Why the fixation on the Dow?

One out of nine workers in the United States is either employed or underemployed. Together, they number 17,136,000 men and women.

Did you see that number flash on your TV screen? And how often, if ever, have you seen a TV chart on how the real median income of American families dwindled in the past eight years while CEO compensation soared?

But you can hardly turn on a TV without learning the latest movement of the stock market. You see repeated shots of the Dow’s fluctuations in real time, as though the board on Wall Street were monitoring the nation’s health.

Even as an indicator of the economy’s health, the Dow index is very imperfect. The media obsession with it is a distraction that obscures how the economy is hurting ordinary American workers.

Remember, most people (51.4 percent of American households) don’t own stock in any form, and two-thirds of those with stock own less than $5,000 worth. The media track their interests superbly well. But what about the 66 percent of the country’s civilian population 16 and over who are in the labor force? That adds up to 154,000,000 men and women. Yes, many own some stock, but all of them, including the workers who own stock, depend on their jobs for their earnings, not on Wall Street.

The Economic Policy Institute regularly issues analytical reports based on labor data collected by the U.S. Bureau of Labor Statistics and other sources. The information in the first paragraph is drawn from an October 15 EPI “snapshot” report.

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Giving People Some Voice in Policy

John Ruggie, the UN general secretary’s special representative for business and human rights, has appointed Gus Ryder, general secretary of the International Confederation of Trade Unions (ITUC) to a global leadership group to advise him how to ensure that businesses worldwide respect human rights.

The group’s 15 members also include Kofi Annan, former UN general secretary and Mary Robinson, the former president of Ireland who also served as UN High Commissioner for Human Rights and is now executive director of the Ethical Globalization Initiative. The 13 other members are leaders from business, diplomacy, and civil society around the world.

Ruggie, a professor at Harvard’s Kennedy School of Government, has a UN Human Rights Council mandate to provide concrete guidance for governments, businesses, and other “stakeholders” on how they can make the UN Universal Declaration of Human Rights more universal in the global economy.

Ryder, 52, born in Liverpool, heads the world’s largest trade union body with a membership of 168,000,000 working men and women in 155 countries. The biographical list distributed with the September 22 announcement says that Ryder’s work “is based around the ITUC’s belief that our globalized world requires effective global governance.”

The UN has long debated how active it should be in promoting human rights in business. Ruggie succeeded in ending the stalemate in June this year, when he won the unanimous endorsement of the Human Rights Council for a three-year project seeking to embed human rights in the policies and practices of multinational corporations.

He succeeded because he made special efforts to consult business leaders across the globe. His new leadership group, which includes a former secretary general of the International Chamber of Commerce, Maria Livanos Cattaui of Swtzerland, continues that outreach.

(For background on this UN initiative, click here for one of my blog articles. For others, see “categories” in the right-hand column of this page, and click on John Ruggie.)

Is there a lesson here for Secretary Paulson?

U.S. Secretary Treasurer Paulson would be wise to follow Ruggie’s example. Paulson, a former top dog on Wall Street, is leading the bailout of Wall Street. In any other situation, that would be considered a conflict of interest. And it is indeed a conflict of interest, but it is unfortunately made necessary by the longtime practice of letting groups of wealthy insiders monopolize the nation’s financial policy.

The current crisis is evidence of how badly they have blundered. Appointing an advisory group of independent outside experts might be a start at making sure that the Paulson team dedicates itself exclusively to the national interest.


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What the Presidential debates have ignored

While the administration and media focus on the Wall Street debacle, they ought to pay attention also to the steadily deteriorating situation on Main Street. They should start cracking down on unfair trade practices that already cost Americans 5,600,000 jobs last year, and are costing millions more this year.

“Ending unfair trade practices can significantly improve the fundamentals of the domestic economy and restore sustainable broadly shared growth of jobs and income,” says Robert E. Scott, director of international programs of the Economic Policy Institute (EPI).

A new briefing paper authored by Scott reports that the net job loss due to the massive trade deficit has jolted all 50 states and the District of Columbia. The hardest hit of all, with a 7.5 percent loss in employment, is Michigan , where the McCain campaign recently suspended its presidential campaign.

“Elimination of the U.S. trade deficit over the next few years can create millions of new jobs in manufacturing and other trade-related sectors of the economy and help the domestic economy recover from the devastating effects of the current downturn,” Scott wrote in the October 2 briefing paper.

Strangely, the U.S. unbalanced trade policy did not come up in the two Presidential debates so far. Are the moderators filtering out the public’s questions?


You can find the text of the EPI briefing paper at http://www.epi.org/content.cfm/bp222.

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It’s a crisis of trust

Fear, fear in general. and a deep fear of losing more. That’s how I hear some TV pundits diagnose the continuing bad news from the stock and credit markets.

But I agree with the market analyst who blamed the present crisis on a lack of trust. How can you do business with others when you have found that you can’t really trust them?

The $700,000,000,000 bailout is supposed to prime the system’s pump, but can it do so if the public doesn’t trust those who have run, and still run, the system that they so badly mismanaged.

Nearly 10 years ago Free Press published Trust: the social virtues and the creation of prosperity by Francis Fukuyama. Economic life, Fukuyama maintained, depends on social trust, the unspoken, unwritten bond between fellow citizens that facilitates transactions and underpins collective activities. He warned that the U.S. drift toward greedy, overly self-centered individualism holds more peril for the future of America than any competition from abroad.

I wonder how many of our best business schools have their students, the future business leaders of America, read a book like Trust. Or like Lying by Sissela Bok.




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A Transnational Cultural Lag

The number of people working for foreign subsidiaries of multinational corporations headquartered in the United States and other industrialized countries has nearly quadrupled in the past quarter century. The increase—from 21,524,000 to 81,615,000 workers—includes only people on payrolls, not the uncounted hundreds of millions more employed by the contractors and subcontractors of the multinationals.

Those figures are reported in the latest annual report of the United Nations Conference on Trade and Development (UNCTAD), titled “World Investment Report 2008: Transnational Corporations and the Infrastructure Challenge.” As is common outside the United States, UNCTAD prefers the term transnational corporations to multinational corporations.

It’s not just a semantic quibble. Transnational expresses the realities more fully.

Take General Electric, the world’s top non-financial corporation (ranked by assets). It has 765 foreign subsidiaries or affiliates that have 164,000 employees and a total of $442,278,000,000 in assets. Thus, GE is more than a company with separate branches located in a multitude of countries (160 in all). GE is a cross-border production, marketing, and distribution system whose global presence and activities are better captured by being called a transnational. (For most of the data, click here, and scroll to table 3.)

Ditto for the estimated 79,000 transnationals in the world and the 790,000 foreign affiliates they control. Each contributes to an assortment of global production, marketing, and distribution chains, in which the foreign affiliates hold at least $68,716,000,000 in assets—33 times more than they held 25 years ago.

Those foreign affiliates also exported $5,714,000,000 in goods last year—eight times more than in 1982. The UNCTAD report does not include how much of this was intra-firm trade, or cross-border trade between two units of the same transnational corporation. Government agencies in the past have estimated that intra-firm trade accounts for 40 percent of international trade. (It follows that cross-border trade within GE and other U.S. based transnationals accounts for a large chunk of the U.S. trade deficit—a fact ignored in official U.S. news releases on trade imbalances.)

UNCTAD reports are rich in significant data that are seldom mined by the media. Very little of the above information and analysis is contained even in UNCTAD’s own news releases on the new 411-page report, which was issued on September 29.

The trends outlined in the report are examples of the magnitude of global changes in the past quarter century, changes that, together, make the 21st century global economy different in kind, and not just in degree, from the 20th century international economy.

Have the rules of this new world been adapted to that great change? That’s a fundamental question. It is not addressed in this report.

Human Rights for Workers has addressed the question before, and will again. Briefly: Yes, global rules have been improved to protect the rights of businesses and their organizations. No, they still do not cover the rights of working men and women and their organizations. The international labor market, for most of the world’s working men and women, is still a lawless jungle.

A University of Chicago sociologist, the late William Ogburn, had a term for this sort of situation: cultural lag, meaning the tendency whereby a society’s values and habits fail to keep pace with technological and other forms of significant material change. He held that cultural lag often caused social “disequilibrium” until society adjusted to the changes of modernization. That failure to adapt explains why globalization has fueled so much distrust and so many protests.

Congress will soon hold hearings on the financial debacle and the $700,000,000,000 in public money allotted to rescue Wall Street. Those hearings—and the needed curative legislation—must not ignore the transnational cultural lag and the disequilibrium it causes.


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The Lingo and the Ideas Behind the Bailout

Imagine this. You find yourself in a theater watching a drama in which the actors speak various foreign languages that you don’t understand. You’d walk out, right?.

That imaginary situation helps explain people’s reaction to the great Bailout drama. It’s all Greek to them. They’d walk out, except in this case they -– we -- can’t. We’re not in the audience but on the stage.

We are all participants, one way or another, in this real-life crisis, but few among us really understand the lingo or the ideas it hides. So what’s happening is a mystery to us. Yet we are faced with a clear warning from the highest authorities of the land: there will be dire consequences to all of us if we don’t agree to their solutions.

We are told to trust the proposed $700,000,000,000 proposal of the President and his experts from Wall Street. But these are the very guys that brung us here. No wonder people are frustrated and negative and skeptical.

At least, and at the very least, we need to get some demystification of the insider jargon of the authorities. So I was glad to see the Washington Post start to make a contribution toward filling that urgent need. On September 26 the Post business section ran two useful features:

--“A Glossary of Terms Behind the Terms Behind the Headlinez,” with definitions of 17 terms, and
--“Q&A: The Crisis and Your Pocketbook,” with answers to two questions, the second one from a homeowner who is keeping up mortgage payments but asks “Why should my tax money be used to help fix a problem I did not create?”

On September 28,I wrote the Post ombudsman, Deborah Howell, a letter of congratulations on this initiative. I resisted telling her it’s about time. In a positive mood, I suggested that both columns should run at least once a week, because the crisis won’t be over soon.

I made these other suggestions on the Glossary of Terms:

First, define more terms. For example, derivatives, credit market, bond market, securities, asset backed securities, Federal Reserve Bank, highly leveraged, credit crunch, and other terms that are being used on TV and in your paper. Make distinctions: e.g., the difference between the capital market and the credit market.

Second, continue defining the terms you've already explained, expand them, and reword some to make them more understandable. For example, liquidity. Use a definition that explains a bank chairman's statement [which the Post quoted]: "We're drowning in liquidity."

Also, provide an Internet way for readers to question your definitions and ask for others.

Regarding the Question and Answer column, I wrote:

I hope that you answer more of the questions that you encourage readers to submit to your Website [washingtonpost.com/yourmoney]. Surely there are more than two. And don't shy away from answering questions more fully. For example, your answer to question 2 neglects an important point: If Congress fails to approve a solid rescue plan, the resulting crash would hurt even families who keep up their mortgage payments, according to the Bush administration. If you don't believe the Bush administration, explain why you don't.

To be responsible, you ought to acknowledge that it was a failure of strong regulation that has brought us to the brink. The guilty should be held responsible, yes, but most of what they did was perfectly legal because no laws outlawed such actions.

I should have added these points, but didn’t:
-- The unethical, corrosive behavior is still legal.
-- And it is being taught in some of our best business schools, according to Peter Morici, economist at the University of Maryland. In fact, on his own shelves, he has a copy of a text being used, he said in a TV interview.
-- How about an investigative report on how the ideas taught in our business and economics classes contribute to financial crises, past, present, and future?

Update: A September 30 email from Ombudsman Howell said: “I’d like to put this in my weekly memo to the staff. OK?”

OK.

Further update: For a good discussion of the Bailout quandry, see the Weblog of economist Dani Rodrik here.

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