Reply #79: World Trade Needs a Global Cartel for Labor (Loooong piece)

[54anickel]

http://henryckliu.com/page38.html

According to the current terms of global trade under dollar hegemony, the penalty for a non-dollar economy that uses dollar foreign capital is a low domestic standard of living to support a high return denominated in dollars on foreign capital. Since dollar profits for foreign capital cannot be used in the local non-dollar economy, such profits must leave the domestic economy in one form or another, either through direct repatriation, or in economies with currency control, through central bank foreign exchange reserves. Thus there are no recycling economic benefits to the non-dollar domestic economy from dollar profits earned by foreign investment. Such is the pugnacious nature of foreign direct investment (FDI). Under finance globalization, the unregulated competition among non-dollar economies for dollar-denominated FDI condemns domestic living standards to negative growth. The quest to profit from the lowest wages through cross-border wage arbitrage has been the driving force behind trade globalization, reducing trade from a process of gaining comparative advantage between trading economies to one of reinforcing absolute advantage for capital at the expense of labor for the benefit of global capital denominated in dollars. Cross-border wage arbitrage can hardly be classified as a proper division of labor in the Smithian sense, which implies rising wages through specialization. Structural systemic low wages are exploitation, not specialization of labor. Such exploitation need to be resisted by the formation of a global labor cartel such as an Organization of Labor-intensive Exporting Countries (OLEC).

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In Ricardo’s view, poverty is not the result of the rich getting more than the poor, but the result of economic underdevelopment due to lack of savings. This has been the position adopted by most market liberals. Yet it is a fantasy to claim the existence of a free market for labor or that unemployment can provide savings for the unemployed. The labor market remains the most politically regulated commodity market in the international political economy where disparity of mobility between capital and labor is extreme. At the height of the high-tech bubble, Alan Greenspan, chairman of the US Federal Reserve Board, testified before Congress that if low-wage workers overseas cannot move to fill jobs in the developed economies due to immigration constraints, the jobs will have to migrate to the workers in the developing economies to avoid inflation. The new Iron Law of Wages now operates in the globalized economy on cross-border wage arbitrage to produce low prices for consumer products in the high-wage economies that fewer and fewer consumers can afford because of rising job loss in high-wage economies. Countries like China and India are trading in their progressive socialist programs for Dickensian industrial hell while advanced economies like the US have become voluntary victims of home-grown economic imperialism that comes with dollar hegemony. There was never a more ripe time to revive labor solidarity as now. The most promising solution appears to be a global cartel for labor in the form of OLEC.

A Global Cartel for Labor Is Needed to Reverse Anti-labor Terms of Global Trade

The year of US independence, 1776, was a year of grand treatises in economics and politics. Adam Smith published his Wealth of Nations, the Abbé de Condillac his Commerce et le Gouvernement, Jeremy Bentham his Fragments on Government and Tom Paine his Common Sense. British mercantilism had led to a rebellion by the colonists in North America to establish a home-grown liberal republican government dedicated to laissez-faire, a statist policy against monopolistic mercantilism and in opposition to British “free-to-exploit” trade in the name of free trade. Today, job protection by governments should not be mistaken as trade protectionism. As long as a world order of nation states exists, economic nationalism must be the basis of international trade. Trade must enhance national wealth for all participating nations, not merely to enrich global transnational capital at the expense of universal economic democracy. National wealth is directly dependent on high wages. In a global economy, the decline in wealth in some nations will cause the decline in wealth in all nations. Terms of trade that depress wages are economically regressive, and should be reordered by a global cartel for labor.

Markets are not natural phenomena. As Karl Polanyi (1886-1964) pointed out, markets are recent developments in human history. Capitalism is a historical anomaly because while previous economic arrangements were "embedded" in social relations, in capitalism, the situation is reversed - social relations are defined by economic arrangements. In human history, rules of reciprocity, redistribution and communal obligations were far more frequent than market arrangements. Furthermore, not only does capitalism not exhibit historical humanistic values, its ascendancy actually destroys such values irreversibly.

Free markets are an oxymoron. Government is fundamentally involved in markets through the very creation and enforcement of property rights, an artificial socio-political concept without which markets cannot exit. Government regulation is also indispensable in preventing the natural emergence of monopolies in unregulated markets. Free markets for labor do not exist because of a disparity of market power between employers and employees. Workers must work to earn current income to feed their families daily. Subsistent wage means workers have no savings to get them through rainy days. Entrepreneurs can delay investing their capital until the market price of labor is right. Hunger quickly destroys labor’s market power and lowers the market price of labor to near or even below subsistence levels. Thus the prevalent monopoly of capital needs to be countered by a cartel for labor.

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Modern Capital Comes From Worker Pensions

As for accumulation of capital, modern finance has shown that the bulk of capital comes nowadays from the pension funds of workers, which is the deferred income of currently employed labor. In the US economy, no one saves voluntarily any more, not because a change in the US character, but because with low wages and rising asset values not registered as inflation, no one can afford to save, having to spend all income plus accumulating debt just to manage. This is why the entire economy is operating on debt. Most savings now come from pension funds payment into which the average worker has no legal choice but to contribute with company matching from his/her first day of work, with benefits not collectable until some three decades later.

Pension funds like CalPERS (California Public Employee Retirement System), not even a private sector fund as it is all government employees, are huge and they are the new institutional capitalists. CalPERS alone holds shares in 1,600 US companies with assets of $167 billion in 2004. It owns so much equity and bonds that in many cases, such as The Disney Company, they cannot sell their share holdings without adversely affect the price of the rest of their holdings, much like foreign central bank holdings of dollars. Pension funds are forced to stage shareholder revolts within corporate governance to change ineffective management to get the market price of its share-holdings back up. That is how Michael Eisner, Chairman of Disney, lost support of 45% of the voting shares and had to resign his chairmanship. CalPERS also opposed the reappointment of former Citicorp Chairman Sanford I. Weill, and Chief Executive Officer Charles O. Prince as company directors. CalPERS holds 26,712,930 Citigroup shares out of 5.05 billion shares outstanding. It said Citigroup would be "better served" by having an independent director in the place of Mr. Weill. It withheld votes for six other Citigroup directors. It also withheld support from Warren E. Buffett, who was running for re-election to the Coca-Cola Company’s board. The fund also withheld votes for directors at ten other companies: Sprint, Wachovia, PG&E, Burlington Resources, Charter One Financial, Mellon Financial, South Trust, State Street, Stryker and Washington Mutual. Yet no pension has gone on record to disinvest from corporations that outsource their clients jobs.

These pension funds operate like insurance companies, spreading out their risk through the theory of large numbers by hiring an army of fund managers among whom they expect 5% would lose money, 40% would break even with the SP500 and 50% will beat the SP500 and 5% would do spectacularly with thousand-fold returns. Every year, they fire the underperforming 5% and bring in a new crop of replacement fund managers. Also the actuary is such that pensioners die and stop collecting retirement benefits way before the principle are consumed, so the funds get bigger and bigger over time, like a giant mushroom in a financial science fiction. These pension funds are like a virus, feeding on workers whose retirement money they control for their own institutional obsession on growth at the expense of worker job security. If the US ever privatizes social security, all US workers will be enslaved by these institutional tyrants.

In the new economy of finance capitalism, with capital coming also from labor; and the high return on labor's retirement funds from cross-border wage arbitrage is robbing the same workers of their jobs. As Pogo used to say: the enemy, they are us. The new capitalism uses worker capital to exploit workers while financiers skim off huge profits without having to risk any capital of their own. Investment bankers routinely make between $2-30 million in annual income by “creating value” out of thin air, arranging IPOs, mergers, and structured finance deals that pension funds, known collectively as institution investors, buy into. An institutional salesman on Wall Street is one who talks pension funds into investing in deals like the one that Orange County in California fell into that eventually led to its bankruptcy in 1994. The salesman is the power behind every Wall Street firm. The salesman does not even dream up the deals which are put together by bright young graduates in math and physics augmented with MBAs, who are paid only $1-2 million working 18 hour days that burn them out in a few years. That is how New York condos can sell for $10 million at US$3000 per square foot. And none of these financiers save. They are all leveraged to the hilt out of pride, not necessity, for they all know it’s not how much you own, but how much you owe that counts. Die with all the debt you can accumulate. Only fools die with savings.

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