World Politics and Global Inequality

POS367 Spring 21b – World Politics and Global Inequality

Reading Notes Seven – Co-ops, UBI and CCT

Welcome back everybody. I wanted to begin these last lecture notes with some words on material that we didn’t have a chance to cover in the course. Our readings have loosely followed a historical trajectory, beginning around the middle of the 20th century with development and modernization theory and ending in the first decades of the 21st century with the growing interest in sustainability. In the process, we skipped over one of the most important events in modern times that had a massive impact on global inequality and poverty. The 2008 Global Financial Crisis resulted in trillions of dollars in loses, left millions laid-off or unemployed, and wreaked havoc on savings and investments across the globe. It appeared to be a harbinger of the coming decade characterized by political instability and revolt often driven by economic anxiety. Around this time, I typically show the class the 2010 Academy Award winning documentary, The Inside Job, which details the degree of corruption, conflict of interest, and hubris in the Wall Street-centered global financial system. I think it’s a great documentary and I highly recommend it to anyone and everyone; I just couldn’t quite fit it into this semester. Fortunately, it is streaming on many services, so it is easily accessible to most.

The 2008 Financial Crisis had massive global consequences. While it is difficult to do counterfactual histories, I think it is safe to say that the Occupy Wall Street movementwould not have happened without the 2008 collapse and subsequent policy response.[1] The bail-out of irresponsible financial institutions by the US government was seen by many as welfare for the wealthy, and the limited relief to the average American was seen by many as a sign of government failure and neglect. Few if any executives or experts faced serious consequences for their colossal mismanagement or for ignoring those who warned of the oncoming crisis. Reports of exorbitant bonuses and golden parachutes for executives and shareholder profits alongside massive layoffs and foreclosures only increased the perception that the American financial sector underpinning the global economy was corrupt and perverse to the core. The slogan “We are the 99%” became a rallying cry alongside growing discontent with capitalism, corporate power, and the oligarchs of the 1%.

The aftermath of the 2008 crisis brought about all kinds of proposals and radical solutions. One of these proposals was alluded to several times before and even opens Jonathan Tepperman’s piece. It is the proposal by French Economist Thomas Piketty, whose 2017 book Capital in the Twenty-First Centurywas a breakaway hit (apparently this too has been made into a documentary available on Netflix…I haven’t watched it yet). Piketty achieved unlikely global prominence for his technical study of wealth inequality, finding that wealth has been growing faster than wages (i.e., “r > g”), and signaling an ever-increasing concentration of wealth and power absent radical reform of the political economy. Using sophisticated and creative statistics dating back centuries, Piketty shows how the current gilded age is leading us toward an increasing unstable, inequitable, and unjust global economic system. His solution to addressing growing wealth inequality is the imposition of a global wealth tax alongside other policies like shutting down of off-shore tax havens. Of course, such a proposal would require a great deal of international and private cooperation and agreementby the very people who likely have the most interest in maintaining the existing system. Piketty admits that the scheme is “utopian,” but as Philippe Van Parijs argues, maybe that’s exactly what is needed.

Real Utopias?

Earlier in the semester we considered some of the drawbacks of high levels of inequality. One of these drawbacks may be the burnout that workers begin to feel as their wages stagnate, as their work becomes increasingly mechanical, and as they have little sense of pride or ownership of their workplace. Take this image from Albuquerque New Mexico that went viral on Twitter this week.

Our focus on macrolevel solutions to poverty and inequality may have taken us away from the real site of work, production, and pay – the workplace! The Shift Change documentary excerptshows how the co-operative model might help mitigate growing inequality. The model boasts not only more equitable pay, but more equitable power as well. The co-operative model is based on democratic ownership and management.Mondragon Corporation is an umbrella group in the Basque Region of Spain that oversees a broad collective of co-operative workplaces – from banks to grocery stores, appliance manufactories to a university.

Anyone who has worked at a typical workplace knows how hierarchical these institutions can be. In most cases, one has very limited input on their own work and operations, let alone those of the company as a whole. The co-operative model makes every worker a part owner – sometimes with a phase in of a couple years, and sometimes with a buy-in (paying a membership due up-front that can be up to thousands of dollars). The owner/workers vote on business decisions and delegate responsibilities, including on issues of what to do with profits, when to take pay cuts, when to invest in new equipment and more. Not everyone makes the same amount of money – some regard is given to greater levels of skill or rarified expertise,but the pay differential between the top paid and bottom paid within a Mondragon co-op is no more than 6 times, and across the co-ops no executive can make more than 38% above any other executive.Compare this to the average firm, wherethe top salary can be hundreds (even a thousand) times the lowest paid salary, and it begins to appear as though co-ops have some good qualities to boast. Alongside more equitable pay, co-ops have less likelihood of operations being outsourced or moved to a different site. Typically, companies have a good deal of latitude in picking up and moving shop to somewhere with looser labor laws, lower pay, laxer environmental standards, or other conditions that might increase profits for executive and shareholders (even if they come at the expense of workers). In co-ops, the worker/owners are unlikely to agree to move shop because they actually live in their neighborhoods and don’t wish to be economic migrants. The company serves the employees rather than the other way around, because it is managed by the employees. Indeed, many co-ops operate on the model that employment rather than profit is their primary goal. For example, if sales go down some year, the co-op often prefers to institute collective paycuts rather than layoffs (again this is a function of the democratic decision-making model). Mondragon Corporation has the added benefit of being able to cycle employees into a different co-ops within the larger network in case of industry downturn or unforeseen market shocks. According to their US representative Michael Peck, they only hit 4% unemployment within the Mondragon Corporation at the height of the financial crisis while countries and other regions hit upwards of 20% unemployment (4:45).

But co-ops still need to make money. And many representatives of Mondragon make it a point to explain that they must profit in order to continue to operate. Indeed, some critics of Mondragon point out that in the context of the global financial crisis, some Mondragon co-ops opened factories overseas (e.g., Poland, Mexico) in order to take advantage of cheaper labor and production costs. Moreover, they did not extend the offer of worker/owner to the workers in these offsites, revealing that some co-ops might have to operate in the same way as typical corporations by taking advantage of the global division of labor. There are other issues not restricted to Mondragon.

Co-ops can be a lot of work. And anyone who has engaged in any form of democratic decision-making knows how difficult and strenuous the process can be. Deliberation takes time, self-control, flexibility, commitment, and other social factors. For all the benefits of not being micromanaged or having all decisions dictated by some distant boss, let alone 8 bosses, the workers have to learn to manage themselves and each other. If co-ops sound like a utopia, it is important to remember that the word “utopia” means “no place,” and we might temper ambitions and the promise of radical change with admission of reality, careful problem-solving, and reflexive critique. In any case, considerable changes to local, state, and federal laws may be required in order to create an amenable legal and economic climate for co-ops to flourish.

Universal Basic Income (UBI)

Another seemingly utopian approach to wealth inequality and poverty is the distribution of a universal basic income. Philippe Van Parijs does a good job of summarizing the appeal of radical proposals, the basic outlines of UBI, and its political and economic plausibility. He describes UBI as“income unconditionally paid to every member of a society (1) on an individual basis (2) without means testing and (3) without work requirement” (174). Each of these points in important and I want to quickly explain how/why. Regarding payment on an individual basis, this notably indicates that the relevant economic unit is not the state, city, or even household but rather the individual.

The second point, without means testing, makes the program truly universal. Oftentimes, welfare services and support are distributed by governments only to those who can demonstrate a need (e.g., food stamps for those who can demonstrate limited income, child tax credit based on number of children one has, etc.). In the UBI properly understood (as defined by Van Parijs), everyone from the poorest to the wealthiest gets the same sum. Some may argue that this is unfair – why does a billionaire heiress with a trust-fund get the same amount as a single-mother struggling with student loan payments? One argument is that the process of means-testing is so costly and inefficient that it is better to just distribute funds across the board. The money could also be taxed on the back-end for individuals whose wealth or income exceed a certain amount (say, taxing back the entire UBI from anyone whose wealth exceeds 10 million).

Finally, the point on no work requirement goes to the heart of what Van Parijs believes is the goal of UBI. Rather than being primarily targeted to spur consumption and employment (though it may very well do this), his UBI is aimed at a broader, more expansive notion of freedom. As Van Parijs says, it is a “bargaining power, the power to say yes and to say no…the power to say no to the dictates of a boss, a bureaucrat, or a spouse…the power to say yes to activities that are poorly paid or not paid at all, but are nonetheless attractive…” (174). Indeed, much of the literature on UBI and some of its intellectual foundations like John Rawl’s Theory of Justice view humans not in the LIEO model (as a rational profit-maximizing driven agent) but in a reform liberal model that emphasizes the human drive toward perfectibility and improvement, social cohesion and esteem, and the like. Van Parijs goes through various arguments for and against UBI, including questions of whether it would make poor people work less or more, and even concedes that it may have to be conditional on some compulsory service in order to keep basic functions of government operating (180). He leaves us with questions that are still in search of good answers.

With a few exceptions, UBI hasn’t been applied at a large scale, but it has growing popularity and some pilot studies.Van Parijs mentions Alaska’s oil revenue distribution as an example of large-scale implementation and some of the Gulf oil states have similar policies in place. In the case of oil states, the allocation of oil revenues to citizens was implemented in order to circumvent the emergence of political demands placed on the ruler by the people (i.e., taxation and representation).[2]Van Parijs mentions the case of Iran, showing that the logic of UBI was different in that instance as well (having to do with oil pricing regime). All of these indicate the extent to which we might view UBI as a policy tool among others.

The study in Stockton, California is often cited as an exemplary pilot program, though we should note that it is not “universal” in the way Van Parijs intends. It is instead means-tested (or in this case, randomly selected recipients within a pool of those falling under the poverty line).Relief checks sent out during the ongoing pandemic in the US might be another example, though again, these have beenmeans-tested and driven by the dual logic of boosting consumption in a slumping pandemic economy as well as providing for basic needs of an increasingly desperate population. And it seems like it worked, at least so far as consumption is concerned.

Most recently, Andrew Yang gave UBI a public relations boost during his presidential run. It looks like he is continuing in these efforts during his ongoing mayoral campaign in New York City (though once again, closer to conditional transfer than UBI). If a major US city can demonstrate the effectiveness of UBI or UBI-like/lite policies, as a relatively small country like Finland is starting to do, then it would go a long way in showing that the policy is scalable. We shall see.

Conditional Cash Transfer and the Bolsa Familia

Many of the policies mentioned in the above section are more accurately described as conditional cash transfer (CCT) programs – conditional on need or conditional on certain reciprocal responsibilities or duties. Bolsa Familia is a prime example of a CCT program, in this case conditional on living at or below the poverty line, and conditional on families vaccinating their children, enrolling them in school, and having medical check-ups.As the name implies, it is targeted at families rather than individuals, though the wider Fome Zero campaign included other programs.It has widely been viewed as a great success, credited in part with lifting some 30-40 million Brazilians out of poverty over the course of a decade.

As Tepperman explains in his article, Bolsa Familia was instituted by Luiz Ignacio Lula da Silva (“Lula”), a left-wing leader to emerge within the growing Latin American “Pink Tide” of the late 90s and early 2000s.Initial reactions to Lula’s rise to power by major financial institutions was to seize-up. Banks withheld loans, investors withdrew funds, all in fear of a radical state take-over of the economy. But to the surprise of many, Lula’s approach was more moderate. He worked to pay back debts to the IMF (and even paid them off 2 years earlier than scheduled), cut government spending, and rolled out the Bolsa Familia reforms. After initial hiccups, the policy appeared to show dramatic positive results.

Tepperman’s piece does a fine job highlighting the successes, failings, and places for improvement. One critical detail is left out of the article. Brazil was riding the wave of a commodities boom, largely driven by trade with China. The breakneck speed of industrialization in China made Brazilian iron ore and oil highly desirable on the market. Soybeans and beef – notoriously environmentally destructive of the Amazon rainforest – were also in high demand. There is little doubt that Lula and his team did a good job in governance and management of the economy, but it was aided along by a bit of fortune in the international economic arena, and at the cost of destructive extractive industries and industrial farming operations.

Brazil has been a bit of a political mess in recent years, something we in America know absolutely nothing about….The story of what has happened to Lula since the time of Tepperman’s article is too much to get into here but it begins with Lava Jato and ends in Bolsanaro. Most recently, Lula has been released from prison and his conviction on corruption charges has been overturned. Barring any new legal or unforeseen roadblocks, he is now the top contender for the next President of Brazil.

As for CCTs, they continue to be implemented in other places to some success. These programs may offer a cost-effective way to alleviate poverty but they are open to criticism from various ethical standpoints. Some claim that making the programs conditional places burdens on those most in need and unable to meet their obligations. Others fear that they will create a culture of dependency. Still others are concerned that CCTs (or UBI for that matter) are being offered in place of funding good universal social services.

In the end, Co-ops, CCTs, and UBIs are still largely market reforms but they might come to alterunderlying structures of production and distribution of surplus. It is hard to say what policies, approaches, or innovations will lead to what changes or paradigm shifts. Inequality and poverty, environmental degradation and urban immiseration, innovation and destruction all appear to be an outgrowth of our current models and systems. Striking the proper balance between economic, political, ecological, and ethical concerns looks to be an ongoing project that we will continue to take part in, some more, some less.

That’s all for now. I’ll make a few more announcements before the course lets out. Don’t forget we have a quiz that opens this Thursday and you have a short essay assignment due by next Tuesday.

Dr. Bar

[1] This was itself inspired by the Arab Spring that began in Tunisia. Like the Indignados movement in Spain that pre-dated OWS, the populist revolts were instigated by growing inequality and immiseration of the working class. In Tunisia and elsewhere, popular rage was directed at governing elites following revelations of government corruption, graft, and use of offshore accounts by elites to hoard wealth and avoid taxes (i.e., “tax havens”). Wikileaks,The Panama Papers, and similar leaked documents dumps throughout the past two decades uncovered the extent to which power and influence in the world had become concentrated.

[2] Rosemarie Said Zahlan (1998), The Making of the Modern Gulf States: Kuwait, Bahrain, Qatar, the United Arab Emirates and Oman, Ithaca Press: London, 45.

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