Allison Kilkenny: Unreported

Iceland on the Brink

Posted in deregulation, Economy, poverty by allisonkilkenny on January 26, 2009

The Independent

Two years ago, Iceland was top of the UN living index. Now it is in the frontline of the global economic crisis after the failure of its banks, reports Sophie Morris in Reykjavik.

s-iceland-largeJust a few short years ago, Iceland had much to be proud of. The good times were rolling so fast that one expected the country’s almost round-the-clock summer daylight to last all year. Business was booming, society overfed, and the capital, Reykjavik, was in vogue as a travel destination for rich revellers, gastronomes and culture lovers.

Iceland is a country of dramatic natural beauty: lunar landscapes, spouting geysers, sheer glaciers and craggy volcanic rock formations; an impressive but inhospitable isle floating in mid-Atlantic isolation. When, in 2007, it topped the UN’s Human Development Index for its high standard of living, literacy and life expectancy, the tiny community of 310,000 felt they had proved their educated, hard-working and resilient character on an international scale.

The previous year, America had abandoned its long-standing naval air station at Keflavik. Symbolically, the move set Icelanders free from more than seven centuries of foreign domination, first as a Norwegian and then a Danish colony, and for the past 65 years, less formally, under the wing of the US.

“The Vikings” had risen again, and this is the admiring title the country bestowed upon the small group of aggressive businessmen whose high-risk investing bloated the island’s economy to 10 times its GDP, buying up chunks of the British and Continental European high streets in the process. French Connection, Debenhams, Karen Millen, Oasis, Warehouse, Mappin & Webb, Hamleys and many more fell into Icelandic ownership. So did West Ham United football club. When Icelanders visited Copenhagen, they would strut into its smartest department store to buy expensive fashions from “their” shop. Like many British chains, it too was owned by the “Viking” Jon Asgeir Johannesson’s Baugur group: one in the eye for the mother country.

Few stopped to consider, let alone fret over, whether their swift financial ascent would end in an equally steep plunge into oblivion. They were too busy flying to Barcelona for dinner, opening smart boutique hotels, investing in art, planning massive public buildings and buying Range Rovers and Audi Q7s – Iceland is one of the top car-owning countries in the world.

In October, Iceland’s three main banks were nationalised and declared bankrupt. Overnight, any Icelander – and there were many – who had bought these status vehicles or invested in luxury new properties with a foreign loan found the value of their purchases plummeting as repayments soared. The currency, the Krona, fell to one quarter its value before trading in it was suspended. Thousands of hard-working couples nearing retirement age had placed their life savings in stocks with the Landsbanki, Glitnir and Kaupthing banks which led the crash. For many, every penny disappeared into the turbulent waters which connect Iceland with its American and European neighbours.

Frugal Icelanders have been stung too. Food and petrol costs are rising all the time and with interest rates nearing 20 per cent, domestic mortgages, even modest ones, are becoming impossible to service.

“The feeling is we are unable to look after our own affairs” says Hallgrimur Helgason, one of the country’s leading novelists. “We were on our own for years and we went too far, too fast, in too little time. We behaved like children and the first thing we did when the stock market opened 10 years ago was go to London and buy toy stores and candy stores. Now we are bankrupt and there will be no money for years to come and we have more debts than we can ever repay.

“We’re just like kids whose parents went away for the weekend and we trashed the entire house.”

There is no word from the government yet on how it plans to repair the damage. What does that mean for the man on the streets of a country whose coffers are empty? Are we talking soup kitchens, sheltered housing and begging on street corners? Far from it. If you’re as comfortable as Iceland was, the rot has its work cut out before it emerges on the surface.

The streets of the capital are clean and the people could not be more hospitable or charming. On Friday and Saturday nights, a succession of bars and clubs are packed out. Judging by the drunken state of most people, they are still spending money here.

Iceland’s troubles did reveal themselves during last week’s tumultuous events. Peaceful demonstrations began in Reykjavik’s main square, outside the Althing (parliament) building, had begun in October immediately after the crash. Last week they erupted in the worst riots since it became a founding member of Nato in 1949. Rocks were hurled at police and the Althing. Its windows were smashed and the building set alight. Over 130 protesters received treatment after police used tear gas to disperse the crowd, and one police officer was seriously injured.

On Friday morning, human rights campaigner and protest organiser Hordur Torfason told a chilling anecdote to illustrate the desperation many Icelanders are feeling. He had received a phone call from a man who said that four generations of his family had lost everything. “He wanted me to help them build a gallows in front of the parliament building,” says Torfason. “I asked him if this was to have some symbolic significance. ‘No,’ came the answer. ‘A member of my family wants to hang himself in public.'”

“I said I would help them but not in this way,” says Torfason. “But he killed himself two days ago.”

Red Cross employees and volunteers are working overtime to prepare for depression and desperation. The relief agency has expanded and is setting up support groups and activities for the unemployed. “One of the effects of long-term unemployment is depression,” says the agency’s Thor Gislason.

More people are attending church, he says, not just for spiritual succour, but because food is sometimes provided for a nominal charge. Soup kitchens, emblematic of Eastern bloc poverty, might be going too far. “We believe people will be too ashamed to stand in line publicly for food,” says Gislason, “so we will organise activities and volunteer work where food is involved instead.”

Icelanders are known for their love of good food. Now is the beginning of a month when people celebrate local cuisine by dining out on traditional dishes, but one smart restaurant with a menu featuring pickled whale blubber, whale sushi and peppered whale steaks, cod liver, pickled herring, smoked puffin breast, reindeer meat and caviar, is empty save a handful of foreign diners. Panorama, a new gourmet restaurant on the top floor of the Centerhotel Arnarhvoll, has magnificent views over Reykjavik’s harbour but is equally subdued. Over in Reykjavik’s 101 Hotel, owned by the “Viking” tycoon Jon Asgeir Johannesson and renowned as a favourite haunt of champagne-loving Kaupthing bankers, there are a few suits and little else.

As many as 8,000 people braved the damp cold to demonstrate last week, the largest number to attend a public protest in the history of Iceland. On Friday, the Prime Minister, Geir Haarde, who has cancer, called an election for9 May and announced that he will not run again. Yet protesters called for his immediate resignation on Saturday. The government’s efforts amount to too little, too late, they say. They want parliament dissolved, a new constitution, and an investigation of those politicians they believe accountable. “Every other person is basically bankrupt,” said organiser Magnus Bjorn Olafsson. “This is a revolution and we want to create a new constitution like the French did.”

All walks of life were evident at the protests; well-heeled Icelanders with their designer coats and dogs were as prevalent as any other group. For many, like Gudbjorg Bjornsdottir, 47, and Runar Mar Sverisson, 50, it was their first experience of protesting. “We thought it was time we showed our support,” says Bjornsdottir, “It is not enough to sit at home. We are not here for our personal situation but for the injustice.”

Asgerdur Einarsdottir, 43, attended a party last week attended mostly by architects and graphic designers. She was the only one there to have a job. She works in Iceland’s remaining steady industry, tourism, for a tour operator which provides visitors with thrills such as snowmobiling up a glacier or driving through lava fields.

Before the crash, Iceland was prohibitively expensive. It is now far more accessible to foreigners but the running costs of her firm, owned by the parents of Barcelona striker Eidur Gudjohnsen, have gone up 110 per cent, and they are losing the lucrative business of indulgent corporate jollies.

On Reykjavik’s main shopping street, Laugavegur, bargains are suddenly to be found: in Saevar Karl, a designer department store, most items are 40 per cent off. Its manager, Tomas Tomasson, notes that Iceland is now the cheapest place in the world to buy Prada.

Everyone blames greed, political corruption and lack of financial regulation for the mess, but most know they must share responsibility. “I feel partly to blame myself,” admits writer Helgason. “We admired the brashness of the Vikings and we all got carried away. We are a young and immature society.”

Torfason says: “Things are bad and they will get much worse. But it is unlikely anyone will starve. There are people with no fixed address here, but none on the street; you would freeze to death. There is no call to be desperate. We are small but we have resources.”

This much is true. The seas are full of fish, geothermal energy and natural gas are abundant. Oil prospecting is beginning. But there is a risk that Iceland will give its riches away in a fire sale to the same Vikings who have already half-sunk the nation once.

Iceland has survived famine, volcanic eruptions and smallpox before. Now it must confront the fact that it has been blighted by a man-made disaster.

Iceland: The facts

*Population: 313,376

*Currency: Icelandic Krona (ISK)

*Unemployment in October 2008 1.9%; January 2009: 7%. Expected to rise to 8.6% in 2010.

*Inflation: 13.1%

*Interest rates 18%

*GDP per capita in 2007: $42,000

*GDP per capita now: $39,400

*The world’s eighteenth largest island, Iceland has nearly 5,000km of coastline.

*Iceland’s natural resources include geothermal power and diatomite, many rivers and waterfalls are used for hydroelectricity.

*Did not gain full independence from Denmark until 1944. Granted limited home rule in 1874.

*Althing, the Icelandic parliament, is the oldest functioning legislative assembly in the world, which was established in 930.

*In 2007 Iceland was ranked the most developed country in the world by the UN.

*The Apollo 11 astronauts trained in Iceland because of the terrain’s similarity to the moon.

Obama’s Economic Plan Is Not Going to Save Us

Posted in Barack Obama, Economy, politics by allisonkilkenny on January 22, 2009

The Nation

china_shanghai_stock_market_crash_recessionThe nation’s fast-darkening circumstances define the essential dilemma of Barack Obama’s presidency. His instinct is to govern by consensus, in the moderate middle ground of politics. Yet dire events are pushing the new president toward solutions more fundamental than those he had intended. The longer he resists taking more forceful action, the more likely it is that he will be overwhelmed by the gathering adversities.

Three large obstacles are blocking Obama’s path. The first is one of scale: his nearly $800 billion recovery package sounds huge, but it is perhaps two or three times too small to produce a turnaround. The second is that the financial system–still dysfunctional despite the bailouts–requires much more than fiscal stimulus and bailout: the government must nationalize and supervise the banks to ensure that they carry out the lending and investing needed for recovery. This means liquidating some famous nameplates–led by Citigroup–that are spiraling toward insolvency. The third is that the crisis is global: the US economy cannot return to normal unless the unbalanced world trading system is simultaneously reformed. Globalization has vastly undermined US productive strength, as trade deficits have led the nation into deepening debtor dependence.

While Washington debates the terms of Obama’s stimulus package, others see disappointment ahead. The Levy Economics Institute of Bard College, an outpost of Keynesian thinking, expresses its doubts in emotional language that professional economists seldom use. “The prospects for the US economy have become uniquely dreadful, if not frightening,” Levy analysts reported. The institute’s updated strategic analysis warns that the magnitude of negative forces–the virtual collapse of bank lending, private spending, consumer incomes and demand–“will make it impossible for US authorities to apply a fiscal and monetary stimulus large enough to return output and unemployment to tolerable levels within the next two years.” Instead, the unemployment rate is likely to rise to 10 percent by 2010. Obama’s package amounts only to around 3 percent, annually, of GDP in a $13 trillion economy. Levy’s analysis calculates that it would require federal deficits of 8 to 10 percent of GDP–$2 trillion or more–to reverse the economic contraction. And yet, the institute observed, it is inconceivable that this level “could be tolerated for purely political reasons” or that the United States could sustain the rising indebtedness without terrifying our leading creditors, like China.

Stimulus alone by a single nation will not work, in other words, given the distorted economic system that Obama has inherited. The stern warning from the Levy analysts and other skeptical experts is that the United States has no choice but to undertake deeper systemic reforms right now, rather than wait for recovery. Will Obama have the nerve to tackle these fundamentals? To do so he would have to abandon some orthodox assumptions about free trade and private finance that he shares with his economic advisers.

The most obvious and immediate obstacle to systemic change is the dysfunctional financial system. It remains inert and hunkered down in self-protection, despite the vast billions in public money distributed so freely, no strings attached, in the last days of the Bush administration. We will learn soon enough whether Obama intends to start over with a more forceful approach. Obama and his advisers are eager to get another $350 billion in bailout funds, but they have remained silent on whether this will finance a government takeover of the system. Without such a move, the taxpayers will essentially be financing the slow death of failed institutions while getting nothing in return.

The most complex barrier to recovery is globalization and its negative impact on the economy. Given our grossly unbalanced trade, we have kept the system going by playing buyer of last resort–absorbing mountainous trade deficits and accumulating more than $5 trillion in capital debt to pay for swollen imports, while our domestic economy steadily loses jobs and production to other nations. Renewed consumer demand at home will automatically “leak” to rival economies and trading partners by boosting their exports to the US market–which subtracts directly from our GDP. This is the trap the lopsided trading system has created for recovery plans, and it cannot be escaped without fundamental reform.

To put it crudely, Obama’s stimulus program might restart factories in China while leaving US unemployment painfully high. In fact, some leakage may occur via the very banks or industrial corporations that taxpayers have generously assisted. What prevents Citigroup and General Motors from using their fresh capital to enhance overseas operations rather than investing at home? The new administration will therefore have to rethink the terms of globalization before its domestic initiatives can succeed.

A global recovery compact would require extremely difficult diplomacy but could be possible because it is in everyone’s self-interest. The United States could propose the outlines with one crucial condition: if the trading partners are unwilling to act jointly, Washington will have to proceed unilaterally. A grand bargain could start with US agreement to serve once again as the main engine that pulls the global economy out of the ditch. That is, the United States will have to continue as the buyer of last resort for the next few years, and China and other nations will have to bail us out with still more lending. In the short run, this would dig us into a deeper hole, but the United States could insist on a genuinely reformed system and mutually agreed return to balanced trade, once global recovery is under way.

Congress can enact the terms now–a ceiling on US trade deficits that will decline steadily to tolerable levels, as well as new rules for US multinational enterprises that redefine their obligations to the home economy. Unlike in other advanced nations, US companies get a free ride from their home government when they relocate production abroad. That has to change if the United States is to reverse its weakening world position. Tax penalties plus national economic policy can drive US multinationals to keep more of their value-added production at home. These measures can be enforced through the tax code and, if necessary, a general tariff that puts a cap on imports. Formulating these provisions now for application later, once the worst of the crisis is over, would give every player the time to adjust investment strategies gradually.

President Obama and his team may at first scorn the notion of saving the world while negotiating a bailout for the United States. They will be reluctant to talk about reforming the global system by threatening to invoke emergency tariffs. But we are in uncharted waters. Impossible ideas abruptly begin to seem plausible. Six months from now, if the Obama recovery does not materialize, the president may discover he has to reinvent himself.

William Greider has been a political journalist for more than thirty-five years. A former Rolling Stone and Washington Post editor, he is the author of the national bestsellers One World, Ready or Not, Secrets of the Temple, Who Will Tell The People, The Soul of Capitalism (Simon & Schuster) and–due out in February from Rodale–Come Home, America.

Neo-Colonialists Begin Campaign Against Obama’s Fair Trade Agenda

Posted in human rights, politics by allisonkilkenny on January 18, 2009

David Sirota

sweatshop1Nicholas Kristof’s latest New York Times column makes the case that corporate colonialism and human exploitation aren’t just not bad, but actually a great virtue that will save the developing world – and that those working to stop such colonialism and exploitation are the root cause of global poverty. I kid you not:

Mr. Obama and the Democrats who favor labor standards in trade agreements mean well, for they intend to fight back at oppressive sweatshops abroad. But while it shocks Americans to hear it, the central challenge in the poorest countries is not that sweatshops exploit too many people, but that they don’t exploit enough…

I’m glad that many Americans are repulsed by the idea of importing products made by barely paid, barely legal workers in dangerous factories. Yet sweatshops are only a symptom of poverty, not a cause, and banning them closes off one route out of poverty…

When I defend sweatshops, people always ask me: But would you want to work in a sweatshop? No, of course not. But I would want even less to pull a rickshaw. In the hierarchy of jobs in poor countries, sweltering at a sewing machine isn’t the bottom.

This is quite literally the argument of a sociopath – and the problem is that sociopathy is so prevalent in discussions about trade and globalization that we barely even notice it anymore.

David Sirota :: Neo-Colonialists Begin Campaign Against Obama’s Fair Trade Agenda

Think about how intellectually dishonest Kristof’s argument is: He is basically saying that when American trade policy incentivizes corporations to employ young women in 15-hour shifts in sweatshops for $1 a day, we’re doing those women a favor, because that situation – however horrendous – is better than them having to dig through garbage dumps or serve as prostitutes for subsistence. The assumption – totally unquestioned – is that it’s an either/or choice: According to Kristof, either these women can have the great honor and privilege of being exploited, or they can face a worse hell (like, he says, pulling a rickshaw). And America should be unapologetically proud of itself for providing the opportunity for the former.

Left unsaid, of course, is that the size of the American market coupled with strong labor/wage protections in our trade policy would likely compel another alternative to the binary sweatshop-or-worse-hell paradigm.

Here’s the deal: Because our market is so big, economists will tell you that every multinational corporation wants to do business in the United States – that is, every corporation that wants to be globally competitive wants to be able to sell things to Americans. This is a huge amount of potential global economic leverage. The standards we choose to set as conditions for access to our market set standards throughout the world For example, our trade policies include restrictive patent protections for pharmaceutical companies and foreign governments enforce such patents even though they keep many medicines prohibitively high for their impoverished populations. Why? Because if they don’t, they could face crippling economic sanctions (read: loss of access to the American market they need access to).

Unfortunately, our current trade policy – and specifically, its omission of basic labor/wage/environmental/human rights standards – means we don’t use the economic leverage that comes with that market power for anything good. While we do, for instance, protect drug industry profits with restrictive provisions for patents, we don’t protect human beings and deride proposals for such protections as evil “protectionism” (as if the patent protections aren’t protectionism). By saying to corporations that they can have access to our market with almost no preconditions, we incentivize only one thing: a race to find the most exploitable labor and most lax environmental laws in the world so as to bring down product prices and inflate profits as much as possible.

In mimicking Margaret Thatcher’s famous “There Is No Alternative” refrain, Kristof would have us believe that the current standards-free system is inevitable and unchangeable – and worse, that any effort to change it would only hurt the poor foreign workers he purports to care about. But clearly there is an alternative. If the United States government’s trade policy said companies could only have access to our market if they followed the most basic labor/wage laws that prevent gross sweatshop exploitation, that would economically incentivize companies to improve their labor standards by making access to their American customers contingent on better behavior. And thus the either/or paradigm would be mitigated, if not eliminated.

Kristof and the neoliberal elites his writing represents likely knows all this – they may be sociopaths in their carefree attitude toward human exploitation, but they aren’t stupid. They want this either/or paradigm to exist, even though it doesn’t have to. Why? Because it both alleviates their privileged guilt and because it justifies the shredding of the social contract.

America’s ruling class – whether wealthy pundits, Wall Streeters, Washington lobbyists, corporate executives, politicians, or your typical suburban SUV-driving hundred-thousand-aire – desperately needs ways to avoid guilt and instead feel good and moral about sustaining lavish lifestyles through human exploitation. And so they have people like Kristof, Tom Friedman and other kindred spirits to give them a reasonable-sounding White Man’s Burden-style argument that helps them feel righteous rather than stoic in their excess; makes them feel like they are Saving the Children when they buy a pair of expensive slacks made by children toiling in a foreign sweatshop; and makes them feel that any pangs of guilt or efforts to change things are what’s really creating such bone-crushing poverty in the Third World. As Kristof himself proudly declares, the problem with America’s trade policies is not that the sweatshop culture they incentivize “exploit[s] too many people, but that they don’t exploit enough.”

Such rhetoric psychologically reassures the decidedly upper-class readership of the New York Times op-ed page that they don’t have to change their behavior or political disposition at all in order to feel like they are good people. And many, of course, follow up with traditional gestures of the noblesse oblige in order to buttress the positive self-image neoliberalism manufactures for them. For instance, Kristof proves to himself that he’s not the mundane colonialist that he is by penning other columns about the horrors of foreign poverty. Likewise, millionaire “liberals” who back the most exploitative globalization policies give money to anti-poverty charity. And yet, the structural policies that create poverty go untouched.

By this insane logic, then, we should be working not only to prevent any kind of labor/wage/human rights/environmental protections in our trade policies, but to start shredding the social contract here at home. By this logic, our minimum wage, workplace safety standards, minimal union organizing rights, and environmental laws must be abolished so that companies will employ workers here – regardless of the terms of that employment. After all, at least you can get a below-the-poverty-line job at Wal-Mart and not have to dig through trash dumps to subsist, right?

Well, sure – but it’s a false choice. When all the basic employment protections we take for granted were originally passed, our nation decided that the either/or choice didn’t have to exist – and we were right. For example, we understood that even if state and federal governments made mining companies permit unions and made mining companies pay workers a minimum wage, they would still maintain operations in places like Colorado and Montana. Why? Because there’s trillions of dollars worth of natural resources in those states that makes it worth staying, regardless of those basic worker protections – and if one company leaves, their competitor will come in and capitalize.

It’s the same thing in our globalization policies. We should understand that companies will keep employing the foreign workers that Kristof claims to care about even if we include minimal labor/wage/human rights/environmental standards in our trade pacts. Why? Because there’s trillions of dollars worth of customers in America that makes it financially smart to conform to such standards, rather than closing up shop. Such standards would also create an economic incentive for foreign countries to improve their domestic workplace laws and enforcement of said laws so as to get access to the American market ( Right now, the incentive is the opposite: Countries are encouraged to decimate their domestic laws so as to attract foreign investors, and those investors know there is no economic cost – ie. loss of access to the American market for going to the countries with the worst possible conditions).

Admittedly, over the long-haul, we may not have as much potential market-influencing power as we do now. With the rise of China and India, and the Bush-weakened domestic economy, it’s possible the American market will shrink in relative size to the rest of the globe, and therefore we won’t have as much market leverage to incentivize such standards. But that’s why there’s so much urgency to the basic fair trade reforms that President-elect Obama campaigned on, and that so many congressional Democrats have promised.* Not only will those fair trade reforms begin preventing Americans from having to compete in an unfairly rigged and recession-exacerbating race to the bottom with foreign slave labor, but they will use this potentially fleeting moment of American economic supremacy to lift the world up, rather than kicking it down.

Ultimately, such a paradigm shift will be far more important to restoring America’s image in the world and alleviating global poverty than the (admittedly significant) symbolism of removing George W. Bush and replacing him with a leader who has ancestral ties to Africa. That’s the secret the “exploitation is good” sociopaths from Kristof to the Chicago Boys don’t want us to grasp.

* And let’s be very clear: Nobody is proposing the institution of standards that even approach America’s domestic standards. No one is proposing a global American-level minimum wage or workplace safety standards or environmental protections. What has been floated are the most minimal protections against the worst kind of exploitation (child labor, right to join a union, etc.) – and yet even these most minimal standards are being opposed by the Establishment.