Posts Tagged ‘Ecuador’

Dollar

The United States is increasingly becoming dollarized. That’s because, for decades now, those at the bottom have been left behind, forced to attempt to get by in ever more precarious conditions.

If you asked mainstream economists what dollarization means, they would immediately define it as a country officially adopting the currency of another for financial transactions. Often, of course, that currency has been the U.S. dollar, as was the case for Ecuador in January 2000. Recently, mainstream economists, such as John Cochrane, have been suggesting that Argentina today should follow the same policy in order to “insulate the private economy from government fiscal troubles.”

While that kind of dollarization comes up in the context of macroeconomic crises, generated by volatile capital flows and other economic shocks beyond the control of traditional monetary authorities, the dollarization I’m referring to here stems from a very different kind of crisis, one that is happening inside the United States.

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According to a new report by the Institute for Local Self-Reliance, the United States now has more dollar stores—including Dollar General, Dollar Tree, and Family Dollar—than Walmart and McDonalds locations combined.

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Moreover,

Alongside aisles lined with clothing and household goods, these small stores offer a narrow selection of processed foods, such as canned peaches and cereal, cookies and frozen waffles.

There are no fresh vegetables, fruits, or meats in most dollar stores. And yet, as limited as their offerings are, dollar stores are now feeding more Americans than Whole Foods is, and they’re multiplying rapidly.

The fact is, both groups of food retailers have grown rapidly in recent years. As of September 2017, Whole Foods operated 470 stores, with 448 stores in 42 states and the District of Columbia (and an additional 13 stores in Canada and 9 in the United Kingdom), up from 275 in 2008—mirroring the rising share of income going to the top 10 percent (the red line in the chart at the top of the post). Dollar stores have grown even more rapidly: Dollar General alone went from 8,362 stores in 2008 to 14,534 in 2017.

That dollarization of the U.S. economy is both a condition and consequence of the relative impoverishment of the bottom 50 percent of Americans, whose share of income (the blue line in the chart) has fallen from 19.4 percent in 1969 to 10.3 percent in 2014 (the last year for which data are available).

As the authors of the report explain, dollar stores are both a symptom of larger economic trends and a cause of additional economic despair. On one hand, they move into impoverished, low-income neighborhoods that have few if any other retail merchants and grocers.

Today the dollar chains are capitalizing on these conditions, much like an invasive species advancing on a compromised ecosystem.

On the other hand, the proliferation of dollar stores are also causing economic distress since “their strategy of saturating communities with multiple outlets is making it impossible for new grocers and other local businesses to take root and grow.”

What we’re seeing in the United States is growth at both ends of the income pyramid. Just over a year ago, Amazon announced that it was buying Whole Foods for just under $14 billion, the retailer’s largest acquisition ever. Clearly, the giant on-line retailer is betting on the continuing rise of inequality, especially the increasing share of income captured by the top 10 percent of Americans, not only for luxury food, but for all the other commodities Amazon sells.*

And the dollar stores? According to Garrick Brown, a researcher with the commercial real estate firm Cushman & Wakefield,

Essentially what the dollar stores are betting on in a large way is that we are going to have a permanent underclass in America. It’s based on the concept that the jobs went away, and the jobs are never coming back, and that things aren’t going to get better in any of these places.

That, unfortunately, is what dollarization means in the United States today.

 

*“Amazon did not just buy Whole Foods grocery stores. It bought 431 upper-income, prime-location distribution nodes for everything it does,” tweeted Dennis Berman, the Wall Street Journal’s financial editor.

 

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Special mention

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APTOPIX Ecuador Elections

Ecuador’s president Rafael Correa [ht: ke] has been elected to a third term in power.

What policies has your government pursued in order to reduce inequality?

Latin America holds the grim title of most unequal region in the world, and the Andean countries are the most unequal part of that region. This is why it was crazy to apply the neoliberal system, supposedly based on competition and the liberation of the market, in countries like Ecuador in recent decades. What competition were they talking about? It was a massacre. Now we are reducing inequality, and poverty with it, through a combination of four things. Firstly, making the rich pay more taxes. We have instituted a much more progressive taxation system, and people now actually pay their taxes—collection has doubled. These resources, together with oil revenues and the money saved by reducing the debt burden, can be devoted to education, health and so on. This is the second point: giving equality of opportunities. People no longer have to pay for healthcare or education, which were quite expensive for the poor—school enrolment cost $25 per child, but is now completely free; some children are given books and uniforms too.

Thirdly, governing the market and improving the labour system. The market is a reality that we cannot avoid; but believing the market should allocate everything is a different matter. The market needs to be governed by collective action. We are putting an end to forms of exploitation such as subcontracting. We are improving real wages—we have been able to close the gap between family incomes and a basic basket of consumption goods. Around 60–65 per cent of families could afford the basic basket at the start of our mandate, now we’ve reached 93 per cent, the highest in the country’s history. We’ve disproved orthodox economic theory, the idea that to generate employment one needs to lower real wages: here the real wage has risen substantially, and we have one of the lowest unemployment rates in the region—just under 5 per cent. We’ve also paid attention to the quality of employment, making sure businesses comply with labour laws. While raising wages for labour, we’ve reduced the remuneration for capital. In this country, if one proposed raising the minimum wage by a few dollars one was called a demagogue, a populist, but no one was surprised by interest rates of 24–45 per cent. We drastically lowered interest rates, to 8–9 per cent, for the corporate sector.

Fourthly, distributing adequately our social patrimony. We used to give away our oil: before the Palacio government, transnational companies would take the equivalent of 85 out of every 100 barrels and leave us with 15; now we have renegotiated the contracts, the proportions have been reversed. Another example: after the economic crisis of 1999–2000, many enterprises which were used as collateral for loans should have ended up in state hands; it was we who finally seized them. In the case of the Isaías Group, owned by the family of the same name, in 2008 we recovered around 200 enterprises. Other governments would probably have privatized them again, so they would end up in the same hands as usual. We’ve used the public banking system to provide finance so that the workers themselves can buy all or part of these enterprises.