Why Economic Criminals View Bangladesh as a Model for Workers Everywhere
Photo Credit: International Labor Rights Forum
Stay up to date with the latest headlines via email.
As I write, there are terrible reports indicating that the death toll in Bangladesh, where the building housing garment factories collapsed, is far greater than currently reported. The initial reports from a disaster often prove inaccurate in important ways so I urge caution and the need to confirm whether the newer reports are accurate.
The higher death toll is not what prompts this article. I write to discuss the intersection of control fraud, austerity, globalization, labor “reform,” and economic development. Control frauds, for those new to the term, is a type of fraud in which the person controlling a seemingly legitimate entity uses it as a “weapon” to defraud the unsuspecting public. The targets of fraud are often employees.
The Road to Bangladesh
The most interesting event I have participated in is the Kilkenomics Festival in Kilkenny, Ireland held in early November. It is an economics festival in which people with expertise in finance (dressed in jeans) partner with professional comics (dressed in suits) to discuss serious economic issues. The organizers sell roughly 3,000 seats to non-wonks from Ireland and Europe. The comedians keep us honest and minimize the jargon.
I appeared in six or seven events last November, including interviews with the BBC and Ireland’s Pat Kenny on RTE. One of the subjects we discussed repeatedly was the intersection of austerity, “free trade,” and labor “reforms.” I made the point that the EU had a single game plan for the Eurozone’s southern periphery. They inflicted austerity, forcing the Eurozone into a gratuitous second recession and the southern periphery into an über-Depression with unemployment rates significantly worse than the largest European economies generally suffered during the Great Depression. (Cynically, and the EU is a past master in cynicism, the EU refers to the result as a “mild recession.” It also avoids the word “austerity” like the plague and calls it “pro-growth.”)
What is far less well known in the United States is that Berlin has also demanded (successfully) that the “troika” (European Commission, the European Central Bank, and the IMF) insist that the nations of the periphery engage in labor “reforms.” “Reform” is a word chosen for its positive connotations and its generality. There is certainly some variant of a labor “reform” that would be desirable in any nation. Unfortunately, what the troika means by labor “reform” is sharply lower working class wages.
The excuse for forcing lower working class wages is that doing so is essential to increase exports. The troika’s recipe for the periphery’s recovery is for every nation of the periphery to become a significant net exporter.
A nation with a sovereign currency can use three strategies to speed its recovery from a recession or a depression. The three strategies are not mutually exclusive. The nation can adopt fiscal stimulus, an aggressive expansion of the money supply, and it can devalue its currency (which makes it far easier to become a net exporter). A nation that adopts the euro, however, must give up its sovereign currency and its ability to employ any of these recovery strategies. It cannot employ a significant stimulus program because doing so would violate the (oxymoronic) “Stability and Growth” pact. It cannot expand the money supply because the ECB is controlled by German principles, which are based on the assumption that hyper-inflation lurks behind every corner. It cannot devalue its currency because it no longer has a sovereign currency.
The only strategy left in the tool chest for a nation that adopts the euro and is mired in recession or depression, therefore, is to become a substantial net exporter. There are two obvious problems with this sole remaining strategy. One, not all nations can be net exporters. One nation’s export is the other nation’s import. The more Germany is a net exporter the harder it is for other euro nations to be net exporters.