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Alternatives

Margaret Thatcher may have been the first to say ‘there is no alternative’ to free market capitalism (TINA). This mantra was later adopted by those advocating for free trade, deregulation of everything including the financial sector and labor markets and globalization. This mantra was also reinforced in economics and traditional media. It held sway over Washington (and continues today).

In the U.S. this mantra was called various pseudonyms such as ‘trickle down economics’ and practiced by both major political parties. This mantra evolved into a religion - a terrible flawed religion - devoid of reality and requiring a blind faith that it would actually work for most people. It turns out that it only worked for those on the top end of the income ladder. No ‘trickle down’ economics here:

Many believers in TINA tried to convey the idea that capitalism and democracy were the same. They are not. Just take a look at China. China practices capitalism, a very authoritarian form, but I certainly wouldn’t call it a democracy. This false connection is part of the propaganda supporting this religion. Propaganda that includes labeling anything that challenges the status quo as ‘evil’ or ‘socialism or ‘communism’.

After years of devotion to TINA by both political parties and the dominate economic consensus what we have to show for it - huge income inequality, several financial crises (don’t forget Saving & Loan Crisis and Long-term Capital Management crisis), continued destruction of the environment, bigger corporations and ‘too big to fail’ financial institutions that can crash the global economy. We have a government and regulators that serve the interests of big money donors over the interests of the people. We are a plutocracy with a predatory capitalist economic system.

American workers haven’t fared too well under this TINA religion. As Thomas Palley said:

Workers are “boxed in” on all sides by a policy matrix consisting of globalization, labor market flexibility, a focus on inflation rather than full employment, and the erosion of popular economic rights (as exemplified by the 1996 welfare reform act) in the name of “small government.”

The sides of this box are starting to collapse on American workers. Current job situation in the U.S. is characterized by low job growth, low paying jobs and stagnate wage growth. Nothing is being offered to change the economic status quo displayed here:

Source: The State of Working America

The above graph shows that while American workers have been working harder pay has not been keeping up the productivity gains like it use to. Before TINA and deregulation (or labor flexibility) of labor markets income gains and productivity gains were linked - hard work or being more productive was rewarded with higher pay. Not anymore. But who is benefiting from these productivity gains? It is shareholders who are mostly executive managers and top income households.

This TINA religion has been bad for workers. But yet we’ve brainwashed into thinking there is no alternative or that anything else is bad. TINA has a very good propaganda machine behind it.

There are examples all over the world and in even in the U.S.of alternatives to this TINA religion. Examples where people and workers matter more than short-term profit and exploitation of the environment. Examples where the way of doing business is more conducive to democracy than TINA.

Mondragon Cooperative Corporation (Mondragon, Spain)

Mondragon is fifth largest business in Spain and the world’s largest worker owned cooperative. Mondragon operates in the Basque region of northern Spain. People of the Basque region have long fought for their own autonomous region from Spain. Mondragon may be a reflection of this fight for autonomy from an economic standpoint by building a series of cooperatives that serve to economically empower its workers and the region it operates in. Here is its mission statement:

MONDRAGON Corporation is a business-based socioeconomic initiative with deep roots in the Basque Country, created for and by people and inspired by the Basic Principles of our Co-operative Experience. It is firmly committed to the environment, competitive improvement and customer satisfaction in order to generate wealth in society through business development and the creation of, preferably co-operative, employment, which:

• Is based on a firm commitment to solidarity and uses democratic methods for organisation and management.
• Fosters participation and the involvement of people in the management, profits and ownership of their companies, developing a shared project which unites social, business and personal progress.
• Fosters training and innovation through the development of human and technological skills, applying its own Management Model aimed at helping companies become market leaders and fostering Co-operation.

Emilia-Romagna, Italy

Emilia Romagna, Italy is an administrative region in northern Italy with Bologna, Italy as its capitol and largest city. Emilia–Romagna today is considered as one of the richest and most developed regions in Europe and has the third highest GDP per capita in Italy. Bologna, the region’s capital, has one of Italy’s highest quality of life, and has highly advanced and modern social services. This region also has an incredibly strong cooperative economy:

More than half the population are co-op members. Coops—including employee-owned businesses—employ 10% of the workforce and generate, according to University of Bologna economist Stefano Zamagni, about 30% of the GDP in the region and up to 60% of the GDP in some cities like Imola. In Bologna itself, 15 of the 50 largest businesses are coops, and coops employ 25,000, or 10% of the labor force. Housing co-ops and consumer co-ops are so numerous that they hold down prices, and most privatized social services are provided by employee co-ops (including 60% of home health care services).  Flavio del Bono,  the regional finance minister, tells foreign visitors point blank that “the massive presence of cooperative firms is a stabilizing factor in the regional economy.”

Evergreen Cooperatives (Cleveland, Ohio)

A group of local organizations, foundations, banks and City of Cleveland helped form worker owned cooperative centering on the idea that many cities have ‘anchor’ institutions such as hospitals and universities and need services that can be provided by locally owned businesses. Evergreen Laundry Cooperative and other planned cooperatives, all relating to environmentally friendly practices, are 100% owned by workers and community members:

In the midst of this urban distress, the Evergreen Laundry employee-owners will earn a living wage and health benefits. As members of the co-op, they will enjoy greater job security than workers at more traditional businesses, and, after seven years on the job, they will have built an ownership stake of as much as $65,000.

The laundry is the flagship of a wider network of Evergreen Cooperative businesses, part of an effort to transform the quality of life for Cleveland’s low- and moderate-income residents.

There are clearly alternatives to the TINA religion. Alternatives that are working right now. We can build a new economic system if we ever decide to do so. One that is allows for and requires more participation by us. One that facilities community wealth building and self-sufficiency. One that focuses on long-term impacts instead of short-term ones. One that prioritizes the well-being of people and the environment over profits. We can do this.

Good luck.

 

Debt Ceiling Fiasco

What a fiasco it is? One party is determined to crash the economy by refusing to raise debt ceiling and the other party is not sure of what they want. Both are arguing over one number that really is not necessary with our current monetary system.

Keep in mind that previous votes to increase the debt ceiling were never this contested and debating how much to cut from social security and medicare is not necessary to raise it. There is definitely a political reason for this - the desire to obliterate social security and medicare, tank the economy and try to pin it on President Obama. Of course, President Obama is providing an easy target by not establishing a line in the sand.

Anyway. The debt ceiling is an old relic of the U.S. gold standard - a monetary system backed by gold. In 1933 FDR and U.S. congress took U.S. off the gold standard meaning U.S. no longer exchanged dollars for gold with general public. However, U.S. did belong to the Bretton Woods System created during the Great Depression and World War II. Under this system U.S. would exchange gold at a fixed price (ex. $35/ounce) for U.S. dollars with other governments. In 1971, Richard Nixon ended the Bretton Woods exchange system which effectively created the fiat currency system we have today.

But we still have this section of the U.S. Code on the books (31 USC Sec. 3101(b)):

The face amount of obligations issued under this chapter and the face amount of obligations whose principal and interest are guaranteed by the United States Government (except guaranteed obligations held by the Secretary of the Treasury) may not be more than $12,394,000,000,000, outstanding at one time, subject to changes periodically made in that amount as provided by law through the congressional budget process described in Rule XLIX of the Rules of the House of Representatives or otherwise.

That one number in the above United States Code is what is being debated. Under the gold standard having a debt ceiling was important since U.S. couldn’t issue more money than it had in gold. This self-imposed constraint was necessary.  But not now. There is no economic reason for the debt ceiling.

With a fiat currency system the only thing backing U.S. dollar is the full faith and credit of federal government. Basically the U.S. dollar and federal debt obligations (mostly treasury securities) addressed in debt ceiling provision are just different forms of debt. The difference being treasury securities pay interest. Both are not needed for federal government to spend.

Seriously, federal government could continue to spend by simply crediting bank accounts without ever having to issue more debt. Federal spending is basically an electronic credit to deposit account somewhere or accounting entry nothing more. This doesn’t mean that federal government should go hog wild with spending. There are two constraints that can prevent that from happening: inflation and federal budgetary process (actually there’s another unnecessary self-imposed constraint that Prof. Wray addresses here).

Regardless of the final outcome of this debt ceiling fiasco one thing appears certain - that poor and working class families will be the ones paying the price for it.

Good luck.

 

High Road vs. Low Road

We should not waste a crisis. Time to start organizing a new economy. A new economy that’s far more democratic and participatory than our old one which creates nothing but bubbles and financial crises.

In 2000, Dan Swinney, founder of the Austin Polytechnical Academy in Chicago and executive director of Center for Labor and Community Research, wrote a paper titled: Building the Bridge to the High Road: Expanding Participation and Democracy in the Economy to Build Sustainable Communities Of course in 2000 it was hardly a priority to consider alternatives to a booming economy. An economy built like a house of cards. I wonder what kind of reception Dan’s paper received back then.

Dan provided a vision for how we should start organizing a New Economy. Some may disagree with his vision but point is that he proposed something. The paper is a long read but worth the time.

Dan introduced two terms “high road” and “low road” strategies or development that I believe are very important to understand and distinguish. Low Road:

A significant section of the business community has turned to speculative and short-term investment, which has led to expanding destruction of the world’s productive capacity. This qualitative change in the forces of production is being driven, in part, by new information and electronic technology.

High Road:

The High Road seeks the best use of human and material resources and is made possible by values that affirm the broadest distribution of wealth and human development as an objective of the economy.  The safety and development of all people is the realistic objective of this strategy.

Hmm, “speculative and short-term investment” - the kind of stuff that lead to the global financial crisis. Again this paper was written in 2000. It’s not too late to make up for lost time.

My impressions after reading this paper:

1)  We have to do what we can to encourage High Road strategies and development and stop and discourage Low Road strategies and development (I know, not very profound);

2)  We need to build coalitions with people, community groups and business that share the objectives of High Road development to continue to build this New Economy;

3)  We need to understand that the old way, whether in terms of community organizing or community development, isn’t as effective as it was in the past. It’s not enough to push for redistribution policies of the past. We need to advocate for policies that encourage community self-sufficiency, sustainability, and community and worker participation.

In his paper, Dan determined that it would take a good 30 to 40 years to truly develop a New Economy (and related systems). His assessment was years before the global financial crisis and the Great Recession. Now, people are starting to wonder what are the alternatives to what seems to be an endless pursuit of Low Road strategies and development. There are plenty.

One alternative is a cooperative economy. An economy that is based on a set shared principles. An economy that is more democratic. An economy that will allow for and require more participation from communities and workers. An economy that is more localized. An economy built on cooperation (a very old principle). Hopefully, this economic crisis will lead to the acceleration of the development of a New Economy - economic survival of millions of families depends on it.

Good luck.

 

 

Economy Screams Jobs Crisis but Washington Ignores it

Washington could do something about Jobs Crisis but chooses not because of ideological blindness. No reason for us to wait around for them to see the light particularly as our communities continue to experience economic devastation.

Here’s the latest on the Jobs Crisis:

• May Jobs report - 9.1% unemployment, 13.9 million people unemployed, and only 54,000 jobs added.
• Current long-term unemployment worse than Great Depression
• State and local governments continue to cut jobs and drag down the economy.
• Job openings in April decreased.

Unemployment is one of the biggest wastes for an economy. Along with huge economic loses such as lost family income, increased poverty and decreased spending (remember we are a consumer driven economy) there are significant social costs that are often ignored such as alcohol and drug abuse, divorce and low student achievement. These high total costs of unemployment mean one thing - lost opportunities for current and future generations.

Do you think politicians in Washington care?  Hell no! They are more focused on destroying or compromising on social security, medicare, medicaid and education. Oh, and don’t forget the typical talk of more disastrous ‘trickle down economics’. 

Don’t be fooled - U.S. government can afford to do something about unemployment. We could have another direct job program such as a Job Guarantee or we could totally reform our tax system by not taxing labor or we can even do modest things such as providing tax cuts to those who need and will use the money (remember we are a consumer driven economy). It’s a matter of priorities and this Jobs Crisis isn’t a priority in Washington.

Can we try to make Washington do something through mass protest? The issue is whether our political system is too far gone or bought by corporate interests that it will no longer respond to the concerns of people. Our political system is a reflection of an economic system dominated by oligarchs and Wall Street. I believe that it’s broken beyond repair - both political parties serve their paymasters and not the American people. We are wasting resources trying to reform or change the political system. 

There is something we can do but it won’t be easy and it will require a lot of work on our part. We can change our economic system. We can have an economic system that is more equitable and more responsive to our social and environmental needs. A new economic system that is true to democratic principles and far more participatory than the old economic system.

A modest start to organizing a New Economy would be increased participation in credit unions and increased efforts to purchase stuff from local small/independent businesses. A more ambitious start (and very possible) would be to start organizing more cooperatives: food cooperatives, worker cooperatives, grower-worker-buyer cooperatives. We can do this.

Good luck.

Proof Positive that Old Economy is Broken…

and proof positive that we need a new economy. All in just two links.

1) From Stanford University’s Center for the Study of Poverty and Inequality:

20 Facts About U.S. Inequality that Everyone Should Know

2) 10 Year Real Wage Gains Lower Than During Depression

We need to start working on that New Economy. It’s now a matter of survival for millions of families.

Good luck.

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