All of the candidates for the Republican Presidential nomination have had two key messages when it comes to the economy: 1) that if we do not reduce the taxes on the highest earners, no job will ever be created again (I’m paraphrasing); 2) that any Government regulation on corporations jeopardises the free market and stagnates the economy. The mantra that the GOP have been repeating until people believe it, is that any laws passed that limit companies from acting completely as they wish, inhibits entrepreneurship and restricts the liberties of corporations – who they, and the Supreme Court, believe are people.
The financial meltdown of 2008 came from the implementation of this philosophy – it started with the Clinton Administration in the 1990s and accelerated during the Bush years – regulations were stripped away on the financial industry piece by piece. This allowed for banks to become bigger, over-leverage themselves and trade in high-risk derivatives with relatively small amounts of collateral. The desire for more of these products to sell resulted in Wall Street firms pressurising mortgage lenders to give loans to as many people as possible – so that those could be put into a basket and traded as sub-prime debts to investors – resulting in brokers lowering the salary and deposit requirements for those looking to buy a house. The instruments were comprised of many individual mortgages with a high probability of default, so the derivatives should have been considered risky. However, they were given AAA grades by the Ratings Agencies – organisations that are funded by the banks so it is in their best interest to give a better score to a product, to attract more business for themselves. When the artificially inflated housing bubble burst, so with it went the economy, pension funds and millions of jobs, in the financial industry and beyond.
Yet the Republican candidates would have you believe that we do not need more regulations, that any restrictions come at the cost of free enterprise and are against the American spirit. They have labelled President Obama as a Euro-socialist who is obsessed with Government interfering with private businesses, though the truth is little has been done to reign in Wall Street. The Dodd-Frank bill, much maligned by the Right-Wing, has been toothless and only around 10% of the provisions in the law have been implemented, more than 18 months after it was passed. Regulations that exist do not prevent companies from making a profit, they stop them from having complete autonomy. Unions exist in order to protect the workers from being taken advantage of by their employers – yet they too have come under attack from the G.O.P. in the last few years. Laws in Wisconsin and Ohio have tried (thankfully unsuccessfully thus far) to prohibit collective bargaining and the ability of the unions to collect dues from their members, while their ability to impact conditions have been greatly reduced in the last thirty years.
Thus the question arises, would this be a desirable world to live in – one where there are no regulations or unions and corporations are able to do as they please with the machinations of the free market their only parameters. The Republicans believe that anything other than this scenario hinders liberty; Democrats argue that companies cannot be trusted to act in the best interest of society and they need checks and balances. Luckily, speculation is not required on which viewpoint is correct, since this model exists already in China. Even if the Government call themselves Communist, this is in name only and has little to do with the economic structure in the country. If you want to see how corporations behave then there is almost no regulation restricting them, and what little regulation there is brings no real oversight, then China is the place to look.
A recent episode of This American Life, the WBEZ Chicago radio show that is broadcast weekly on NPR, told the story of Mike Daisey and his trip
to the Foxconn factory in Wuhan, China. This company is one of the main manufacturers of electrical goods that are sold in the Western world – they have a contract with Apple to make iPads, iPhones and other devices, as well as Hewlett Packard and other major retailers. During the course of the program, Mr. Daisey recounted interviews he had done with employees at the plant and the working conditions at Foxconn. There was evidence of child labour being used; workers forced to work up to 35 hour shifts when a new product was being released; and a story about one woman who complained about not having been paid overtime and was then placed on a blacklist that is distributed among all the companies to ensure she will not be hired by anyone. It is illegal to be a member of any trade union that is not affiliated with the ruling party and violators can be imprisoned for up to 12 years. Because workers are not rotated between roles, chronic carpal tunnel syndrome affects many who spend years of their lives performing the same task thousands of times each day. This could be prevented with a simple rotation of staff between different parts of the production line – but that would reduce efficiency by a small percentage and thus would impact Foxconn, and Apple’s, profit margin.
Suicides have been prevalent at the Foxconn factory – sometimes workers have just had enough and see that as their last option, others use it as a bargaining tool to try to improve working conditions for themselves and their colleagues. The company’s response to this? They put up nets to catch those who jump (in that direction). You might ask why these workers do not go in search of employment elsewhere – but Wuhan has the highest minimum wage in China (though it is still only around $200 a month) and options are limited when there is a such a large pool of people companies can hire from. Would we not all be willing to pay 25% more for a product if there was a guarantee that those who made it were not exploited and did not suffer crippling injuries or want to kill themselves because of the manufacturing process? Would it not be smart for Apple and other American companies to invest in factories in the US and proudly stamp “Made in America” on their items – even if that meant that their costs increased significantly?
However, you can never expect a for-profit organisation to act in any way other than in self-interest to improve their bottom line and thus increase the value to their shareholders. I was working in the back office of a large US bank in 2008, when a memo was sent around to all staff about the rules surrounding client entertainment at the Beijing Olympics. I was personally boycotting that sporting event – despite my love of the Olympics – because China, who bought two-thirds of the oil exported by Sudan and therefore had influence over the country, refused to speak out about the genocide in Darfur. My small protest was obviously not going to have too much effect, but I made my thoughts known to those who made such decisions at the bank – that on principle they should refuse to invest any money in the Games. I was told that, while my views were heard, it was too important an opportunity to make money and thus my concerns would not be heeded. It turned out to be such a wise decision too – less than six weeks after the Olympics, the company went bankrupt anyway…(yes, it was Lehman Brothers). What if they had acted with integrity – not necessarily in a cause only I seemed to believe in – but in all their dealings? It was the pursuit of more – more money, more market share, more prestige – that led to the collapse of the financial markets – because nobody in the banks ever stopped to locate, never mind check, their moral compass.
Companies need regulations because they will always test the boundaries to try to make as much profit as possible. Workers need to have their rights protected – and the companies that they work for are not the best people to do that – unions are and Governments are. To believe that in a world without regulation, corporations would act with integrity and that the free market would keep them in check – it is just pure fantasy. It would not happen – and it does not happen. Not in China, not on Wall Street.
Mike Daisey’s one man-monologue-show “The Agony and the Ecstasy of Steve Jobs” is currently at the Public Theatre in New York – tickets available here – or the “This American Life” episode featuring him can be streamed here