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By Noam Chomsky
The chaos that derives from the so-called international order can be painful if you are on the receiving end of the power that determines that order’s structure. Even tortillas come into play in the ungrand scheme of things. Recently, in many regions of Mexico, tortilla prices jumped by more than 50 per cent.
In January, in Mexico City, tens of thousands of workers and farmers rallied in the Zocalo, the city’s central square, to protest the skyrocketing cost of tortillas.
In response, the government of President Felipe Calderon cut a deal with Mexican producers and retailers to limit the price of tortillas and corn flour, very likely a temporary expedient.
In part the price-hike threat to the food staple for Mexican workers and the poor is what we might call the ethanol effect — a consequence of the US stampede to corn-based ethanol as an energy substitute for oil, whose major wellsprings, of course, are in regions that even more grievously defy international order.
In the United States, too, the ethanol effect has raised food prices over a broad range, including other crops, livestock and poultry.
The connection between instability in the Middle East and the cost of feeding a family in the Americas isn’t direct, of course. But as with all international trade, power tilts the balance. A leading goal of US foreign policy has long been to create a global order in which US corporations have free access to markets, resources and investment opportunities. The objective is commonly called “free trade,” a posture that collapses quickly on examination.
It’s not unlike what Britain, a predecessor in world domination, imagined during the latter part of the 19th century, when it embraced free trade, after 150 years of state intervention and violence had helped the nation achieve far greater industrial power than any rival.
The United States has followed much the same pattern. Generally, great powers are willing to enter into some limited degree of free trade when they’re convinced that the economic interests under their protection are going to do well. That has been, and remains, a primary feature of the international order.
The ethanol boom fits the pattern. As discussed by agricultural economists C Ford Runge and Benjamin Senauer in the current issue of Foreign Affairs, “the biofuel industry has long been dominated not by market forces but by politics and the interests of a few large companies,” in large part Archer Daniels Midland, the major ethanol producer. Ethanol production is feasible thanks to substantial state subsidies and very high tariffs to exclude much cheaper and more efficient sugar-based Brazilian ethanol. In March, during President Bush’s trip to Latin America, the one heralded achievement was a deal with Brazil on joint production of ethanol. But Bush, while spouting free-trade rhetoric for others in the conventional manner, emphasized forcefully that the high tariff to protect US producers would remain, of course along with the many forms of government subsidy for the industry.
Despite the huge, taxpayer-supported agricultural subsidies, the prices of corn — and tortillas — have been climbing rapidly. One factor is that industrial users of imported US corn increasingly purchase cheaper Mexican varieties used for tortillas, raising prices.
The 1994 US-sponsored NAFTA agreement may also play a significant role, one that is likely to increase. An unlevel-playing-field impact of NAFTA was to flood Mexico with highly subsidised agribusiness exports, driving Mexican producers off the land.
Mexican economist Carlos Salas reviews data showing that after a steady rise until 1993, agricultural employment began to decline when NAFTA came into force, primarily among corn producers — a direct consequence of NAFTA, he and other economists conclude. One-sixth of the Mexican agricultural work force has been displaced in the NAFTA years, a process that is continuing, depressing wages in other sectors of the economy and impelling emigration to the US.
It is, presumably, more than coincidental that President Clinton militarised the Mexican border, previously quite open, in 1994, along with implementation of NAFTA.
The “free trade” regime drives Mexico from self-sufficiency in food towards dependency on US exports. And as the price of corn goes up in the United States, stimulated by corporate power and state intervention, one can anticipate that the price of staples may continue its sharp rise in Mexico.
Increasingly, bio fuels are likely to “starve the poor” around the world, according to Runge and Senauer, as staples are converted to ethanol production for the privileged — cassava in sub-Saharan Africa, to take one ominous example. Meanwhile, in Southeast Asia, tropical forests are cleared and burned for oil palms destined for bio fuel, and there are threatening environmental effects from input-rich production of corn-based ethanol in the United States as well.
The high price of tortillas and other, crueler vagaries of the international order illustrate the interconnectedness of events, from the Middle East to the Middle West, and the urgency of establishing trade based on true democratic agreements among people, and not interests whose principal hunger is for profit for corporate interests protected and subsidised by the state they largely dominate, whatever the human cost.
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‘Racism’ Seen in Liberals’ Opposition to Mexican Truckers – The NewStandard
by Michelle Chen
Labor and public-interest groups are arguing that permitting Mexican truckers to drive US roads under NAFTA raises safety concerns. But the facts suggest otherwise, and some activists see a deeper problem.
Mar. 28 – The southern border has become a political fault line once again, as a plan to open US highways to a select group of Mexico-based commercial traffic runs into opposition. While some labor and safety advocates decry Mexican trucks as “unsafe,” others see xenophobia driving the controversy.
The White House is pushing a year-long “demonstration program” to be run by the US Department of Transportation that would allow 100 Mexico-based trucking firms to drive goods all over the United States. More than 6,000 authorized Mexican carriers already make millions of border crossings annually, but they are confined to narrow areas hugging the border. They shuttle goods across guarded checkpoints into the designated commercial zones and then transfer cargo to US carriers for the rest of the journey.
The DOT’s plan, which would gain for US carriers similar access to Mexico, would set in motion a key provision of the North American Free Trade Agreement (NAFTA). As part of its purported goal of promoting “free” and open trade throughout North America, the agreement promised mutual highway access for Canadian, US and Mexican trucks. Pro-business groups have supported those measures as a way to facilitate more-efficient transport of cargo between countries.
The program follows over a decade of successful campaigns by organized labor and auto-safety advocates to restrict Mexican truckers’ access to US highways, based on claims that Mexican trucks pose an unacceptable public threat.
And despite recent evidence to the contrary, those groups continue to apply the same arguments against the pending demonstration program.
Fred McLuckie, a legislative representative for the truckers’ union International Brotherhood of Teamsters, said that expecting Mexican truck drivers to abide by domestic safety regulations on US highways would be “a leap of faith that is not substantially backed by evidence that [Mexican] trucks and drivers are going to be as safe as US trucks and drivers.”
But the limited federal data available indicates similarities between US and Mexican truck-safety records, suggesting that the demonstration program would not make highways much more dangerous than they currently are.
In the border zone during the last quarter of 2005, according to the latest federal roadside-inspection statistics for commercial vehicles, about 19 percent of Mexican-vehicle inspections and 18 percent of US-vehicle inspections led to vehicles being pulled off the road for safety violations like faulty breaks or poor maintenance.
While the Teamsters claim that Mexican commercial drivers in 2005 were often cited for failure to maintain hours-of-service logs, US drivers were cited for the same violation about twice as frequently.
The union further warns that Mexican drivers might arrive at the border overworked and fatigued, increasing the risk of accidents. Yet according to US-based inspection data, the violation rate for the US cap on drivers’ work hours – 60 to 70 hours within 7 or 8 days – was about eight times higher for US drivers than for their Mexican counterparts.
Joining the Teamsters on the opposition is the consumer-protection group Public Citizen, which has seized on the issue to highlight what it sees as chronically poor safety oversight for all trucks operating in the United States. With the government conducting about 11,000 full safety audits for a pool of several hundred thousand authorized US carriers in 2005, the group says regulation of the domestic commercial fleet is deeply lacking.
Labor and auto-safety groups argue that the Department of Transportation has not completely met safety conditions imposed by Congress. In 2002, US lawmakers required the creation of a comprehensive monitoring system for Mexican truck traffic, including cooperation with Mexican authorities in enforcing US safety rules.
The Transportation Department’s Office of the Inspector General reported to Congress this month on some shortcomings in fulfilling those requirements, including still-incomplete cross-border drug and alcohol testing protocols, as well as gaps in states’ reporting of traffic violations among Mexico-licensed drivers. But overall, the audit found that the main congressional mandates – like hiring and training more state inspectors – had been met.
Nonetheless, at a Senate hearing earlier this month, Teamsters President James P. Hoffa insisted that Mexican trucks are not safe enough to justify the demonstration program.
He warned that inadequate oversight would invite a slew of hazards: Companies might exploit lower-paid Mexican drivers by pushing them to violate hours-of-service limits; drug-abusing Mexicans might slip through inadequate driver-screening procedures; Mexican trucks could even pose a national security threat, because they “could be used to carry weapons of mass destruction, or be used by terrorists as a means to sneak into this country and do us harm.”
But Mike Noonchester, director of the Border Technology Deployment Center at New Mexico State University, cast doubt on images of Mexican trucks as mobile disasters. Under the demonstration program, he predicted, trucks operating out of Mexico would likely be more modern and better maintained than those currently operating in the border zones: they would be equipped for long-distance driving, as opposed to the short hauls over the border to which Mexican carriers are now limited.
Drawing on both federal data and his consultations with state authorities, he said, “Everything indicates the companies that would be participating in long-distance over-the-road operations will be as safe as most US companies.”
From a public-safety standpoint, Russ Rader with the Insurance Institute for Highway Safety, a research group that tracks truck-safety issues, said hazardous industry practices do not discriminate at the border. “No matter who is operating the truck,” he said, “we have the same basic safety problem on the road. And that is tired truckers who are working more hours, and there’s no effective way of enforcing hours-of-service rules.”
Veiled protectionism
Some observers of the controversy say the tone of the campaign against Mexican trucks is driven not by safety concerns, but by US drivers’ fears that NAFTA would bring to the sector competition from cheaper Mexican labor. That rationale, critics say, could undercut efforts to build international solidarity against so-called “free trade” policies.
“Workers have a right to protect their jobs, wages, benefits and conditions from employers and governments who would try to undermine them,” said Dan La Botz, a labor historian and former Teamster who has researched Mexican labor movements. “But, at the same time,” he continued, “protectionism can easily slip into national chauvinism and racism.”
Manuel Pérez Rocha with the Red Mexicana de Acción Frente al Libre Comercio (Mexican Action Network on Free Trade) said the trucking issue reveals “abysmal asymmetries” in free-trade agreements.
In practice, under NAFTA, Pérez Rocha argued, companies can capitalize on cheaper labor and looser industry regulations abroad, while powerful countries selectively apply standards to their own benefit. “In the name of ‘competitiveness,’” he said, “labor and environmental standards in Mexico are either not enforced or diminished.” However, he added, blockading Mexican trucks at the border demonstrates how disparities in social conditions are “used as protectionist instruments the other way round.”
Outside the trucking industry, other sectors of the US economy have benefited from policies that shield domestic markets from outside competition despite free-trade commitments. Until recently, prohibitively stringent food-safety regulations, backed by US avocado growers, blocked imports of the fruit from Mexico due to fears of pest infestation. Those concerns were later resolved by pest-control measures, instead of trade barriers.
Similarly, federal subsidies have bolstered US farm industries, even as NAFTA has weakened Mexico’s rural sector by dismantling domestic policies that protected local farmers.
Tom Barry, director of policy with the progressive think tank International Relations Center, said the United States had an obligation to subject its own economy to the same rules that have impacted countries with less political clout – and to confront the consequences head-on.
“The US government needs to be reciprocal when it says it’s going to be,” he said. On issues like trucking and food imports, he added, “when there are concerns about safety, and our partner countries don’t have the resources to provide the guarantees our government requires, then we should step in and help provide the proper monitoring.”
Octavio Ruiz with the Minnesota-based Resource Center of the Americas, who campaigns on trade issues on both sides of the border, said: “We have to see beyond to the fact that this is not really an issue between the workers. The issue is with NAFTA, which is not a trade agreement but an investment agreement that has favored the corporations.”
Protectionist tensions, Ruiz said, keep vulnerable workers divided, but US and Mexican workers could defy NAFTA by forming stronger alliances. A formal joint labor movement, he continued, could serve as an institutional counterweight to corporate interests, allowing labor to bargain collectively across borders and hold multinational employers accountable across the continent.
In all industries disrupted by free trade, he said, “the workers have to sit down from both sides, and say, ‘Okay, how can we solve this together in order for both of us not to get exploited?’”
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The Black Commentator – March 22, 2007 – Issue 222
Bush’s Latin Reality Show
By Carl Bloice
BC Editorial Board
One thing had to dawn on Bush while on a recent seven-day, five country Latin American tour: the Monroe Doctrine is deader than a doorknob.
Unilaterally proclaimed by the U.S. in the 19th Century, ostensibly to keep European competitors out, the doctrine secured domination of the lands to the south – frequently guaranteed by armed intervention and U.S. instigated coups – until recently. Now, it is apparent that not only is that big brother relationship no longer tenable but that the U.S. is rapidly losing any influence at all in the region.
If public opinion polls are an indication, Washington has scant influence there or respect at all. Much can be ascribed directly to the Bush Presidency and his Administration’s actions, most especially the war in Iraq and its policies in the Middle East as a whole. Further, the “market friendly” neo-liberal economic policies foisted off on Latin America countries for decades under the rubric “Washington consensus” – weakening social service programs, privatization, removal of restrictions on foreign investment and free reign for “market forces” as against planned development strategy – have failed to live up to their hype. A lot more wealth has been going out of the region than what’s coming in and what is being returned from the “market” or foreign investment all too often flows into the pockets of formerly entrenched elites, while economic disparities increase.
Throughout the region, at a historically breathtaking pace, the peoples in the south of the Western Hemisphere are electing new leaders and rejecting the economic policies that have been foisted off on them by the colossus to the north, in collusion with local elites.
Writing in the New York Times March 17, novelist Luisa Valenzuela observed that for the Latin Americans, “The dream of a single-currency Latin American Union, modeled on the European Union, to create, insofar as possible, a buffer against the hegemony of the United States no longer seems so impossible.” At a moment when the Latin Americans are rejecting the economic dictates from institutions like the U.S.–dominated International Monetary Fund, moving across the board for economic independence and regional cooperation, the Bush Administration has apparently decided to push in the opposite direction. The continent’s two largest countries, Brazil and Argentina don’t want bilateral “free trade” agreements with Washington. Former CIA operative Philip Agee described the Bush tour as “a mission to lure five countries away from regional economic integration.” Valenzuela observed that “in Uruguay, all Mr. Bush seemed to be trying to do was irritate the other governments of South America by promoting a Free Trade Area of the Americas project in opposition to Mercosur, the southern common market formed in 1991 by Brazil, Argentina, Paraguay, Uruguay and, somewhat later, Venezuela.”
Furthermore, the White House can hang up any thought of trying to dictate or shape the politics of the region – like trying to “isolate” Venezuelan President Hugo Chavez. Such maneuvers simply won’t fly. While Brazilian President Lula da Silva will meet the U.S. President at Camp David later this month, he has a state visit to Caracas slated for next month. Argentine President Kirchner made it clear to the U.S. President that he has no intention of joining the anti-Chavez campaign. To add insult to injury, Mexican President Felipe Calderon, openly broke with the policy of his predecessor and fellow PAN party member Vicente Fox and opted out of the anti-Chavez drive. For all the talk about the differences between various Latin American leaders – and they do exist – nearly all seem to agree on one thing: no more dictates from el Norte.
Much is being made of the political differences among the various new leaders in Latin America. It would be news if there were no differences. However, the effort to picture the continent as divided between a group of “moderate” governments on one hand and “radicals” on the other, widely misses the mark, especially as it is usually delineated, on the basis of attitudes toward Washington. There is significant spread in the ideological and political approaches amongst the new Latin American leadership; that, too, is reflection of the new independence and it should be obvious by now that efforts to drive a wedge between two alleged camps is futile. The direction of history is clear and it is being driven, to a large extent, not be personalities but by vibrant social movements from below.
On March 12, the Organization of American States held a meeting on the “Impact of poverty,” to consider “the role poverty plays in eroding social cohesion, leading to a lack of security and an increasingly vulnerable state.” What the conferees came up with went unmentioned in the media but three days later the OAS press office reported that Secretary General José Miguel Insulza told the delegates that “the persistence of inequality and poverty represents one of the main challenges to development, democratic governance and security in the hemisphere”. “As a result”, he said, “these threats should be confronted with a new multidimensional perspective that focuses on political, economic and social factors”.
There are approximately 534 million people living in the Latin American/Caribbean area. Of these, 132 million live on less than $2 a day, and 57 million live on less than $1 a day. The region is also one of the most unequal regions. According to the World Bank “the richest one-tenth of the population of Latin America and the Caribbean earn 48 percent of total income, while the poorest tenth earn only 1.6 percent”.
According to economist Mark Weisbrot, Latin America’s economic growth over the last 25 years has been “a disaster – the worst long-term growth failure in more than a hundred years”, and “it is easy to see why candidates promising new economic policies have been elected. In countries “where the poor get only a few cents out of every new dollar, growth bypasses the poorest,” the New York Times observed editorially last May. “Latin America is the world’s most unequal region. That means growth will not reduce poverty unless Latin American governments redirect it to the poor.” That’s what the new governments – with the support of massive and effective social, political and labor movements – are doing. There’s been quite a bit of success for the policies, most of which have faced opposition from Washington.
On March 14, Paraguayan President Nicanor Duarte derided Bush for failing to contribute to development in poor countries, and hailed Chavez` Venezuela as a country “with an overdose of democracy.” “It cannot be possible that the US Government does anything it pleases in much sensitive areas such as waging wars, setting international prices, but at the same time it does not have the strength to convince developed countries to suppress protectionist barriers,” Duarte said in a television interview. He added that he would believe in Bush “when there is technology transfer, when tariff barriers are lifted and when he stops treating our fellow citizens in a miserable way when they try to travel to his country.”
“What is the Mercosur regulation that is endangered because of Venezuela?” asked Duarte. “Venezuela has an overdose of democracy, with one election after the other. It is the only country where the Constitution provides for a (presidential recall) referendum in the middle of the presidential term.” The Chavez presidency, he said “is the result of the Venezuelan historically corrupt leadership, and all leaderships are the fruit of failed liberalism.”
“When President Bush set out on his five-nation tour of Latin America on Thursday March 8th he was hoping to obtain support for Washington’s effort to isolate Venezuela and tighten its stranglehold on Cuba”, wrote Circles Robinson from Havana for Prensa Latina. “However, once he touched down in Brazil, and later Uruguay, Colombia, Guatemala and Mexico, it became apparent that he is virtually alone on the issue. Instead, most of the region wants to maintain or increase ties with Cuba and Venezuela.”
Fidel Castro’s active participation by telephone in a three-way meeting with Venezuela’s Chavez and Haiti’s President Rene Preval on Tuesday dramatically underscored this. “Fidel was very keen to make sure the trilateral cooperation succeeds”, Preval told a news conference. The three countries agreed to $21 million dollars of funding from Venezuela to extend medical programs carried out by Cuban doctors in rural Haiti.
When the Bush caravansary was announced, it was expected that he would receive a warm and cooperative reception in the three capitals presided over by right wing regimes: Colombia, Guatemala and Mexico. However, his reception in the latter turned out to be one of the more tempestuous. President Calderon not only slipped out of the anti-Chavez camp, he raised sharp questions about things like the “Berlin wall” being erected on the border with his country. He was rebuffed in his effort to delay implementation of the section of the North American Free Trade Agreement (NAFTA) that will allow Mexico to be flood with low cost, U.S.-subsidized imported corn and beans which threaten to drive even more small Mexican farmers into destitution.
In Colombia, there were anti-U.S. demonstrations in 20 cities and riot police attacked protestors at Bogotá’s National University and several were injured. In Guatemala, workers protested the recent round-up of some 300 immigrant workers in Massachusetts. President Oscar Berger, who raised the matter in his welcoming speech, is reported to have pleaded with Bush for clemency to avoid their deportation, but the suggestion was ignored.
Meanwhile, in Santo Domingo, Dominican Republic President Leonel Fernandez noted that the Bush Administration has reduced resources available to fight drug trafficking, because it has been concentrating in its war in Iraq. In an address to the Regional Summit on Drugs, Security and Cooperation he charged that that drug trafficking has increased in the region as a result of Washington’s neglect. Such uppity talk would have been unthinkable only a few years ago.
It appears that the main consensus arriving out of the recent Davos Switzerland conference of world capitalist movers and shakers was that 1). the world economic situation is healthy and secure, however 2). political threats are arising because globalization is producing economic inequities on a world scale and demands are increasing for limits on “free trade”, arising from working people seeing most of the increased wealth they create going into the pockets of the already rich. I guess little did they suspect that a few weeks later a crisis in the U.S. home loan industry would shake the first conclusion. Nonetheless, the poverty and inequities remain and the consequences were obvious throughout Bush’s Alice in Wonderland trip through Latin America.
Bush didn’t go south empty-handed. But his promises were relatively lame, especially when measured against the benefits the region is reaping from increased economic integration and mutual aid agreements, such as with Venezuela and Cuba. According to the Financial Times, the much-touted ethanol “green fuels” agreement with Brazil, involving contributions from the two countries and major international banks amounts to only $25 million. Latin American commentators are openly deriding the U.S. healthcare initiative which will involve a U.S. Naval ship calling at the ports of 11 countries.
One of the gifts the U.S. President had in this satchel as he embarked on tour was the promise that the Overseas Private Investment Corporation, the government agency that guarantees U.S. investment abroad, would increase funding for cheap mortgages for the working people of the region. A Brazilian newspaper editorial denounced the move as “mean,” “anachronistic” and “totally out of touch”. But it would appear to have a logical reason, albeit a neo-colonial one.
On March 14, Europe’s largest bank, HSBC Holdings Plc, already smarting painfully from its involvement with the U.S. subprime mortgage crisis, announced it still plans to increase lending to high-risk borrowers in Latin America. Sandy Flockhart, HSBC´s president for Latin America, said the London-based company will offer credit cards and other loans to even more individuals with no borrowing history as part of a plan to produce a greater share of its revenue in the region. According to the Mexican newspaper El Universal, the largest banks in Mexico, including subsidiaries of HSBC, Citigroup Inc. and Banco Bilbao Vizcaya Argentaria SA, “are turning to riskier customers for growth after focusing on the smaller, wealthier parts of the population since 2003″. Competition in the Mexican subprime market “is heating up, now that the government has authorized the local unit of Wal-Mart Stores Inc. and other smaller retailers to enter the consumer banking business”, said the paper. Oh, my God.
The Mo’Kelly Report, called the Bush tour “a bad, traveling reality TV show in which Dubya and “Democracy” are the co-stars”. “The Bush administration is pitching this new program and the world simply isn’t buying or willing to tune in”, the blogger wrote.
BC Editorial Board member Carl Bloice is a writer in San Francisco, a member of the National Coordinating Committee of the Committees of Correspondence for Democracy and Socialism and formerly worked for a healthcare union. Click here to contact Mr. Bloice.
Asia Sentinel – Free Trade and the Filipino Maid
Mike Poole
16 March 2007
Filipino and Indonesian maids congregate in large number in public places during the holidays. HSBC headquarters on Sundays is being referred to as the “bird nest” by the locals because of the sight and the echo of all the maids chatting.
Labor migration is a serious business. So when Filipino domestic helpers in Hong Kong protest against training reform at home, it’s about nothing less important than the freedom of trade.
It takes a world of anger to push a Filipino domestic helper onto the streets of Hong Kong in protest. Her weekend lasts a single day, and she’s on-call or working for every waking moment of the rest. In recent years an eroded minimum wage has joined maids from various countries living here to feel discontent, but last month something changed. A march from Causeway Bay to Central in Hong Kong focused on a Philippine government proposal to introduce lengthy and costly training for all household workers leaving the country. Fair enough, you might think, it’s a competitive world. But this was about restricting free trade.
The flow of labor between countries is an emblem of globalization, with its promise of opportunity and wealth shifted – if only a little – to those who need it most. But the reality is tied more to the withering of local conditions. The official Philippine policy of sending workers overseas began under President Ferdinand Marcos as he busily looted the country during the 1970s. The plan worked so well that the next deposed president, Joseph Estrada, called labor migrants “modern day heroes”.
Estrada has been under house arrest for 5 years while on trial for economic plunder.
But even in such inglorious surrounds, labor migration carries a compelling logic. Marcos was concerned that export-led development had failed, and cast about for another way of breaking into the world market. He found it in people he could send abroad in the hope that their income would filter home. And it did, without fail – a little at first and then more, year after year.
Last year the Philippines sent more than 1 million workers abroad, and they and 6 million compatriots around the world sent home over US$10 billion. That was up 10% on the previous year, and the rate is increasing. But most importantly, given that labor migrants now overshadow a fragile export industry, the money sent home was around 11% of GDP. These figures are staggering, especially when you consider that they only account for money sent back through banks and the like. Door to door cash deliveries could easily double the estimates, if anyone could quite pin down the numbers.
And that’s what separates this money from true export earnings. There’s no accounting regime in place to track success or failure, and raw statistics can be misleading. Most importantly, no one really knows what happens to the money sent home by labor migrants. Economists presume that most goes to consumption and a little to investment, and that it all bolsters economic development. Filipino workers in Hong Kong send money home, and their country benefits – it’s that simple. Or so it would seem.
What’s more likely for Filipino domestic helpers in Hong Kong, who come from the economically disadvantaged provinces more often than their counterparts in, say, the United States, is that all the money they send home goes to consumption. Many in their families have no jobs. The implications for economic growth are clear – there is no investment in new employment and no expanded production.
This situation of chronic dependency is what Nobel Laureate Amartya Sen would call an “unfreedom”. He argues that freedom of exchange and of opportunity must be central to economic development. A country can build sustainable wealth, measured over the long run and not just a few decades, only when freedoms such as employment, adequate healthcare and education are in place to develop human resources.
That’s clearly not the case in the Philippines, but this notion of economic freedom is very close to the Filipino word kalayaan, which implies social cooperation for liberty and its rewards. The problem in Hong Kong last month was that for one group of Filipinos, the home government tried to separate economic freedom from development policy, their kalayaan from their employment contracts.
The main point of contention was whether a domestic helper with experience in Hong Kong, or anywhere else, should have to spend 156 hours and a half a month’s wages training for a job she could already do. In a very short time, and after protests in other countries, the Philippine Department of Labor and Employment issued a “clarification”. The training would only apply to new workers and returnees who failed a compulsory skills test three times. Knowing that offence really is the best form of defense, the Department expressed dismay that welfare measures were being attacked. It pointed out that it had also mandated increases in the compulsory minimum age and minimum wage for all contracts signed.
Were the protesters wrong? Not at all. The entire problem lies in the contract system. In what Milton Friedman once called “this world of jealous nations”, a labor contract ensures that a dismissed worker will return home. And most do. But in labor migration between the Philippines and Hong Kong, a contract also necessarily restricts the freedom to trade in services.
The contract sets the domestic helper’s wage at the same level over two years, without regard for inflation. All governments know about inflation, so to disregard its influence on the profitability of fixed-rate international labor is to effectively impose a tariff. That hardly seems like a credible exercise in development planning, especially when a decline in real, inflation-adjusted, wages will reduce the money available to send home.
But the Philippine government isn’t alone in this. Although annual increases in the minimum wage for domestic helpers in Hong Kong have been 0.5% more than inflation since 2005, there’s always a lag between the mandating of a new wage level and the renewal of a contract that will make the increase relevant. And most current domestic helpers were in the city when the local government slashed the minimum wage by almost 11% in 2003. Even with new contracts, their real wages are still down by around 7.8%.
A further problem is the Hong Kong dollar’s peg to the US dollar. Floating exchange rates even out inflation levels between countries. When inflation at home rises, the value of the currency decreases relative to other currencies, meaning that a worker in a low inflation country can send back more home currency to compensate for the rise in prices. But the Hong Kong dollar is set at 7.78 to the US dollar. The exchange rate with the Philippine peso doesn’t vary much because Philippine inflation at 3.9% is still higher than the de facto Hong Kong rate (the actual US rate) of 2%. But the Hong Kong rate is actually 2.2% and rising against a falling Philippine rate. Money sent home to the Philippines is buying insufficient pesos, as it will for another year at least.
Yes, the Philippine government knows about exchange rates too.
So the anger on the Hong Kong streets was justified at both a specific and a general level. Now that the training problem is solved, the general solution isn’t difficult – domestic helper contracts can easily be indexed for productivity. If the Philippine government won’t lobby for this, employers can enact it informally. A small, regular increase in pay for a job well done won’t break the bank. But it will ensure the freedom of trade.
Sharing a smoke with new found friends by the Li River, Guilin, China
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