How do we end child labor? Friday, Feb 12 2010 

I’m in international economics this semester with Professor Ming Lo. The class is very interesting and Dr. Lo is a great professor. The topic of child labor came up in class as we were discussing globalization. Most people today agree that child labor is unethical. The question becomes, how do we stop it?

One response has been to simply outlaw it. For example, in 1938, President Franklin Roosevelt signed the Fair Labor Standards Act in an attempt to curb child labor and protect children from the horrors of industrialization, which had brought with it brutal, and often fatal, working conditions. This had an effect in domestic markets, but it did not stop similar abuses of children in foreign markets. This is why Senator Harkin (D-IA) introduced the Child Labor Deterrence Act in 1992 and several other years after that. The bill would “prohibit the importation of products that have been produced by child labor, and included civil and criminal penalties for violators.” Well this had an effect. According to Jagdish Bhagwati, the University Professor of economics at Columbia University and author of the 2004 book In Defense of Globalization, garment employers in Bangladesh laid off an estimated 50,000 child workers, fearing passage of the bill. We don’t know what happened to these children, but it is believed that these children moved to the underground economy. That is to say, they found worse jobs in worse conditions. These included, for example, unregistered garment factories. At least in some cases, however, these may have included child prostitution and being sold into the sex trade. Very few people could agree this is a positive result.

So how do we stop child labor if we agree that it ought to be stopped? Clearly, banning imported products made with child labor will likely have the effect of not eliminating child labor, but rather making it more concealed and even more dangerous and exploitative than it was before. Not doing anything doesn’t seem to be the solution either, evidenced by the fact that child labor still exists and has always existed until actions were undertaken to deal with the problems too. Dr. Bhagwati suggests in his book that we label products that are are made by child laborers. In this way, consumers can make a decision as to whether to buy the product or not. Although I agree it is a good idea to label products in this way (it increases consumer information), there are some problem. For one, many consumers still purchase goods even when they are aware of the negative aspects associated with it. People still continued to buy Nike products, for example, even after it was exposed that many of their products were produced in sweatshops and unethical working conditions. Sometimes the benefit that we receive from purchasing a product outweighs any negative thoughts we have about the ethical standards of its production. That is, even if we agree that the production of what we’re buying was done unethically, we still are inclined to purchase the product. Second, even if demand for products created with child labor does decrease because of increased awareness, the effect won’t be much different than prohibiting the import of these products. Children will be forced into other sectors, including underground markets that help conceal the true abuses to these children. While it may help us feel better, it doesn’t do much in the way of ending the exploitation of children. There does not seem to be any clear and easy solution to this problem, and I certainly don’t have the answer. I do believe, however, that a principal component needs to address the underlying causes that drive parents and their children to pick child labor as their available best option. In other words, we need to tackle the issue of world poverty and the social conditions in developing countries that lead to child labor. Decreasing our demand for these products is a step in the right direction, but clearly not enough to end this blight on human affairs.


A new era: worth its weight in lead Sunday, Nov 15 2009 

The last 35 years or so, an era of liberalization and “globalization,” has been hailed as an era of fantastic growth and economic prosperity. Thanks to Reagan and his economic reforms, we currently live in an era of magnificent economic conditions. Is it true? Is all the triumphalism merited? Well, as usual, it depends on who we’re talking about. It’s true that there has been outstanding performance of the economy, but it’s a very narrow part of the economy. It’s quite true that the ultra-rich have been making out like bandits. We get to read about their euphoria all the time. For the ordinary American, however, the story is quite different.

In my post on what are called “economic miracles,” I noted that the ordinary worker in America has been working harder and longer hours only to see their wages stagnant or decline. Most people have actually seen their wealth go away, not accumulate. The poor have been getting poorer (and the rich, richer). On my post on what’s being called “globalization,” I pointed to data to shows world GDP growth rates have slowed nearly 40% in this new era compared to the era before, which was called the Golden Age (Robert Skidelsky also discusses this in his book, Keynes: The Return of the Master). Poverty rates were steadily declining right through the early 1970s; since then, the poverty rate has either increase or stagnated. The same is true of unemployment rates, but instead of staying stagnant after the early ’70s they soared to unprecedented levels and today we are again approaching the levels we saw under Reagan.

Just about on every measure, this “Golden Age of Capitalism”—the Bretton Woods era—has outperformed this new era, which is now being dubbed the “Leaden Age.” Writes David Harvey, “The only general point of agreement is that something significant has changed in the way capitalism has been working since about 1970.” In The Long Twentieth Century: Money, Power, and the Origins of our Times, Giovanni Arrighi explains: “Rigidities increased further, real growth ceased, inflationary tendencies got out of hand, and the system of fixed exchange rates, which had sustained and regulated post-war expansion, collapsed. Since that time, all states have been at the mercy of financial discipline, either through the effects of capital flight or direct institutional pressures.” That is, states have been undermined by “the empowerment of financial capital” and economies have gone out of control.

The Golden Age of Capitalism (by “capitalism,” it’s understood we mean “state capitalism”), unlike the current Leaden Age, was marked by economic growth that was egalitarian, less severe business cycles, and overall stabilization. The dismantling of the Bretton Woods system and the descent into the Leaden Age has brought about rampant speculation, loss of capital controls, and unregulated exchange rates, all resulting in volatility, severe business cycles (take now, for example), slower growth, higher interest rates, worker insecurity (or, more euphemistically, “labor market flexibility”), and all the rest described above. (This descent is also discussed in John Eatwell and Lance Taylor’s book, Global Finance at Risk.) Now Paul Krugman, an economics professor at Princeton University and the recipient of the Nobel Prize in Economics in 2008, has been doing some Reagan mythbusting of his own. First, he debunks the idea that growth was greater in the Leaden Age than in the Golden Age. Next, he dispels myths about Reagan policies creating greater growth on a per capita basis. Finally, he goes on to explain productivity growth was more rapid during the Golden Age, not during the era of Reaganomics.

Now I’m sure some people may not be happy with the foregoing arguments, even though I find them more descriptive than normative. They might see it as an attack on free markets, but I don’t think it is. In fact, the Bretton Woods system was built around the idea that free trade was good but there needed to be some regulations on finance. Those arguments are not novel and you don’t need to read Keynes to find them. And while Reagan certainly liberalized the economy in some senses, for example through deregulation, Reagen really had no faith at all in free markets. He was, in fact, a big-time state capitalist; take, for example, James Baker who boasted to business groups that the Reagan administration has offered more protection to American business than any post-war presidency (it was, in fact, more than all of them combined). Today, we continue to operate on the idea which is that you socialize risk and costs and privatize profits—the idea of lemon socialism. Contemporary examples stare us right in the face. But Bush’s idea of abandoning “free market principles to save the free market system” is not new by any means. The point I wish to make, if any, is that these ideas are not healthy for democracy are not, as shown above, particularly conducive to economic growth in any meaningful sense.

Globalization. What’s in a name? Saturday, Oct 24 2009 

Today, what we call globalization has become ubiquitous. Needless to say, “globalization” has fierce and unrelenting critics; perhaps chief among them is Joseph Stiglitz. Dr. Stiglitz, a professor at Columbia University and the former Chief Economist at the World Bank, won the Nobel Prize in economics in 2001 with two others for his contributions to our understanding of asymmetric information in markets. He has also made what I feel are important contributions to our understanding of the inequities that “globalization” bring about around the world, particularly with his two books, Making Globalization Work and Globalization and Its Discontents. While people like Thomas Friedman may write that “The World Is Flat,” in reality, we know that the playing field is not even but is tilted.

But how can we talk about globalization without first knowing what it is? So, what is globalization? Being an international business major, a lot of my courses have dealt with defining and discussing globalization. Probably the most common definition I hear is “the integration of businesses into world markets,” or something along those lines. That’s one particular way to define it. Used neutrally, however, the term globalization means international integration (that is, of any form). The term is not used neutrality, though. The term, in its current usage, “has been appropriated by a narrow sector of power and privilege.”

The term, as appropriated by the neoliberals, is meant to describe an economic order that favors investor rights over the rights of people. Some people refer to it as market fundamentalism, but I disagree. What is being advocated under this appropriated term really has nothing to do with free markets and is, frankly, and affront to markets. In fact, in incorporates very little of what Adam Smith advocated in The Wealth of Nations, the seminal work that neoliberals are always quick to cite. Take, for example, the free circulation of labor. It’s impossible to talk about free markets without the free circulation of labor. Smith wrote, “the policy of Europe, by obstructing the free circulation of labor and stock both from employment to employment, and from place to place, occasions in some cases a very inconvenient inequality in the whole of the advantages and disadvantages of their different employments….Whatever obstructs the free circulation of labor from one employment to another obstructs that of stock likewise.” This is part of the “perfect liberty” that Smith said would lead to “perfect equality.” Instead, there has been great work to limit the free movement of labor. In fact, in 1994, President Clinton went so far as to militarize the border in what was called “Operation Gatekeeper.” Why 1994? Because that was the year of NAFTA.

What is NAFTA? It is touted as a “free trade agreement” between Canada, Mexico, and the United States (it got the “NA” part correct) whereby barriers to trade and investment are eliminated. What does NAFTA really mean? It means Mexico opens it borders to highly subsidized U.S. agribusiness. This drives the peasants off their land because they cannot compete with this U.S. taxpayer-funded agri-exports. Consequently, they flee to urban slums (what’s called urbanization), driving down wages, allowing for large multinational corporations to exploit their cheap labor. That produces what’s called an “Economic Miracle,” where typical economic indicators like GDP, FDI, and corporate profit soar but the masses approach pauperization. That’s what America means by “free trade.”

What has this particular form globalization brought us? In what is hailed as the era of liberalization and globalization, world GDP growth rates have decreased by nearly 38% over the past 24 years (using the 2003 as the latest year with available figures) compared to the 24 years prior to that (the Bretton Woods era), according to data provided by Angus Maddison. Likewise, Americans have seen stagnated wages. The inequality of distribution of wealth has been simply remarkable, everywhere. Poverty in the U.S. saw a steady decline through the ’60s and ’70s; the ’80s, however, saw an incline in poverty and it has remained relatively unchanged since. Meanwhile, speculative capital flows have erupted, bringing with them destabilization, as Stiglitz has argued. It has also had the effect of wiping out domestic production for domestic needs, as we’ve seen in Mexico. Because local producers cannot compete with U.S.-subsidized agribusiness, many Third World nations must rely on what are called cash crops (as opposed to subsistence crops): bananas, cotton, coffee, sugar, etc. But not all the export crops are as innocuous as bananas; they also include coca, marijuana, poppy, and other drugs that fuel the current-day drug war, with Peru’s president calling the cocaine business the “only successful multinational to emerge” from Latin America in the face of globalization. It has certainly only given more credence to dependency theory.

Naturally, anyone that opposes this particular form of globalization gets called “anti-globalization.” It’s unfortunate because it’s not true, with the exception of very tiny minority who are truly anti-globalization, in the neutral sense of the word. International integration is, in fact, a great thing, as the people at the World Social Forum and other places have been espousing for years. It, however, should not be based on the blind faith in the religion of neoliberal markets, but rather should include more awareness for the rights of laborers, corrections for obvious market failures, and environmental protection as proposed by the adherents of alter-globalization.

Kofi Annan @ Mac Wednesday, May 20 2009 

Macalester College hosted Kofi Annan, the former Secretary-General of the United Nations. The event was sponsored by the university’s Institute for Global Citizenship. The university unraveled a sculpture of Annan as a part of the opening of their new Markim Hall, the $7.5 million building meant to “exceed the sustainability requirements of LEED Platinum certification.” Annan, who got his bachelors in economics at the university in 1961, gave a short speech as part of the unveiling of the bust and the opening of Markim Hall.

The speech itself was short. He stressed the point that we are all a part of a global village, evidenced by the ongoing global economic and financial crisis. He also stated climate change is a real danger, that we should work together to stop it, and that the green Markim Hall is a step in that direction. Finally, he suggested students (there were none there, alas) should become involved in their local communities, as that is the beginning to bring about change in the world. I can help but agree with him on all points.