Topic: Further Viewing: Anti-Globalization Cinema (2 of
11), Read 27 times Conf: Further Reading From: Larry
Willmore willmore@un.org Date: Tuesday, June 26, 2001
10:31 AM

I visited Jamaica's free trade zones, and export
processing plants located outside the zones, for ECLAC
in 1993. My report was published as "Export Processing
in the Caribbean: The Jamaican Experience" in Cepal
Review, April 1994, pp. 91-104.

I have not yet seen the film "Life and Debt: One Love,
One Heart, or a Sweatshop Economy?", but, if the NYT
review is accurate, my own findings are at odds with
the message of this film.

I quote from my report:

"Export processing firms are subject to the same labour
laws as any firm doing business in Jamaica." (p. 99)

"... the average pay of sewing machine operators
(US$1.13 per hour) was more than three times the
minimum wage (US$0.34). Even the average wage of
trainees, in their first three months on the job, was
twice the minimum wage." (p. 100)

"Companies typically grant their employees additional
fringe benefits that are not required by law ... " (p.
100)

"Unions are free to operate anywhere in Jamaica,
provided a majority of workers in a company vote in
favour of the union, but not a single free zone company
at the present time is a union shop. A number of the
garment producers operating outside the free zones are
unionised, and labour relations in recent years have
been good." (p. 100).

Could it be that the film compares working conditions
in Jamaican plants to some ideal or to conditions in US
plants, rather than ask what alternative employment
these workers have? There is no slavery in Jamaica --no
one forces workers to toil in sweatshops-- so they must
at least _feel_ that they are better off working in the
free zone plants than they would be in alternative
employment. And, objectively, are wages and working
conditions any better in agriculture or in Jamaican
factories that do not export? My impression is that
they are seldom better, and often much worse. If this
is true, then the problem of Jamaica is
underdevelopment, not globalisation.


 Topic: Further Viewing: Anti-Globalization Cinema (3
 of 11), Read 24 times Conf: Further Reading From:
 Larry Willmore willmore@un.org Date: Tuesday, July 10,
 2001 03:01 PM

Last Friday I was finally able to view the film 'Life
and Debt', which is showing at The Screening Room on
Varick Street, just south of Canal Street, in
Manhattan. It will be aired on national TV by PBS on 21
August 2001.

The film is very artistic, very professional, and
highlights a number of very important economic issues.
I congratulate the producer/director for accomplishing
so much with what must have been a very limited budget.

Unfortunately, the film also contains some very bad
economics, so is likely to mislead people as to the
nature of the problems that Jamaica faces.

Here are just three of many possible examples of poor
economic analysis in this film.

1. Michael Manley, former Prime Minister of Jamaica,
complains that the IMF will not let him use their funds
to lend to farmers in local currency at a 12 percent
rate of interest. Instead, the IMF insists that he
charge 22 percent, a rate that, if charged US farmers,
would provoke riots! A bit earlier in the film, Mr
Manley reports that domestic price inflation at the
time was 18 percent, so his proposed interest rate of
12 percent is actually _negative_ 6 percent in real
terms, adjusted for inflation, though the narrative of
the film does not mention this. Imagine what would
happen to the UN pension fund, for example, if
contributions were invested in assets that paid a rate
of return less than the rate of inflation. Such
negative returns would provoke discontent, if not
riots, among UN staff. The IMF's proposal amounted to a
real rate of interest of 4 percent, which is not
unreasonable, and would not provoke farm riots in the
USA or anywhere.

2. The film repeatedly stresses that Jamaican products
are not competitive with goods produced elsewhere:
bananas require special quotas to compete with Latin
American fruit in the UK, imported carrots are of
better quality and cheaper than Jamaican carrots, all
food consumed by tourists 'comes off the ship from
Miami', etc. etc. Such a situation calls for
devaluation of the local currency to restore
competitiveness. Nonetheless, the film opposes
devaluation, on grounds that this would cause an
increase in the prices of imported goods. At the same
time, the film favours import tariffs and quotas,
because these are needed to protect local producers.
This is an obvious contradiction. Import tariffs and
quotas, like currency devaluations,increase the price
of imports and make local goods more attractive to
consumers. Economists prefer devaluation over import
restrictions because devaluation increases the
attractiveness of local goods in export as well as in
domestic markets.

3. In one, particularly sad scene, an onion farmer is
interviewed. Apparently, all the onion farms are going
out of business (the unstated cause is 'globalisation',
but, for some reason, the subsequent talk is of
imported potatoes, not onions). The fertile and
formerly productive land now produces nothing. To a
student of economics, this is strange, for the land
should be available at a very low (close to zero)
price, which should allow at least some crop to be
cultivated with profit. The real reason for the lack of
production becomes evident with a brief mention by the
farmer that he implants needles into the onion plants
to discourage theft. This point comes across even
better in the final song of the film (by the way, the
music, though not original, is superb), titled 'Raid
the Barn'. The lyrics contain a repetition of the lines

"Nobody wan' to plant the corn, Everybody want to raid
the barn,"

So, lack of property rights, including police
protection of private property, might well account for
the abandonment of farms, even though the message the
film wants to convey is that globalisation is
responsible for this unhappy state of affairs.

Bottom line: This is a well produced, attractive film
that will generate interest in the economic problems of
Jamaica, but is likely also to mislead uninformed
viewers.

Other reviews are posted on the film's web page at
http://www.lifeanddebt.org/. All the reviewers accept
the film's economic analysis at face value, which
worries me. If film critics can be misled by attractive
packaging, what can we expect from a more general
audience?

Topic: Re: Further Reading Digest for 7/10/01 (4 of
11), Read 25 times Conf: Further Reading From: Henk-Jan
Brinkman brinkman@un.org Date: Tuesday, July 10, 2001
06:39 PM

I saw it too last Friday although I didn't see Larry.
Just a few quick remarks:

1. Actually, Mr Manley explains perfectly well that the
IMF wants interest rates to be 23 % because inflation
is 18% in roder to create a positive real interest
rate. 2. I agree that there some contradiction as both
devaluation and tariffs make imports more expensive but
Larry forgets one thing (which Mr Manley did not
forget) when you devalue you also increase your debt
service payments on forex-denominated debt. This does
not happen when you make imports more expensive through
tariffs. This is exactly one of the main reason why
Jamaica got into trouble in the 1970s. Another point,
the movie makes and Larry did not mention is that huge
agricultural subsidies in OECD make it very hard for
domestic producers to

compete with imports. One of the most powerful shots of
the movie is where farmers let milk spill out of the
containers right on the streets because they cannot
sell their milk as they can not compete against
imported subsidized milk powder. (Jamaica used to have
a vibrant dairy industry which was destroyed by the
cheap milk powder imports. Larry, what would you
recommend?) 3. If I remember correctly, the oinion
farmer doesn't plant onions as the costs of producing
is higher thatn the price he can get on the market. The
costs of production is not only determined by the price
of land. What about seeds, fertilizer, pesticides?
Probably all imported and made more expensive because
of the devaluations! Contractionary devaluations are a
common phenomena in developeing countries.

Topic: Re: Further Viewing: Anti-Globalization Cinema
(5 of 11), Read 28 times Conf: Further Reading From:
Larry Willmore willmore@un.org Date: Wednesday, July
11, 2001 12:10 PM

I would like to take up Henk-Jan's challenge of how
best to deal with Jamaica's "vibrant dairy industry
which was destroyed by the cheap milk powder imports".
I agree that the dumping of huge containers of raw milk
into the street is one of the most powerful shots of
the film.

But first, a quick response to Henk-Jan's comments on
three examples of what I describe as 'bad economics' in
the film.

1. Regarding interest rates, my impression was that Mr
Manley was criticizing the IMF for not allowing a
policy of cheap loans to farmers, not praising the IMF
for forcing his government to lend at positive real
rates of interest. But perhaps I missed something. It
will be interesting to hear the opinion of other
viewers.

2. On exchange rates, my recollection is that the
*only* argument advanced against devaluation is that it
increases the price of imported goods. I do not recall
any discussion of the effect of devaluation on the cost
of servicing foreign currency loans. This is not the
place to debate Jamaican fiscal and monetary policy,
but I would like to point out that it is useful to
distinguish between real and nominal depreciation of a
currency. If an economy is inflating at a rate of 18%
or more per annum, and the central bank maintains a
fixed exchange rate, the *real* exchange rate is
appreciating, unless trading partners are also on a
fixed exchange rate regime and inflating at rates of
18% or more per annum. Nominal depreciation is required
in such circumstances just to keep the real exchange
rate constant.

3. Concerning onions, of course the onion grower would
be better off with a sufficiently large increase in the
tariff on onions, combined with no increase of tariffs
on imported seeds, fertilizer and pesticides, for
devaluation increases the domestic prices of inputs as
well as outputs. But would the country be better off
increasing the effective protection for this particular
crop? Painful devaluations may be common in poor
countries, but so are incompetent economic policies,
such as freely granting protection to any producer on
demand, under the assumption that what is good for the
welfare of a producer must also be good for the welfare
of the country.

Now for the powdered milk challenge. What policy would
I recommend if a foreign government decides to
subsidize exports of a particular product? I would
first want to know how long the subsidy is expected to
last. If it is very short-term, it may not be
worthwhile to dismantle a domestic industry, only to
revive it in one or two years. If the subsidy is to
last indefinitely, my advice is to allow the imports
and enjoy the improved terms of trade. Consumers will
gain, and these gains will dwarf the losses of
producers.

This is not the message of the film, because the
welfare of the consumer is conspicuously absent. The
film focuses exclusively on the welfare of producers.
In the case of powdered milk, the product did not reach
Jamaica because the US suddenly decided to subsidize
exports. The US has a long history of price supports
for its dairy industry, price supports that result in
predictable surpluses (excess supply) that the
government would like to dispose of in other markets.
For as long as I can remember, the US has given away,
or sold cheaply, its powdered milk. So, the dairy
industry in Jamaica must have developed with
considerable protection and/or government subsidies.
For the consumer, a policy of fresh milk at high prices
is not a good policy. It is a policy that prevents the
poor, or those that live in isolated, rural areas, from
consuming milk. Fresh milk is highly perishable in
tropical heat, and the poor typically do not have
access to refrigeration. For them, powdered milk is a
better alternative, especially if it can be purchased
at a fraction of the price of fresh milk.

Films are difficult to review because they are about
images as well as words. Images of fresh milk being
dumped in the street, and of dairy cattle being shipped
off to meat packing plants are compelling and
illustrate the harm done to producers. What was
missing, in my opinion, are images of gains for
consumers: children in poor or remote communities
drinking, for the first time, affordable milk on a
regular basis. US (and European) farm policies make no
economic sense for domestic consumers, but there is no
reason that consumers in poor countries should not be
allowed to take advantage of the low export prices that
result from these misguided policies.

My advice would be radically different, of course, if I
thought the US government were engaged in predatory
pricing, that is, setting low initial prices to destroy
the local dairy industry in order to then increase
prices to the previous (pre-import) levels. The film
predicts that this will happen. But I don't for a
minute think the US government is a predatory
monopolist. It subsidizes exports of dairy products, as
do governments of European countries, only because it
faces enormous surpluses of milk that result from
absurd and costly price support programmes.

I conclude with words of advice from an early consumer
advocate, written in 1776 but often ignored, even
today, by policymakers everywhere:

"Consumption is the sole end of all production; and the
interest of the producer ought to be attended to, only
in so far as it may be necessary for promoting that of
the consumer."

--Adam Smith, Wealth of Nations.

Topic: Re: Further Viewing: Anti-Globalization Cinema
(6 of 11), Read 27 times Conf: Further Reading From:
Larry Willmore willmore@un.org Date: Wednesday, July
11, 2001 04:34 PM

The following is a message sent privately to me by Carl
Gray. My response is in CAPITAL LETTERS. With Carl's
permission, I am posting it to the Globalisation E-
forum.

To: Larry Willmore/NY/UNO@UNHQ

Subject: 'Life and Death' film review

Larry,

1. I have enjoyed your commentaries on the Jamaican
economic situation vis-ŕ-vis the movie on
globalization. I was on mission in Pretoria when I got
the first note. I drafted a response but, for technical
reasons, I did not get a chance to send it to you. The
gist of that response was the following:

· You should have waited until you got a chance to see
the documentary before commenting on its contents (see
below);

· Strict economic logic cannot always be applied in
situations such as the harsh realities of Jamaica’s
economic, social and cultural history. This was in
reference to the assertion that you had made that
Jamaica should consider itself much better off because
(1) the wages paid by exploitive TNCs were much higher
than the legal minimum wage and (2) this situation was
much better than working under slavery, which is part
of Jamaica’s recent history.

THERE SEEMS TO BE A MISUNDERSTANDING. I STATED THAT (1)
WAGES PAID BY TEXTILE PLANTS IN THE FREE ZONES ARE
HIGHER THAN WAGES PAID BY TEXTILE PLANTS PRODUCING FOR
THE DOMESTIC MARKET, AND (2) WORKERS ARE EARNING THESE
MARKET WAGES BY CHOICE, AS SLAVERY WAS ABOLISHED LONG
AGO IN JAMAICA. THESE TWO POINTS ARE FACTS, NOT
ASSERTIONS. MOREOVER, I DO NOT AGREE THAT THE LOGIC OF
ECONOMICS DOES NOT APPLY TO JAMAICA.

· Part of my response to these assertions were the
following: (1) for several reasons too complicated to
get into through this medium, I believe that the wage
rates paid for goods fabricated in Jamaica should be
more closely related to prices charged for these goods
in developed-country markets.

WE AGREE THAT THE GOAL IS HIGH WAGES FOR JAMAICAN
WORKERS. WE DISAGREE ON THE MEANS TO ACHIEVE THIS GOAL.
ASK YOURSELF, WHAT WOULD HAPPEN SHOULD JAMAICA REQUIRE
ALL PLANTS PRODUCING FOR EXPORT TO PAY THE SAME WAGES
AS SIMILAR PLANTS IN THE USA. WOULD THE PLANTS CONTINUE
TO OPERATE? I BELIEVE THE ANSWER IS CLEAR. COUNTRIES
HAVE TO START OUT EXPLOITING THEIR LOW WAGE LABOUR.
WITH DEVELOPMENT, WAGES, SKILLS AND WORKING CONDITIONS
WILL IMPROVE. THIS WAS THE PATTERN, FOR EXAMPLE, IN
JAPAN, IN HONG KONG, IN SINGAPORE, IN TAIWAN AND IN
KOREA. THESE WERE PREVIOUSLY LOW-WAGE COUNTRIES
EXPORTING TEXTILES AND OTHER SIMPLE MANUFACTURES. THAT
IS NO LONGER TRUE TODAY. THE POINT IS SIMPLY THAT
SUCCESSFUL DEVELOPERS DID NOT BEGIN WITH HIGH WAGES.

I also believe that the same should hold true for
primary commodities: Jamaican farmers should receive
much more of the $50 per pound or so that Blue Mountain
coffee fetches in the United States, rather than the
few cents per pound that they currently receive;

I DO NOT UNDERSTAND WHY THIS IS SO. ARE THE FARMERS
REQUIRED TO SELL THEIR CROP TO (OR THROUGH) A MARKETING
BOARD, WHICH POCKETS THE HUGE DIFFERENCE BETWEEN THE
MARKET PRICE AND THE PRICE PAID TO PRODUCERS?

(2) arguments in favour of globalization should not
give aid and comfort to private sector interests that
deliberately set out to exploit poor, helpless people
in weaker economies. The triangular trade that gave
rise to the development of the modern industrial state
under capitalism featured the slave trade as its most
important and most profitable link. That miserable
history should not be repeated under any guise or
pretext such as some of the arguments being put forward
to promote the benefits of globalization, regardless of
what the logic of the relevant economic theories
dictate.

I UNDERSTAND YOUR PASSION, BUT WOULD ASK YOU TO APPLY
SOME PASSIONATE ANALYSIS TO THIS PROBLEM. BY DENYING
FACTORY JOBS TO POOR, HELPLESS PEOPLE, YOU ARE
CONDEMNING THEM TO A LIFE OF EVEN GREATER MISERY. AS
JOAN ROBINSON ONCE SAID, "THE ONLY THING WORSE THAN
BEING EXPLOITED IS NOT BEING EXPLOITED". AND NO-ONE
TODAY DEFENDS SLAVERY OR THE SLAVE TRADE, EVEN THOUGH
IT WAS COMMON THROUGHOUT HISTORY, FROM ANCIENT TIMES TO
THE NINETEENTH CENTURY, AND STILL PERSISTS IN A FEW
POCKETS OF AFRICA TODAY.

2. Re -- your movie review: I thoroughly enjoyed you
piece on the review of the documentary. This may be the
beginning of a brand new career for you, i.e., pointing
out the violations of economic theory and logic in
documentaries dealing with economic issues. As noted
above, however, I think you are missing the big picture
by focusing on the details. Many people would agree
with Michael that the IMF should have subsidized
interest rates in poor countries (as long as the money
were spent wisely)

THAT, IN MY OPINION, IS THE PROBLEM. CHEAP LOANS ARE
APT NOT TO BE SPENT WISELY. MOREOVER, THERE ARE MANY
MORE WHO WOULD LIKE ACCESS TO SUCH LOANS THAN THERE ARE
LOANS AVAILABLE. THIS GIVES RISE TO POSSIBILITIES OF
CORRUPTION, OF FAVOURING FRIENDS AND RELATIVES OF THE
RULING ELITE.

. Besides, art is art. If one needs to bend economic
logic a little bit to get across these essential ideas
in an artistic medium, then let them do so, by all
means.

3. Re – Michael Manley: If he had gotten his way -- and
the international community had accepted the principles
on the New International Economic Order (NIEO) -- the
global economy would be in much better shape. I was in
a meeting across the street recently where one delegate
reminded us that prescriptions for solutions to many of
the current ills in the international economic system
were discussed in detail in the NIEO proposals. Maybe
we should take another look at this and some of the
other preachings of Michael Manley.

I APPRECIATE BUT DO NOT SHARE THIS VIEW. IT ALL COMES
DOWN TO A CHOICE BETWEEN MARKETS AND CENTRAL PLANNING.
I PREFER MARKETS, WITH ALL THEIR DEFECTS, TO CENTRAL
PLANNING. BUT I ALSO FAVOUR SERIOUS REDISTRIBUTION OF
INCOME AND WEALTH, BOTH GLOBALLY AND WITHIN COUNTRIES.
CARRYING THIS OUT IN A WAY THAT TRULY HELPS THE POOR OF
THIS PLANET IS A VERY DIFFICULT TASK, ESPECIALLY
GLOBALLY.

Regards.

Carl Gray.