Tag Archives: Financial crisis

If we want more companies like Patagonia, we need laws to enforce it

If we want to get past “woke capitalism,” this is what it’ll take to get companies to an equitable relationship with both workers and society.
By Kristin Toussaint – A day after the August NBA strike in response to yet another police shooting—this time, Jacob Blake, in Kenosha, Wisconsin—Uber’s head of diversity and inclusion, Bo Young Lee, tweeted out the company’s new billboard campaign. “If you tolerate racism, delete Uber,” the sign read. Lee added, “Now is the time for all people and organizations to stand up for what is right.”

Corporate America had already been examining its complicity in furthering systemic racism and inequality in the wake of a summer rife with police killings of Black people. Uber, for its part, was one of many companies standing up for what’s right—so long as it didn’t have to change too radically. Several weeks earlier, Uber had committed to anti-racism education for riders and drivers, established that it had no tolerance for discrimination, and pledged $1 million toward criminal justice reform. Even so, the company had committed more than $30 million to overturn AB5, the California law that requires its contract drivers be treated as full-time employees. In other words, Uber was arguing against the single biggest thing it could do to foster equity: give its drivers, which some estimates have put at two-thirds non-white, the stability of healthcare and benefits. (When asked for comment, Uber pointed to previous statements on how it’s fighting AB5 because its workers want flexibility.)

Uber’s moves embody what’s known as “woke capitalism,” where businesses respond to societal issues such as systemic racism with representational gestures, from sobering statements to strategic donations. For some people, this is enough. Or so executives hope.

But for others, society’s multiple, overlapping crises have created an opportunity to make companies more accountable—and, ideally, more innovative. “There’s basically no one arguing for shareholder primacy anymore,” says Julius Krein, founder of the public-policy journal American Affairs. “[Corporate leaders] don’t want to leave the current model because they don’t know what comes next, and they’re afraid.” A movement argues that they don’t have to be.

For a glimpse of the future, business leaders need only look to the companies that have best handled the tumult of 2020. They were the ones that were “woke” long before this year. Patagonia’s decision to pay employees while stores were shuttered during lockdowns was not the first time it put workers first: The company has offered on-site childcare for more than three decades. The call Ben & Jerry’s made to dismantle white supremacy following the police killing of George Floyd was not a bandwagon move: The ice cream brand had supported a congressional bill that would study the effects of slavery and discrimination and recommend reparations. Both companies have built reputations as the rare institutions that care about their employees, the communities in which they operate, and the environment. more>

Budget 2020: promising tax breaks, but relying on hope

By Peter Martin – Tax cuts aren’t the half of it.

The personal income tax cuts promised in the budget will cost A$17.8 billion over four years.

The measures aimed at supporting businesses – the temporary instant tax write off of capital investments, the temporary ability to use losses to reduce previous tax payments, the JobMaker hiring credit and the enhanced apprentice wage subsidy — will cost $26.7 billion, $4.8 billion, $4 billion and $1.2 billion.

That’s a total of $36.7 billion — a subsidy for private businesses without precedent.

The clumsy wording in the part of the budget that sets out strategy says the aim is to “drive sustainable, private sector-led growth and job creation”.

‘Driving private sector-led growth’

Driving private sector-led growth doesn’t quite make sense, but it’s easy to get a handle on what it means.

By itself, business isn’t in a position to drive much.

Even with the budget measures – even with the Australian Taxation Office allowing most businesses to write off everything they spend on equipment over the next two years – non-mining business investment is expected to collapse 14.5% this financial year and bounce back only 7.5% the next. more>

A Message From the Future II: The Years of Repair

Can we imagine a better future? If we stop talking about what winning actually looks like, isn’t that the same as giving up?
By Naomi Klein – Another Covid-19 lesson we wanted to highlight had to do with why the abuses that long predated the pandemic suddenly received so much more attention during it. It’s a lesson, perhaps, about the relationship between speed and solidarity. Because for those of us privileged enough to self-isolate, the virus forced a radical and sudden slowdown, a paring and editing down of life to its essentials that was undertaken in a bid to stop the virus’s spread. But that slowness had other, unintended effects as well. It turns out that when the deafening roar of capitalism-as-usual quiets, even a little, our capacity to notice things that were hidden in plain view may grow and expand.

There is no one answer or simple explanation for why we find ourselves in the throes of the deepest and most sustained public reckoning in a half-century with the evil that is white supremacy. But we cannot discount the “solidarity in vulnerability that the pandemic has generated,” as Eddie Glaude Jr. put it, while discussing his brilliant and highly relevant biography of James Baldwin, “Begin Again.” In forcing all of us to confront the porousness of our own bodies in relationship to the vast web of other bodies that sustain us and the people we love — caregivers, farmers, supermarket clerks, street cleaners, and more — the coronavirus instantly exploded the cherished, market-manufactured myth of the individual as self-made island.

For all of these reasons and more, as we searched for a unifying principle that could animate a future worth fighting for, we settled on “The Years of Repair.” The call to repair a deep brokenness has roots in many radical and religious traditions. And it provides a framework expansive enough to connect the interlocking crises in our social, economic, political, informational, and ecological spheres.

Repair work speaks to the need to repair our broken infrastructures of care: the schools, hospitals, and elder care facilities serving the poor and working classes, infrastructures that failed the test of this virus again and again. It also calls on us to repair the vast damage done to the natural world, to clean up toxic sites, rehabilitate wild landscapes, invest in nonpolluting energy sources. It is also a call to begin to repair our stuff rather than endlessly replace it in an ever-accelerating cycle of planned obsolescence — what the film refers to as “the right to repair.” more>

Why Modi’s government is not up to the task

By Prabhat Patnaik – A striking aspect of the 24 percent decline in India’s GDP in the first quarter of 2020-21 compared to the previous year’s first quarter is the decline by 10.3 percent in public administration, defense, and other public services. This is a sector where the GDP is estimated not by the “output” of the sector but by the government expenditure incurred under these heads. The decline in the GDP originating in this sector therefore means a decline in public expenditure. This is surprising for two reasons: first, it shows that government expenditure, instead of being “counter-contractionary” has been “pro-contractionary”; second, during the lockdown caused by the pandemic, one would expect government spending on health care to go up, and thereby raise the overall government expenditure, instead of the fall we are actually observing.

When there is a lockdown, and output contracts, it is incumbent on the government to increase its expenditure. The rise in expenditure reduces the degree of contraction; and it puts purchasing power in the hands of the people so that many of them can maintain their consumption without getting into debt. Even if the government is timid enough not to increase its expenditure, at least it must maintain its expenditure to limit the contraction in GDP; but a fall in government expenditure during the period of a lockdown, which accentuates the overall contraction, is just the opposite of what the government should have done.

True, in such a period, there is a fall in government revenue; but to reduce government spending because of this, so that the fiscal deficit does not increase, is the height of folly. It worsens the contraction of the economy and greatly increases the sufferings of the people. This, however, is exactly what the Indian Prime Minister Narendra Modi’s government has done.

What is more, the Modi government is persisting with this folly. Some may find this accusation strange since on the very first day of parliament the government has come with a supplementary demand of around $32 billion, which, it may be thought, represents substantial additional expenditure. But this impression is wrong. These supplementary demands are meant to cover the expenditure that the government had already announced earlier to cope with the pandemic, which was over and above the budgetary provisions. This already announced expenditure, we know, was quite trivial, amounting altogether to no more than about 1 percent of GDP. True, these supplementary demands will revive India’s flagship program for rural employment scheme under the Mahatma Gandhi National Rural Employment Guarantee Act 2005. This program had come to a virtual standstill because of lack of funds, but such revival will only entail what has already been promised, not any further expansion. more>

How Leaders Can Regain Trust in Untrusting Times

By Gregory P. Shea – Google employees protest an attempt to silence their activism. Facebook employees stage a virtual walkout. Amazon employees protest over workplace safety, and a company vice president resigns over their firings. Employees at Target and Walmart protest as well. Print and broadcast media struggle with various policies, and prominent journalists resign at the The Philadelphia Inquirer and The New York Times. The Washington Post reports on research findings that the COVID-19 pandemic will undermine trust in government for decades.

Isolated data points? Maybe. A sign of the times? Perhaps. Regardless, leaders should take note.

First, leadership is a relationship. No relationship, no leadership. One or more people allow another person to influence their behavior in a manner or direction that the other wishes. That influence can and does come from a wide variety of sources. But regardless of source, no such relationship means no followers, and no followers means no leaders and no leadership. As one Wharton Executive Education participant put it: “We refer to a person who sets the direction for our travel as a ‘leader.’ We refer to a person traveling without followers as ‘a bloke out for a walk.’”

Second, societal and organizational elites have, for decades, chiseled away at their relationship with followers. Systematic shredding of long-standing “do your job, keep your job” cultures in the last 20 to 30 years of the 20th century eviscerated the psychological contract between employer and employee, even as employers complained about the remarkable demise of employee loyalty. Since 1978, CEO pay has increased 1,000%, compared with 11.9% for average workers. CEOs now make 278 times as much as the average worker, up from 20 times in 1965. Trust in government has fallen from about 70% to under 50% over the same period.

Few visible elites paid any appreciable price in the wake of the financial crisis (unlike after the S&L crisis of the 1980s and 1990s), and those who did were frequently seen loading up their wagons with gold before heading out of town and into “retirement.” more>

Updates from Chicago Booth

How effective were stimulus checks in the US?
By Áine Doris – As the United States was hit with COVID-19, Congress passed the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act in an attempt to soften the blow from widespread lockdowns and business closures that led to soaring joblessness.

The CARES Act—which included one-time cash payments of $1,200 or more to households starting in April—bolstered incomes and spurred spending as promised, although the effect was uneven, suggests research by Northwestern’s Scott R. Baker, Columbia’s R. A. Farrokhnia, University of Southern Denmark’s Steffen Meyer, Columbia’s Michaela Pagel, and Chicago Booth’s Constantine Yannelis. The researchers conducted an almost real-time review of how a significant slice of the population used the direct payments.

The stimulus prompted an immediate, general uptick in household spending, the researchers find, but households with cash on hand tended to save their stimulus checks, while those without cash on hand spent almost half their checks within 10 days.

The researchers tapped newly accessible data from SaverLife, a nonprofit organization that helps families develop long-term saving habits. The SaverLife data provided detailed, high-frequency information including day-to-day inflows, outflows, and balances of anonymized individual bank accounts. This enabled the researchers to analyze the impact of the CARES payments on households, taking into account changes in overall income level, cash flow, and existing liquidity.

Using data on more than 6,000 US households for April, the researchers calculated households’ marginal propensity to consume―the proportion of every dollar received that they spent from the moment they received the CARES payments.

“We wanted to understand the multiplier effect of CARES payments―how when the government gives you a dollar, you spend it and effectively give someone else a dollar, who then goes on to spend it, giving someone else a dollar, and so on,” Yannelis says. “This is how fiscal stimulus works, so you have to look at people’s marginal propensity to consume to assess the multiplier effect.”

The researchers find a sharp and immediate response as payments started hitting bank accounts. Within the first 10 days, households spent an average of 29 cents from every dollar received. The bulk of this spending was on food, rent, and bills, most likely in response to the shelter-in-place directives and supply-chain restrictions. The spending couldn’t significantly benefit the restaurant, services, and hospitality industries because they were largely shut down to slow the spread of the pandemic. more>

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Why Garbagemen Should Earn More Than Bankers

How more and more people are making money without contributing anything of value.
By Rutger Bregman – Thick fog envelops City Hall Park at daybreak on February 2, 1968. Seven thousand New York City sanitation workers stand crowded together, their mood rebellious. Union spokesman John DeLury addresses the multitude from the roof of a truck. When he announces that the mayor has refused further concessions, the crowd’s anger threatens to boil over. As the first rotten eggs sail overhead, DeLury realizes the time for compromise is over. It’s time to take the illegal route, the path prohibited to sanitation workers for the simple reason that the job they do is too important.

It’s time to strike.

The next day, trash goes uncollected throughout the Big Apple. Nearly all the city’s garbage crews have stayed home. “We’ve never had prestige, and it never bothered me before,” one garbageman is quoted in a local newspaper. “But it does now. People treat us like dirt.”

When the mayor goes out to survey the situation two days later, the city is already knee-deep in refuse, with another 10,000 tons added every day. A rank stench begins to percolate through the city’s streets, and rats have been sighted in even the swankiest parts of town. In the space of just a few days, one of the world’s most iconic cities has started to look like a slum. And for the first time since the polio epidemic of 1931, city authorities declare a state of emergency.

Still the mayor refuses to budge. He has the local press on his side, which portrays the strikers as greedy narcissists. It takes a week before the realization begins to kick in: The garbagemen are actually going to win. “New York is helpless before them,” the editors of The New York Times despair. “This greatest of cities must surrender or see itself sink in filth.” Nine days into the strike, when the trash has piled up to 100,000 tons, the sanitation workers get their way. “The moral of the story,” Time Magazine later reported, “is that it pays to strike.”

Rich without Lifting a Finger

Perhaps, but not in every profession.

Imagine, for instance, that all of Washington’s 100,000 lobbyists were to go on strike tomorrow. Or that every tax accountant in Manhattan decided to stay home. It seems unlikely the mayor would announce a state of emergency. In fact, it’s unlikely that either of these scenarios would do much damage. A strike by, say, social media consultants, telemarketers, or high-frequency traders might never even make the news at all.

When it comes to garbage collectors, though, it’s different. Any way you look at it, they do a job we can’t do without. And the harsh truth is that an increasing number of people do jobs that we can do just fine without. Were they to suddenly stop working the world wouldn’t get any poorer, uglier, or in any way worse. Take the slick Wall Street traders who line their pockets at the expense of another retirement fund. Take the shrewd lawyers who can draw a corporate lawsuit out until the end of days. Or take the brilliant ad writer who pens the slogan of the year and puts the competition right out of business.

Instead of creating wealth, these jobs mostly just shift it around.

Of course, there’s no clear line between who creates wealth and who shifts it. Lots of jobs do both. There’s no denying that the financial sector can contribute to our wealth and grease the wheels of other sectors in the process. Banks can help to spread risks and back people with bright ideas. And yet, these days, banks have become so big that much of what they do is merely shuffle wealth around, or even destroy it. Instead of growing the pie, the explosive expansion of the banking sector has increased the share it serves itself.

Or take the legal profession. It goes without saying that the rule of law is necessary for a country to prosper. But now that the U.S. has 17 times the number of lawyers per capita as Japan, does that make American rule of law 17 times as effective? Or Americans 17 times as protected? Far from it. Some law firms even make a practice of buying up patents for products they have no intention of producing, purely to enable them to sue people for copyright infringement.

Bizarrely, it’s precisely the jobs that shift money around – creating next to nothing of tangible value – that net the best salaries. It’s a fascinating, paradoxical state of affairs. How is it possible that all those agents of prosperity – the teachers, the police officers, the nurses – are paid so poorly, while the unimportant, superfluous, and even destructive shifters do so well? more>

Yes, someone is to blame

A pandemic may be represented as a ‘natural disaster’. A global depression is however the product of ideology and powerful political actors.
By James K Galbraith and Albena Azmanova – An unprecedented economic crisis is descending on Europe. It is, the president of the European Central Bank, Christine Lagarde, declared recently to the European Parliament, the worst in peacetime.

In the United States, the Federal Reserve Bank reports the worst decline in output and employment in 90 years. The World Bank warns that the world is on the precipice of the deepest slump since 1945—with up to 60 million people pauperized, many in countries already poor.

Lagarde hurried to clarify that this vast human tragedy was, in her view, ‘of no one’s fault or making’—as if a medical crisis could metamorphose into a social crisis all by itself. The catastrophe is however the work of ideas, of politics and of policies.

In the US, testing was botched, delayed and is still not available on demand. In France, vast stocks of personal protective equipment, accumulated for the H1N1 epidemic, had been sold off, stored badly and ruined. In the United Kingdom and Sweden, the authorities thought first to let the virus run free, seeking ‘herd immunity’ at the implicit price of many thousands dead.

These were not mere mistakes or simple accidents: they were political decisions. They were consequences of an ideology built over decades. There were sins of commission and sins of omission—to invoke a pair of concepts developed by Hannah Arendt—their result a fragile economic structure, marked by precarity and primed for collapse.

The sins of commission came first. From the late 1970s, political leaders throughout the west embarked on the formidable project which came to be known as neoliberal capitalism. Deregulation, decentralization, privatization, balanced budgets and tight money were key elements of the ‘Washington consensus’ advanced by national elites and the international financial institutions, especially the International Monetary Fund. Public services and welfare programs were slashed, including critical expenditures on public health.

The initial goals were to break trade unions and curtail inflation, albeit at the expense of core manufacturing capability. more>

Updates from Chicago Booth

US small businesses have little cushion against prolonged disruptions
By Michael Maiello – Even in a growing economy, most small businesses in the United States lack sufficient reserve capital to endure a prolonged business interruption, so a natural disaster, pandemic, or any condition that interrupts normal operations can quickly lead to job cuts and business failures. If the government wants to keep small businesses afloat, its support must be enacted quickly and generously and be easy to access, according to a survey of 5,800 small businesses conducted early during the COVID-19 outbreak in the US.

University of Illinois’s Alexander W. Bartik, Chicago Booth’s Marianne Bertrand, and Harvard’s Zoë Cullen, Edward Glaeser, Michael Luca, and Christopher Stanton have been studying small-business behaviors, decision-making, and attitudes. Their research provides a detailed look at the financial health of small businesses heading into COVID-19 and underscores the need for fast and easy-to-access government interventions when businesses are interrupted.

The researchers conducted their survey as the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law in late March and implemented in April. By then, small-business owners, who employ 48 percent of American workers, had already cut their workforces massively, a sign of their precarious finances even ahead of the outbreak. Three quarters of survey respondents, who are all members of Alignable, a small-business network, reported they had cash on hand to cover expenses for no more than two months.

Survey respondents who believed the pandemic would last longer were more pessimistic about their companies’ chances of surviving. The researchers estimated that business closures could lead to almost 33 million job losses if the pandemic were to last four months, 35 million if it were to extend six months. more>

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Protection against hostile takeovers: rethinking the free movement of capital

Should free movement of capital any longer be sacrosanct when it leads to predatory takeovers and regional inequalities in a globalized economy?
By Susanne Wixforth and John Weeks – ‘Is China buying up Europe’s south?’ Such headlines have become frequent since the 2008 financial crisis. The Chinese takeovers include Greece’s biggest harbor in Piraeus, companies operating terminals in Romanian and Spanish harbors and the airport in Frankfurt-Hahn. And bear in mind that the United States accounts for 38 per cent of global foreign direct investment (FDI), Chinese capital just 2.2 per cent—though its share is increasing, especially via investments in strategic infrastructure as part of its ‘belt and road’ initiative.

European infrastructure and companies operating in the single market are open to the world because of perhaps the foremost of the famous ‘four freedoms’—the free movement of capital. The orthodox-economics claim is that free movement ensures the optimal allocation of capital.

The globalization of capital flows, in combination with digital communication, enables capital markets to be in motion around the clock. The result is an unprecedented market interdependency, with a simultaneous loss of state regulation and increased vulnerability to crises. The second global crisis of the 21st century caused by the Covid-19 pandemic has led to a dramatic drop in share prices and company valuations.

This collapse facilitates takeovers by foreign companies. Does the European Union need a different interpretation of free movement of capital, to protect European key technologies and strategic infrastructure?

Fourteen EU member states have adopted regulation to control FDI. The German government is considering use of its coronavirus-linked Economic Stabilization Fund for company ownership to protect against hostile takeovers, while the French government has created an investment fund (Lac d’argent) for that purpose. more>