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The Great Prosperity vs. The Great Regression

September 8, 2011 4 comments

The below infographic, posted by the New York Times on September 4 2011, illustrates a striking picture of the wealth gap in the United States and shows how the last three decades have greatly varied from the the previous three.  While not the only solution for this problem, higher taxes for the wealthy would be a good start to shifting back to a more sustainable and “happier” wealth gap.

As many studies have suggested, societies with smaller wealth gaps generally claim to be happier… even the wealthy!   As one Live Science article states, “If we care about the happiness of most people, we need to do something about income inequality.”  How about we start in this country by encouraging our senators and representatives (both Democrat and Republican alike) to end the tax breaks for the wealthiest Americans and set us on a course for a happier tomorrow.  After all, even Warren Buffet thinks we should Stop Coddling the Super Rich!

(click to enlarge)

Bill Marsh/The New York Times Sources: Robert B. Reich, University of California, Berkeley; “The State of Working America” by the Economic Policy Institute; Thomas Piketty, Paris School of Economics, and Emmanuel Saez, University of California, Berkeley; Census Bureau; Bureau of Labor Statistics; Federal Reserve. Copyright 2011 The New York Times Company.

Social Justice Reflection “Paper” 2

Looking back on the courses and reading this quarter, I have myself becoming much more interested in social justice issues abroad. Which I’m sure is, no doubt, the intention of the course! While there are plenty of social justice issues to be thinking about here in our local communities, we in the United States are much better off in a general sense, and have higher awareness, capacity and funding to address these issues (whether or not we actually do is another issue altogether).

One of the things that has been floating around my head the most, is the fact that “we” (industrialized, wealthy nations) are responsible, not necessarily for instigating the social justice issues abroad, but definitely for perpetuating them. I touched on this in my recent film reflection on the movie Life and Debt, which framed the situation as a modern type of serfdom.

“The worst part about this is that most citizens of developed countries don’t even know that their nation is taking advantage of those less fortunate.  We continue to donate to non-profit organizations that are doing good work in poorer nations so that we feel we are doing something positive, yet wonder why it is never enough.  That all the aid and money we send doesn’t end up having any lasting effect.  The reason is that developed nations continue to collect unimaginable amounts of money in the form of loans and interest that basically negate any amount of money that we could ever hope to spend in aid or charity work.”

Part of me looks at this issue with a sense of hopelessness… that regardless of the work that both non-profit humanitarian organizations, as well as for-profit social enterprises, do to facilitate a more socially just future, that we will never be able to help poorer nations pay off the unbelievable amounts of debt they are in. The only way that these nations will ever truly be able to focus on improving their own infrastructure, social programs, and general well-being of their citizens will be through eradication of national debt.

While I’m not too familiar with accounting and financing, especially on a national or global scale, it seems extremely strange to me that nearly every country in the world has national debt. To whom is all this money owed? It seems to me that a start to fixing this world-wide epidemic of indebted serfdom to other nations or corporations would be to start forgiving it. If every nation (at least of the majority that have national debt) agreed to forgive an equal amount of debt, spread amongst all of its debtors, would the world be a better off place?

To try to explain this to you in the way that I am thinking about it, I’m going to bring the scale down a bit… ok, maybe more than a bit… let’s say there are 5 people in a room. And each person in the room owes a total of $500 to the other people in varrying amounts. Now, rather than figure out who owes who what, wait for them to pay, and hopefully get some interest back, wouldn’t it be easier if they each just forgave, say, $400 of their own individual debt? It basically leaves everyone in the room in the same place they were. They are no longer going to collect money from their debtors, and forgo any interest they may have made on that loan, but now they don’t have the stress that may have been caused by constantly worrying about having to pay back their other lenders in the room.

While this type of plan makes a great deal of sense to me, I imagine it is much more complicated at a global scale, especially when you realize that corporations are involved as well. This might translate into a situation where there are additional people in the room to whom money may be owed, but may not owe anyone else money. They are obviously unlikely to forgive anyone of their debts, because they have nothing to gain in the process. And perhaps the reason that nearly every government is in debt is because corporations continue to take money from them. This brings us back to my first film reflection of this quarter, which was in response to the film The Corporation.

“I knew that corporations were mostly driven by the desire for constantly increasing profits, but couldn’t believe it went as far as the film said!  I had no idea that they were legally bound to do so.  It is no wonder why our planet and its people are suffering so that a select few corporate executives can pull in big profits.”

So then, with such a bleak outlook, what is one to do? Perhaps my model above isn’t a practical solution, but maybe there are models at other scales that could be employed. For example, microlending has been employed in helping individuals access opportunities they wouldn’t have been able to afford otherwise. While I don’t know that there is any hard evidence that it is entirely successful (there are a number of cases that obviously haven’t been) I think it is still in its infancy and has a fast growing fan base. Perhaps this is a financing model that could be employed on a larger scale. Local governments (perhaps of cities and towns) could put social improvement projects up for microfinancing at a global level. This type of system would generally have a lower interest rate than lending through the IMF and other large profit driven organizations. If the program became successful enough, as the world economy started to improve, small villages, towns, and municipalities throughout the world could end up borrowing their debt from thousands of individuals who support their ultimate empowerment and who are willing to offer reasonable terms on their loans.

A microfinancing project of this scale would take a tremendous amount of effort to get started (especially given the current state of the economy) but I could see it having a great impact for hundreds of thousands of communities around the world… who knows, maybe even some day entire countries!

Film Reflection: Life + Debt

February 28, 2010 1 comment

Life + Debt was a great film; especially when followed by a lecture from Fran Korten on the trouble of lending through the International Monetary Fund.

As with the other videos in the Social Justice course, I learned something new that I was completely unaware of… another way that developed nations like the U.S. take advantage of poorer nations through the International Monetary Fund and other international organizations.

I didn’t realize what a negative toll globalization has had on poorer nations.  When richer nations subsidize and sell goods on a massive scale to other nations, especially products like food, they deteriorate the local markets by selling goods at lower prices.  I had no idea that the United States was flooding the Jamaican market with produce, meat, milk powder and various other items at prices less than what they even cost to produce.

As one farmer in the film put it:

“When it’s ready for harvesting, you see imported potato, right in front of your home, being sold… It’s an insult to our dignity… not being able to produce and sell in your own market at home.”

The film explained the link between lower cost imports, and the requirements put on the Jamaican government by the IMF to open up to this type of international trade.  It is really unfortunate that the IMF provides loans not to help countries build and improve their infrastructure, but only to keep them indebted. Debt is a powerful mechanism that keeps not just individuals, but entire nations in a cycle of perpetual serfdom.  In order to pay off their debt, they must continue to borrow.  However, in order to continue to borrow, they must be open to outside trade which continues to deteriorate their economy, as local businesses shut down, unable to compete with lower cost foreign goods.

Not surprisingly, the United States came up with another “improvement plan” for Jamaica, promised to provide hundreds of individuals with employment opportunities — as they were, of course, no longer able to work in fields, dairies, farms, or other agricultural positions.

This idea, instituted in the 1980’s was known as the “Free Zone”  It was described in the film as follows:

“The Free Zone operates in a theoretical thing that is not even part of Jamaica.  It is a separate entity so the goods come in in a container and go through guarded gates. After it leaves the Free Zone, it goes back onto the ship, never, in effect, having touched the shores of Jamaica. So those factories are not liable to local controls. They’re not liable to things like income tax or certain duties, taxes, anything like that. The Free Zone is to give the opportunity for people to operate without the controls or the laws or the systems that normally govern a country’s operation.”

This zone was created, in essence, as a place to take advantage of cheap labor on a large scale.  With few other options, many Jamaicans went to work in these factories creating goods to be shipped back to the United States and Europe.  However, as time went on, the factories began to exploit the worker’s rights, requiring more work in less time.  Without any local oversight to protect the workers, they were at the mercy of the company in order to secure their paycheck… yet another example of modern-day serfdom.  If the employees had anywhere else to go, they would.  But with a declining economy, fewer jobs and less money, they had little choice.

And, because the “Free Zones” were provided to Jamaica as a “service,” they incurred a large amount of debt to provide these jobs to their citizens.  All the while, the corporations and countries that were operating in the Free Zone basically operated for free.  The low wages that they paid to the workers was far less than the amount of money that the Jamaican government is paying back at high interest rates.

However, as globalization continued and labor began a commodity to be sold at the lowest price, factories began closing down as cheaper labor was found in Mexica and Asia.  Now being shut out of the factories, many Jamaicans have nowhere to go for work.  Foreign companies continue to sell products cheaper than they can make locally, and now pull out of places like the Free Zones leaving them with little to no employment opportunities.

Michael Manly, a former Prime Minister of Jamaica states the problem quite clearly in how it relates to the country’s debt and its relationship to the IMF:

“Private capital is not going to come in and help you with your infrastructure. To help you develop an adequate education system. To help you develop a good health system. Private capital is not going to come and take a chance in developing your agriculture so that you can really do  a lot of the feeding of yourself. It is understandably only interested in how it can make a quick buck.”

Poor nations have no choice but to borrow from the IMF, because private lenders are only interested in making profits.  Unfortunately, this borrowing only leads to further globalization, more imports of foreign goods, and further degradation of what little economy they have.

“Look at every IMF country today and tell me which has a really good hospital service, which has a good education system, which has anything… All of them are trapped in that old colonial crisis of finance.”

The worst part about this is that most citizens of developed countries don’t even know that their nation is taking advantage of those less fortunate.  We continue to donate to non-profit organizations that are doing good work in poorer nations so that we feel we are doing something positive, yet wonder why it is never enough.  That all the aid and money we send doesn’t end up having any lasting effect.  The reason is that developed nations continue to collect unimaginable amounts of money in the form of loans and interest that basically negate any amount of money that we could ever hope to spend in aid or charity work.

We must come up with a better solution that gets to the root of the problem. Rather than continue to perpetuate a cycle of national serfdom, we must eliminate high interest rates on international borrowing and support programs that allow poorer nations to build their education systems and improve their own economies by allowing them the ability to provide their own goods and services without being undersold by subsidizes imports.

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