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Archive for April 3rd, 2009

Recession Fashion

From the NYTimes:

As customers re-evaluate their relationship with designer clothes, high prices are driving some of them to hunt for fashion in stores or from brands they had previously overlooked. If they are not just staying home, shopping their closets, they may be part of a consumer pattern of trading down, from a Saks Fifth Avenue to a Macy’s, for example, and liking what they see — or at least not being horrified.

At the same time, mainstream retailers like Ann Taylor and Talbots have been hiring new designers and sprucing up their looks to appeal to modern women who are now shopping for style within their means. As these stores become “recession destinations,” as described in a report by the research firm YouGov, shoppers are discovering that they aren’t as fuddy as they used to be.

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Just because we are in a recession doesn’t mean labor is required to take it up the you-know-what from their employers and the general public. Whereas in the US, UAW workers are expected to take pay cuts and furloughs because of their management’s poor decision-making (and they do it, because they want to keep their jobs), workers around the world have had different responses.

OK, granted, there was that plant sit-in in Chicago a few months ago. However, that was very much NOT “The Take.” It was workers demanding what was legally theirs. The responses of workers in South Korea, Ireland, and France are at a whole different level.

First, in Ireland, a seven week sit-in at the Waterford Crystal Factory was actually successful in saving a couple hundred jobs:

Workers at Waterford Crystal have voted to end an eight-week sit-in at the company’s premises in Kilbarry and to accept an agreement with the new owners that will save 176 jobs.

Members of the Unite trade union at the company began their sit-in at the plant’s visitors’ centre on January 30th, sparked by the receiver’s decision to shut down manufacturing there after he ran out of cash…

“The support from the trade union movement around the world has been tremendous. The Waterford brand name should be in ownership here in Ireland either by the Irish Government on behalf of the people of Ireland through nationalisation or by the people of Waterford through a municipal bid for the brand name.”

Now, in South Korea, workers are banding together to save jobs in the economy as a whole:

South Korea is not the only country trying to prevent major job losses by asking workers to reduce hours or take pay cuts, but it has turned job preservation into something of a national drive, with the government appealing to both unionized workers and management to set aside differences for the economy’s sake. Saving jobs, President Lee Myung-bak has said, is “our No. 1 goal.”…

In late February, the commission brought together industry groups, unions, civic and religious representatives and government to reach what was billed as a grand national deal to “share pains for social unity.”

Although the agreement was not legally binding — and it remained to be seen whether this deal would save the economy or was merely delaying the pain — workers in major conglomerates have since accepted wage freezes. Unions have promised not to strike. Executives have cut their own wages, and those of new recruits, by as much as 30 percent, with a promise to use the cost savings to hire young job-seekers.

The approach isn’t perfect, of course:

But some economists warn that the government’s recipe for sharing the pain may only prolong it. Most jobs it hopes to create are for temporary workers whose contracts will expire by the end of this year.

The danger is that if the economy does not rebound by then, South Korea will have already spent 39 trillion won, equal to 4 percent of its gross national product, in a stimulus package that risks ballooning the national debt by 19 percent to 367 trillion won. That debt would be equivalent to 38.5 percent of the G.D.P…

Discontent is already brewing in South Korea, despite the calls for unity. One of the largest labor groups in the country, the Confederation of Korean Trade Unions, refused to join the government-led job-sharing deal. It dismissed the program as a “stopgap trick” and a waste of taxpayers’ money. It also criticized the effort as doing little to create meaningful jobs but helping big businesses by cutting wages, mostly for new workers who have no power to negotiate with management.

At least they are thinking creatively. Maybe not as creatively as the French, though:

When negotiations over the revamping of Caterpillar’s operations in the French city of Grenoble broke down this week, the workers did what more and more of their countrymen are doing these days: They took their bosses hostage.

It was the fourth such incident in France in the last month…

“The traditional way of holding a strike is to occupy the workplace, showing that ‘it’s our company, too,’ ” said Antoine Lyon-Caen, a professor of comparative labor law at the University of Paris-Nanterre. “It’s not unheard-of that the managers get taken hostage, but it has been very rare.”

At the root of the wave of recent actions is a sense of injustice as France addresses the economic crisis, according to Jean Kaspar, a former miner and union official who now consults on labor relations. The government has set aside 26 billion euros ($35 billion) for big companies, he said, but less than 3 billion euros for consumers.

“Ordinary people cannot understand how bosses are getting bonuses and golden parachutes while the rest of the population is worried about their jobs,” Mr. Kaspar said. “That has caused a certain radicalization of the social base.”

So far, no one has been hurt in the “séquestrations,” as the French refer to the hostage-taking. The unions, and most French people, have refused to condemn the actions, saying it is understandable, if not defensible, that people faced with the loss of their livelihoods would take such risks.

I don’t want to extrapolate too much from these incidents, but there is certainly a lesson to be learned; strong unions can lead to creative and impactful responses to an economic crisis. This is even true in the case of the Chicago sit-in, which was only the result of resourceful organizing.

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Dani Rodrik has a post on the following question: “do governments act the way they do because of the pressure of politically powerful and organized groups (“interests”) or because of prevailing views on what is desirable and feasible (“ideas”)?”

No-one could deny that interest groups play a role in shaping policy.  But I would argue (i) that the identity of the groups that get to exercise power and (ii) the manner in which their interests are advanced are also determined by prevailing world views about the proper role and functions of government.  On the first point, isn’t it the case that the reason trade unions, say, have lost power in recent decades is the ideology of deregulation which swept Washington, D.C.?…

On the second: Let us presume that banks somehow have gotten to be politically powerful and that public policy must therefore be directed at enriching them.  The trouble is that there is an almost infinite variety of ways in which we can enrich bankers.  We can lower their taxes and raise everybody else’s;…we can allow them to buy House and Senate seats so they exercise influence directly rather than indirectly; or we can loosen prudential regulation and supervision…

The fact that the U.S. wants fiscal stimulus and Germany doesn’t cannot be explained by the relative power of different groups within those countries. It has much more to do with the way in which their respective governments have defined the problem and the “lessons” of history they have drawn…

So where do ideas come from?  Keynes had something to say on this, which is too well known to be quoted here.  But surely one important source are economists.

But since I am an economist, it would be in my interest to say so, wouldn’t it?

The quote from Keynes, which apparently I hadn’t heard, is

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.

I will add that the relationship between ideas and interests needs to be unpacked a little more to explain the phenomenon that Rodrik is aiming for. Who can deny that the Cato Institute, Heritage Foundation, and even the Chicago School have seen their rise without help from powerful interests? The interests can choose the ideas which then put the policies in place that shape the ideas. I wonder how much easier it is for a neoclassical economist, in the last three decades, to get an NSF or NAS grant as opposed to a Keynesian, or god forbid, a Marxist or Institutionalist.

I think Rodrik’s point is well-taken, and I’m not promoting a conspiracy theory, but I think there are tacit relationships between ideas and interests that have shaped policy.

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Talking about the G-20 meetings, the financial crisis, and much more. Harvey is a Marxist geographer. Goodman is an excellent journalist. Unsurprisingly, this is a must watch video. I’ll add more comments tomorrow when I get a chance.

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