Posts Tagged ‘laws’

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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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It’s been more than seven years and yet we’re still haunted by the spectacular crash that took place on Wall Street.

The big banks have been fined but no one, at least at or near the top, has been prosecuted let alone gone to jail.

The question is, why?

We know why the Eric Holder and the Justice Department didn’t go after the top executives: they were afraid of undermining the fragile recovery.

What about the Securities and Exchange Commission (which, remember, was set up during the first Great Depression to stem the fraud and abuses on Wall Street)?

We now know, thanks to Jesse Eisinger (based on a treasure-trove of internal documents and emails released by James A. Kidney, a now-retired SEC lawyer) that in the summer of 2009 lawyers at the SEC were preparing to bring charges against senior executives at Goldman Sachs (over a deal known as Abacus) but they never took the case to trial.

He thought that the staff had assembled enough evidence to support charging individuals. At the very least, he felt, the agency should continue to investigate more senior executives at Goldman and John Paulson & Co., the hedge fund run by John Paulson that made about a billion dollars from the Abacus deal. In his view, the SEC staff was more worried about the effect the case would have on Wall Street executives, a fear that deepened when he read an email from Reid Muoio, the head of the SEC’s team looking into complex mortgage securities. Muoio, who had worked at the agency for years, told colleagues that he had seen the “devasting [sic] impact our little ol’ civil actions reap on real people more often than I care to remember. It is the least favorite part of the job. Most of our civil defendants are good people who have done one bad thing.” This attitude agitated Kidney, and he felt that it held his agency back from pursuing the people who made the decisions that led to the financial collapse.

While the SEC, as well as federal prosecutors, eventually wrenched billions of dollars from the big banks, a vexing question remains: Why did no top bankers go to prison? Some have pointed out that statutes weren’t strong enough in some areas and resources were scarce, and while there is truth in those arguments, subtler reasons were also at play. During a year spent researching for a book on this subject, I’ve come across case after case in which regulators were reluctant to use the laws and resources available to them. Members of the public don’t have a full sense of the issue because they rarely get to see how such decisions are made inside government agencies.

Goldman ended up paying a fine of $550 million in 2010, and agree to another $5-billion fine in a separate case with the Justice Department earlier this month. But no Goldman executive has ever been brought up on charges.

Kidney’s own view is that

the SEC, its chairman at the time, Mary Schapiro, and the leadership of the Division of Enforcement were more interested in a quick public relations hit than in pursuing a thorough investigation of Goldman, Bank of America, Citibank, JP Morgan and other large Wall Street firms.

Although the emails and documents I produced to Pro Publica stemming from my role as the designated (later replaced) trial attorney for the Division of Enforcement are excruciatingly boring to all but the most dedicated securities lawyer, even a lay person can observe that the Division of Enforcement was more anxious to publicize a quick lawsuit than to follow the trail of clues as far up the chain-of-command at Goldman as the evidence warranted.  Serious consideration also never was given to fraud theories in any of the Big Bank cases stemming from the Great Recession that would better tell the story of how investors were defrauded and who was responsible, due either to dereliction or design.

All of which gives lie to the idea that the Obama administration has been tough on Wall Street. According to Kidney,

The large fines obtained by the Department of Justice, while a short-term pinch, are simply a cost of doing business.  Relying on fines to penalize rich Wall Street banks, which, after all, specialize in making money and do it well, if not always honestly, is like fining Campbell Soup in chicken broth.  It costs something, but doesn’t change anything in the way of operations or personnel.

Despite billions in fines representing many more billions in fraud, the enforcement agencies of the United States have been unable to find anyone responsible criminally or civilly for this huge business misconduct other than a janitor or two at the lowest rung of the companies.  Nor have they sought to impose systemic changes to these banks to prevent similar frauds from happening again.

Yessir, according to the Obama administration, Goldman Sachs, JP Morgan, Bank of America, Citibank and other institutions made their contributions to tearing down the economy, but no one was responsible.  They are ghost companies.

And that’s why we’re still haunted, more than seven years later, by the crash of 2008.

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For more than a week, vast nocturnal protest gatherings that are rising in number—from parents with babies to students, workers, artists, and pensioners—have spread across France [ht: jf] in a citizen-led movement that has rattled the government.

Called Nuit debout, which loosely means “rise up at night”, the protest movement is increasingly being likened to the Occupy initiative that mobilised hundreds of thousands of people in 2011 or Spain’s Indignados.

Despite France’s long history of youth protest movements – from May 1968 to vast rallies against pension changes – Nuit debout, which has spread to cities such as Toulouse, Lyon and Nantes and even over the border to Brussels, is seen as a new phenomenon.

It began on 31 March with a night-time sit-in in Paris after the latest street demonstrations by students and unions critical of President François Hollande’s proposed changes to labour laws. But the movement and its radical nocturnal action had been dreamed up months earlier at a Paris meeting of leftwing activists. . .

The idea emerged among activists linked to a leftwing revue and the team behind the hit documentary film Merci Patron!, which depicts a couple taking on France’s richest man, billionaire Bernard Arnault. But the movement gained its own momentum – not just because of the labour protests or in solidarity with theFrench Goodyear tyre plant workers who kidnapped their bosses in 2014. It has expanded to address a host of different grievances, including the state of emergency and security crackdown in response to last year’s terrorist attacks.

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There is no federal protection for women workers who are pregnant. Such as Angelica Valencia [ht: sm], who was fired after she requested permission from her employer not to be forced to work overtime.

The United States did pass The Pregnancy Discrimination Act of 1978, which prohibits discrimination “on the basis of pregnancy, childbirth, or related medical conditions.” But the Act does not require employers to do anything to accommodate the needs of pregnant workers (although the Supreme Court is set to hear a case, Young v. United Parcel Service, on “whether, and in what circumstances, the Pregnancy Discrimination Act. . .requires an employer that provides work accommodations to non-pregnant employees with work limitations to provide work accommodations to pregnant employees who are ‘similar in their ability or inability to work'”).  And the Pregnant Women’s Fairness Act, H.R. 1975 and S. 942 [pdf], which was referred to Committee on 14 May 14 2013, has no chance of being enacted anytime soon.

So, seventeen separate states and cities, such Illinois and New York City, have had to pass their own legislative protections. Still, many workers don’t know their rights, and often don’t have the means to demand compliance. And their employers often disregard the laws that do exist.

Respecting a woman’s pregnancy at work is also a social and racial equity issue. According to the National Women’s Law Center, low-wage women workers, many of them primary income-earners, often have more physically demanding duties, such as lifting boxes or prolonged standing. Pregnancy-related discrimination complaints have been concentrated in the highly gendered service sectors, like retail sales and hospitality. Many physically strenuous jobs like domestic work and home healthcare services are disproportionately done by immigrant and black women.

A female executive of the Lean In class probably wouldn’t be reprimanded for wanting to lean back a bit with a foot rest at board meetings. But women workers at Walmart had to wage a national campaign for months before the company changed its policies to ensure reasonable pregnancy accommodations (and many say the policy remains only spottily enforced).

Update

There’s good news. And bad news.

The good: Angela Valencia’s bosses [ht: sm] have offered her job back. The bad: the United States still doesn’t have a Pregnant Workers Fairness Act (see original post).

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