Posts Tagged ‘Indiana’

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President-elect Donald Trump’s decision to bribe Carrier into keeping 800 manufacturing jobs in Indiana, instead of moving them to one of its Mexican plants, has met with opposition from mainstream economists, both liberal and conservative.

Clearly, it’s not about the size of the deal (although $7 million in incentives to keep less than one thousand jobs is a big deal). Carrier corporate parent United Technologies is still planning to outsource production that will eliminate 1300 jobs in Indiana. And 900 jobs make up a minuscule portion (0.17 percent, to be exact) of the total number of manufacturing jobs in that Midwestern state.*

No, mainstream economists’ opposition rests on other grounds. Justin Wolfers, for example, uses the silly analogy of a parking garage to defend the process of “creative destruction” and the idea that a “fluid labor market. . .is the secret of American dynamism.”

Think of the American economy as a 10-level parking structure or garage, where each car represents an active firm, and the seats in the car are the jobs available. A well-managed business like this is usually pretty full. But it’s also in a state of constant flux, with new cars entering as some people arrive, and previously parked cars leaving as others head home. Every hour, around a tenth of the cars leave the lot, just as a tenth of existing business establishments close each year and leave the labor market.

The deal at Carrier is akin to Mr. Trump’s intercepting a driver on his way to his car, and trying to persuade him to stay parked a little longer — perhaps by pointing to the enticing Christmas specials at the nearby stores.

Tyler Cowen, for his part, is worried that under a Trump administration, a kind of “crony capitalism”—where companies that are good to a presidency are rewarded—will prevail.

But it’s the response by Larry Summers that interests me the most, since he sees the “the negotiation with Carrier is a small thing that is actually a very big thing—a change very much for the worse with regards to the operating assumptions of American capitalism.”

Central to Summers’s argument is the distinction between two kinds of capitalism. One is “rule and law based,” which he believes is how American capitalism operates now.

Courts enforce contracts and property rights in ways that are largely independent of just who it is who is before them. Taxes are calculable on the basis of an arithmetic algorithm. Companies and governments buy from the cheapest bidder. Regulation follows previously promulgated rules. In the economic arena, the state’s monopoly on the use of force is used to enforce contract and property rights and to enforce previously promulgated laws.

The other is “deals based,” which is the world of New York City under Tammany Hall, of Suharto’s Indonesia, and of Putin’s Russia—and, it seems, under Trump.

Economic actors assume that they have to protect their property and do their own contract enforcement.  Tax collectors use discretion in assessing taxes.  Companies and governments buy from their friends rather than seek low cost bids.  Regulators abuse their power. The state’s monopoly on the use of force is used to enrich and satisfy the desires of those who control the apparatus of the state.

So, what’s the difference? Clearly, Summers is referring to variations on a theme: both are forms of capitalism.

As I see it, the difference between “rule and law based” capitalism and “deals based” capitalism comes down to whether the capitalist class as a whole or individual capitalists are the beneficiaries of state policies. In the former, the rules and laws, backed with the state’s monopoly on the use of force, are such that the capitalist class as a whole—although not necessarily any individual capitalist—has the right to appropriate the surplus and decide privately how to distribute it. They, as a class, are the winners (even when some of the individual capitalists lose out in competitive battles with other capitalists). In the latter, when deals are made with the government, once again backed by the state’s monopoly on the use of force, individual capitalists are picked out to be winners (or, if they’re on the wrong side of the deals, losers). But it’s still the case, even when ad hoc decisions are made, that the capitalist class as a whole is allowed to capture and distribute the surplus.**

In the end, maybe Justin Wolfers’s parking-garage analogy is the appropriate one. Under “rule and law based” capitalism, garage owners compete with one another under a general set of rules and regulations—and some will win while others lose. Under a “deals based” system, individual owners find themselves negotiating concessions with the government, which can decide who the individual winners and losers will be.

So, there are differences. But in both cases, the rest of us are forced to have the freedom to park our cars in garages that we neither own nor have any say in operating.

 

*As it turns out, Indiana is the state with the highest percentage of manufacturing jobs, at 16.8 percent. But the share of those jobs has fallen dramatically since 1990, when it was 24 percent.

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**Another difference between the two systems is how the surplus is distributed and then spent. Under a “rule and law based” system, the state captures a portion of the surplus via taxes and then spends it to create the conditions under which the capitalism system as a whole is reproduced, while under a “deals based” system, individual capitalists can bribe the state with a portion of the surplus they appropriate from their workers and then receive concessions that pertain to them but not to other capitalists. In both cases, however, the surplus is used to protect capitalists’ property and enforce contracts—all the while backed by the state’s monopoly on the use of force.

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The environmental justice movement was born in 1979, when Hazel Johnson founded the People for Community Recovery in order to engage in serious and long overdue repair work in Altgeld Gardens, a Chicago Housing Authority development located on the South Side of Chicago.

Ms. Johnson dedicated years learning about urban environmental issues and networking with other environmental groups. After conducting her research, she learned that many waste disposal companies surrounded Altgeld Gardens as well as manufacturing companies that produced and emitted thousands of pounds of pollutants into the air, water and land. PCR found that due to the heavy concentration of industry, low income residential communities on the Southeast side of Chicago were being exposed to substantial amounts of toxic chemicals that could be responsible for negative health impacts.

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Now, less than 10 miles away, in East Chicago, Indiana, the 1100 poor, mostly black residents of the West Calumet Housing Complex have learned that much of the soil outside their homes contains staggering levels of lead and arsenic. They’re now struggling to relocate to new homes (with a deadline of 1 November) after the mayor decided to raze the complex and the adjoining school.

The complex is home to mostly black residents and 670 children who have been playing in the grass that contains 19 times the maximum lead levels advised for bare soil in play areas. Parents in the complex are scrambling to test their children for lead poisoning as they also prepare to uproot their lives and leave their homes. . .

The complex is built just miles north of the USS Smelter and Lead Refinery, where lead and arsenic were used in industrial operations from the early 1900s until 1985. According to a report by the US Centers for Disease Control and Prevention, the areas within a half-mile north or northwest of the site were first referred to by the EPA as a potential Superfund site in 2004 as well as the actual USS Smelter location in 2006.

On top of that, the complex was literally on top of another smelting plant. The Anaconda lead smelter area was considered a lower priority due to its size. However, a letter from Copeland claims that when the Anaconda was demolished, it “may have simply been bulldozed, and that the West Calumet Housing Complex was then built on top of the demolition debris,” the Times of Northwest Indiana reported.

The double whammy of lead and arsenic contaminants had the EPA designate the area a Superfund site in 2009, meaning it became a high priority for the EPA to clean up.

However, a 2010 EPA report downgraded the urgency for the housing complex. The report found that because the numbers of children living with excessive blood lead levels had dropped and were “consistent with the national average.

 

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Indiana Governor Mike Pence has ordered state agencies to halt resettlement activities of Syrian refugees after the terrorist attacks in Paris.

Fortunately,

A Syrian family that fled the war-torn country in 2011 was welcomed Wednesday to its new home of Connecticut after Indiana officials objected to plans for the refugees to resettle in their state.

The married couple and their 5-year-old son had been living as refugees in Jordan and been waiting three years to resettle in the United States.

More than 30 governors have come out in recent days to say that their states will not accept refugees from Syria.

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According to the AFL-CIO Corporate Pay Watch, in the state of Indiana, the 2014 CEO to average worker’s pay ratio was 101:1 (for corporations in the Russell 3000) and 306:1 (for corporations in the S&P 500).

In the nation as a whole, the ratio (for corporations in the S&P 500) was 373:1, which surpassed the ratio for 2013 (331:1)—both of which were much, much higher than the ratio in 1980 (42:1).

The average CEO compensation of Russell 3000 companies in 2014 was $5,504,432. As it turns out, the industry with the highest CEO pay was Tobacco Products ($13,061,671), followed by Railroad Transportation ($12,526,083), Petroleum Refining ($12,502,981), Communications ($10,769,054), and Hotels ($10,058,029).

As for the Security and Commodity Brokers, Dealers, Exchanges, and Services industry (where financial institutions like Goldman Sachs are located), the average CEO pay was “only” $8,102,970—ranging from $105,295 (for Joe Mansueto of Morningstar) to $88,518,411 (for Mario J. Gabelli of Gamco Investors, Inc.).

Clearly, a large portion of the surplus workers create ends up in the pockets (and portfolios) of the CEOs of the nation’s largest corporations.

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In 2012, Indiana became the twenty-third state to adopt a so-called Right to Work law. Now, in another blow to unions, it has eliminated its Common Construction Wage system.

A Republican-backed measure that will repeal Indiana’s law setting wages for state and local government construction projects has been approved by Gov. Mike Pence. Mr. Pence, a Republican, signed the legislation Wednesday and said it would allow the free market to determine pay rather than government boards. Supporters estimate that the change will reduce project costs by as much as 20 percent by allowing more contractors to pay wages below union scale. Opponents dispute such savings will occur and say it will open the door for low-paying out-of-state contractors. The repeal takes effect in July.

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