Global Workers' Rights, which is part of the Global Labour University network. Mark spent 11 years working with labour unions and labour research centres in Central America and Brazil, and was a union organiser in Boston. He represented worker delegations at ILC 2016.

This first appeared on:

 -- via my feedly newsfeed