EU-US trade deal will intensify race to the bottom

Corporations like Monsanto, Nestle, Toyota and the big pharmaceuticals are amongst the world’s most powerful economic actors hard at work promoting an increasingly complex web of bilateral deals aimed at opening up trade and driving down wages and conditions.

Their ultimate aim is a transatlantic deal between the European Union and the United States. For the time being, they will be satisfied that after four years of negotiations, the EU and Canada have signed a multibillion-dollar trade pact that will integrate two of the world's largest economies.

The deal removes some of the barriers impeding the expansion of the global corporations, and makes the Canadian marketplace the only one of the rich G8 countries with open borders to both the North Atlantic Free Trade Area and the European Union. The EU has recently completed smaller agreements with South Korea and Singapore.

The big prize for the corporations is a Transatlantic Trade and Investment Partnership (TTIP) between the United States and the EU. A second round of talks  scheduled for early October was one of the casualties of the US government shutdown. It is far from clear whether they will restart during the US Congress self-imposed three-month extension of its power struggle over government spending.

Signing a deal is considered as second best to the World Trade Organisation’s failed Doha round of negotiations. Though informal Doha talks continued last week in Bali, differences over agricultural imports effectively brought the process to a halt in 2008 after seven years of unresolved conflicts between developed nations led by the European Union, the United States and Japan, and the major developing countries - India, Brazil, China, South Korea, and South Africa.

On Monday, the three member states of the Russian-led Customs Union involving Belarus and Kazakhstan agreed with India to start preparations for their own free trade agreement, even whilst negotiations between India and the EU, started in 2007, remain stalled since a meeting earlier this year. 

Whatever the obstacles presented by national interests, the internal and external pressures on corporations to expand their operations in search of cheaper labour and bigger markets are irresistible. A new study from the Seattle to Brussels Network (S2B) reveals the corporate forces at work pushing for the proposed EU-US deal and warns of the likely damaging consequences for basic rights, workers and the environment.

Despite the ritual claimed objectives of jobs and growth, the experience of the 1994 North American Free Trade Alliance – the world’s largest trading bloc linking Canada, Mexico and the United States  – is precisely the opposite. US president Clinton promised 20 million US jobs. The result? A net loss of almost a million and a downward pressure on wages as jobs followed investment across the border to Mexico.

Harmonisation of EU-US regulations will be designed to ensure a race to the bottom. America’s refusal to ratify key International Labour Organisation standards and conventions would almost certainly be replicated in Europe, adding to the intensity of conditions resulting from the recession. In the name of “restructuring”, an EU-US deal would increase pressure for the adoption of US anti-union “right to work” laws.

In order to boost transatlantic trade, TTIP would remove environmental protection – including the European “precautionary principle” approach - through the proposed “mutual recognition” between EU and US environmental standards.

TTIP would ensure the progressive concentration of even greater economic powers in the hands of large agribusinesses at the expense of consumers and farmers, says S2B. Recently agreed restrictions on fracking could be overturned. National encouragement favouring local production would be outlawed. Resistance to GM foods would be defeated. S2B warns of the proposed deal:

“What emerges then is an understanding of TTIP as the political project of a transatlantic corporate and political elite which, on the unfounded promise of increased trade and job creation, will attempt to reverse social and environmental regulatory protections, redirect legal rights from citizens to corporations, and consolidate US and European global leadership in a changing world order.”

They’re not wrong.

Gerry Gold

Economics editor

The real cause of growing global inequality

At a global level, the top 1% (60 million people), and particularly the even more select few in the top 0.01% (600,000 individuals – there are around 1,200 billionaires in the world), the last 30 years has been an incredible feeding frenzy.

Inequality has grown dramatically in many countries. In the US the share of national income going to the top 1% has doubled since 1980 from 10 to 20%. For the top 0.01% it has quadrupled to levels never seen before.

This goes way beyond America. In the UK inequality is rapidly returning to levels not seen since the time of Charles Dickens. In China the top 10% now take home nearly 60% of the income. Chinese inequality levels are now similar to those in South Africa, which are now the most unequal country on earth. Even in many of the poorest countries, inequality has rapidly grown.

Globally, the incomes of the top 1% have increased 60% in 20 years. The growth in income for the 0.01% has been even greater. Following the financial crisis, the process has accelerated, with the top 1% further increasing their share of income.

The luxury goods market has registered double digit growth every year since the crisis hit. Whether it is a sports car or a super-yacht, caviar or champagne, there has never been a bigger demand for the most expensive luxuries.

These are some of the statistics collected together in “The cost of inequality: how wealth and income extremes hurt us all”. This is Oxfam’s contribution to an avalanche of analyses and opinions tumbling out in the days leading up to the gathering of the super-rich and their hangers-on in Davos this week.

Mostly they are aimed at trying to steer the discussion and debate amongst the rich and powerful leaders of the global corporations who make up the membership of World Economic Forum.      

But in its oh-so-gentle warning “Occupy protests demonstrated the increasing public

anger and feeling that inequality has gone too far”, Oxfam isn’t telling the WEF something it doesn’t know already. “Severe Income Disparity” is, after all, one of the top ten global risks featured in the report the WEF commissioned for itself.

There may well be quite a number of well-meaning, even enlightened multi-billionaires in attendance, in between visits to the ski slopes. After all, Bill Gates and Warren Buffet are way up there on the list of the world’s richest and having seen the writing on the wall they’ve committed to giving away truly huge amounts of money. Buffet is even calling for greater taxes on the rich.

Oxfam argues that extreme wealth and inequality is economically inefficient, politically corrosive, socially divisive, environmentally destructive, unethical and not inevitable. The charity lists a range of measures to reduce the gap that have worked in the past, and could work in the future.

But what they don’t do is to look behind the shocking statistics to explain why the disparity between rich and poor has grown so far and so fast in the last 30 years. If they did, they’d be looking at a profit-driven social, economic and political system which for its survival ensures that the ownership of the world’s resources is concentrated in fewer and fewer hands

In the good times, at least, the value of those resources expands by putting more and more people to work and paying them a declining share of what they produce until they are no longer able to afford the things they produce. And then, in the consequential bad times (like now), the same system is driven to destroy the surplus capacity that is the result of all that accumulation.

So yesterday, the International Labour Organisation reported that the number of unemployed globally is expected to pass the 200 million mark this year. The WEF has nothing to offer humanity and the anger that Oxfam refers to needs to be channelled into making the Davos gathering history.

Gerry Gold

Economics editor

Global economy heading from contraction to destruction

It’s no wonder that prime minister Cameron now sees no prospect of a “recovery” in the foreseeable future. He’s just stating the obvious.

Twelve European countries are in recession – meaning they have suffered at least two consecutive quarters of contraction: Belgium, Cyprus, the Czech Republic, Denmark, Greece, Ireland, Italy, the Netherlands, Portugal, Slovenia, Spain and the UK.

Germany, the so-called European economic powerhouse, contracted by 0.2% in the first quarter of 2012, after two quarters of less than 1% growth. In France, the growth rate has been less than 1% for four years. In the last three quarters it was 0.0%, 0.3% and 0.2%.

Recession is declining production. It finds its expression in rising unemployment.

The global employment situation is already alarming and shows no sign of recovery in the near future, according to the International Labour Organisation in its World of Work report 2012, optimistically sub-titled “Better jobs for a better economy”.

How do you even begin to comprehend the meaning of 25% unemployment in Spain, rising to 50% amongst its young people? 

These rates are already comparable with those the 1930s Great Depression when while unemployment in the US never rose above 25% in some countries of Europe it soared as high as 33%. In Germany the unemployment rate reached nearly 25% in 1932. In the UK in the same year it peaked at just over 22%.

And what of the future? The evidence shows that the contraction has hardly begun.

A survey out today shows that the eurozone's manufacturing sector slipped further into decline last month. Firms cut workers at the fastest pace in more than two years in April after new orders fell for the 11th straight month.

The ILO report shows that soaring unemployment is going hand-in-hand with a prolonged investment deficit – another sign that the crisis has entered a new phase.

With no hope of increasing consumption, large firms, seeing no possibility of profits from investment, are holding on to unprecedented levels of cash. In some economies, more optimistic small firms have difficulty accessing credit that would allow them to invest and create jobs, because banks, seeing no hope of a profitable return, aren’t lending 

As the effects of only recently adopted austerity programmes begin to bite, even taken together with monstrous injections of further credit from the European Central Bank, and their cumulative effects are seen, voices of alarm are beginning to predominate in the pro-growth camp.

Lawrence H. Summers, former US treasury secretary, knows a thing or two. This week he warned:

Once again European efforts to contain crisis have fallen short. It was perhaps reasonable to hope that the European Central Bank’s commitment to provide nearly a trillion dollars in cheap three-year funding to banks would, if not resolve the crisis, contain it for a significant interval. Unfortunately, this has proved little more than a palliative. Weak banks, especially in Spain, have bought more of the debt of their weak sovereigns, while foreigners have sold down their holdings. Markets, seeing banks holding the dubious debt of the sovereigns that stand behind them, grow ever nervous. Again, Europe and the global economy approach the brink.

The brink of what he doesn’t say.

This inevitable self-feeding spiral of contraction was triggered in 2007 when the capitalist economy reached the limits of five decades of growth funded by clouds of fantasy finance. But these five decades started from a low level. The tidal retreat of the 1930s left a mountain of surplus capacity exposed.

The BBC’s Stephanie Flanders economics editor quotes economists at Citi who say “it's been the worst four years for the UK economy in at least 100 years: worse than what happened in the 1920s and 1930s, and worse than anything in the 1970s and 1980s”. “Leaving aside the war”, she told viewers recently.

Since there’s no prospect of a recovery, and austerity is making a bad situation worse, the turn from contraction to destruction is next on the agenda for global capitalism. We need to learn the lessons from history about the political consequences of slump and depression – and quickly – to block the process through mass action aimed at a transfer of power to the 99% asap.

Gerry Gold

Economics editor

Beware the light at the end of the tunnel

Some optimists are saying that things are beginning to look up because of a fall in unemployment, particularly in the US but also to some small extent in the UK. Yesterday, those closer to the action put things in perspective.

Ben Bernanke, chairman of the US Federal Reserve, dampened the optimism that had seen stock markets rise. January’s fall in the unemployment rate to 8.3% “understates weakness in the U.S. labour market”, he said. “It is very important to look not just at the unemployment rate, which reflects only people who are actively seeking work. There are also a lot of people who are either out of the labour force because they don’t think they can find work or in part-time jobs.”

That’s another 15.1%. Bringing the total to more than 23%.

But what about the unexpected 243,000 increase in jobs? Bernanke wasn’t impressed. He’s keeping the interest base rate as near to zero as it can go – at 0.5%, until 2014 - to avoid a further brake on the economy. And even with inflation below the 2% target, the fact that it remains above the interest rate means that businesses are being paid to borrow. No wonder there’s a few jobs appearing.

Meanwhile, millions of families have already lost their homes and millions more are stuck with impossible mortgage payments on houses whose market value has dropped like a stone. As Bernanke put it “the amount of negative equity in the United States is about $700 billion (£447 billion), which is enormous and so there is no conceivable programme [that will get] everybody in the country above water.”

The US is only one part of the global capitalist economy, albeit a very large one, and the health of the two are inseparable. The increase in US jobs is supposed to reflect confidence that there’s a solution in sight for the eurozone crisis, but who’s kidding who?

The process of dismantling the monstrous, decades-long accumulation of credit and debt is underway. “They” call it “deleveraging” and tell us that we’ve all been living way beyond our means. The consequences are just beginning to appear.

Greece was gripped yesterday by another general strike as its government again postponed agreement to the €130 “bail-out” that would see wages slashed by another 20-30%, another 15,000 public sector jobs eliminated, and pensions chopped. People with good jobs, homes and cars last year, are this year homeless, hungry and cold on the streets.

Spain’s economy shrank 0.3% in the last quarter of 2011, and is expected to be officially in recession in 2012. France cut its growth forecast from 1% to 0.5%. Unemployment in the eurozone has been rising throughout 2011, hitting a new record of 16.5 million in December, and it is expected to continue rising throughout 2012. In the 27 EU countries, 23.8 million are unemployed – 9.9%.

And don’t forget Iceland, where the banking crisis hit early and hard. It is now on the brink of new catastrophe. Thousands of households face poverty and loss of property because of loans that, in some cases, have more than doubled as a result of the last currency crash and subsequent price inflation.

The International Labour Organisation says this in its Global Employment Trends 2012: “After three years of continuous crisis conditions in global labour markets and against the prospect of a further deterioration of economic activity, there is a backlog of global unemployment of 200 million – an increase of 27 million since the start of the crisis.”

Astonishingly, the ILO says that 400 million new jobs will be needed to avoid a further increase in unemployment. “Hence, to generate sustainable growth while maintaining social cohesion, the world must rise to the urgent challenge of creating 600 million productive jobs over the next decade.”

That is simply not going to happen. Even the ILO admits that a “dangerous third stage” in the world economic crisis is on the cards, noting that “policy space has been seriously limited, making it difficult to stop, or even to slow down, the further weakening of economic conditions”. The light at the end of the economic tunnel is actually a train crash in the making.

Gerry Gold
Economics editor.

Attack on living standards intensifies

Share and commodity prices are soaring as speculators endorse the global assault on living standards by corporations and governments.

Raising the VAT rate in Britain to 20% - its highest ever - comes as prices are rising out of control, further undermining the value of wages, salaries, pensions and benefits. The lower your income, the more badly affected you will be.

If the private sector employs any of the hundreds of thousands of workers now on their way out of public sector jobs it’ll be at much lower wages, with poorer working conditions and without pensions.

They’ll be in good company. Workers throughout the world are being forced to work harder for less money, whilst unemployment has soared, according to Wage Policies in Times of Crisis, a new report from the International Labour Organisation.

Since the crisis erupted in 2007 and 2009, the world’s 1.4 billion salaried workers have suffered a decline in wage growth - unlike the stratospheric bonuses enjoyed by traders on the global financial markets.

Across the world, real wage growth slowed from 2.2% in 2007 to 0.8% in 2008 and 0.7% in 2009. But real wages – taking inflation into account – actually fell in 12 of 28 industrialised countries in 2008 including Australia (-0.9%), Germany (-0.4%), Italy (-0.7%), Japan (1.9%), Mexico (-2.6%), S. Korea (-1.5%) and the US (-1.0%).

In 2009, real wages fell further in Germany (-0.4%), Mexico (-5.0%), Japan (-1.9%), and S. Korea (-3.3%), whilst workers in France (-0.8%), the U.K (-0.5%), and Russia (-3.5%), also saw wages fall. Wage cuts hit workers in Hungary, Thailand, the Philippines, Malaysia, Jamaica, Botswana, Bahrain, the West Bank and Gaza. Among the worst affected were those in the Ukraine, where wages fell by 8%.

In the decades leading up to the crash, though wages increased, workers had to work far harder for their money, and received a declining share of the value they added. During the debt-fuelled growth of powerful global corporations from 1980, the share of value added by factory workers that came back to them in wages fell in most countries.

Wage growth lagged far behind productivity increases in most countries of the world, but particularly the industrialised countries. In the US, for example, between 2000 and 2009, labour productivity grew by 13%, whereas real average wages grew by only 2.2%. In Korea, whilst real wage growth was much stronger – at 18.3% between 2000 and 2009 – it was still way below the growth in labour productivity of 27.4%.

With the global economy in recession, the attacks on wages are certain to accelerate as corporations and governments pursue the cause of profit. Computer manufacturer Dell, for example, is moving operations inland in China in search of even cheaper labour.

Price rises are eroding wages even faster. In Britain, food costs have risen 5.5% over the past 12 months, outpacing the overall inflation rate of 3.3%. Wheat prices have just reached record levels, which is forecast to increase the price of a loaf of bread.

Unemployment is soaring, with the jobless total over reaching 210 million worldwide, adding to the pressure on wages. The GMB union today forecast that 200,000 jobs would be culled between now and April as a result of cuts in local authority spending.

With many US states including California, the eighth largest economy in the world, joining much of Europe on the edge of a new financial meltdown, the prospects for a “return to growth” in the capitalist system look remote. What is certain, however, is that the exploitation of working people in every country will increase day by day.

Gerry Gold
Economics editor