To Keep the Economy Afloat, the Fed Turns to North Dakota [feedly]

The fed borrows from our only socialist bank :)

To Keep the Economy Afloat, the Fed Turns to North Dakota
https://www.yesmagazine.org/economy/2020/04/29/coronavirus-economy-public-banking

Bankers generally don't like surprises. But as CEO at the Bank of North Dakota, the only state-owned bank in the country, Eric Hardmeyer was pleasantly surprised to see the Federal Reserve taking a page out of his institution's playbook to help deal with the unprecedented economic disruption from the COVID-19 pandemic.

"The Fed seems to be thinking of everything we were thinking about two or three weeks ago," Hardmeyer said.

To help small business stay afloat through the pandemic, banks and credit unions have been already tasked with putting out more federally backed loans to small businesses in a few weeks than they typically do in a year. The Small Business Administration's Paycheck Protection Program was part of Congress' bailout bill provided $349 billion in forgivable loans to small businesses.

That alone is about 14 times what the agency typically guarantees a year. But that was far from enough; the loan program was exhausted within two weeks after the SBA started accepting loan applications. The most recent relief bill authorized an added $310 billion for the program, which again could be used up in less than two weeks, because more lenders have been signing up to make the loans.

Add to all that, on April 9, the Federal Reserve announced it would back $600 billion in loans to midsize and potentially smaller businesses through its new Main Street Lending Program. 

But every lender has an upper limit on the amount of new loans it can add to its balance sheet in a short period of time before running out of cash on hand or tripping the wires with banking regulators. Ramping up lending quickly during an emergency is especially challenging for community banks and credit unions that handle most small businesses' needs. And it would be impossible for those small lenders to do so at a sufficient scale to counteract a massive, rapid economic shutdown like this.

To help small business stay afloat through the pandemic, banks and credit unions have been already tasked with putting out more federally backed loans to small businesses.

To overcome those balance-sheet constraints, the Main Street Lending Program is expected to work through what's known as loan participations. Eligible businesses apply for the Main Street loans through private banks or credit unions, and the Federal Reserve comes in behind the scenes to supply 95% of the borrowed amount.

That means local banks and credit unions can use their expertise and familiarity with borrowers and local market conditions to make loans under the terms of the program, but they only have to hold 5% of the value of those loans on their balance sheets. It frees up the local lenders to make more loans by reducing the risk associated with a large volume of new loans. Meanwhile, the borrower only ever deals with the bank or credit union that originates their loan.

To the rest of the country, a public entity doing loan participations will seem totally out of left field. But in North Dakota, they are an everyday occurrence. Other than student loans, the Bank of North Dakota rarely makes its own loans directly. Instead, the vast majority of the state-owned bank's lending happens through loan participations with local banks and credit unions in North Dakota. The Bank of North Dakota had $4.5 billion in active loans in its portfolio as of the end of 2019. That included 1,156 active small business loans for $1 million or less, including 352 for less than $100,000.

"These are absolutely unusual times, so I'm sure that [at the Fed] they're breaking up the old paradigms and saying we've got to think differently now," Hardmeyer said.

No one at the Fed called the Bank of North Dakota to talk about doing loan participations as a public institution, Hardmeyer said.

The key with any loan participation is making sure the originator has some incentives to carefully evaluate borrowers. Keeping 5% of the value of a loan on a private lender's balance sheet isn't a huge risk, but it could be enough that lenders will look through each loan application with appropriate due diligence, but not too slowly, given the urgency of the situation.

These are absolutely unusual times, so I'm sure that [at the Fed] they're breaking up the old paradigms.

The typical way in which public entities support private lending is by guaranteeing loans. That's the case with the Paycheck Protection Program, whose loans are 100% guaranteed by the Small Business Administration. With a few exceptions, however, those loans are not available to businesses with more than 500 employees. The Fed also created a new program to support Paycheck Protection Program lenders by offering them a dollar in near-zero interest loans for every dollar in Paycheck Protection Program loans on their balance sheet—it helps make sure those lenders have cash on hand to make more loans, but it still means they have to keep those loans on their balance sheet.

The Bank of North Dakota is buying Paycheck Protection Program loans from lenders in that state, supporting that segment of businesses, but the state-owned bank also wanted to bridge what it saw as a gap in coverage. "We thought we had an opportunity here to carve out a niche that wasn't being met, and all of a sudden the Fed comes out and says we gotta start dealing with these companies over 500 employees," Hardmeyer said. "We were going to move in if they didn't, so we'll see how that all plays out now."

Final details and documentation still need to be worked out, but businesses with up to 10,000 employees will soon be able to apply for a Main Street Loan through any bank or credit union that is willing to make them. Right now, the application deadline is Sept. 30, but the program could be extended beyond that date if the Federal Reserve decides it's necessary. Borrowers won't have to make any payments for at least one year after receiving their loan, and they'll have four years to pay back the loan.

The Main Street loan terms also contain stipulations meant to put limits on executive compensation, ensure borrowers use the loan proceeds to retain employees, and prevent them from buying back their own stock or pay off other debts.

That's also something the Bank of North Dakota has some experience with. Its Partnerships in Assisting Community Expansion program provides subsidized loans for businesses through private lenders, with loan participation from the state-owned bank. Each PACE loan comes with predetermined job creation goals and annual reporting requirements. Hardmeyer says there have been occasions when goals weren't met, and subsidies had to be at least partially clawed back.

"With accountability measures, as long as you know on the front end what those are and how those are enforced, it's always easier to do that on the front end rather than come in later and say, 'by the way, you guys didn't look at the fine print,'" Hardmeyer says.

The Main Street Lending program initially appears geared toward businesses at the larger end of the eligibility spectrum, though the Fed could change the terms of the program with approval from the Treasury Department. Right now, the minimum Main Street loan size is $1 million, and according to the loan terms, to qualify for a loan of that amount, a business would already need to be making around $300,000 in (pre-pandemic) annual profits before taxes.

The Federal Reserve Board of Governors has said, as part of supporting the economy, it wanted to target support specifically to businesses too large for the Paycheck Protection Program but not large enough to access corporate bond markets or stock markets.

Some think there is definitely broader need for something like the Main Street lending program to reach smaller businesses.

"The new [Main Street] facility from the Fed missed the mark in terms of where are most of the small businesses that were hit in the first wave—restaurants, retailers," said Jeannine Jacokes, executive director at Partners for the Common Good, a community development financial institution.

Private lenders commonly participate in loans with each other. Partners for the Common Good participates in loans alongside banks, credit unions, and other lenders across the country. The organization now has 80 active loan participations in its portfolio, financing projects for affordable housing, federally qualified health centers, youth centers, or other facilities serving low-income communities. The average amount of borrowed capital per loan supplied by Partners for the Common Good is about $534,000.

Partners for the Common Good also runs the Community Development Bankers Association, a trade association with around 80 members. Through the association, Jacokes says, she continues to talk with the Federal Reserve to see if they could tweak the Main Street Lending Program, or create another facility, to meet the needs of smaller businesses who will need more help than the Paycheck Protection Program or other existing programs can provide.

The Federal Reserve has not at this point ruled out the possibility of lowering or eliminating the Main Street Lending program minimum later, if the need persists beyond the Paycheck Protection Program. Banks are naturally inclined to make larger loans anyway, because it costs a bank the same amount of time and effort to make a $1 million loan as it does to make a $100,000 loan—so the Main Street Lending Program's minimum is more about targeting resources to firms that might not otherwise be getting support.

If anyone is concerned that small business lending is riskier and could potentially be a money loser for the Fed, consider that the Bank of North Dakota's annual reports show net positive income for every year going back to 1966, and 2019 was the 16th straight year it has set a new record for net income.

The Small Business Administration also has a good track record. From 2010 to present, the agency's standard loan program guaranteed 226,308 loans with an average size of $778,000, and just 2% of those loans defaulted. Meanwhile, the agency's small loan express program guaranteed 269,492 loans at an average loan size of $79,000, and the default rate was just 3%.

That doesn't mean there's no risk in making loans to small businesses in the middle of a pandemic, but that's a risk affecting businesses of all sizes, not just small businesses.

"Some businesses no doubt are going to fail because of this pandemic," Hardmeyer said. "We don't know how long this is going to be. Travel is going to be curtailed, big conventions curtailed for months, people not gathering in large groups, it's going to impact businesses in so many ways, it's hard to really tell at this point. But it's going to be a permanent shift to a new normal."

This story was co-published with Next City, a nonprofit organization with a mission to inspire social, economic and environmental change in cities through journalism and events around the world.

The post To Keep the Economy Afloat, the Fed Turns to North Dakotaappeared first on Yes! Magazine.

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The Rescue Operation Bridging a Food Access Gap in California [feedly]

Hippie socialism HAS its appeal, and doing good work in California.

The Rescue Operation Bridging a Food Access Gap in California
https://www.yesmagazine.org/social-justice/2020/04/29/coronavirus-food-access-california

By 11 a.m. on a Wednesday in Antioch, California, hundreds of cars are lined up at the Palabra de Dios Community Church. The cars fill the church's ample parking lot and snake up the neighboring service street, spilling into the intersection at the head of the block, past the next traffic light, and the next.

Some of the drivers wear face masks while kids sitting in the back seat play idly on cellphones. Some have made the trip from as far as San Mateo and San Carlos, more than an hour's drive away on the opposite side of San Francisco Bay. All of them are waiting for food.

Most weekdays since the onset of the COVID-19 pandemic, a box truck delivers groceries here: bags of fresh kale, lettuce, and radishes; boxes of apples, limes, and tomatoes; canned beans, pastas, and gallons and gallons of milk and juice. As volunteers from the church unload the truck, others quickly sort the food into single-family grocery boxes to put into each car.

Heriberto Santillan, an out-of-work construction worker, conducts the hundreds of cars through the Palabra de Dios Community Church grocery distribution program.

"Our intention here is to provide food to those who truly need it," says Ruben Herrera, pastor of Palabra de Dios. "With a lot of schools closing, no school means no food. There are a lot of families that are thinking of the first of the month. They don't have extra. You take [these parents] out of work, they might not have enough to provide for their children."

Herrera and his congregation don't regularly operate a food drive out of the parking lot of their church, but for many churches, nonprofits, and social service providers, the COVID-19 crisis has prompted a rapid reconfiguration of resources and efforts to address the needs of their communities.

The truckload of food comes from White Pony Express, a nonprofit aimed at alleviating hunger in Contra Costa County. Over the past six years, the staff members at White Pony Express have built and coordinated a growing food redistribution network, in which they "rescue" food with approaching sell-by dates from grocery stores, restaurants, and farmers markets, and redistribute that food to the county's low-income residents via food pantries, schools, and community centers. "We take the abundance from areas that have more than enough and redistribute it to places that don't have enough," says Helen Jones, food rescue operations manager for White Pony Express. "Ultimately, our goal is to eliminate hunger and poverty in the county, to try to balance out the scales."

Helen Jones, White Pony Express food rescue operations manager in the sorting area at the White Pony Express in Pleasant Hill, California.

But the COVID-19 crisis has brought a range of challenges to White Pony Express, as it has to all nonprofits addressing food insecurity. With unemployment rates skyrocketing, more families are losing income and trying to get by with less. At the same time, volunteers are more scarce because of social distancing and shelter-in-place orders, grocery stores have cut donations to meet consumer demand, and many distribution sites, such as community centers and schools, have closed indefinitely.

Given the ever-shifting landscape they operate in, Jones and White Pony Express staff have been forced to carve out new avenues to bring food to the community. One of those is Palabra de Dios.

"Things are constantly changing," Jones says. "There have been long nights, a lot of planning and juggling. … It's been a collaborative effort on the team. Everyone's being flexible because this is a fluid situation. They're just happy to be able to be out there serving the community."

Meeting Volunteer Demands in a Time of Social Distancing

Under normal circumstances, White Pony Express receives and distributes about 6,000 pounds of food each day. Drivers of White Pony Express's fleet of box trucks typically visit their donors throughout the Bay Area seven days a week to pick up leftover food—as well as clothing, toys, and other items—and bring them back to the nonprofit's warehouse in Pleasant Hill. There, volunteers sort the donations in hours before loading them back on the truck to head out to the community. Nothing perishable is stored overnight.

Hilario Camarena unloads the White Pony Express truck at the Palabra de Dios Communuty Church grocery distribution in Antioch, California.

But now, one month into the COVID-19 crisis, things look a bit different at the White Pony Express facility, where about a dozen volunteers wearing masks and gloves tackle a variety of tasks: shucking corn, stacking milk crates, and sorting fruits and vegetables. Social distancing requires volunteers to spread out, and there are far fewer volunteers here than on a normal day.

Volunteer Mindy Bush says many of the regular volunteers have chosen not to come in during the current crisis. Understandably so, because most are 65 and older and therefore most susceptible to the virus. But Bush, whose health and work schedule allow her to continue volunteering, saw this as an opportunity to step up. "Usually I come once or twice a week," she says. "This is my fourth time this week."

Volunteers sorting donated food at the White Pony Express headquarters in Pleasant Hill, California.

Most of today's volunteers are new. "This is my second day," says Jean Lyons, a part-time grocery store employee, as she works across from Bush to sort rotten fruit from a case of apples. "I love being part of something like this, " she says.

In the meantime, staff members have worked around the clock to tie up loose ends in the food donation supply chain, while many have joined the volunteers sorting food.

"I am working harder, and I'm blessed that I get to," says Cliff Strand, one of the drivers for White Pony Express "This is a time when people need hope. They need someone to deliver that hope."

Sourcing Food as Grocery Demand Spikes

The crisis has also affected where food donations come from, and where they go once they leave the facility. Since mid-March, White Pony Express has seen a significant reduction in donations from grocery stores, for instance, because of a spike in consumer demand. Whole Foods, Trader Joe's, and other franchises have continued to donate what they can, but intake from grocery stores has fallen by as much as 80%.

Volunteer Barbara Gertz sorts donated food at the White Pony Express headquarters in Pleasant Hill, California.

This setback has required White Pony Express to lean on other donors, such as food distributors. For instance, Imperfect Foods, a San Francisco-based company that sources and resells edible food rejected by retailers has donated 140,000 pounds of food to White Pony Express since January. In response to the COVID-19 crisis, the company has been ramping up donations to White Pony Express and other food-focused organizations.

"The issue is not a lack of food," says Reilly Brock, brand storytelling manager for Imperfect Foods. "We often have surplus… Nonprofits like White Pony Express are a huge part of our safety net to make sure we don't waste edible food, and that any time we have food, it's going to someone who needs it."

Carving Out New Channels for Food Distribution

Under normal circumstances, a large portion of White Pony Express's food supply goes to schools. As part of its food rescue program, White Pony Express identifies schools where at least 80% of the students receive free or reduced-cost lunches to set up school pantries. Twice a week, White Pony Express then delivers up to 1,000 pounds of food to these pantries, where parents are able to pick up groceries.

Frank Krisnowich, center, loads a White Pony Express truck for delivery. Krisnowich was one of the many retired volunteers that White Pony Express relied on to pick up, sort and deliver food. Since the onset of the COVID-19 pandemic, most of White Pony Express' volunteers have had to cease contributing to the organization to self-isolate.

But with schools closed, White Pony Express has been forced to identify new portals into communities that need food. That's where Pastor Herrera and his church come in.

In March, Jones called Herrera. She asked Herrera whether White Pony Express could use his church as a distribution center for families to pick up groceries. Not only did Herrera agree, but he promised to provide volunteers to sort the food and manage the redistribution. "We want to be more than a church. We want to have an impact on our community," he says.

For many volunteers, the food drive at Palabra de Dios has offered a way to give back to the community when they would otherwise be at work or at home. "God taught us to help people," says Roberto Cordoba, a 23-year-old construction worker and member of Palabra de Dios. "If we have stuff already, then why take? Let's give to the people who really need it."

Kristen Crithfield, White Pony Express Driver Coordinator unloads her truck at the Loaves and Fishes of Contra Costa soup kitchen and food pantry in Martinez, California.

For much of the staff at White Pony Express, responding to the COVID-19 crisis has been a constant shuffle. It has required flexibility and an understanding that conditions change from day to day.

It's unclear how long operations such as the one at Palabra de Dios can continue. For instance, Herrera, who works full-time as an insurance agent in addition to pastoring the church, has been cutting back his work hours to run the food drive. "If I wasn't doing this, I'd be in my office working," he says. "But this is the time for giving. We have it in our hearts to continue."

For many of the staff and volunteers, seeing the line of cars at Palabra de Dios offers proof enough that their work is necessary. "This is a testament to our mission—what we do as an organization on a day-to-day basis and even more so now," Jones says. "We need to step up and provide for those who so desperately depend on us."

This story was produced by Social Care Stories, a multimedia team that spotlights critical social issues across the country and celebrates people who work for positive change in their communities. Social Care Stories is funded by Aunt Bertha, a public benefits corporation that connects people to social services.

The post The Rescue Operation Bridging a Food Access Gap in Californiaappeared first on Yes! Magazine.

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Yves Smith:Naked Capitalism: The Price of Meat

The Price of Meat

Posted on April 30, 2020 by Yves Smith

Meatpacking plants have become the new front where workers are fighting management over Covid-19 risk. But unlike medical professionals, who in theory can be hazmat suited up so as to greatly reduce exposure to contagion but aren't due to the lack of PPE, you can rest assured that level of safety precaution will never happen in slaughterhouses because the pricing and margins of meat production won't allow for its.

The stakes for meat are high not simply due to the concentration of production, that that loss of not all that many plants has crippled on pork and beef supplies, with pork down by 1/4 and beef off by over 10%. It also results from the fact that the number of cases in these plants is so high that they've made their communities into hot spots. So even if the plants were kept open, people in the area would be put at even more health risk. That's why, three weeks ago, Governor Kristi Noem pressed Smithfield Foods to halt in its ginormous Sioux Falls operation, which had over 200 positive cases. Since then, coronavirus has shuttered at least 15 more plants. Wholesalers are warning of meat shortages in some regions, while in other areas, grocers are engaging in rationing lite (limiting the number of meat purchases), so as to keep shelves stocked and prevent panic buying.

John Tyson of Tyson Foods appears to have goaded Trump into acting via a series of newspaper ads blaring that "The food supply chain is breaking." Cynics wondered if that was just cover for jacking up prices and giving Tyson cover so as not to be accused of profiteering.

But it seems that the industry honchos really did want the meat plants back in service. Trump quickly issued an executive order, using the Defense Production Act to authorize the plants to reopen. However, the press appears to have gotten out over its skis. Trump's order isn't forcing meat processors back into operation:

Steve Vladeck

✔@steve_vladeck

I don't mean to cause trouble, but I think these headlines are getting it wrong.

Nothing in the text of the Order claims any power to force plants to "stay open," and nothing in the statutory sections on which the Order purports to rely delegates such authority.

Here's why: https://twitter.com/Yamiche/status/1255297685294325762 …

Yamiche Alcindor

✔@Yamiche

Replying to @Yamiche

It's official.

President Trump has signed the executive order using the Defense Production Act to order meat-processing plants to stay open. EO says Secretary of Agriculture shall use the authority to "ensure the continued supply of meat and poultry."

1,073

9:51 PM - Apr 28, 2020

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However, the order does override state orders to suspend operations. And it gives the producers a big fat liability shield. From Mother Jones:

But here's a theory. Already, 20 meatpacking and food-processing workers have died from COVID-19, and more than 5,000 have contracted the disease, according to the United Food and Commercial Workers International Union. What if workers and their families start suing, claiming that the companies' practices made them sick? Already, one worker—at a Smithfield plant in Milan, Mo.—filed a lawsuit claiming management was not sufficiently protecting workers from the risk of COID-19, and demanding that it follow Centers for Disease Control and Prevention guidelines.

A president invoking the Defense Production Act to require meatpacking firms to keep their plants running during outbreaks would provide a "solid basis" for shielding the firms from suits like this, said Jennifer Zwagerman, director of Drake University's Agricultural Law Center. She noted that Walmart was recently sued for wrongful death by the family of a worker who died from COVID-19 complications.

And from Reason:

The big deal in the executive order and interpretations of it may be about meat processing plant liability for employee exposure. From [U.S. Solicitor of Labor Kate S.] O'Scannlain and [OSHA Principal Deputy Assistant Secretary Loren] Sweatt's statement:

Courts often consider compliance with OSHA standards and guidance as evidence in an employer's favor in litigation. Where a meat, pork, or poultry processing employer operating pursuant to the President's invocation of the DPA has demonstrated good faith attempts to comply with the Joint Meat Processing Guidance and is sued for alleged workplace exposures, the Department of Labor will consider a request to participate in that litigation in support of the employer's compliance program. Likewise, the Department of Labor will consider similar requests by workers if their employer has not taken steps in good faith to follow the Joint Meat Processing Guidance.

Even CBS worked out that the worker safety bits were a headfake; relevant agencies merely issued guidance.

Mike Elk's PayDay report seems to be the only outlet covering Covid-19 strikes; his map now shows 153. Yesterday, Nebraska meatpackers struck. From Elk's account:

It's unclear how Trump intends to use the Defense Production Act to force meat packing processing workers back into the assembly line.

Organized labor immediately denounced the move.

"We only wish that this administration cared as much about the lives of working people as it does about meat, pork, and poultry products. When poultry plants shut down, it's for deep cleaning and to save workers' lives," said Stuart Applebaum, president of Retail, Wholesale, and Department Store Union. "If the administration had developed meaningful safety requirements early on as they should have and still must do, this would not even have become an issue."…

Shortly after Trump announced his intention to issue his executive order, more than 50 meatpackers walked off the job after 48 co-workers tested positive for COVID-19 at Smithfield's plant outside of Lincoln, Nebraska…

The Nebraska action follows a wildcat strike Monday night at Pilgrim's Pride meatpacking plant in Cold Spring, Minn.

Another meatpacker facing coronavirus pushback in JBS. In Green Bay, 189 coronavirus cases have been linked to its facility there. Elk informs us that JBS is playing hardball:

At a JBS meatpacking plant in Greely, Colo., 5 workers have died of COVID-19 and at least 100 workers have tested positive for the virus.

However, now JBS is threatening to sue the UFCW because of the negative media attention that they have received.

From KUSA in Denver: 

JBS has sent a cease-and-desist letter to the union that represents its workers, arguing that it "has adopted a strategy of generating negative media attention and public opinion" to gain concessions from the company while it battles an outbreak of the novel coronavirus at its Greeley meatpacking plant.

They provided a copy of that letter to the 9NEWS by United Food and Commercial Workers Local 7 on Tuesday, and a rebuttal from the union's president, Kim Cordova.

"Unfortunately, your cease and desist letter, threatening to stifle our voice, and those of our members, as well as pursuing claims for unfounded, speculative, and unrecoverable damages is rife with numerous inaccuracies, suppositions, and erroneous conclusions won't spend time rebutting in their entirety," Cordova wrote.

Have no doubt that that's also meant to deter the Green Bay workers from making noise.
Trump has threatened to use the National Guard to replace strikers; Elk reports that Democratic Governor Tom Wolfe has called in the National Guard to replace nurses who walked out of a nursing home to demand better safety protections after 19 residents died. I wonder how much appetite members of the National Guard would have for the backbreaking pace of meat processing plants.

Here's a well argued take:

Nebraska Governor Pete Ricketts suggested yesterday that workers at meat packing facilities should face loss of unemployment benefits unless they returned to work. This follows on the heels of President Trump's announcement that he would invoke the Defense Production Act to reopen closed plants in an effort to protect the nation's food supply-chain. Plants, regardless of safety, will be opened and workers will be coerced with loss of UI benefits so that Americans can get their pork, chicken, and beef in a timely fashion.

Don't get me wrong. I like meat as much, and probably more, than the next guy and will start getting nervous when these products aren't in my local grocery store's refrigerator case. But this one-two policy punch from the White House and Governor Ricketts has a few problems with it. These plants are out of operation not because workers have refused to do their jobs but because of serious COVID-19 outbreaks that forced their closure. There have been hundreds of cases of COVID-19 associated with these facilities and a number of deaths. The counties where the plants are located are becoming their own hot-spots in the unfolding disease crisis. Cramped working conditions and hard physical labor seem to lend themselves to efficient viral transmission.

There's an even darker side to the situation, though. Somewhere between 30 and 50 percent of the meat-packing workforce is made up of undocumented workers from Mexico, Guatemala, and El Salvador as well as immigrants from East African nations. As Smithfield Foods' statement on the Sioux Falls outbreak indelicately put it, the living conditions of these immigrants are "different than they are with your traditional American family." Get it? They are in overcrowded houses with inadequate sanitation. "They" aren't like "us". Since many — perhaps a majority — of them lack legal status, they are unable to defend themselves against exploitative or coercive labor practices. As recently as last August, ICE agents were rounding them up by the hundreds for deportation.

We need to make up our minds on a number of issues. On the one hand, we shower praise on "essential workers" in hospitals, grocery stores, sanitation and other occupations. On the other, we engage in acts of economic coercion with vulnerable populations who do some of the dirtiest, most difficult, and most dangerous work around. We build a fence along our southern border to keep out illegal immigrants but then seek to force those who are already here to do jobs American citizens simply will not do.

Why so coy about the source? It's from Brent Orrell….at the American Enterprise Institute. That American Enterprise Institute. Orrell, at one of the bastions of "free market" ideology, gives a more straightforward statement in support of meatpacking plant workers than I have yet to see from any Democrat.

And while the Orrell does not support strikes, do you seriously think Team Dem would? The press has barely taken note of them. Even Labor Notes has Covid-19 entries only on medical worker and teacher actions (well, and library stafers too).

In other words, the abandonment of workers is so complete that some conservatives are more willing (even if selectively) to stand up for laborers, recognizing the necessity and arduousness of their jobs, than "liberals" or the Vichy Left, whose silence is deafening.

--

John Case
Harpers Ferry, WV

Enlighten Radio

Socialist Economics

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Enhancing Trade Supply Responses to the COVID-19 Pandemic [feedly]

The self-sufficiency, nationalist strategies will fail: 
...find the trade High Road will require MORE internationalism, not less.

Enhancing Trade Supply Responses to the COVID-19 Pandemic
https://www.globalpolicyjournal.com/blog/30/04/2020/enhancing-trade-supply-responses-covid-19-pandemic

Bernard Hoekman, Matteo Fiorini, and Aydin Yildirim look at some of the counterproductive trade policy responses to COVID-19 pandemic and suggest ways to expand production of essential supplies.

As part of the response to the COVID-19 pandemic governments are greatly increasing their procurement of medical supplies and personal protective equipment (1). The global spike in demand far outstrips existing emergency stocks and short-term supply capacity. In early January 2020, China, the world's largest producer of surgical masks and respirators, reserved supply for domestic use and greatly increased imports from foreign suppliers. Following the spread of the virus internationally, other countries followed suit in putting in place export bans and/or requisitioning available supplies for domestic use. According to the Global Trade Alert, an independent trade policy monitoring initiative, as of early April 2020, some 75 governments have implemented some type of export curbs on medical supplies and medicines needed to fight the pandemic. In parallel, a similar number of countries have reduced or removed import tariffs on essential supplies to lower the cost of sourcing products and many are engaging in direct contracting and purchasing supplies from foreign providers.

Firm-specific cases such as the French seizure of surgical masks owned by Mölnlycke, a Swedish company, and the dispute between 3M and the Trump administration (discussed in our working paper) illustrate that while export restrictions and requisitions of domestic supplies of essential goods may seem an obvious and justifiable measure, they give rise to unintended consequences. The result may be to reduce access to critical supplies, increase average prices significantly, augment market volatility, and generate negative spillover effects on other countries. Potential adverse effects go beyond public health and economic consequences and extend to the foreign policy domain, eroding trust among trading partners.

Robust government intervention is critical in emergencies like the current COVID-19 pandemic. Regulation is needed to ensure that scarce critical supplies are allocated to priority uses, notably health care providers and to control speculation. This cannot and certainly should not be "left to the market." But export restrictions are second-best responses. Reasons include retaliation (emulation) by other nations, reallocation of supplies by companies away from the country imposing restrictions, promotion of panic buying, hoarding and speculation, and negative reputational effects that impact on investor risk perceptions once the crisis has passed.

In the short run many of the downside effects are associated with price spikes and volatility resulting from constraining access to imported inputs needed for domestic plants to ramp up local production rapidly and reducing the availability of final goods. Many firms have organized production in international production networks and need to be able to source parts and components in order to produce, let alone scale up output.

Allowing international supply chains to work is critical to ramp up supply. Arguments that the current crisis points to the need for greater self-sufficiency are misconceived. Serious short-term supply constraints would exist at national level as well following a pandemic. Having to cross a border is not the issue given that it only takes 48 hours or so to get anything from anywhere in the world. Autarky will not make it any faster to get whatever is critical in a crisis to those who need it. What is needed is for governments ensure that stocks of essential supplies are built up before crises hit and diversification of production capacity across different regions that permit supply to ramped when needed without risk of being blocked or impounded. The focus needs to be on encouraging and supporting business responses as opposed to disrupting supply chains and engaging in negative sum competition for existing supplies and production capacity.

There has already been a massive supply response to the sharp increase in demand for personal protective equipment (PPE). All established suppliers have greatly expanded production but cannot ramp up fast enough. Many firms in other sectors have also demonstrated a capacity to produce essential protective gear. To do so firms need information on demand, applicable product and production standards, be able to obtain rapid certification and to source requisite inputs – including from foreign suppliers. Effective two-way communication channels are needed for firms to identify specific bottlenecks that impede ramping up of supply.

Information is critical – for governments and for firms

Firms need to have systems to monitor market conditions and identify slack and chokepoints in their global network to enable adjustments in production to respond to changes in demand. Governments need information systems that allow them to determine where supply capacity exists and that helps to understand the relevant supply chains. Firms generally will have information on supply options, but governments often will not have such information readily to hand. Both sets of actors need to be able to identify bottlenecks in the supply chain in real time and cooperate in addressing them.

This calls for information systems that permit identification of weak links in supply chains and sources of friction impeding production expansion that are due to – or can be overcome – through policy action. Such information systems were not in place in many if not most countries. Authorities did not have a good understanding of the prevailing supply chains and production capacity. Individual lead firms of course know their supply chains but do not share this information as it is a source of competitive advantage. There are exceptions, such as the New Zealand Medicines and Medical Safety Authority, which requires firms to disclose their supply chain, including where active ingredients for medicines are made and where they are packaged. However, most authorities and jurisdictions seem to have been largely in the dark regarding the nature and composition of the relevant supply chains. There is a notable contrast here with other policy areas such as food products, where traceability throughout the supply chain has become a common feature of the production and distribution process.

Standards and certification of products/plants/suppliers are critical for safety, but the associated regulatory enforcement processes can be a constraint in responding rapidly to an emergency. One good practice here is for governments to accept foreign standards during the emergency as was done by the US Centers for Disease Control approving use of respirators that satisfied equivalent foreign standards, including China's GB 2626-2006 and GB 2626-2019 standards as well as the European EN 149-2001 standards. The existence of common product standards and mutual recognition of standards facilitates supply responses and cross-border production arrangements. This reinforces the value of international regulatory cooperation, mutual recognition arrangements and efforts to determine whether and where regulatory regimes across countries/systems have the same goals – and in such instances work towards establishing equivalence regimes.

The opportunity cost of not having equivalence and recognition regimes in place was illustrated by the decision by China to impose new export license requirements in early April 2020. The government was responding to rejections by several European countries of PPE shipments sourced from Chinese companies on quality grounds. The Chinese authorities feared a reputational backlash and sought to ensure that exported products meet quality and safety standards by limiting exports to firms certified to sell in domestic market (i.e., firms having been accredited as meeting Chinese technical regulations). Companies accredited by buyers in the US or EU – e.g., firms with CE certification – were blocked from exporting by the new regulation until they had obtained certification in China. Cooperation between governments (regulators) to establish recognition and equivalence arrangements for certification and acceptance of foreign standards would help prevent the application of rigid enforcement of national standards with their associated detrimental trade restricting effects, especially in a time of crisis where unilateral action can have very high humanitarian costs.

Beyond unilateralism: international cooperation in the G20 and WTO

The focus of trade policy responses has been on unilateral action to facilitate imports of products that are most salient to combat COVID-19, direct available supplies to domestic use, and to control or prohibit exports. Trade agreements have not been much of a factor in either constraining beggar-thy-neighbor policies or fostering cooperative responses. Experience has made clear that seeking to agree to binding disciplines for export restrictions is doomed to failure. Instead, cooperation should center on improving crisis response coordination by generating and sharing information on supply-demand trends, improving policymakers and public understanding of the organization and operation of relevant supply chains and joint action to minimize supply chain production and distribution bottlenecks and frictions.

The post-financial crisis period has made clear that G20 countries are unwilling to live up to strong trade policy commitments. The attenuation in support for multilateral cooperation that has been evident over the past decade and the electoral success of political parties that oppose globalization and an open world economy makes any effort to agree to disciplines on export restrictions very unlikely to succeed. However, cooperation centered on information exchange, dialogue and peer review may be more feasible. Such efforts should encompass the private sector given that the latter has a much better grasp of the relevant supply chains. Public-private policy partnerships to generate and share up-to-date information on supply conditions and supply chain capacity around the globe would help governments and industry understand the state of play and coordinate policy responses, address supply chain bottlenecks and strengthen supply responses (similar to ideas suggested in the trade facilitation literature).

Following the 2007-08 global food price shocks, which led to a third of global wheat production and over half of world rice output becoming subject to export restrictions, the G20 created the Agricultural Market Information System (AMIS), This has helped countries to generate information on supply-demand balances, stocks, and policies, supported by a network of international expertise. A similar system for the medical and protective product markets that are critical for effective responses to public health emergencies could help promote transparency and provide a platform for governments and relevant international organizations to coordinate crisis responses.

Like-minded WTO members are currently pursuing several potential plurilateral agreements that would apply only to signatories, including on e-commerce, investment facilitation, regulation of services and supporting micro, small and medium-sized enterprises. As part of their COVID-19 response, New Zealand and Singapore have agreed to eliminate applied tariffs for essential medical and protective products, medicines and agricultural products; refrain from export restrictions on such goods and to expedite their movement through their ports. They have indicated they would welcome other countries joining them.

In addition to such trade policy-centric actions, plurilateral initiatives should also be considered to increase the resilience of international supply chains and coordinate responses to global collective action problems, including crisis situations like the current pandemic. A public-private policy partnership to identify and address supply chain bottlenecks and frictions could help support efficient and rapid responses to international emergencies. Another policy area where open plurilateral agreements could add value pertains to mutual recognition and equivalence regimes for technical regulation and certification of protective equipment and medical supplies. Such agreements entail positive and pro-active cooperation to address supply side constraints, complementing desirable unilateral actions to facilitate trade.

 

 

Bernard Hoekman is Professor, Robert Schuman Centre for Advanced Studies and Dean, External Relations, European University Institute.

Matteo Fiorini is a Research Fellow in Global Economics at the Global Governance Programme of the European University Institute.

Aydin B. Yildirim is a Marie Curie Fellow at the World Trade Institute, University of Bern.

Photo by EVG photos from Pexels

Note:

(1) This column draws on Hoekman, Fiorini and Yildirim. 2020. "Export Restrictions: A Negative-Sum Policy Response to the COVID-19 Crisis", supported by the EU Horizon 2020 research and innovation program under grant agreement

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Brad DeLong: Worthy reads on equitable growth, April 19–25, 2020 [feedly]

DeLong's team is full of innovative ideas, on addressing the depression recovery strategy and tactics. Be interesting to see where Biden is going with these challenges.

Brad DeLong: Worthy reads on equitable growth, April 19–25, 2020
https://equitablegrowth.org/brad-delong-worthy-reads-on-equitable-growth-april-19-25-2020/

1. This is, I think, not a call for a Works Progress Administration as such, but rather a call for a very large-scale Public Health Tracking Administration. Read Heather Boushey, "A Modern-Day Works Progress Administration Could Prevent a Coronavirus Depression in the United States," in which she writes: "To be effective in containing the virus in the United States, track and trace must be implemented in a coordinated way and done so across the nation. Experts at the Center for Health Security at Johns Hopkins University's Bloomberg School of Public Health estimate that just to start an effective national track and trace system will require hiring 100,000 individuals alongside more investment in the state and local public health workforce. Depending on how the pandemic plays out over the course of 2020 and into 2021, public health officials easily could discover they need even more people power to track and trace. Robert Redfield, the director of the Centers for Disease Control and Prevention, says a significant increase in public health officials engaged in track and trace will be necessary if the coronavirus returns in force this coming winter. And former CDC Director Tom Frieden believes hundreds of thousands of new trackers and tracers are needed to do the job now. Where can the federal government find such an army of workers? The answer is among the tens of millions of workers idled amid the current recession."
2. This is a major institutional design failure. If I were designing this, then small businesses (and large businesses, too) would have had a right to take out loans to the amount of two years' past receipts, and the Federal Reserve would have promptly discounted such loans at par. To find out what actually happened, read Amanda Fischer, "Early Lessons Learned from the U.S. Small Business Administration's First Round of Lending from Its Payroll Protection Program," in which she writes: "Policymakers have wide latitude to shape how our economy looks coming out of the economic downturn and into the recovery. This second round of funding by the Small Business Administration through the Payroll Protection Program is an important next step, and hopefully businesses in the hardest-hit sectors, in previously neglected states, and among those smallest of small businesses seeking small-value loans will be assisted. Banking industry insiders are predicting that the next round of small business funding could evaporate in just two days. Congress should consider massively scaling these investments, ideally making the funds guaranteed for all eligible small businesses … Beyond the too-small funding amount, the biggest disappointment of the small business loan program so far is the lack of data collection on applications received and loans funded. Without a view into this, policymakers, law enforcement, advocates, and researchers will find it hard to determine patterns of who did and who did not receive rescue money. Finally, even as Congress works remotely, oversight will be essential."
3. Supply chains as cost-minimizers appears to have been a trend of the past. Or, at least, it ought to have been a trend of the past. The very sharp Case Western University professor Susan Helper, who has been writing about supply chains recently for Equitable Growth, is, I think, correct here: the future will be how firms can use value chains to mobilize productive resources. Read her "How COVID-19 Makes the Case for 'High-Road' Supply Chains," in which she writes: "Supply chains have been fragile for some time, dating back to before the COVID-19 outbreak. Within the last two decades, there have been major disruptions caused by the Fukushima Daiichi tsunami in Japan in 2011, the floods in Thailand that same year, and the SARS epidemic in China and Hong Kong from 2002 into 2003. Though long supply chains are known to increase disruption risk, the typical methods firms use to make global sourcing decisions do not sufficiently consider this risk to individual businesses. Furthermore, these methods rarely consider the societal risks at both ends of the supply chain … Global supply chains should not become 100 percent domestic. But both public- and private-sector leaders need to fully take into account the risks that far-flung supply chains pose … One small step to encourage high-road, versus low-road, supply chains is to develop a new approach to global sourcing decision-making, otherwise known as "total value contribution (TVC)," a term I and my two co-authors, John Gray and Beverly Osborn at The Ohio State University's Fisher College of Business, propose in a forthcoming working paper. TVC encourages supply-chain managers to first consider how decisions affect value drivers, before they even consider costs."
4. Once again, without rapid expansions in testing, nothing prudent is possible. All policy shifts away from a frozen crouch have a substantial risk of producing a true mortality disaster. And we are not having rapid expansions in testing. The Trump administration's handling of coronavirus truly does look like the worst in the world. Read my "The United States Has Been Treading Water on Coronavirus since Early April,: in which I write: "Other countries have managed to get R[0] well below 1—have begun substantially shrinking the daily number of new cases. The United States has not. Our current level of social distancing and lockdown appears to be producing about 30,000 new confirmed cases a day. We are no longer—and have not for two weeks been—ramping up and utilizing our testing capabilities. On our current trajectory we look to be incurring about 2,000 reported coronavirus deaths a day. Our medical system is handling the current run of cases. But it would be nice to get the number of cases down and the number of tests up so that we could begin implementing test-and-trace. But that requires a lot more tests—which are not there. And that required more effective social distancing to get R[0] substantially below one—which is not there, certainly not at a nationwide level."

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