Is This Progress? This Is Progress.

What Is Kaputall?

Oxford defines Kaput as "broken and useless; no longer working or effective" - similar to our unbalanced economic system. This is a page dedicated to the intersection of capitalism and social, political, and environmental problems.

Tuesday, 21 May 2013

Credit and Economic Expansion

Recently there's been a wave of attention around a motto: "do you #smallenfreuden?". This craze was later revealed to be the work of Visa, supporting their cashback rewards. The basic premise is that for every dollar you spend, you get some portion (normally less than 1 per cent) back, paid to you as a dividend at the end of the year.

You can watch a commercial for it here. There are numerous versions but the idea is the same. Don't just use your credit card for large purchases, use it even to buy a doughnut or a magazine. Credit card ownership now is very high, often with people holding two or more cards in their name. With markets saturated, Visa is looking for a new way to increase its bottom line. The next logical step is getting people to use plastic for a higher proportion of their purchases.

This comes in the wake of a significant credit bubble. I've already written about the credit crisis before. Rates of consumer debt are ridiculously high in North America, and for the first time Canadians are spending more money than they make. The average family spends $1.50 for every dollar they bring in. It's not a zero-sum game, like everyone has to be breaking even all the time, but the desired balance from a sustainability standpoint is that you can't always be spending more than you make. It just doesn't last.

Credit cards have been on the defensive over the past few years. Television shows have exposed the outrageous debt loads that average middle-income North Americans have amassed. While credit companies have at most only be partially blamed, there has been more attention paid now to the fact that credit cards are at least an enabler.

Companies like Visa are fighting back, however. And it certainly makes decent sense from their perspective. The psychological imperative is pretty compelling for the average consumer. You can make 1 per cent cash back over the year, which for some people may amount to saving 100 dollars. It's no different than loyalty programmes like Air Miles, Petro Points, or any other such systems. You are rewarded for spending money in a certain way and there's a small prize in it for your sustained attention. These programmes are popular because people want to get perks. As I'm writing this I'm very aware of the fact that I have cashback on my MasterCard.

Studies show that when we feel like we're working toward a reward we tend to make poor decisions. People will spend more thinking they'll get more points, but the logical is rather nonsensical. Spend ten dollars more to get ten cents back. Often people get prizes they wouldn't otherwise want, thoguh with cash that's never a problem. Nevertheless it works, and Visa is upping the ante by suggesting that you put virtually all your purchases on your credit card.

It may be worthwhile to say that I think there's lots of merit to buying with a credit card. It allows you to review your purchases and to keep records. It's convenient and you never need to carry lots of cash. However, the downside is that you're spending money that, in many cases, you don't have. More importantly, if you don't come up with that money you can face penalties of up to 28 per cent per year compounded monthly. In case you are curious about what your card can charge you, check out the details on the back of your statement; it's mandated by law that they explain how long it'll take to pay off your balance with minimum payments.

Credit cards are tools. Inherently neither good nor bad. But knowing how to use them is simply not a skill that many people have. Many of my friends and students don't know about the basic components of debt, financing, or interest. I was myself shocked to find out that when I paid my MasterCard bill I was short about 10 per cent of the total and they are legally allowed to charge me interest on the entire value of my balance carried. Unbelievable. I know the information is readily available you go online to find it, but that's often insufficient help for people.

While the effects for individuals are rather clear, the effects for the economy at large are shrouded. The historical context is very interesting: 1929 and 2007 are remarkably similar events. Cultures that were built on credit eventually must collapse. Massive economic growth in the 1920s was rather similar to the 2000s, financed on credit and overproduction. Year-over-year the economy expanded, largely because people bought stuff with money they didn't have, meaning that the economy was growing based on debt. Another way to look at that is that the economy grew based on future contraction, and looking at the 1930s and now it's rather evident that this was in fact the case. Both 1929 and 2007 were shocks were credit bubbles burst and suddenly the debt structures, like pyramid schemes, were unveiled. The speculation in the stock market during the 1920s led to extreme overvaluation and eventually collapse. Sub-prime mortgage lending in the 2000s brought the global economy to a standstill more recently.

Fundamentally, whether we like it or not, we are bound by the realities of economics. We can not borrow against the future in the long run. The current federal stimulus package (for which the millions of dollars of advertising has been allocated) is an example of this "spend our way out of trouble" philosophy. Creating growth without equality can function in the short term, as it has since the introduction of neoliberalism in the 1980s, but once the growth is gone, the inequality is exposed with real consequences. I sincerely believe that creating a more even economic climate will be the only real sustainable way forward.

Saturday, 4 May 2013

Why Economics Counts

I have been staying on top of the most recent news with respect to the collapse of the factory in Bangladesh, and I've been thinking a lot about globalisation lately because I'm reading a terrible book about it called "The World Is Flat". So far over five hundred people have been killed in the disaster is South Asia. This is truly a watershed moment in the history of labour. People are talking about this sad story and throwing blame around all over the place. I think it's great that a discussion is taking place, but I'm concerned that people are participating without understanding a lot of the basics about economics and just how important they are to world issues.

This post will be straightforward. I will outline the basic driving factors that create a situation where exploitation is so widespread. I will then describe the tools that are used by various actors to meet their economic targets. Lastly, I will take a case study that highlights the factors, the tools, and finally the effects of the so-called "race to the bottom".

The race to the bottom is all about two driving factors: higher profits and lower cost. This drive to make the most money is an economic imperative because virtually all companies are owned by shareholders. By virtue of taking on financial risk through stocks, shareholders expect greater and greater rewards. This economic imperative results in disaster frequently, especially since in some jurisdictions it is illegal for management at a company to make decisions that will cost shareholders. Often these decisions would include cutting pollution or ending exploitative practices. The economic imperatives are important, but the cultural one is just as significant. The idea that we drive for more and more profit for the sake of it is highly problematic, especially when paydays come at a great expense for the planet and for billions of people around the globe.

There are numerous tools that have assisted in the ability of corporations to make outrageous profits. I'll mention each and try to tie them together.

Free trade has left a significant mark on economies. By reducing the barriers (tariffs or bans) that either protect entire economies or sectors within them, it has allowed the comparatively strong to push its way around. Much like vulnerable individuals need to be protected from abuse, vulnerable communities, organisations, and economies also need that protection.

Outsourcing is a direct result of free trade. Taking down barriers has allowed companies the latitude to relocate exceptionally easily in search of greater and greater profits. Free trade allows capital to move freely, but not individuals. Investments (like capital through stocks) and assets (like factories) can cross national boundaries, but labour is infrequently given the same freedom. Companies have moved their centres of production to locales where labour is ridiculously inexpensive, notably Bangladesh, Mexico, and Indonesia.

Deregulation amplifies the affects of free trade and outsourcing. Companies that relocate to poor nations benefit not only from the cheap cost of labour; they also reap the reward of minimal or non-existent laws regarding unionisation, workplace safety, and working hours, among other critical problems.

Corporatism is the last large piece of this puzzle. This ideology of creating larger more powerful businesses is highly problematic in and of itself. However, the erosion of the state as a broker of fairness only exacerbates the problem. Corporations are not and never have been democracies. It's virtually impossible to imagine them becoming democratic. Money talks, and in fact it shouts. Only the stakeholders in the company have a real say (directly or indirectly) in the affairs of the organisation. This is why alternative models like worker co-operatives are so important.

The effects of all these policies is simple at first glance. The common criticism is that it depresses wages. As much as I agree with this as a basic macroeconomic complaint, I'd like to note that it's much deeper. These policies, taken as a whole, are responsible for the nearly wholesale dismantling of private sector unions, the erosion of workers rights, the lengthening of the work week, the loss in benefits, and other "privileges" or "entitlements" that the western labour movement spent decades building. These of course do not compare to the disastrous working conditions in the developing world, but they are similar in shape.

Let's use the case in Bangladesh as a measuring stick. On 24 April a factory collapsed in the city of Savar that has up until this point killed more than five hundred people. While the causes of the collapse my likely never be disclosed, the reality is that free trade, outsourcing, deregulation, and corporatism lead directly to these types of situations where profits are pursued over safety. In the time since the collapse, Loblaws has taken significant heat for its hand in manufacturing there, though they are merely one of dozens of companies with contracts at the plant.

While the controversy rages on, Loblaws turned a messy public relations situation into a golden opportunity to differentiate itself from its competitors. Immediately following the disaster Loblaws was singled out as a retailer that purchased goods from the factory. Cries for boycotts emerged nearly instantaneously. The Pope spoke out against the abuse of cheap labour in the developing world. The case that Loblaws has effectively made thus far is rather simple: they don't know what's going on in the factories, but they perform audits to make sure that minimum safety requirements are met. The chances that Loblaws did in fact know what was going on are remarkably low. The chains of command these day are long and complicated. It is highly unlikely that anyone from Loblaws ever even read an audit about it as it was likely contracted and subcontracted.

Corporate Social Responsibility entails that businesses be accountable to the communities invested in the company, not just their shareholders. It's a corporate buzzword that, in reality, holds little water. The idea is wonderful, but it effectively leads to co-optation, where businesses pay copious lip service to a cause but in effect do virtually nothing. It's important to remember that the point of Corporate Social Responsibility is merely to protect the public image of the brand in order to make more money. Loblaws has done this by pledging a small sum of money to those immediately affected and talking up the notion that regulations will change.

One of my students asked me last week if slavery still exists. I told her it is an open question, something hotly debated by academics, journalists, and businesspeople alike. It is evident that it still exists, though the degree to which it does is unquantifiable. I come down on the side that slavery is widespread, but that its new form makes it look much less exploitative and a lot more like offering hope and social mobility. It's a shame that it takes a tragedy of this calibre to force even small action.

Wednesday, 1 May 2013

Terrorism and Citizenship

I had been spending a lot of time over the past two weeks talking to my students about terrorism. In the wake of the Boston Bombings there has been ample discussion about violence, ideology, and religion. Where they all intersect is interesting because it reveals the extent to which our society has some very strong opinions about who can and should citizens. This post will explore the implications of terrorism and citizenship.

I'll start by explaining that there has been a draft of a post about terrorism and citizenship sitting here for some time. I was going to write about the press concerning the terrorist attack in Bulgaria last summer which killed five Israeli tourists. Canadian citizens have been linked to bombings, and this has prompted some potential changes at Citizenship and Immigration Canada. This conversation, however, has been entirely overshadowed by the events that occurred in the United States. That conversation has, in turn, been cast aside by the arrests of two non-citizens who are accused of planning an attack on VIA passenger train.

The attack in Boston was a horrific event. I certainly do not endorse or condone the use of such violence against innocent civilians, but I do believe that it shouldn't be immediately condemned as incomprehensible and cowardly.

The reasons for such actions are complicated, but they are quite understandable. The two men behind the attacks, the Tsarnaev brothers, were from Chechnya, a region that has long been struggling to gain independence from Russia. The conflict is largely unknown in the West. The United States has kept relative neutrality, angering both the Chechen nationalists and the Russians who have been attacked in absolutely astonishing terror attacks. It is patently unclear why the Tsarnaev brothers, permanent residents of the United States, chose to strike in Boston, but the underpinnings are rather easy to imagine.

The second element regards the notion of cowardice. While I won't state that the assailants were valourous, I will state that our notions of cowardice are misguided. It is the average North American who is truly a coward, removed from the world of conflict and oppression. Systems of political, social, and economic hierarchy have produced an unbelievable amount of suffering around the world for westerners it is out of sight and thus out of mind.

I've written about citizenship before, and it's no secret that while I hold great disdain for Stephen Harper, the Conservative for whom I have the greatest frustration is Jason Kenny. His work at Citizenship and Immigration Canada has given him a significant profile. He's frequently in the media talking about foreign workers, the condemnation of international marriages, and of course Islam and terror.

The xenophobic attitudes of many in Canada aren't arbitrary; they are based on a perceived world where all the violence in the modern world is centred around conflict between religions. We live in a world where nationalist and political conflicts are supposedly over. The cause of violent conflict, we are often reminded, is religion. This is manifested in asymmetrical wars like Afghanistan and through acts of incredible terror such as the London bombings.

Citizenship is an often misunderstood concept. It's an abstract idea that someone can belong, in a legal sense, to a community at the state level. Unlike nationalism where inclusion and exclusion can be a significantly contentious and grey matter, citizenship is more matter of fact. Being a "Canadian" in a social sense can involve feeling a connection to the land, the people, the culture, or the institutions. However, citizenship is a legal-political concept that is supposedly black and white. Someone is a citizen of only one or two states and thus is bound by their laws and simultaneously protected as one. Discussions like "if only we had deported them sooner" are quite sad to see.

However, making changes to rules around citizenship that allow people to suddenly lose it defeats the purpose of having citizenship in the first place. It is designed as a special protection that cannot be arbitrarily revoked. The terrorist attack in Bulgaria exposed the xenophobic and Islamophobic attitudes of the Canadian government. It is frankly no surprise given that Jason Kenny has spoken out about other items connected to various others: Muslims, Arabs, and immigrants. The idea is relatively simple, everyone who comes to Canada has to assimilate. Even if they do this well, they will continue to be inferior to "normal" Canadians and will continue to attract the suspicion of the government as well as individual members of society.

This is symptomatic of the way in which racial profiling has destroyed lives, most famously with Maher Arrar. What's worse is that our ideas of crime in Canada are becoming more strict, with punishments doled out in place of working to understand and rehabilitate those who have "offended". The Boston Bombings are no exception. When newly elected Liberal leader Justin Trudeau mentioned that we should try to understand the root causes of such an act, Harper replied by stating that we should "condemn it categorically, and to the extent you can deal with the perpetrators you deal with them as harshly as possible. And that's what this government would do if ever faced with such actions".

Ultimately, I'm not convinced that an act of terror should result the loss of one's citizenship. That's a really outrageous penalty considering there will be numerous others that these people will face. These people could become stateless, they can be charged by any manner or organisations or states, and they could be handed over to be tortured. This is simply unacceptable.