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The Community of Detroit

Sorting through my thoughts about Detroit's bankruptcy (or whatever it turns out to be)

Different ideas about how companies can be organized and run are floating around. What resonates with me are institutions that support communities: "communities" of employees, of local citizens, of people interacting with the natural environment. Too often, though, companies barely acknowledge the importance of these communities while they bend over backwards to better meet the needs (make that wants) of investors.

Many people reflexively respond that the main (or only) purpose of a company is to make money, and that companies must be organized to serve the needs of the "community" of investors.  (They don't). Of course, investors may have no connection to a company at all -- they don't work there, don't live in the towns where their investments are put to work, they may not even like the products the company makes. Yet to business traditionalists -- but not to me -- investors' desire for making money trumps everything else.

I would like to think that when it comes to a real community -- I'm thinking of Detroit -- that we wouldn't even need to question whose rights should be considered ahead of all others: the rights of those who call the community home. Other discussions about social issues can take on a moralistic dimension: deficits somehow correlate with lack of character (though empirical evidence indicates it is appropriate to stimulate a stalled economy); poor people don't deserve to eat; ill-supported (and often mean spirited) advice like that.  

But when it comes to a city -- a place where people live, raise kids, and shape our future -- moralizing or scolding make even less sense. Police, firemen, and other pensioners contributed to the city for years -- some for decades. State law says their pensions cannot be reduced. Those not owed pensions are owed essential services, including timely responses by police and fire fighters, working schools, and working street lights. They did not cause Detroit's decline, but they have suffered greatly from a transformed auto industry and corporations' decisions to decamp to the 'burbs, taking with them their tax dollars.

With change, comes the opportunity to reflect upon new ways of doing business. Shifts in population growth and in spending have made companies aware of new markets in the developing world, if not yet in as dramatic a way at the bottom of the economic pyramid. Similarly, in the next several decades, large-scale transfers of corporate ownership provide an opening for a dramatic shift towards inclusive corporations.

And now Detroit is facing bankruptcy. This grim circumstance creates an opening, too. What kind of city does Detroit deserve to be? Most essentially, for Detroit to "work," people must work. And there is work to be done. With more than a quarter of Detroit's 140 square miles abandoned, projects to raze and re-purpose these properties are being undertaken. Detroit Blight Authority is taking a lead, appealing for federal funds. This is a perfect opportunity for the government to release funds, contingent upon the training and hiring of Detroit's idle workforce. What's more, Detroit can follow the lead of other downtrodden communities, including the South Bronx, to create a green, energy-saving, and even energy-creating city.

Detroit's schools are the next (if not the first) obvious place to make changes. Detroit Public School's newly appointed emergency manager can help foster an environment that couples academic rigor with real-life relevance. If you've followed this blog, you know how high I am on the Network for Teaching Entrepreneurship">, a model that creates life-changing educational experiences for low-income students. 

Even with ObamaCare, negotiating the healthcare maze will be daunting. Programs like Rebecca Onie's Health Leads demonstrate how non-traditional health care workers can help cut through red tape to ease the problems faced by the ill, poor, and elderly. Where Health Leads relies on college students to fill "prescriptions" for food, clothing, housing, etc., Onie suggests that local community members themselves can staff similar positions. Such staffing (jobs!) can avoid expensive emergency room visits and head off long term health problems. Suitably structured and financed (possibly with social impact bonds), hospitals can serve more patients, more effectively, and save money.

As Governor Snyder has been saying, Detroit's problems did not just occur; they've been unfolding over decades, caused in large part by a dis-investment in the city. Now at the point of crisis, we can begin to point Detroit in a new direction. Detroit's resurrection will take time, as did its decline. It will take investment, but investment in, and of, the community. Not investment aimed at making investors wealthy ahead of the needs of the city. 

The city that helped more than any other in winning World War II; the city that created a modern society through the automobile industry and industrial efficiency -- this city needs our compassion and support. This does not mean our charity: for by re-making a working, well-educated, healthier Detroit, we set the country on a stronger course.

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Economics for the Future

How's the economy looking to you?

Of course, none of us has ever seen "the economy," since the term is just an abstraction. But it is an abstraction that covers such a broad range of activities that we probably need a few new words to cover them all.

If you're poor, the economy doesn't look too good. Worse, there are many people with power who don't have your best interests at heart. The US House is flirting with reductions in food stamps of up to $135 billion (while keeping subsidies for already wealthy mega-farmers).    

Cynically, state legislatures are denying the poor the opportunity to receive health care coverage under ObamaCare. In Michigan, for example, working parents now must be below 64% of the federal poverty line to receive Medicaid; jobless parents must be below 37%; and childless adults are ineligible altogether. With Medicaid expansion (a provision of ObamaCare that the Supreme Court ruled each state could make its own decisions about), people in each of these groups would be eligible if their incomes were below 133% of the Federal poverty line. Yet the Michigan Senate is unsure if will allow this, although the federal government will cover more than 90% of the cost for the next decade.

On the other hand, the economy looks pretty bright for those with the smarts -- make that connections -- to benefit. Thomson Reuters has come under scrutiny for packaging the University of Michigan-produced consumer confidence index for the benefit of high-frequency traders who pay to receive it two seconds before it is released more widely -- a window in which hundreds of thousands of trades are executed and millions of dollars made by understanding consumer sentiment just a shade in advance of other stock traders.

Legal or not (there is some question), and ethical or not (ditto), this kind of economy has been designed for the exclusive benefit of the wealthy. Despite claims of creating more efficient markets, there is nothing in this kind of activity that resembles the economic activity that benefits, and that we can "see," on Main Street.

That economy -- the real economy -- is defined by jobs, actual goods and services, and enduring relationships -- not milliseconds. As Marjorie Kelly explains in Owning Our Future, this economy can be structured for sufficiency (genuinely meeting a community's needs, over a long period) rather than efficiency (trying to make as much money and profit as quickly as possible). The key is developing means of ownership that create genuine wealth, whether that ownership is in the hands of employees, communities, or mission-driven organizations.

Just one example, which Kelly mentions: Evergreen Cooperatives in Cleveland provide jobs and opportunities for low-income residents. Its employee-owned green laundry, solar/energy efficiency, and hydroponic gardening businesses contract with major Cleveland organizations including the Cleveland Clinic, University Hospital, and Case Western Reserve University to provide needed services. The revenues from these businesses stay within Cleveland to create community wealth rather than wealth for absentee owners, mainly supporting residents with household incomes below $19,000 (the federal poverty line for a family of four is $4,500 more than that). An institution that received much deserved recognition at the recent BALLE conference, Evergreen businesses allow employees to purchase an ownership stake in the company after six months of employment (which it helps finance), entitling them to vote on all issues (one vote per owner), to receive health insurance, and to expect $65,000 in equity from profits in eight years of employment.

This kind of economy has many different manifestations. What unites them is the vision of a stable, inclusive community, striving for sufficiency, honoring the needs of people and respecting the natural world. An economy built to endure, not live its life in seconds.

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What does electoral emergence look like? 

Consider: We just re-elected a Democrat President who will need to work with a Republican House and Democrat Senate. Or viewed differently: the people have said that they want a divided government (as Speaker Boehner suggested), not an unimpeded move towards a more progressive agenda.

Or did they?

The Presidency is the only national office that we vote for. Even so, it's hard to imagine that the popular vote would have been same if, say, states like Vermont (67 percent Obama) or Utah (73% Romney) got the same attention as Ohio.

The House results were even more affected by artifacts of our electoral system. With all 435 House seats contested, Democrats received almost half a million more votes, but the Republicans won a majority of the seats. Why? Because of the way congressional districts are drawn, which itself is strongly influenced by which party is in power in the states. As the Washington Post pointed out, in states where Republicans controlled redistricting, Democrats almost uniformly performed far worse in elections for the House than for the Presidency. Examples: in Ohio, Obama won 51% of the vote, but Democrats won only 25% of House seats; or South Carolina, where Obama won 45% of the vote, but Democrats won 14% of house seats. 

In the Senate this year, 23 of the 33 seats being contested were held by Democrats, making it difficult for Democrats to hold on to their 53-47 (those numbers again!) margin, if the nation were voting in a party-neutral, 50-50 ways. Yet, rather than losing 6.5 seats net and losing Control of the Senate, as statistics would suggest, Democrats gained two seats, by winning 25 of the 33 contests, while winning the popular vote across these Senate races by nearly 13 million votes.

The divided political situation we now face results from an electoral chemistry that combines any number of influences, from Article II of the Constitution, which created the Electoral College (originally conceived to produce results in elections dictated neither by political parties nor by national campaigning); to the most recent census and its influence on congressional re-districting; to someone with a cell phone recording Mitt Romney's "private" thoughts; among many, many others.

Together, these influences produce an "emergent" picture of a national electorate. Emergence is a characteristic of a system where what is apparent outwardly arises from any number of smaller features that may be hard to detect and whose interaction looks little like these features in isolation.

So, is John Boehner right in saying that there "is a mandate for both parties to find common ground and take steps together to help our economy grow and create jobs, which is critical to solving our debt"? 

My position is that to figure out what is on the nation's mind, it is best to look at outcomes most reflective of overall, versus local, views. Or: look at the popular vote for President, the House, and the Senate. Democrats won each of these races, by margins of 3 million, half a million, and 13 million votes respectively. To paraphrase the cognitive scientist Douglas Hofstadter: Although a green fence is made up of atoms and atomic particles, none of them is green. To see the color of the fence, just open your eyes.

The popular vote for the Presidency, the House, or the Senate are not perfect indicators of our national desires. But they suggest that the people want the country to go in a direction Democrats have suggested: investmenting in education, health, infrastructure, a greener planet. 

And greater inclusivity.
You know the saying: lies, damn lies, and statistics. Now add: political statistics.

Friday's jobless rate is either good news, terrible news, or made up news (shameful, Jack Welch).

I decided to do a bit of fact checking to see what I could come up with.

To put things in a bit of historical context, economists backdate the recession to 2007, but the collapse of Lehman Brothers and the too-big-to-fail crisis began almost exactly four years ago.

What do Bureau of Labor Statistics data tell us about ten countries? (Aus is Australia.)


  USA       CAN   AUS   JAP    FRA   GER   ITAL     HOL   SWE  UK            
2007 4.6 5.2 4.4 3.6 8.1 8.7 6.2 3.6 6.1 5.4
2008 5.8 5.3 4.3 3.7 7.5 7.6 6.8 3.1 6.1 5.7
2009 9.3 7.3 5.6 4.8 9.2 7.8 7.9 3.8 8.3 7.7
2010 9.6 7.1 5.2 4.8 9.5 7.1 8.5 4.6 8.3 7.9
2011 8.9 6.5 5.1 4.2 9.4 6.0 8.5 4.5 7.5 8.1
2012 Q2     8.2 6.4 5.1 4.0 9.8 5.7 10.7 5.2 7.4 8.1


Unemployment Rates, adjusted to U.S. Concepts

What jumps out to me: 
  • Since 2007, every country but Germany has a worse unemployment rate. This is a global--not a national--problem. The group of European countries, whether we consider the EU-27 or only those that have adopted the Euro as their currency, have seen unemployment increases each year since 2008. Those groups are not explicitly represented in the BLS data.
  • Since 2009, just after Lehman Brothers hit the fan, through the second quarter of this year, four of these ten countries the BLS cites for comparison have seen their unemployment rise.  The United States is not one of them.
  • From 2011 to the second quarter of this year, only one country has seen its unemployment rate drop by 0.5% or more. That country is the United States.
unemployment-chart1.gif
 Unemployment, seasonally adjusted, March 2011-August 2012.


The overarching lessons, which we should all remember but don't (or won't):
  • We--all countries--are in this mess together. Too big to fail might describe banks. Too interconnected to stand alone describes national economies.
  • No leader has the ability to magically restore the economy of his nation.
  • All things considered, the United States is faring fairly well.
Oh yeah: and for the first time in the Obama's presidency, unemployment is under 8.0%




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