In the Name of Austerity, Stimulus and Growth, Amen!
by Dmitry Orlov
Club Orlov (May 22 2012)
http://2.bp.blogspot.com/-JgaNQMzZddQ/T7u6JkX3ebI/AAAAAAAAB6g/a6PcxLatKF0/s200/PaulKuczynski.jpg
Here’s some food for thought. If you’ve been listening to the muffled and incoherent noises coming from the G8 and the surrounding political chattersphere, it’s starting to sound like a prayer meeting: “In the name of Austerity, Stimulus and Growth, Amen!” And if you look at the individual leaders, what is there for them to do except pray?
Starting from the bottom, there is The Man Who Wasn’t There : the newly reinaugurated Russian president Vladimir Putin. He didn’t even show up, but sent his obedient deputy Medvedev instead, who made positive noises about how wonderful the meeting was. Putin is a lonely man: he’s been seen in public with his wife a total of twice over the last two years; his two daughters are living incognito somewhere in Europe, there are mobs of people outside chanting “Russia Without Putin!” over and over again, and even the VIPs present at the inauguration seemed to be half-concealing a message behind their idolatrous smiles: “Wish you weren’t here, Vova!”
The situation in the US isn’t that much better: even his (once) ardent supporters see Obama as slightly worse than ineffectual, while many others are happy to vilify him for things he had nothing to do with. One thing is certain: the office changed him far more than he has managed to change the office. Even if he gets reelected, it will be four more years of ineffectual waffling, futile attempts to stay the course laid in by his manifestly incompetent predecessor, and frontal assaults on our remaining civil liberties. And if his opponent gets elected, it will much the same, except without the thin plastic veneer of pretending to give a damn.
Germany’s Angela Merkel doesn’t have much of a reason to be cheerful either. Her political support is eroding with each election. The task of pleasing the Germans while holding Eurozone together is an impossible one: the Germans are fed up with carrying the weaker European countries on their shoulders, but if they don’t, then all fall down. The European dynamic is different because there the states that make up the EU negotiate with each other directly rather through the opaque proxy of Washington. If New York and California had a choice as to whether to give Louisiana, Missouri and Arkansas an endless series of financial piggyback rides, they would tell them to go ask Jesus for a loan, and then these three states would be worse off than Greece. But eventually something has to give, both here and in Europe.
The new face, the freshly elected socialist François Hollande, hasn’t had a chance to do much yet, but, uncharacteristically for an elected official, he seems to want to fulfill his campaign promises: he said that he will withdraw French troops from Afghanistan by the end of 2012, as promised. But his hand is weak: financially, France is not far ahead the Eurozone laggards; politically, Marine Le Pen’s National Front is breathing down his neck.
And so, all they can do is pray: “In the Name of Austerity, Stimulus and Growth, Amen!” Growth is the holy grail, and austerity and stimulus will help us find it. But how?
Austerity is meant to bring deficit spending under control, curb the uncontrolled expansion of public debt, and avoid national default. But it has the unwelcome effect of triggering a severe recession, shrinking the tax base, and causing budget deficits to increase, not decrease.
Stimulus is meant to provide a way to kick-start economic growth, but the money for stimulus spending has to be borrowed, and this results in the expansion of public debt. And even an economist will tell you that a higher debt-to-GDP ratio results in lower growth.
This brings us to growth. The world is resource-constrained: the supply of most of the essential industrial commodities cannot be increased without triggering a price spike, which, in turn, will trigger another, even deeper, recession. Even with all the deep-water drilling (and spilling), fracking, tar sands and so on, there just isn’t much growth potential for the US or the Eurozone, with their already high levels of per capita resource consumption.
Contrary to the ardent prayers of the world’s leaders, the three-legged stool of austerity, stimulus and growth is a rickety piece of furniture: no matter which combination of legs they try put their weight on, they will end up sitting on the floor, and we will end up sitting on the floor with them. Now, sitting on the floor does not have to be uncomfortable. Perhaps, instead of praying, they should try some yoga: I am thinking of the lotus position. Repeating the same thing over and over again doesn’t seem to be working; let’s try meditating instead. Growth is over; now what?
http://cluborlov.blogspot.jp/2012/05/in-name-of-austerity-stimulus-and.html
Spent Fuel Rods Drive Growing Fear Over Plant in Japan
by Hiroko Tabuchi and Matthew L Wald
The New York Times (May 26 2012)
Tokyo - What passes for normal at the Fukushima Daiichi plant today would have caused shudders among even the most sanguine of experts before an earthquake and tsunami set off the world’s second most serious nuclear crisis after Chernobyl.
Fourteen months after the accident, a pool brimming with used fuel rods and filled with vast quantities of radioactive cesium still sits on the top floor of a heavily damaged reactor building, covered only with plastic.
The public’s fears about the pool have grown in recent months as some scientists have warned that it has the most potential for setting off a new catastrophe, now that the three nuclear reactors that suffered meltdowns are in a more stable state, and as frequent quakes continue to rattle the region.
The worries picked up new traction in recent days after the operator of the plant, Tokyo Electric Power Company, or Tepco, said it had found a slight bulge in one of the walls of the reactor building, stoking fears over the building’s safety.
To try to quell such worries, the government sent the environment and nuclear minister to the plant on Saturday, where he climbed a makeshift staircase in protective garb to look at the structure supporting the pool, which he said appeared sound. The minister, Goshi Hosono, added that although the government accepted Tepco’s assurances that reinforcement work had shored up the building, it ordered the company to conduct further studies because of the bulge.
Some outside experts have also worked to allay fears, saying that the fuel in the pool is now so old that it cannot generate enough heat to start the kind of accident that would allow radioactive material to escape.
But many Japanese scoff at those assurances and point out that even if the building is strong enough, which they question, the jury-rigged cooling system for the pool has already malfunctioned several times, including a 24-hour failure in April. Had the outages continued, they would have left the rods at risk of dangerous overheating. Government critics are especially concerned, since Tepco has said the soonest it could begin emptying the pool is late 2013, dashing hopes for earlier action.
“The Number Four reactor is visibly damaged and in a fragile state, down to the floor that holds the spent fuel pool”, said Hiroaki Koide, an assistant professor at Kyoto University’s Research Reactor Institute and one of the experts raising concerns. “Any radioactive release could be huge and go directly into the environment”.
Senator Ron Wyden, Democrat of Oregon, expressed similar concerns during a trip to Japan last month.
The fears over the pool at Reactor Number Four are helping to undermine assurances by Tepco and the Japanese government that the Fukushima plant has been stabilized, and are highlighting how complicated the cleanup of the site, expected to take decades, will be. The concerns are also raising questions about whether Japan’s all-out effort to convince its citizens that nuclear power is safe kept the authorities from exploring other – and some say safer – options for storing used fuel rods.
“It was taboo to raise questions about the spent fuel that was piling up”, said Hideo Kimura, who worked as a nuclear fuel engineer at the Fukushima Daiichi plant in the 1990s. “But it was clear that there was nowhere for the spent fuel to go”.
The worst-case situations for Reactor Number Four would be for the pool to run dry if there is another problem with the cooling system and the rods catch fire, releasing enormous amounts of radioactive material, or for fission to restart if the metal panels that separate the rods are knocked over in a quake. That would be especially bad because the pool, unlike reactors, lacks containment vessels to hold in radioactive materials. (Even the roof that used to exist would be no match if the rods caught fire, for instance.)
There is considerable disagreement among scientists over whether such catastrophes are possible. But some argue that whether the chances are small or large, changes should be made quickly because of the magnitude of the potential calamity.
Senator Wyden, whose state could lie in the path of any new radioactive plumes and who has studied nuclear waste issues, is among those pushing for faster action. After his recent visit to the ravaged plant, he said the pool at Number Four poses “an extraordinary and continuing risk” and the retrieval of spent fuel “should be a priority, given the possibility of further earthquakes”.
Attention has focused on Number Four’s spent fuel pool because of the large number of assemblies filled with rods that are stored at that reactor building. Three other reactor buildings at the site are also badly damaged, but their pools hold fewer used assemblies.
According to Tepco, the pool at the Number Four reactor, which was not operating at the time of the accident, holds 1,331 spent fuel assemblies, which each contain dozens of rods. Several thousand rods were removed from the core just three months before so the vessel could be inspected. Those rods, which were not fully used up, could more easily support chain reactions than the fully spent fuel.
While Mr Koide and others warn that Tepco must move more quickly to transfer the fuel rods to a safer location, such transfers have been greatly complicated by the nuclear accident. Ordinarily the rods are lifted by giant cranes, but at Fukushima those cranes collapsed during the series of disasters that started with the earthquake and included explosions that destroyed portions of several reactor buildings.
Tepco has said it will need to build a separate structure next to Reactor Number Four to support a new crane.
The presence of so many spent fuel rods at Fukushima Daiichi highlights a quandary facing the global nuclear industry: how to safely store – and eventually recycle or dispose of – spent nuclear fuel, which stays radioactive for tens of thousands of years.
In the 1960s and 1970s, recycling for reuse in plants seemed the most promising option to countries with civilian nuclear power programs. And as Japan expanded its collection of nuclear reactors, local communities were told not to worry about the spent fuel, which would be recycled.
The idea of recycling fell out of favor in some countries, including the United States, which dropped the idea because it is a potential path to nuclear weapons. Japan stuck to its nuclear fuel cycle goal, however, despite leaks and delays at a vast reprocessing plant in the north, leading utilities to store a growing stockpile of spent fuel.
As early as the 1980s, researchers, including those at the United States Nuclear Regulatory Commission, started warning of the risks of storing growing amounts of nuclear fuel in pools. The United States has since concluded that densely packed pools are safe enough, but Tepco says that it never even specifically studied the risks posed by the pools.
“Japan did not want to admit that the nuclear fuel cycle might be a failed policy, and did not think seriously about a safer, more permanent way to store spent fuel”, said Tadahiro Katsuta, an associate professor of nuclear science at Tokyo’s Meiji University.
The capacity problem was particularly pronounced at Fukushima Daiichi, which is among Japan’s oldest plants and where the oldest fuel assemblies have been stored in pools since 1973.
Eventually, the plant built an extra fuel rod pool, despite suspicions among residents that increasing capacity at the plant would mean the rods would be stored at the site far longer than promised. (They were right.)
Tepco also wanted to transfer some of the rods to sealed casks, but the community was convinced that it was a stalling tactic, and the company loaded only a limited number of casks there.
The casks, as it turns out, were the better choice. They survived the disaster unscathed.
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Hiroko Tabuchi reported from Tokyo, and Matthew L Wald from Washington.
Cooperative Banking, the Exciting Wave of the Future
by Ellen Brown
AlterNet (May 23 2012)
As our political system sputters, a wave of innovative thinking and bold experimentation is quietly sweeping away outmoded economic models. In ‘New Economic Visions’, a special five-part AlterNet series edited by Economics Editor Lynn Parramore in partnership with political economist Gar Alperovitz of the Democracy Collaborative, creative thinkers come together to explore the exciting ideas and projects that are shaping the philosophical and political vision of the movement that could take our economy back.
According to both the Mayan and Hindu calendars, 2012 (or something very close) marks the transition from an age of darkness, violence and greed to one of enlightenment, justice and peace. It’s hard to see that change just yet in the events relayed in the major media, but a shift does seem to be happening behind the scenes; and this is particularly true in the once-boring world of banking.
In the dark age of Kali Yuga, money rules; and it is through banks that the moneyed interests have gotten their power. Banking in an age of greed is fraught with usury, fraud and gaming the system for private ends. But there is another way to do banking; the neighborly approach of George Bailey in the classic movie It’s a Wonderful Life (1946). Rather than feeding off the community, banking can feed the community and the local economy.
Today, the massive too-big-to-fail banks are hardly doing George Bailey-style loans at all. They are not interested in community lending. They are doing their own proprietary trading – trading for their own accounts – which generally means speculating against local interests. They engage in high-frequency program trading that creams profits off the top-of-stock market trades; speculation in commodities that drives up commodity prices; leveraged buyouts with borrowed money that can result in mass layoffs and factory closures; and investment in foreign companies that compete against our local companies.
We can’t do much to stop them. They’ve got the power, especially at the federal level. But we can quietly set up an alternative model, and that’s what is happening on various local fronts.
Most visible are the Move Your Money and Occupy Wall Street movements. According to the Web site of the Move Your Money campaign, an estimated ten million accounts have left the largest banks since 2010. Credit unions have enjoyed a surge in business as a result. The Credit Union National Association reported that in 2012, for the first time ever, credit union assets rose above $1 trillion. Credit unions are non-profit, community-minded organizations with fewer fees and less fine print than the big risk-taking banks, and their patrons are not just customers but owners, sharing partnership in a cooperative business.
Move “Our” Money: The Public Bank Movement
The Move Your Money campaign has been wildly successful in mobilizing people and raising awareness of the issues, but it has not made much of a dent in the reserves of Wall Street banks, which already had $1.6 trillion sitting in reserve accounts as a result of the Fed’s second round of quantitative easing in 2010. What might make a louder statement would be for local governments to divest their funds from Wall Street, and some local governments are now doing this. Local governments collectively have well over a trillion dollars deposited in Wall Street banks.
A major problem with the divestment process is finding local banks large enough to take the deposits. One proposed solution is for states, counties and cities to establish their own banks, capitalized with their own rainy day funds and funded with their own revenues as a deposit base.
Today only one state actually does this: North Dakota. North Dakota is also the only state to have escaped the credit crisis of 2008, sporting a sizeable budget surplus every year since. It has the lowest unemployment rate in the country, the lowest default rate on credit card debt, and no state government debt at all. The Bank of North Dakota (BND) has an excellent credit rating and returns a hefty dividend to the state every year.
The BND model hasn’t yet been duplicated in other states, but a movement is afoot. Since 2010, eighteen states have introduced legislation of one sort or another for a state-owned bank.
Values-based Banking: Too Sustainable to Fail
Meanwhile, there is a strong movement at the local level for sustainable, “values-based” banking – conventional banks committed to responsible lending and service to the local community. These are George Bailey-style banks, which base their decisions first and foremost on the needs of people and the environment.
One of the leaders internationally is Triodos Bank, which has local offices in the Netherlands, Belgium, the United Kingdom, Spain, and Germany. Its Web site says that it makes socially responsible investments that are selected according to strict sustainability criteria and overseen by an international panel of “stakeholder” representatives representing various community, environmental, and worker interest groups. Investments include the financing of more than 1,000 organic and sustainable food production projects, more than 300 renewable energy projects, 33 fair trade agricultural exporters in 22 different countries, 85 microfinance institutions in 43 countries, and 398 cultural and arts projects.
Two US banks exemplifying the model are One PacificCoast Bank and New Resource Bank. Operating in California, Oregon and Washington, One PacificCoast is comprised of a sustainable community development bank with around $300 million in assets and a non-profit foundation (One PacificCoast Foundation). Its commercial lending business focuses on such sectors as specialty agriculture, renewable energy, green building, and low-income housing. Foundation activities include programs to “help eliminate discrimination, encourage affordable housing, alleviate economic distress, stimulate community development and increase financial literacy”.
New Resource Bank is a California based B-corporation (“Benefit”) with $171 million in assets, which focuses its lending and banking services on local green and sustainable businesses. New Resource was recognized in 2012 as one of the “Best for the World” businesses, being in the top ten percent of all certified B-Corporations and scoring more than fifty percent higher than 2,000 other sustainable businesses in overall positive social and environmental impact.
All this might be good for the world, but isn’t investing locally in a values-based bank riskier and less profitable than putting your money on Wall Street? Not according to a study commissioned by the Global Alliance for Banking on Values (GABV). The 2012 study compared the financial profiles between 2007 and 2010 of seventeen values-based banks with 27 Globally Systemically Important Financial Institutions (GSIFIs) – basically the too-big-to-fail banks, including Bank of America, JPMorgan, Barclays, Citicorp and Deutsche Bank. According to the GABV report, values-based banks delivered higher financial returns than some of the world’s largest financial institutions, with a return on assets averaging above 0.50 percent, compared to just 0.33 percent for the GSIFIs; and returns on equity averaging 7.1 percent, compared to 6.6 percent for the GSIFIs. They appeared to be stronger financially, with both higher levels of and better quality capital; and they were twice as likely to invest their assets in loans.
CDFIs
Along with the values-based banks, community investment is undertaken in the United States by Community Development Financial Institutions (CDFIs), including community development banks, community development credit unions, community development loan funds, community development venture capital funds, and microenterprise loan funds. According to the CDFI Coalition, there are over 800 CDFIs certified by the CDFI Fund, operating in every state in the nation and the District of Columbia. In 2008 (the last year for which a report is available), CDFIs invested $5.53 billion “to create economic opportunity in the form of new jobs, affordable housing units, community facilities, and financial services for low-income citizens”.
Two of many interesting examples are the Alternatives Federal Credit Union and Boston Community Capital. Alternatives FCU, located in Ithaca, New York, is committed to community development and social change and is part of the Alternatives Group, which includes a non-profit corporation (Alternatives Community Ventures); a forty-year old trade association of community groups, cooperatives, worker-owned businesses and individuals (Alternatives Fund); and a not-for-profit organization that facilitates secondary capital investment in the credit union (Tomkins County Friends of Alternatives, Incorporated). The credit union has over $70 million in assets and offers many innovative financial products, including individual development accounts – special savings accounts for low-income residents that offer matching deposits of two to one up to a certain amount – in addition to more traditional services such as loans for minority and women-owned businesses, and affordable mortgages. The credit union also offers small business development (classes, seminars, consultation, and networking programs), free tax preparation, and a student credit union.
Although its lending programs focus on lower-income borrowers, Alternatives FCU has had lower delinquency and charge-off rates than many major banks that avoid these types of customers.
Boston Community Capital (BCC) is a CDFI that is not actually a bank but invests in projects that provide affordable housing and jobs in lower-income neighborhoods. BCC includes a loan fund, a venture fund, a mortgage lender, a real estate consultation organization, a solar energy fund, and a federal New Markets Tax Credit investment vehicle. Since 1985, it has invested over $700 million in local organizations and businesses. These funds have helped build or preserve more than 12,800 affordable housing units, as well as child care facilities for almost 9,000 children and healthcare facilities that reach 56,000 people. Their investments have helped renovate 850,000 square feet of commercial real estate, generate 5.9 million kilowatt hours of solar energy capacity, and create more than 1,500 jobs.
Less Money for Banks and More for Workers: The Models of Germany and Japan
Values-based banks and CDFIs are a move in the right direction, but their market share in the US remains small. To see the possibilities of a banking system with a mandate to serve the public, we need to look abroad.
Germany and Japan are export powerhouses, in second and third place globally for net exports. (The US trails at 192nd.) One competitive advantage for both of these countries is that their companies have ready access to low-cost funding from cooperatively owned banks.
In Germany, about half the total assets of the banking system are in the public sector, while another substantial chunk is in cooperative savings banks. Germany’s strong public banking system includes eleven regional public banks (Landesbanken) and thousands of municipally owned savings banks (Sparkassen). After the Second World War, it was the publicly owned Landesbanks that helped family-run provincial companies get a foothold in world markets. The Landesbanks are key tools of German industrial policy, specializing in loans to the Mittelstand, the small-to-medium size businesses that drive the country’s export engine.
Because of the Landesbanks, small firms in Germany have as much access to capital as large firms. Workers in the small business sector earn the same wages as those in big corporations, have the same skills and training, and are just as productive. In January 2011, the net value of Germany’s exports over its imports was seven percent of GDP, the highest of any nation. But it hasn’t had to outsource its labor force to get that result. The average hourly compensation (wages plus benefits) of German manufacturing workers is $48 – a full fifty percent more than the $32 hourly average for their American counterparts.
In Japan, the banks are principally owned not by shareholders but by other companies in the same keiretsu or industrial group, in a circular arrangement in which the companies basically own each other. Even when there are nominal outside owners, corporations are managed so that the bulk of the wealth generated by the corporation flows either to the workers as income or to investment in the company, making the workers and the company the beneficial owners.
Since the 1980s, US companies have focused on maximizing short-term profits at the expense of workers and longer-term goals. This trend stems in part from the fact that they are now funded largely by capital from shareholders who own the company and want simply to grow their returns. According to a 2005 report from the Center for European Policy Studies in Brussels, equity financing is more than twice as important in the US as in Europe, accounting for 116 percent of GDP compared with 62 percent in Japan and 54 percent in the eurozone countries. In both Europe and Japan, the majority of corporate funding comes not from investors but from borrowing, either from banks or from the bond market.
Funding with low-interest loans from cooperatively owned banks leaves greater control of the company in the hands of employees who either own it or have much more say in its operation. Access to low-interest loans can also slash production costs. According to German researcher Margrit Kennedy, when interest charges are added up at every level of production, forty percent of the cost of goods, on average, comes from interest.
Globally, the burgeoning movement for local, cooperatively owned and community-oriented banks is blazing the trail toward a new, sustainable form of banking. The results may not yet qualify as the Golden Age prophesied by Hindu cosmology, but they are a major step in that direction.
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Ellen Brown is an attorney, author, and president of the Public Banking Institute. Her latest book is Web of Debt (2008).
(c) 2012 Independent Media Institute. All rights reserved.
The Myth of Japan’s Failure
by Eamonn Fingleton
The New York Times (January 06 2012)
DESPITE some small signs of optimism about the United States economy, unemployment is still high, and the country seems stalled.
Time and again, Americans are told to look to Japan as a warning of what the country might become if the right path is not followed, although there is intense disagreement about what that path might be. Here, for instance, is how the CNN analyst David Gergen has described Japan: “It’s now a very demoralized country and it has really been set back”.
But that presentation of Japan is a myth. By many measures, the Japanese economy has done very well during the so-called lost decades, which started with a stock market crash in January 1990. By some of the most important measures, it has done a lot better than the United States.
Japan has succeeded in delivering an increasingly affluent lifestyle to its people despite the financial crash. In the fullness of time, it is likely that this era will be viewed as an outstanding success story.
How can the reality and the image be so different? And can the United States learn from Japan’s experience?
It is true that Japanese housing prices have never returned to the ludicrous highs they briefly touched in the wild final stage of the boom. Neither has the Tokyo stock market.
But the strength of Japan’s economy and its people is evident in many ways. There are a number of facts and figures that don’t quite square with Japan’s image as the laughingstock of the business pages:
* Japan’s average life expectancy at birth grew by 4.2 years – to 83 years from 78.8 years – between 1989 and 2009. This means the Japanese now typically live 4.8 years longer than Americans. The progress, moreover, was achieved in spite of, rather than because of, diet. The Japanese people are eating more Western food than ever. The key driver has been better health care.
* Japan has made remarkable strides in Internet infrastructure. Although as late as the mid-1990s it was ridiculed as lagging, it has now turned the tables. In a recent survey by Akamai Technologies, of the fifty cities in the world with the fastest Internet service, 38 were in Japan, compared to only three in the United States.
* Measured from the end of 1989, the yen has risen 87 percent against the US dollar and 94 percent against the British pound. It has even risen against that traditional icon of monetary rectitude, the Swiss franc.
* The unemployment rate is 4.2 percent, about half of that in the United States.
* According to skyscraperpage.com, a Web site that tracks major buildings around the world, 81 high-rise buildings taller than 500 feet have been constructed in Tokyo since the “lost decades” began. That compares with 64 in New York, 48 in Chicago, and seven in Los Angeles.
* Japan’s current account surplus – the widest measure of its trade – totaled $196 billion in 2010, up more than threefold since 1989. By comparison, America’s current account deficit ballooned to $471 billion from $99 billion in that time. Although in the 1990s the conventional wisdom was that as a result of China’s rise Japan would be a major loser and the United States a major winner, it has not turned out that way. Japan has increased its exports to China more than fourteen-fold since 1989 and Chinese-Japanese bilateral trade remains in broad balance.
As longtime Japan watchers like Ivan P Hall and Clyde V Prestowitz Jr point out, the fallacy of the “lost decades” story is apparent to American visitors the moment they set foot in the country. Typically starting their journeys at such potent symbols of American infrastructural decay as Kennedy or Dulles airports, they land at Japanese airports that have been extensively expanded and modernized in recent years.
William J Holstein, a prominent Japan watcher since the early 1980s, recently visited the country for the first time in some years. “There’s a dramatic gap between what one reads in the United States and what one sees on the ground in Japan”, he said. “The Japanese are dressed better than Americans. They have the latest cars, including Porsches, Audis, Mercedes-Benzes and all the finest models. I have never seen so many spoiled pets. And the physical infrastructure of the country keeps improving and evolving.”
Why, then, is Japan seen as a loser? On the official gross domestic product numbers, the United States has ostensibly outperformed Japan for many years. But even taking America’s official numbers at face value, the difference has been far narrower than people realize. Adjusted to a per-capita basis (which is the proper way to do this) and measured since 1989, America’s GDP grew by an average of just 1.4 percent a year. Japan’s figure meanwhile was even more anemic – just one percent – implying that it underperformed the United States by 0.4 percent a year.
A look at the underlying accounting, however, suggests that, far from underperforming, Japan may have outperformed. For a start, in a little noticed change, United States statisticians in the 1980s embarked on an increasingly aggressive use of the so-called hedonic method of adjusting for inflation, an approach that in the view of many experts artificially boosts a nation’s apparent growth rate.
On the calculations of John Williams of Shadowstats.com, a Web site that tracks flaws in United States economic data, America’s growth in recent decades has been overstated by as much as two percentage points a year. If he is even close to the truth, this factor alone may put the United States behind Japan in per-capita performance.
If the Japanese have really been hurting, the most obvious place this would show would be in slow adoption of expensive new high-tech items. Yet the Japanese are consistently among the world’s earliest adopters. If anything, it is Americans who have been lagging. In cellphones, for instance, Japan leapfrogged the United States in the space of a few years in the late 1990s and it has stayed ahead ever since, with consumers moving exceptionally rapidly to ever more advanced devices.
Much of the story is qualitative rather than quantitative. An example is Japan’s eating-out culture. Tokyo, according to the Michelin Guide, boasts sixteen of the world’s top-ranked restaurants, versus a mere ten for the runner-up, Paris. Similarly Japan as a whole beats France in the Michelin ratings. But how do you express this in GDP terms?
Similar problems arise in measuring improvements in the Japanese health care system. And how does one accurately convey the vast improvement in the general environment in Japan in the last two decades?
Luckily there is a yardstick that finesses many of these problems: electricity output, which is mainly a measure of consumer affluence and industrial activity. In the 1990s, while Japan was being widely portrayed as an outright “basket case”, its rate of increase in per-capita electricity output was twice that of America, and it continued to outperform into the new century.
Part of what is going on here is Western psychology. Anyone who has followed the story long-term cannot help but notice that many Westerners actively seek to belittle Japan. Thus every policy success is automatically discounted. It is a mind-set that is much in evidence even among Tokyo-based Western diplomats and scholars.
Take, for instance, how Western observers have viewed Japan’s demographics. The population is getting older because of a low birthrate, a characteristic Japan shares with many of the world’s richest nations. Yet this is presented not only as a critical problem but as a policy failure. It never seems to occur to Western commentators that the Japanese both individually and collectively have chosen their demographic fate – and have good reasons for doing so.
The story begins in the terrible winter of 1945 to 1946, when, newly bereft of their empire, the Japanese nearly starved to death. With overseas expansion no longer an option, Japanese leaders determined as a top priority to cut the birthrate. Thereafter a culture of small families set in that has continued to the present day.
Japan’s motivation is clear: food security. With only about one-third as much arable land per capita as China, Japan has long been the world’s largest net food importer. While the birth control policy is the primary cause of Japan’s aging demographics, the phenomenon also reflects improved health care and an increase of more than twenty years in life expectancy since 1950.
Psychology aside, a major factor in the West’s comprehension problem is that virtually everyone in Tokyo benefits from the doom and gloom story. For foreign sales representatives, for instance, it has been the perfect get-out-of-jail card when they don’t reach their quotas. For Japanese foundations it is the perfect excuse in politely waving away solicitations from American universities and other needy nonprofits. Ditto for the Ministry of Foreign Affairs in tempering expectations of foreign aid recipients. Even American investment bankers have reasons to emphasize bad news. Most notably they profit from the so-called yen-carry trade, an arcane but powerful investment strategy in which the well informed benefit from periodic bouts of weakness in the Japanese yen.
Economic ideology has also played an unfortunate role. Many economists, particularly right-wing think-tank types, are such staunch advocates of laissez-faire that they reflexively scorn Japan’s very different economic system, with its socialist medicine and ubiquitous government regulation. During the stock market bubble of the late 1980s, this mind-set abated but it came back after the crash.
Japanese trade negotiators noticed an almost magical sweetening in the mood in foreign capitals after the stock market crashed in 1990. Although previously there had been much envy of Japan abroad (and serious talk of protectionist measures), in the new circumstances American and European trade negotiators switched to feeling sorry for the “fallen giant”. Nothing if not fast learners, Japanese trade negotiators have been appealing for sympathy ever since.
The strategy seems to have been particularly effective in Washington. Believing that you shouldn’t kick a man when he is down, chivalrous American officials have largely given up pressing for the opening of Japan’s markets. Yet the great United States trade complaints of the late 1980s – concerning rice, financial services, cars and car components – were never remedied.
The “fallen giant” story has also even been useful to other East Asian nations, particularly in their trade diplomacy with the United States.
A striking instance of how the story has influenced American perceptions appears in The Next 100 Years (2009), by the consultant George Friedman. In a chapter headed “China 2020: Paper Tiger”, Mr Friedman argues that, just as Japan “failed” in the 1990s, China will soon have its comeuppance. Talk of this sort powerfully fosters complacency and confusion in Washington in the face of a United States-China trade relationship that is already arguably the most destructive in world history and certainly the most unbalanced.
Clearly the question of what has really happened to Japan is of first-order geopolitical importance. In a stunning refutation of American conventional wisdom, Japan has not missed a beat in building an ever more sophisticated industrial base. That this is not more obvious is a tribute in part to the fact that Japanese manufacturers have graduated to making so-called producers’ goods. These typically consist of advanced components or materials, or precision production equipment. They may be invisible to the consumer, yet without them the modern world literally would not exist. This sort of manufacturing, which is both highly capital-intensive and highly know-how-intensive, was virtually monopolized by the United States in the 1950s and 1960s and constituted the essence of American economic leadership.
Japan’s achievement is all the more impressive for the fact that its major competitors – Germany, South Korea, Taiwan and, of course, China – have hardly been standing still. The world has gone through a rapid industrial revolution in the last two decades thanks to the “targeting” of manufacturing by many East Asian nations. Yet Japan’s trade surpluses have risen.
Japan should be held up as a model, not an admonition. If a nation can summon the will to pull together, it can turn even the most unpromising circumstances to advantage. Here Japan’s constant upgrading of its infrastructure is surely an inspiration. It is a strategy that often requires cooperation across a wide political front, but such cooperation has not been beyond the American political system in the past. The Hoover Dam, that iconic project of the Depression, required negotiations among seven states but somehow it was built – and it provided jobs for 16,000 people in the process. Nothing is stopping similar progress now – nothing, except political bickering.
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Eamonn Fingleton is an author who predicted the Japanese financial crash of the 1990s; he is working on a book about the end of the American dream.
This article has been revised to reflect the following correction:
Correction: January 6 2012
A previous version of this article included an incorrect figure for the increase in life expectancy in Japan. It changed by 4.2 years, not 3.1.
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There Is a Way!
Beyond the Big, Bad Corporation
by Tara Lohan
AlterNet (May 21 2012)
As our political system sputters, a wave of innovative thinking and bold experimentation is quietly sweeping away outmoded economic models. In New Economic Visions, a special five-part AlterNet series edited by economics editor Lynn Parramore in partnership with political economist Gar Alperovitz of the Democracy Collaborative, creative thinkers come together to explore the exciting ideas and projects that are shaping the philosophical and political vision of the movement that could take our economy back.
In September 2011, two Appalachian women traveled to Delaware to deliver a petition to the state’s Attorney General Beau Biden. Betty Harrah and Lorelei Scarbro represented thousands who believed that the business charter for coal-mining company Massey Energy should be repealed. The company, mostly operating in Appalachia but incorporated in Delaware, has violated the Clean Water Act 60,000 times. An investigation commissioned by the governor of West Virginia found Massey could have prevented the explosion that claimed the lives of 29 miners, among them Harrah’s brother, at the Upper Big Branch Mine in 2010.
Massey, they contended, was simply too dangerous to be in business. But their pleas fell on deaf ears. The company plugs along, despite its shoddy environmental and safety records, churning out profits for its parent company, Alpha Natural Resources.
To many, Massey is not simply one bad apple, but part of an economic system heavy with rotten fruit. Companies like Lehman Brothers, Bank of America, Countrywide, BP, and Walmart epitomize the relentless drive of corporations to maximize profit above everything else, including safety, fair working conditions, clean air and water, healthy communities, and common decency. In doing so, the very word “corporation” has become a dirty word.
Forget bad apples, perhaps we should just raze the entire orchard, right?
Our economy, like our environment, is in trouble. Limitless growth that drives the profit-hungry corporate model today is ecologically impossible. We simply cannot sustain business as usual and the cracks in our system are showing.
“You look at the Arab Spring … what looked like very stable regimes across the Arab world were suddenly shown to be completely vulnerable and brittle and I think that we may see the same kind of thing in our economy”, said Marjorie Kelly, a fellow at the Tellus Institute and author of the new book Owning Our Future: The Emerging Ownership Revolution (2012). “What looks massive and permanent and invulnerable, may show itself quite suddenly to be brittle”.
Maybe this doesn’t sound heartening but it should. The corporate model we have today hasn’t always been around and it doesn’t need to remain the dominant way we do business. There is no reason we should be swabbing the decks of a sinking ship – alternatives already exist and they are flourishing.
“What’s underway is an ownership revolution. It’s about broadening economic power from the few to the many and about changing the mindset from social indifference to social benefit”, Kelly writes:
We’re schooled to fear this shift, to think there are only two choices for the design of an economy: capitalism and communism, private ownership and state ownership. But the alternatives being grown today defy those dusty 19th-century categories. They represent a new option of private ownership for the common good. This economic revolution is different from a political one. It’s not about tearing down but about building up. It’s about reconstructing the foundation of ownership on which the economy rests.
Better Business
A common complaint in today’s world is one of disconnection. Our industrialized world has resulted in less contact with community – we don’t know our neighbors or who grows our food. In the same way that we’ve lost touch with a deeper sense of belonging and place, many of us have become disconnected from the soul of our work. The corporation-worker structure today is a master-servant relationship. We’re slaves to the company, working longer hours for less wages.
“Now mass layoffs to boost profits are the norm, while the expectation of a career with one company is long gone”, William Lazonick wrote.
This transformation happened because the US business corporation has become in a (rather ugly) word “financialized”. It means that executives began to base all their decisions on increasing corporate earnings for the sake of jacking up corporate stock prices. Other concerns – economic, social and political – took a backseat. From the 1980s, the talk in boardrooms and business schools changed. Instead of running corporations to create wealth for all, leaders should think only of “maximizing shareholder value”.
Our economy is dominated by a monoculture business model, Kelly says, driven largely by publicly traded corporations that have built in pressure from Wall Street for maximum short-term earnings. But a healthy, living economy needs biodiversity. We can find this if we begin to look around – across the US and the world – where there are businesses designed not for maximum profit, but with a mission-driven social and economic architecture. One of these models is the “social enterprise”.
The Social Enterprise Alliance defines these organizations as “businesses whose primary purpose is the common good. They use the methods and disciplines of business and the power of the marketplace to advance their social, environmental and human justice agendas.” And one of the defining characteristics is that “The common good is its primary purpose, literally ‘baked into’ the organization’s DNA, and trumping all others”.
Here’s an example. Remember Working Assets? Starting out as a progressive-minded credit card company in the 1980s, it added phone service – first long-distance in the 1990s, then cellular in 2000 – and now it has created the subsidiary CREDO Mobile. The company operates as a for-profit business, which is privately owned, with most of the employees owning the stock, so it doesn’t have to bow to Wall Street pressures. They use their profits to help support causes they believe in – so far the amount of money donated is $70 million and counting.
Social enterprises can also be nonprofits, like Goodwill Industries, which last year turned donations from 79 million people into revenue that provided job training to 4.2 million people. And by reselling donated clothing, furniture and household goods, they divert an estimated two billion pounds from landfills every year.
The idea of social enterprises is catching on in the business world in the US with the emergence of Benefit Corporations, also known as B Corps, which are designed, “to create a new sector of the economy which uses the power of business to solve social and environmental problems”. B Corps are all for-profit companies that have legal structures mandating that the company is designed to work not for maximum shareholder gain, but for the good of society and the environment.
Currently there are more than 500 companies that have become approved B Corps and legislation has been passed in seven states (Maryland, New Jersey, Vermont, Virginia, California, Hawaii and New York) making them official entities. Some are larger corporations, such as Method Products and Patagonia, but many are also smaller companies and business-to-business operations.
B Corps are similar in design to another kind of company called L3Cs. “The L3C is a hybrid between the nonprofit and for-profit models in that it is essentially a profit-generating entity with a socially beneficial mission”, writes Ashley Holmes for GreenBlue:
Like an LLC corporation, L3Cs have the same liability protection and are not tax-exempt; however L3Cs have access to forms of capital that traditional corporations don’t qualify for, all in order to further social and environmental goals. Americans for Community Development describe the L3C as a company that “combines the best features of a for-profit LLC with the socially beneficial aspects of a nonprofit … the for-profit with a nonprofit soul.
It’s About the Workers
B Corps and L3Cs create a legal foothold for a more sustainable kind of business. But other models get to the heart of the new economy as well and take up the important ideas of ownership and governance. Who gets to make decisions about how our companies are run and who gets to share in the wealth that’s created?
The US helped create a system in post-war Germany for works councils, where workers are elected from companies to help manage how the business is run. “That means the councils help determine core issues, like when to open and close the store or office, who gets what shift, and who gets laid off or fired”, wrote Jeremy Gantz in a review of Thomas Geoghegan’s book Were You Born on the Wrong Continent? How the European Model Can Help You Get a Life (2010). Germany also has co-determined boards, which give workers a voice in governance – companies with more than 2,000 employees have half of their boards composed of workers.
Empowering employees has proved a successful business model elsewhere. The John Lewis Partnership has been around in the UK since 1920 and has grown to over thirty department stores and more than 200 supermarkets, with a revenue of $13.4 billion. The business is employee-owned – all workers get to share the profits and vote for the governing council and company’s board.
“This firm has a written constitution, printed up and publicly available, which states that the company’s purpose is to support ‘the happiness of all its members’ “, wrote Kelly:
Now, let me pause and note: this is the only major corporation I’ve found that declares its purpose is to serve employee happiness. This is so, at JLP, not because it boosts returns for shareholders. At the John Lewis Partnership, employee happiness isn’t a path to some other goal. It is the goal.
Employee-owned companies aren’t just a British anomaly. “In the United States, the National Center for Employee Ownership reports that there are 11,300 employee-owned firms, with some fourteen million participants”, Kelly found. “And in Europe, large companies have nearly ten million employee-owners. Employee ownership has been increasing in such countries as Spain, Poland, France, Denmark, and Sweden.”
Organizations can be run with employee owners or other kinds of members. The London Symphony is owned by the musicians who play in it. Barcelona FC soccer team and the Green Bay Packers football team are community-owned. Mutual insurance companies are owned by policy holders and credit unions are owned by depositors.
Employee-owned businesses and cooperatives have emerged in the green business world with great success, as well. Community-owned forests in Mexico support indigenous people, protect the environment and prevent illegal logging. In Denmark community-owned wind farms have jumpstarted wind energy, supplying twenty percent of country’s power. In Minnesota, Minwind is a farmer-owned wind development company that’s grown to 350 members.
A New Vision
There are different legal and social structures that can help to feed this growing new economy. In Quebec, a “solidarity” or “social economy” was created to help nonprofits and cooperatives, and it gets popular and government support. Spain is home to Mondragon Cooperative Corporation, which is a network of more than 100 cooperatives, employing 100,000 workers. This cooperative model helps support new business ventures. If a firm is struggling in its first few years, interest rates are lowered to help it instead of flagging the business as high risk and then jacking up interest rates like we do here, says Kelly.
Supporting these new ventures is important, but so is holding the companies accountable to their missions. For cooperatives and employee-owned companies, like the John Lewis Partnership, where members get a vote and can elect those who make governing decisions (or run for the positions themselves), there is more power to make sure the company is keeping its word. With privately held businesses, accountability can be much harder. The B Corp certification process is one way that helps get around the blind spots – certified B Corps have to prove themselves to a third-party organization – creating accountability and transparency.
So what can we do in the US to spur the development of socially and ecologically conscious business? “I used to think we needed new federal legislation and corporate chartering and that we could drive change with state and federal law”, Marjorie Kelly said. “And I do think we do need an articulation of what a company ought to be in law”. But we have to go beyond that, she insists.
“A teacher at Schumacher College posed a question: What kind of economy is suited for living inside a living being?” Kelly said. “It’s not an endlessly expanding economy, it’s not an economy that’s designed to serve the few, at the expense of the many, it is an economy that is generative; that is life-serving in its purposes. How do we generate the conditions for life to continue and to thrive?”
The answer will likely be not one thing, but a compilation and diversity of different business models that are consistent with supporting workers, protecting the environment, and serving the broader social good.
_____
Tara Lohan is a senior editor at AlterNet and editor of the new book Water Matters: Why We Need to Act Now to Save Our Most Critical Resource (2010). You can follow her on Twitter @TaraLohan.
(c) 2012 Independent Media Institute. All rights reserved.
It’s a Rich Man’s World
How billionaire backers pick America’s candidates
by Thomas Frank
Harper’s Magazine Essay (April 2012)
While visiting Kansas City last December, I read a local newspaper story lamenting the gradual transformation of Missouri into a reliably Republican citadel – a red state, as we like to say. In the past, I read, Missouri had been different from its more partisan neighbors. It had been a “bellwether” state that “reflected national trends”, rather than delivering votes for any particular party. But now all that was over, and I assumed the article would go on to mourn the death of judicious public reason – the tradition of giving rival arguments a hearing and testing them with that famous “Show Me” skepticism.
I was wrong. Forget the death of open-mindedness. What was actually being mourned that day in the Kansas City Star was a possible loss of advertising revenue by the state’s TV stations. If Missouri was no longer a battleground state, then the two parties and their various backers would no longer fight their expensive electronic war over the airwaves between Saint Louie and Saint Joe, and “spending on TV ads in the state [would] plummet”.
This was the concern, not some airy nonsense about ideology or polarization. That would have been a mere matter of opinion, while this was so hard and so real it came with a price tag. Here is what Missouri’s creeping Kansification was going to cost: in the last election cycle, the national candidates and their allied PACs blew almost $21 million on advertising in the state. Given Missouri’s tilt to the right, every last penny of a similar windfall might be lost. Even worse: Missourians had squandered their battleground status just before what promises to be the biggest-spending political year ever. As the paper noted, campaign expenditures are predicted to skyrocket between now and November.
Thanks to their own ideological stubbornness, Missourians – or, more accurately, Missouri broadcasters – will now miss out on all that. The Star reassured readers chat the hammer blows inflicted on their local FCC license holders “would not be fatal”. Yet the ultimate lesson was clear: political conviction comes at a high cost. Unemployment in Missouri stands at eight percent, and like other Midwestern states, it has been hemorrhaging jobs and industries for decades. Now it has gone and turned away the one bonanza that even loser states, as long as they remain appropriately fickle, have a shot at winning: campaign finance.
When I came across the Star article, I thought it was an outlier – a strange and peculiarly tone-deaf way to approach political questions. Before long, however, I started noticing the same thing elsewhere: a tendency to describe Campaign 2012 exclusively in terms of the massive amounts being spent to sway us. Financial journalists reported dispassionately on “how to play the ad glut”, with even the drooping billboard industry preparing for a jackpot. “Without This Year’s Elections The Ad Business Would Be Totally Screwed”, screamed a January headline on the Business Insider website.
It wasn’t just the business press that was fixated on campaign spending. On the night of the Nevada caucuses, for example, CNN anchorman Don Lemon could be seen reporting on economic hardship in that state: the foreclosures, the real estate collapse, the unemployment. The network even trotted out a Nevadan homeless person to make its point. Then, a short while later, Lemon was back with one of those interactive displays, for which CNN is so famous – in this case, a screen tracking outlays by candidates and outside groups on TV commercials.
After recalling what a glorious burst of spending the campaigns had rained down on other states as they prepared to vote, Lemon observed that now it was Nevada’s turn. Especially given the level of suffering there, said Lemon, “you would think the candidates may say, ‘Hey, you know, we want to put a little money into the economy’ “. But now it was the anchorman’s duty to report a lamentable fact. Those candidates were actually spending less in long-suffering Nevada than they had elsewhere, and some of them had declined to buy even a single minute of airtime in the Sagebrush State. “They’re not add[ing] to the economy here”, Lemon soberly noted. The effrontery! The heartlessness!
Political advertising, in other words, might correctly be understood as a modern-day form of largesse. When presidential candidates run TV commercials assailing one another, they are playing the role of aristocrats in some medieval ceremony, throwing handfuls of coins to the toiling masses. And beside these gilded personages stand the commentariat, marveling in song and rhyme at what a fine democratic tableau it all is.
Alternatively, we might see TV commercials as one of the few stimulus programs Republicans fully endorse. They are also just about the only form of redistribution from the billionaire class that the rest of us will ever see. {1}
And what of the ads themselves? After filling us in on how much each campaign had spent, CNN’s Lemon shared a few specimens. He told us exactly how many times each commercial had aired in Nevada and Florida, letting us calculate for ourselves the relative stopping power of each salvo. Did people’s hatred for Gingrich continue to mount after the fiftieth time an anti-Newt commercial had run, or were there diminishing returns?
There is nothing new about money in American politics. It has twisted the people’s will and infuriated the civic-minded for more than two centuries. Efforts to restrict the flow of campaign spending go back as far as 1757, when George Washington was taken to task for ladling out an excess of rum, beer, and hard cider to the voters in his district. Since then, a series of laws – including the Pendleton Act (1883), the Federal Corrupt Practices Act (1910), the Taft-Hartley Act (1947), the Federal Elections Campaign Act (1971, 1974), and the McCain-Feingold Act (2002) – have aimed to disrupt the synergy between cash and electioneering, with mixed success.
But it is different this time, in two ways.
First of all, there is the sheer size of it. Almost every modern election cycle sees a rise in spending over the previous one. This time, however, the increase will be much steeper. Think of the many outrages brought to you over the past decade or so by campaign dollars: the Swift Boat Veterans for Truth; the millions dumped by friendly billionaires into Americans Coming Together; the adventures of the Bush Pioneers, the Bush Rangers, the Bush Super Rangers. These will fade to insignificance when compared with the 2012 onslaught – the “coming tsunami of slime”, as journalist Joe Hagan calls it.
How big will the tsunami be? No one knows for sure, since today we are operating under different rules than those that prevailed just four years ago. One way of gauging the wall of filth that is headed our way would be to note that the 2010 congressional elections – the first to be conducted in the wake of the Supreme Court’s Citizens United decision – saw more than a fivefold increase in “independent expenditures” over the previous round of midterms. And according to the Center for Responsive Politics, independent spending to date for the 2012 elections is already 108 percent above 2008 levels. At a minimum, then, we can probably look forward to twice as much slime as the last time around.
We have been heading in this direction for a while, thanks to trends in campaign finance that brought us bundlers and PACs and 527s. Citizens United upped the ante by effectively inviting corporations and unions to spend as much as they liked on “electioneering communications”. What really changed, however, was neither the abolition of spending limits nor even the touching solicitude paid to corporations by equating their speech with that of human beings. No, Citizens United (and the related SpeechNow case) altered the political landscape most profoundly by ushering in the Super PAC.
What distinguishes the Super PAC from previous electoral-finance innovations is the deniability it affords the candidate it supports. By law, candidates themselves still cannot accept more than $2,500 from an individual. A Super PAC – officially designated as an “independent expenditure-only committee” – suffers from no such handicap. It can raise and spend potentially oceanic amounts of cash, as long as it maintains its nominal “independence” from a candidate. These slush funds are open to contributions from ordinary citizens, of course. But they have become the stalking horse par excellence for billionaire backers, who are now freed from the nickel-and-dime constraints of direct contribution – and much of this money, being theoretically separate from the candidates themselves, has naturally been poured into vitriolic TV ads.
It dawned on the world that we had reached a new level of campaign savagery during the weeks before the Iowa caucuses. For a brief moment, you will recall, Newt Gingrich, who had foresworn negative advertising and was behaving in an uncharacteristically congenial manner, took the lead in public-opinion polls. Almost immediately, Mitt Romney – which is to say, Mitt Romney’s studiously non-aligned corporate doppelganger, the Restore Our Future Super PAC – blitzed his slow-moving opponent with a storm of derisive TV commercials. The spots ran day and night, and utterly destroyed Gingrich’s standing in the polls.
Among people who follow campaign spending closely, this seems to have been a sort of Hiroshima moment: the vast power of a new weapon was finally unveiled. Candidates like Romney could appear to be models of civic virtue, without an unkind or even combative thought in their heads, while their wealthy patrons came together to heap ridicule on their rivals, in unprecedented quantities of advertising and degrees of viciousness. All of the handshaking and diner-visiting and carefully drawn position papers were swept into irrelevance.
Romney’s carpet-bombing assault in Iowa triggered an immediate campaign-finance arms race among the surviving candidates. But Restore Our Future retained at least a temporary edge over Gingrich’s Winning Our Future and Rick Santorum’s Red, White and Blue Fund and Ron Paul’s Endorse Liberty. A few weeks later, Romney’s secret weapon delivered the Florida primary for the former Massachusetts governor by once again outsliming the hapless Gingrich, reportedly by a factor of five to one.
The rise of the Super PACs, and the sheer volume of cash they enabled candidates to devote to mudslinging without ever dirtying their hands, was something new. Just as new, and equally alarming, was the public’s cognitive capitulation to the process. Over the course of the past few decades, the power of concentrated money has subverted the professions, destroyed small investors, wrecked the regulatory state, corrupted legislators en masse, and repeatedly put the economy through the wringer. Now it has come for our democracy itself.
And by and large, we are pretty blase about it. To judge by our society’s consensus-approved commentary, the permissible modes of political discussion are narrowing by the day. We speculate about what campaign spending will do for regional economies, or how effective this or that TV commercial is at persuading voters, or (at the outermost limits of journalistic daring) whether that selfsame commercial might contain … errors of fact. But what this style of commentary virtually requires the media to ignore is that with every juicy morsel of hate, we are becoming more and more a rich man’s country.
Newt Gingrich did not take the Iowa defeat lying down. Instead, he turned to a billionaire backer of his own, casino mogul Sheldon Adelson, to fill the coffers of Winning Our Future. With his war chest thus replenished, Gingrich began running TV commercials in South Carolina that held Romney responsible for certain unsavory deeds of Bain Capital, the buyout firm he used to run. {2} Largely on the strength of these bludgeoning ads, Gingrich proceeded to win the South Carolina primary.
And if you happened to turn on CNN the night of Gingrich’s big win, you would have heard the centrist pundit David Gergen depict the whole electoral process as a kind of card game for billionaires. While Gingrich took his victory lap in a packed South Carolina ballroom, Gergen predicted his next move: “Don’t you think he’ll call Mr Adelson and say, ‘Why don’t you double down?’”
The line stuck in my craw. Its obvious but unspoken assumption was that the public may vote as its pleases, but that the parties to whom the candidates ultimately answer are the superrich, who will expect some returns but are also sometimes willing to invest in a sagging candidacy – buying on the dips, as it were. Even more disturbing is the unspoken but obvious follow-up question: What is the payoff for Adelson, or for any other major political contributor, if his long shot comes in?
Adelson himself spoke of Barack Obama’s “quest to socialize this country” when Forbes quizzed him about his motives. He also had this to say:
I’m against very wealthy people … influencing elections … But as long as it’s doable I’m going to do it. Because I know that guys like Soros have been doing it for years, if not decades.
Foster Friess, the mutual-fund tycoon who is plowing money into Santorum’s Red, White and Blue Fund, is also happy to discuss his munificence with reporters. And when he does, the conversation seems naturally to gravitate to the language of gambling, investing, and financial speculation.
When Bloomberg’s Margaret Brennan interviewed Friess, for example, she persistently framed his patronage as a daring investment and potential ten-bagger. Friess, she explained, was “betting some of [his] fortune on a long shot”. This was on January 27, when the campaign of the fresh-faced former Pennsylvania senator seemed to be fading. Brennan wondered whether it was time to diversify or even cash out: “At what point do you cut your losses? At what point do you perhaps back one of the front-runners?”
A couple of weeks later, after Santorum was declared the surprise victor in Iowa and pulled off upsets in Minnesota, Missouri, and Colorado, Brennan spoke to Friess again. This time she asked, “Can you say at this point that your support paid off this week?”
The constant chatter of long shots and payoffs failed to rattle Friess. He cheerfully played along, noting that although he had contributed less to Santorum than Sheldon Adelson had to Gingrich, he had secured better political results. “I’m an investor”, Friess joked, “and Sheldon is a casino guy”.
Not that Friess is absolutely locked in to speculative metaphors. He also describes the millions he has put behind Santorum as the result of a political casting call. Musing to ABC News in February, Friess listed the candidate’s strengths as if reading from a classified ad:
fifty-three years old, starts each morning with fifty push-ups, is the grandson of a coal miner, has demonstrated the ability to win blue-collar votes by winning in Pennsylvania, which had over one million Democratic registration advantage, and grew up on a Veterans Administration hospital grounds where his father worked, and is a fellow of modest means.
Help Wanted: Working Man with Plutocrat-Friendly Views.
I haven’t even touched on the billionaires who are making such an inspiring display of class solidarity behind Mitt Romney – John Paulson, Julian Robertson, Paul Tudor Jones, a Walmart heir or two. Nor have I broached the question that is no doubt vexing many: Where are the liberal billionaires we’ve heard so much about? Well, as it happens, the nation’s number one progressive billionaire, currency speculator George Soros, is reportedly not jazzed about the presidential campaign. He is having trouble distinguishing between Barack Obatna and Mitt Romney, and his failure to take a stake in anybody’s Super PAC has been treated as a news story in its own right.
Many efforts to grapple with the Super PAC phenomenon bog down in the slough of advertising criticism, which offers not one but two misleading schools of thought. One holds that advertising is diabolically powerful, capable of transmitting into the minds of the millions whatever views the man with the camera chooses. The other insists that advertising is not effective in the least, that consumers are wily and evasive, always charting their own course. {3}
Both views are clearly inadequate in the present circumstances. The idea that our votes can simply be purchased by a large enough ad expenditure is contradicted by the burnt-out hulks of gold-plated political campaigns that litter recent history – think of the floundering Steve Forbes, or the tongue-tied Rick Perry, or eBay CEO Meg Whitman’s fantastically expensive 2010 bid for the California governorship. Yet the other argument, that we remain proud and free and immune to the barrage, is such an obvious rationalization that you hear it advanced only by people who stand to benefit from the present spectacle, or are actually in some way responsible for it.
The latter category would include Supreme Court justice Antonin Scalia, who told an audience of lawyers back in January that “I don’t care who is doing the speech – the more the merrier”. Then Scalia tossed in one of the great canards of our time: “People are not stupid. If they don’t like it, they’ll shut it off.” All power, in other words, rests in the hand with the remote. Against the scoffing majesty of the American TV viewer, all the assembled efforts of the nation’s tycoons are as gentle Mediterranean waves against looming Gibraltar.
As it happens, this kind of clueless optimism contributed to the Citizens United decision itself. In the majority opinion, Justice Anthony Kennedy declared flatly that “this Court now concludes that independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption”. Got that? Independent expenditures are by definition clean, because those Super PACs are, you know, independent. The court continued unfolding its wisdom:
That speakers may have influence over or access to elected officials does not mean that those officials are corrupt. And the appearance of influence or access will not cause the electorate to lose faith in this democracy.
History records that when the court made this amazing proclamation on January 21 2010, the electorate was in fact in the throes of a wrenching crisis of faith brought on by precisely the “appearance of influence or access” that Justice Kennedy declared to be impossible: namely, the apparent power of Wall Street banks to get themselves a colossal government bailout, an occurrence that had prompted rallies and protests and talk-show jeremiads by the thousand. All the judges had to do to see how wrong they were was use that all-powerful remote and turn, on the damn TV.
Like the showdown we are edging toward today, the 1896 presidential contest between Republican William McKinley and Democrat William Jennings Bryan was one of apocalyptic rhetoric and superhuman fund-raising. Like Barack Obama, Bryan was perceived by a certain stratum of Americans as the representative of an alien, revolutionary tradition. With his fiery rhetoric and opposition to the gold standard, he seemed to embody the spirit of anarchism, or maybe Jacobin Paris. And so his opponents came together as a class to drown him under a deluge of money.
In his classic 1938 history of American graft, The Politicos, 1865-1896, Matthew Josephson tells how McKinley’s campaign manager, the industrialist and uber-fixer Mark Hanna, visited the New York offices of the nation’s great corporations, impressing upon his listeners the “reality of the danger” and demanding from each a percentage of their capitalization in order to put down the Nebraska Robespierre. By and large; Hanna got what he asked. And with it he generated an unprecedented number of pamphlets and lithographs, fielded an army of canvassers, and caused a chorus of “the most violent class hate” to reverberate both in the press and on the lecture circuit. {4} Some speculated that Hanna may have outspent the Democrats by twenty or thirty to one. And money prevailed, of course, even if McKinley nabbed only 51 percent of the popular vote.
This fall, office parks throughout the land will no doubt ring with Hanna-like calls to take America back from the hands of the Indonesian-socialist usurper. The parallel that really bothers me, though, involves yet another visit to New York City by an enterprising campaign manager. In February, spooked by the success of Romney’s Super PAC – and also by a Koch Brothers conference at which conservative funders reportedly pledged $100 million to defeat the Democrats – the Obama campaign abruptly reversed its opposition to Super PACs. According to a Bloomberg News account, campaign manager Jim Messina was then dispatched to New York City to meet with representatives of the “financial services industry” and encourage them to chip in. During the meeting, the article reports, Messina “assured” his audience that the president would not “demonize Wall Street as he stresses populist appeals in his reelection campaign”. In other words, to avoid the fate of William Jennings Bryan, the president is apparently prepared to jettison a large chunk of his party’s legislative and rhetorical tradition.
Here we begin to see the real consequence of all this getting and spending. It’s not that campaign money has direct power over the public mind – that one advertising dollar can be counted upon to yield one vote. Nor is it true that the public is invulnerable, that we judiciously weigh these messages and see through the lies. The problem is that by putting such a price tag on the White House, we have imported market logic directly into our politics. Yes, even the village socialist will still get to vote, not to mention the village idiot. But in order to be a candidate – to be the kind of person who can make those calls to billionaires and get them to “double down” – Americans will have to undergo a far more rigorous process of ideological winnowing and executive training. And anyone who isn’t an absolute zealot about maximizing shareholder value will fail to make the cut.
For some, this seems to have been the idea all along; this is why companies have political action committees in the first place. In Honest Graft, a 1988 history of money in policies, Brooks Jackson tells us how Republican congressman Guy Vander Jagt barnstormed the nation in the 1970s, proselytizing for corporate PACs. This “preacher in the temple of free enterprise”, as Jackson describes him, believed there would come a day when corporate money would act at long last in its rational self-interest and deliver up a Republican majority in Congress. When Honest Graft was published, however, the consummation of Vander Jagt’s dream was still several years in the future. Corporate PACs had disappointed their prophet and were largely wasting their substance on the conservative faction of the Democratic Party.
To get us where we are today would take hundreds of millions more, a generation of super-lobbyists, and massive K Street projects designed to make the political market function as a political market should. What we ended up with is a system in which politicians answer primarily to the pressures of supply and demand, not to the blunt and obsolete incentives known as votes.
There is a profound irony, of course, in watching the fate of our proudly interconnected world get taken in hand by a collection of ad-hoc propaganda bureaus, broadcasting their top-down messages of gross stupidity via the definitive mass medium of yesterday, the television.
But that is the way the market rolls. There was a period in the first term of George W Bush when the polite-thinking world trembled to hear Republican strategists talk about building a “permanent majority” – a new coalition that would make the GOP the dominant party for decades to come. It is too early to tell, of course, but perhaps with Citizens United they have finally done it. As the syndicated columnist E J Dionne has written, the Supreme Court decision is best understood as part of “a larger initiative by moneyed conservatives to rig the electoral system against their opponents.” It will take time before the legislative follow-through is completed, of course, and Republicans will continue to lose elections here and there, but sooner or later, the weight of the money will tell. The market will speak.
Notes:
{1} A classic example of this redistribution: in Manchester, New Hampshire, one local TV affiliate broadcasts from an unusually luxurious building. According to the political journalist David Frum, the facility is known as the House That Forbes Built, in honor of the lavish ad buys made by Steve Forbes during his 1996 and 2000 campaigns for the presidency.
{2} Again, when I say “Gingrich”, I really mean “the Super PAC supporting Gingrich”. The candidate himself had absolutely nothing to do with the TV commercials that aired on his behalf.
{3} The aesthetic side of advertising criticism – which would point out that Super PAC ads are, by and large, clunky tirades apparently assembled in a matter of minutes by people armed with cheap editing software – is rarely part of the journalistic conversation.
{4} Naked coercion was also used, in a pattern that might be familiar to us today. According to Josephson, job creators across the country threatened their employees with layoffs and outright closings should Bryan win.
The Rise of the New Economy Movement
by Gar Alperovitz
AlterNet (May 20 2012)
As our political system sputters, a wave of innovative thinking and bold experimentation is quietly sweeping away outmoded economic models. In ‘New Economic Visions’, a special five-part AlterNet series edited by Economics Editor Lynn Parramore in partnership with political economist Gar Alperovitz of the Democracy Collaborative, creative thinkers come together to explore the exciting ideas and projects that are shaping the philosophical and political vision of the movement that could take our economy back.
Just beneath the surface of traditional media attention, something vital has been gathering force and is about to explode into public consciousness. The “New Economy Movement” is a far-ranging coming together of organizations, projects, activists, theorists and ordinary citizens committed to rebuilding the American political-economic system from the ground up.
The broad goal is democratized ownership of the economy for the “99 percent” in an ecologically sustainable and participatory community-building fashion. The name of the game is practical work in the here and now – and a hands-on process that is also informed by big picture theory and in-depth knowledge.
Thousands of real world projects – from solar-powered businesses to worker-owned cooperatives and state-owned banks – are underway across the country. Many are self-consciously understood as attempts to develop working prototypes in state and local “laboratories of democracy” that may be applied at regional and national scale when the right political moment occurs.
The movement includes young and old, “Occupy” people, student activists, and what one older participant describes as thousands of “people in their sixties from the sixties” rolling up their sleeves to apply some of the lessons of an earlier movement.
Explosion of Energy
A powerful trend of hands-on activity includes a range of economic models that change both ownership and ecological outcomes. Co-ops, for instance, are very much on target – especially those which emphasize participation and green concerns. The Evergreen Cooperatives in a desperately poor, predominantly black neighborhood of Cleveland, Ohio are a leading example. They include a worker-owned solar installation and weatherization co-op; a state-of-the-art, industrial-scale commercial laundry in a LEED-Gold certified building that uses – and therefore has to heat – only around a third of the water of other laundries; and a soon-to-open large scale hydroponic greenhouse capable of producing three million head of lettuce and 300,000 pounds of herbs a year. Hospitals and universities in the area have agreed to use the co-ops’ services, and several cities – including Pittsburgh, Atlanta, Washington, DC and Amarillo, Texas are now exploring similar efforts.
Other models fit into what author Marjorie Kelly calls the “generative economy” – efforts that inherently nurture the community and respect the natural environment. Organic Valley is a cooperative dairy producer in based in Wisconsin with more than $700 million in revenue and nearly 1,700 farmer-owners. Upstream 21 Corporation is a “socially responsible” holding company that purchases and expands sustainable small businesses. Greyston Bakery is a Yonkers, New York “B-Corporation” (a new type of corporation designed to benefit the public) that was initially founded to provide jobs for neighborhood residents. Today, Greystone generates around $6.5 million in annual sales.
Recently, the United Steelworkers union broke modern labor movement tradition and entered into a historic agreement with the Mondragon Cooperative Corporation and the Ohio Employee Ownership Center to help build worker-owned cooperatives in the United States along the lines of a new “union-co-op” model.
The movement is also serious about building on earlier models. More than 130 million Americans, in fact, already belong to one or another form of cooperative – and especially the most widely known form: the credit union. Similarly, there are some 2,000 municipally owned utilities, a number of which are ecological leaders. (Twenty-five percent of American electricity is provided by co-ops and public utilities.) Upwards of ten million Americans now also work at some 11,000 employee-owned firms (ESOP companies).
More than 200 communities also operate or are establishing community land trusts that take land and housing out of the market and preserve it for the community. And hundreds of “social enterprises” use profits for social or community serving goals. Beyond these efforts, roughly 4,500 Community Development Corporations and 1.5 million non-profit organizations currently operate in every state in the nation.
The movement is also represented by the “Move Your Money” and “bank transfer day” campaigns, widespread efforts to shift millions of dollars from corporate giants like Bank of America to one or another form of democratic or community-benefiting institution. Related to this are other “new banking” strategies. Since 2010, seventeen states, for instance, have considered legislation to set up public banks along the lines of the long-standing Bank of North Dakota.
Several cities – including Los Angeles and Kansas City - have passed “responsible banking” ordinances that require banks to reveal their impact on the community and/or require city officials to only do business with banks that are responsive to community needs. Other cities, like San Jose and Portland, are developing efforts to move their money out of Wall Street banks and into other commercial banks, community banks or credit unions. Politicians and activists in San Francisco have taken this a step further and proposed the creation of a publicly owned municipal bank.
There are also a number of innovative non-public, non-co-op banks – including the New Resource Bank in San Francisco, founded in 2006 “with a vision of bringing new resources to sustainable businesses and ultimately creating more sustainable communities”. Similarly, One PacificCoast Bank, an Oakland-based certified community development financial institution, grew out of the desire to “create a sustainable, meaningful community development bank and a supporting nonprofit organization”. And One United Bank – the largest black-owned bank in the country with offices in Los Angeles, Boston and Miami – has financed more than $1 billion in loans, most in low-income neighborhoods.
Ex-JP Morgan managing director John Fullerton has added legitimacy and force to the debate about new directions in finance at the ecologically oriented Capital Institute. And in several parts of the country, alternative currencies have long been used to help local community building – notably “BerkShares” in Great Barrington, Massachusetts, and “Ithaca Hours” in Ithaca, New York.
Active protest efforts are also underway. The Occupy movement, along with many others, has increasingly used direct action in support of new banking directions – and in clear opposition to old. On April 24 2012 over 1,000 people protested bank practices at the Wells Fargo shareholder meeting in San Francisco. Similar actions, some involving physical “occupations” of bank branches, have been occurring in many parts of the country since the Occupy movement started in 2011. Large-scale demonstrations occurred at the Bank of America’s annual shareholder meeting in May 2012.
What to do about large-scale enterprise in a “new economy” is also on the agenda. A number of advocates, like Boston College professor Charles Derber, contemplate putting worker, consumer, environmental, or community representatives of “stakeholder” groups on corporate boards. Others point to the Alaska Permanent Fund which invests a significant portion of the state’s mineral revenues and returns dividends to citizens as a matter of right. Still others, like David Schweickart and Richard Wolff, propose system-wide change that emphasizes one or another form of worker ownership and management. (In the Schweickart version, smaller firms would be essentially directly managed by workers; large-scale national firms would be nationalized but also managed by workers.) A broad and fast-growing group seeks to end “corporate personhood”, and still others urge a reinvigoration of anti-trust efforts to reduce corporate power. (Breaking up banks deemed too big to fail is one element of this.)
In March 2012, the Left Forum held in New York also heard many calls for a return to nationalization. And even among “Small is Beautiful” followers of the late E F Schumacher, a number recall this historic build-from-the-bottom-up advocate’s argument that “[w]hen we come to large-scale enterprises, the idea of private ownership becomes an absurdity”. (Schumacher continuously searched for national models that were as supportive of community values as local forms.)
Theory and Action
A range of new theorists have also increasingly given intellectual muscle to the movement. Some, like Richard Heinberg, stress the radical implications of ending economic growth. Former presidential adviser James Gustav Speth calls for restructuring the entire system as the only way to deal with ecological problems in general and growth in particular. David Korten has offered an agenda for a new economy which stresses small Main Street business and building from the bottom up. (Korten also co-chairs a “New Economy Working Group” with John Cavanagh at the Institute of Policy Studies.) Juliet Schor has proposed a vision of “Plentitude” oriented in significant part around medium-scale high tech industry. My own work on a Pluralist Commonwealth emphasizes a community-building system characterized by a mix of democratized forms of ownership ranging from small co-ops all the way up to public/worker-owned firms where large scale cannot be avoided.
Writers like Herman Daly and David Bollier have also helped establish theoretical foundations for fundamental challenges to endless economic growth, on the one hand, and the need to transcend privatized economics in favor of a “commons” understanding, on the other. The awarding in 2009 of the Nobel Prize to Elinor Ostrom for work on commons-based development underlined recognition at still another level of some of the critical themes of the movement.
Around the country, thinkers are clamoring to meet and discuss new ideas. The New Economy Institute, led primarily by ecologists and ecological economists, hoped to attract a few hundred participants to a gathering to be held at Bard College in June 2012. The event sold out almost two months in advance! An apologetic email went out turning away hundreds who could not be accommodated with the promise of much bigger venue the next year.
And that’s just one example. From April to May 2012, the Social Venture Network held its annual gathering in Stevenson, Washington. The Public Banking Institute gathered in Philadelphia. The National Center for Employee Ownership met in Minneapolis – also to record-breaking attendance. And the Business Alliance for Local Living Economies (BALLE) held a major conference in Grand Rapids, Michigan. Other events planned for 2012 include the Consumer Cooperative Management Association’s meeting in Philadelphia; the US Federation of Worker Cooperatives’ gathering in Boston; a Farmer Cooperatives conference organized by the University of Wisconsin Center for Cooperatives; and meetings of the National Community Land Trust Network and the Bioneers. The American Sustainable Business Council, a network of 100,000 businesses and 300,000 individuals, has been holding ongoing events and activities throughout 2012.
Daunting Challenges
The New Economy Movement is already energetically involved in an extraordinary range of activities, but it faces large-scale, daunting challenges. The first of these derives from the task it has set for itself – nothing less than changing and democratizing the very essence of the American economic system’s institutional structure.
Even viewed as a long-range goal, the movement obviously confronts the enormous entrenched power of an American political economic system dominated by very large banking and corporate interests – and bolstered by a politics heavily dependent on the financial muscle of elites at the top. (One recent calculation is that 400 individuals at the top now own more wealth than the bottom 160 million.)
A second fundamental challenge derives from the increasingly widespread new economy judgment that economic growth must ultimately be reduced, indeed, even possibly ended if the dangers presented by climate change are to be avoided – and if resource and other environmental limits are to be responsibly dealt with.
Complicating all this is the fact that most labor unions – the core institution of the traditional progressive alliance – are committed to growth as absolutely essential (as the economy is now organized) to maintaining jobs.
History dramatizes the implacable power of the existing institutions – until, somehow, that power gives way to the force of social movements. Most of those in the New Economy movement understand the challenge as both immediate and long-term: how to put an end to the most egregious social and economically destructive practices in the near term; how to lay foundations for a possible transformation in the longer term.
And driving the movement’s steady build up, day by day, year by year, is the growing economic and social pain millions of Americans now experience in their own lives – and a sense that something fundamental is wrong. The New Economy Movement speaks to this reality, and just possibly, despite all the obstacles – as with the civil rights, feminist, environmental and so many other earlier historic movements – it, too, will overcome. If so, the integrity of its goals and the practicality of its developmental work may allow it to help establish foundations for the next great progressive era of American history. It is already adding positive vision and practical change to everyday life.
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Gar Alperovitz, Lionel R Bauman Professor of Political Economy at the University of Maryland, is a Founding Principal of The Democracy Collaborative, as well as historian, political economist, and writer.
(c) 2012 Independent Media Institute. All rights reserved.
http://www.alternet.org/story/155452/the_rise_of_the_new_economy_movement
