It’s widely said that “If all you have is a hammer, everything looks like a nail.” What if the only tool you have is money? (More)
Exiting the Crisis, Part II – A Bigger Toolbox
This week Morning Feature extends Labor Day into Labor Week with a review of Exiting the Crisis, edited by David Coats and published by the European Trade Union Institute. Yesterday we considered the lessons of the 2008 crisis and the Great Recession, as learned (or not) by economists and policy makers. Today we look at the development model emerging in Latin America, and proposals for more labor-centered policies. Tomorrow we’ll conclude with a labor model for a sustainable 21st Century economy.
A Speedometer and a Gas Pedal
As we discussed yesterday, one flaw of market fundamentalism is its reliance on per-capita GDP growth as the only relevant measure of economic success. The carpenter’s adage of “Measure twice, cut once” won’t help if you measure the wrong dimensions. Per-capita GDP growth conceals more than it reveals, especially in developed economies where the average worker already has some access to modern goods and services. Unless policy makers include other economic indicators on the “dashboard” – such as income inequality, employment rates, life expectancy, economic security, and carbon footprint – an economy can seem to be doing well even while it and society collapse.
A related flaw of market fundamentalism is what Abraham Kaplan called the law of the instrument, most widely stated as “If all you have is a hammer, everything looks like a nail.” In market fundamentalism, that hammer is monetary policy, which most of us experience as interest rates. As labor researcher Andrew Watt notes:
Under the dominance of neoliberalism and the so-called Washington Consensus, monetary policy was, across the world, entrusted with (more or less) sole responsibility for price stability, defined in terms of a low rate of consumer price inflation, usually over the medium term. To achieve this goal, monetary authorities were granted one instrument: the short-term policy rate of interest.
Taken together, these flaws led to the Great Recession. Imagine a car with only a speedometer and a gas pedal. No steering wheel. No brake. Not even a windshield. That was the pre-crash economy, from the driver’s seat of market fundamentalism. The speedometer said we were moving along at a good speed, and government could tweak that by pressing down or letting upon the gas pedal. Steering is left to the “invisible hand of the free market.” If we were headed for a ditch or running out of gas, well, that’s part of the business cycle. Time for the little people to get out and push.
A better “dashboard” of economic indicators would help, but Watt argues that won’t be enough if monetary policy and interest rates remain the only instrument allowed. Watt and several other essayists propose that government and other stakeholders must also have other tools to guide economic activity: fiscal and tax policy, wage standards, financial market regulation, and engagement in corporate governance.
Another voice at the table
Market fundamentalists routinely complain about “intrusive” government, whose leaders We the People elect and whose policy proposals we examine and criticize at length. Instead they tell us to trust business, whose leaders we cannot choose and whose policies are usually decided in closed boardrooms. They tell us we can “vote with our wallets,” by whether we choose to invest in or work for their companies, and buy their goods and services. But not all of us get to vote and our votes are far from equal. Worse, our economic decisions are often based on too little information.
Yet we – individually and with little information – are supposed to be “the invisible hand” guiding the economic car. When it runs into the ditch, it’s our fault. In August 2007, almost a year before the collapse was widely discussed, market fundamentalists were already spreading the meme of “failing homeowners” at fault for the teetering housing market. But pass regulations requiring greater transparency in lending and financial markets, and market fundamentalists scream “government interference.”
A robust labor union movement, several of the authors in Exiting the Crisis argue, is one key to expanding both the “dashboard” of economic indicators and the controls available in the economic cockpit. As they are comprised of workers, labor unions are intimately connected to the industries in which they are organized. Unlike individual workers, labor unions have the resources to gain more information about both corporate and public policy. And unlike individual workers, labor unions have the collective clout to be another voice at the table when those policies are debated and decided.
A view from Latin America
Small wonder, then, that market fundamentalists actively campaign against labor unions, both here in the U.S. and around the world. Many of those campaigns – often benignly described as “flexible labor” policies – have been all but imposed on developing nations through international financial institutions (IFIs) such as the World Bank and International Monetary Fund. Developing nations in need of investment capital have long been ordered to reduce state involvement in markets, including labor rights.
But as Adhemar Miniero of Brazil’s Institute for Socioeconomic Studies writes in Exiting the Crisis, Latin American countries are exploring ways to break the grip of IFIs and restore “public policy space” for their own governments. Miniero notes that Latin American nations have a wealth of natural resources, enough to establish self-sufficiency and reduce poverty, if they have the freedom to channel their efforts to the needs of their people:
Another important element is the developing discussion of a new regional financial architecture. Argentina, Brazil, Paraguay, Uruguay, Bolivia, Ecuador and Venezuela are exploring the viability of a Banco del Sur (the Southern Development Bank). The Banco del Sur will rest on three pillars. The first is the simple idea of a development bank for projects in the region – a kind of regional development bank – able to overcome the national characteristics of an institution such as the BNDES (Brazilian National Development and Social Bank), and partially replace institutions such as the IADB (Inter-American Development Bank) and the World Bank. Most importantly, the Banco del Sur will not make funding dependent on the implementation of Washington Consensus policies as required by the World Bank or the IMF.
The second and third pillars are protecting members’ currencies against predatory speculation, and enabling regional trade in members’ currencies rather than U.S. dollars. Miniero concludes:
These are potentially epoch-making changes and for Latin America they are entirely novel. This is the first time that democratic governments in the region have worked together to find viable alternatives to the failed policies imposed in the past by the International Financial Institutions.
This would also allow Latin American nations to better support labor unions, giving ordinary workers a voice in economic policy.
Market fundamentalism proposes an economy – and by implication a government and a society – run by and for financiers, relying solely on the speedometer of GDP growth and the gas pedal of interest rates, expecting ordinary workers to get out and push when the car crashes. We can and must do better than that for ordinary workers, and robust labor unions are a key to that change.
And as we’ll see tomorrow, labor unions can also help us do better than for our environment.