Jack Rasmus

As part of the recent series of interviews on the crisis of American unions and workers today, hosted by Dr. Rasmus, on the radio show, Alternative Visions, on the Progressive Radio Network, Dr. Rasmus reproduces below the article-except below, ‘Restructuring the AFL-CIO, that concluded his 2005 book, THE WAR AT HOME: THE CORPORATE OFFENSIVE FROM RONALD REAGAN TO GEORGE W. BUSH (available on this blog and website, http://www.kyklosproductions.com) Watch for updated articles on this theme in ‘Z’ magazine by the author this summer.

RESTRUCTURING THE AFL-CIO FOR THE 21ST CENTURY

The central organizational question facing the AFL-CIO and its affiliated unions today is how to achieve the organizational restructuring necessary to refocus Labor priorities at the point of production (e.g. organizing, bargaining coordination, strike support, boycotts, corporate campaigns, defense of community struggles, etc.) more effectively once again, while healing the split in the AFL-CIO in the process. Expressed another way the question becomes: how to achieve a more effective division of labor between political action (which the AFL-CIO does well) and coordinated Labor action at the point of production (which the AFL-CIO does poorly).

It was previously noted that current proposals for change in the AFL-CIO by its reform group led by the SEIU, UNITE-HERE, Teamsters and others are primarily organizational in character. Moreover, they focus largely on organizational changes ‘from the top down’. But the crisis faced by the AFL-CIO and its unions today is more than a matter of organizational structure. It is just a much a matter of membership mobilization. Changing the AFL-CIO’S present organizational structure from the top may be necessary but it is not sufficient.

A fundamental change how organized Labor operates at a local grass roots level is just as necessary as a change in how it operates at the top. A growth in absolute levels of union membership is critically necessary but still not sufficient. A change in the form and character of union membership activity at the local level is just as critical. Indeed, it is highly likely that significant membership growth cannot be achieved without the latter. But organization can play a role in helping achieve both.

Growing Numerical Membership by 10 Million

A central objective of Labor must be the restoration of union member¬ship over the next decade to levels at least equal to the late 1970s. That means to around at least 20% of the workforce. That further means the AFL-CIO unions as a group will need to nearly double their current membership, adding more than 10 million employed members over the coming decade — one million new members a year — and do so at a time during which corporations are accelerating the exporting and off-shoring of jobs at an even greater pace than before. How then to add 1 million more members a year for the next ten years when Labor has been losing 300,000 members on average every year?

That kind of union membership growth requires a new land of focus on organizing and a new kind of structure for organizing never before undertaken in the history of American Labor. It also requires a commitment of resources and development of new approaches to membership growth radically different than unions have followed in the past fifty years.

Trying to reform current Labor Laws to make minor corrections in NLRB processes will make little, if any, difference. Nor will minor adjustments to how Labor has conducted organizing drives in the past. Nor will a token increase in the commitment of resources make any difference. The scope of organizing needed to bring in that many new members and to restore union bargaining density levels once again will re¬quire a new kind of mobilization of workers, organized and unorganized, at the grass roots local level. It will require a new kind of role and participation of community interests and activists in that organizing; a new kind of partnership between Unions, the unorganized, and community organizations; and, not least, a new local structure to enable and facilitate that mobilization. Only a radical transformation of the organizing process itself at die local level can take Labor from its current net loss of 300,000 members a year to a net annual gain of 1 mil¬lion a year. And that new process will require a fundamental restructuring of the AFL-CIO and its unions, from “below’ as well as ‘at the top’.

Creating An Effective Membership Base

Organizing 1 million new union members a year requires creating a new layer, a critical mass of union members at die local grass roots level who are available and willing to participate in organizing as well as in inter-union and union-community solidarity actions in general. That means a new kind of effective membership: a cross-union membership
core that is mobilized to participate in new forms of solidarity activity involving multiple unions and union-community support activities. Effective membership means members that are active and committed beyond more than just their immediate workplace group. Creating that kind of active membership will in turn will require the creation of new kinds of ‘centers of solidarity activity’ for membership involvement, in addition to and apart from the typical and limited steward roles at the workplace or the miscellaneous organizational projects in local unions that most members find boring at best. Current AFL-CIO projects launched from Washington, D.C., from the ‘top down’, are largely ineffective when it comes to mobilizing local union members. What used to be called ‘COPE, HOPE, and DOPE* projects are not what is meant by new ‘centers of solidarity activity’,

What is envisioned here is a new organizational structure that will enable and facilitate new forms of activity — within and between unions, between unions and community organizations, and between the unionized and the unorganized. A structure and activities that will mobilize union members, friends, and allies at the local level. That will create a new critical mass necessary for non-institutional approaches to organizing (i.e. outside the NLRB) that will be required in order to organize 1 million new members a year. Without both a new structure and a new kind of mobilized membership at the local level, successful organizing drives at Wal-Mart and similar companies will not be possible. Nor will growth anywhere near 1 million a year be remotely attainable.
To briefly recap the key points of the preceding paragraphs: Top down changes in organizational structure and a repositioning of financial resources can assist or inhibit growth in union numbers and density. Organizational restructuring at the higher levels of the AFL-CIO is thus necessary. But that kind of change alone is not sufficient for organizing a million new members a year. Structural change must be comprehensive, at the top of the AFL-CIO and down to the local level. Changes in the organizational structure of the AFL-CIO that do not extend down to the grass roots level will not produce results. New structures at the local grass roots level are just as necessary to achieve success in organizing 1 million new members as organizational structure change at the top. Those changes at the grass roots level are also central to creating new centers of solidarity activity and a new kind of mobilized effective member¬ship But once again the fundamental question remains, how to do all that given a divided House of Labor?

The graphic accompanying this article represents an initial proposal for restructuring the AFL-CIO to permit a refocusing on both organizing and on other point of production activity in general, to create a new layer of mobilized membership, a new kind of tighter relationship with local community interests, and to do so without abandoning political action or split¬ting the AFL-CIO itself. A further verbal explanation of the graphic follows. The graphic and explanation are not meant as a final proposal, but as a start of further discussion.

The current AFL-CIO would divide into two co-equal structures; an American Council of Unions with a primary mission at the point of production and an American Federation of Unions with a primary mission addressing political action, job training and search, and other traditional administrative activity.

Parallel Co-Equal Structures

The American Federation of Unions would look much like the current AFL-CIO in both tasks and functions, with one important new functional task added. The AFU would focus mainly on those activities the AFL-CIO has tended to do in the past: namely, political action, international affairs, and traditional staff administrative support functions. Added to these traditional functions, however, would be the new mission of developing job training and job search programs for the unorganized.

Job training and search are two critical benefits that can serve to at¬tract unorganized workers to the union movement and develop a sense of loyalty to unions that could be leveraged in numerous ways in subsequent organizing campaigns. The union as the avenue to get-ting jobs was once a powerful benefit provided by organized Labor. Until the late 1940s in many industries jobs could only be gotten through the union hiring hall. The closed shop and hiring hall were the path to work. They were also a critical source of union loyalty and solidarity. That path and source of loyalty and solidarity was consciously eliminated by the corporate elite with the passage of the Taft-Hartley law in 1947. Labor now needs to find new ways and new forms to provide job benefits to workers once again. Developing those forms and ways would be a major mission task of the American Federation of Unions, the AFU.
Parallel to the new AFU would be another totally new structure, a new American Council of Unions, or ACU. There is no need to end the cur-rent AFL-CIO and replace it altogether with a new organization. Let it do what it has been doing as a revitalized AFU. There is a definite need, however, to create a new organization in parallel to the AFU that is able to do those tasks the current AFL-CIO has proved unable or unwilling to undertake; namely tasks at the point of production like organizing co-ordination, strike and bargaining cooperation between unions, imple-mentation of boycotts and corporation campaigns, mobilizing members and organizing local protest actions on behalf of community struggles, effective resolution of union jurisdictional disputes, implementation of mergers between unions, and other actions to bring about greater union density and to help re-establish industry-wide bar¬gaining once again.

The American Council of Unions is not the old Industrial Union Council of the AFL-CIO but something quite different. It will have complete authority to carry out a broadly defined mission at the point of production. The Council would also serve as the primary organizational form for achieving a closer integration of Labor and community solidarity actions at the local level. It would be the workplace action and mobilization arm of the Union movement, in contrast to the political-administrative arm, the American Federation of Unions.

Just as the American Federation of Unions task is to work toward achieving political density, the American Council of Unions’ task is to expand union density by leading and coordinating organizing drives inter-union bargaining and strike activity, and in general mobilizing current union members, the unorganized, and community allies around concrete events and struggles. The AFL-CIO, as structured today is incapable of effectively pursuing both objectives of political and union density at the same time. It tends to opt and fall back to the pursuit of the former at the expense of the latter. The tasks must therefore be divided and the AFL-CIO today restructured into two co-equal parallel bodies to enable the effective pursuit of both tasks. The American Council of Unions mission is to focus on mobilizing workers around workplace and community issues and struggles.

The Council and the Federation would be co-equal in other ways. Both would provide a co-chair for each of the State Federations of Labor This latter organizational structure exists today and would thus continue, but now with additional tasks and under a dual leadership structure. Each State Fed would provide two delegates, one from the American Council of Unions and one from the American Federation of Unions to the new Parliamentary policy body, the American Workers Congress

American Workers Congress

This is a new organizational body. A ‘Parliament of Labor’ that would meet quarterly and set general policy directions. It would have no executive authority whatsoever. That would reside solely with the American Council of Unions and the American Federation of Unions, in areas of their respective distinct missions. The current structure of the AFL-CIO has a fundamental conservative bias that renders it unable to make major strategic or policy changes quickly enough in crises situations. Its many small unions become dependent on a few in the AFL-CIO in leadership roles, who then rely on that highly fragmented support to stay in office for extended periods. Only a major rebellion from time to time by a significant faction of unions is able to unseat the leadership and change policies. This is a very ineffective ‘succession process’ and is harmful to Labor in times of crisis when a more rapid change and response is necessary. In addition, a greater role in the determination of policy needs to come from the field, from below. Even the Democratic Party has a more dispersed policy making body comprised of representatives from the field, its central committee. Labor needs a broad-based policy making body more closely reflecting the voice of its members in ‘the field’. The American Workers Congress idea represents a shift in that direction, toward opening organizational policy making ‘to the field and from below’. State level representatives, two each from each State, would constitute delegates to the American Workers Congress, with the proviso that one representative from each State would come from the new American Council of Unions and one from the American Federation of Unions.
An Interim Federation of Sectoral Unions

The above American Council of Unions will not be successful over the long run, however, if it remains just another lineup of existing unions. The new Council should be organized on a base of merged, new ‘sectoral unions’. At first these sectoral unions could be ‘federated’ organizations, as a preliminary to subsequent formal reorganization of unions along sectoral lines.
Union organization structure has always reflected changes in corporate organization. Early forms of union organization were built along craft lines to organize small and medium companies employing skilled labor. In that context they were effective. But as corporate forms began to expand along industrial lines the craft union concept proved ineffective. It was historically followed therefore by an industrial union concept to accommodate a better approach by workers to dealing with corporations that were large industrial entities themselves. However, now many corporations have outgrown a simple industrial structure and have transformed into global conglomerates integrated across entire sectors of the economy. Union organizational structure must therefore also develop new forms and organizationally adapt once again. Craft unionization proved ineffective in organizing and bargaining with industrial companies during the 1930s (although still remaining an effective organizational form for construction and other work to this day). Now mat experience is repeating itself. Now industrial unions themselves are be¬coming increasingly ineffective as an organizational form for dealing with the new global cross-industry corporations. A sectoral union organizational form needs to evolve out of the shattered base of industrial unions in America today. Just as labor developed industrial unions to deal with the new corporate reality in the past, it must develop new sectoral unions to deal with the new corporate reality of the present. To approach organizing or bargaining in the long run along industrial lines only is like craft unions in the past trying to organize a corporation that was industrial.

Sectoral unions would include, for example, the merging of all unions and members in manufacturing industries into one Manufacturing Union. Steel workers, auto workers, rubber workers, and the like would be aggregated thus into one union organization. In similar fashion, all unions with members in the transport sector would aggregate and form one sectoral Transportation Union. Teamsters, Longshore workers, Railway, Airline, Bus drivers, subway, and all workers involved in some way moving people or freight would be part of such a union. Similarly, all workers involved in some way in delivering health care services would be members of a Health Care sectoral union. While all workers and unions in the Hospitality sector would be in one sectoral union. Labor should bypass the task of trying to rebuild its now shattered industrial unions and move instead to the next evolutionary phase of union organization and create a sector-based form of union organization. These sectoral unions would represent the leadership of the new American Council of Unions, first on a transitional federated basis and then as conditions permitted on a more integrated basis.

One of Labor’s major weaknesses today is the lack of cooperation and coordination between unions at the point of production — i.e. in areas of strike, boycott, and other direct action activity. And the AFL-CIO in its current form has been ineffective doing anything about it. Too many in positions of union leadership are content to remain big fish in shrinking organizational ponds. Union membership and bargaining density cannot be achieved without at some point the merging of unions today into larger, more effective sectoral union organizations.
Local Mobilization Committees

The key to successfully organizing 10 million new union members in the future is what happens at the local level. As noted previously, structural organizational change at the top will not lead to the successful organizing of 10 million new union members. To achieve that level of union growth will require a mobilized effective membership base as well as the broad involvement of community forces and organizations in the organizing process. In turn, to achieve that kind of effective membership and community involvement requires extending union restructuring and re-organization down to the local grass roots level. Thus the key to organizing the 10 million lies fundamentally in the creation of the new American Council of Unions focusing on the workplace and the local community, and in particular with new Local Mobilization Committees reporting to that Council.

The current Central Labor Councils of today’s AFL-CIO at the local level would continue to exist and would report to the new American Federation of Unions. They would continue their work in the area of local politics and in the new task of developing job training, job search and placement services for the unorganized. But alongside the Central Labor Councils locally a separate local organization would take form and would report directly to the Council of American Unions structure. This new organizational form is the Local Mobilization Committee.

The Local Mobilizing Committee would be staffed by two full time paid local organizers. The two LMC co-organizers would have the task of co-ordinating organizing campaigns, boycotts, community protest actions, strike support assistance, corporate campaigns implementation, etc., at the local level under the direction of the regional American Council of Unions. This is the level where the creation of the idea of effective membership would begin, engaging union members as well as community and unorganized workers in common support activities and struggles. Here is where new centers of solidarity activity would develop and emerge, bringing together union members, die unorganized, and members of community groups in joint activities across organizations and respective membership bases. Only out of such real actions and struggles can the idea of a new effective union membership take form. But this kind of cross-union membership itself cannot develop without a formal local structure to enable it or without resources provided to those who may lead it.

It is important as well that the LMCs are bonafied local bodies staffed and supported ‘from below’ and not appointed ‘from above’. The LMCs would also work closely with the local Central Labor Councils and their affiliated unions when mobilizing support for point of production activities for a particular union such as organizing drives, boycotts, strike sup¬port, etc. In turn, the LMCs would provide job training and job search support for the unorganized. The LMC union co-organizer would be elected from among union delegates to the local Central Labor Council. The community co-organizer would be elected according to an appropriate process agreed upon by those organizations and endorsed by the regional ACU. Both co-organizers would be paid by and report to the regional body of the American Council of Unions, which would prioritize and assign their activities, as well as coordinate those activities with other regional ACUs when appropriate (e.g. a nation wide organizing drive at Wal-Mart, mass protests against the destruction of union pension plans, elimination of funding for section 10 public housing, closing of public schools in communities, etc.).

Summary Comments on Organizational Change

The above organizational proposals are only initial suggestions. There are many unanswered and other critical questions not addressed by these proposals. And it is recognized that die proposals themselves raise important new questions requiring further consideration and discussion. But the proposals flow from the fundamental premise that labor, as structured today, has shown over the past quarter century it is not capable of effectively dealing with the current Corporate Offensive. Nor will it be in the period immediately ahead as that Corporate Offensive intensifies further.

The AFL-CIO as structured today does some things well, others poorly, and still others very poorly or not at all. The revitalization of American Labor must be based on a massive new organizing campaign that will have to employ totally new strategies and tactics in order to bring in 10 million new members over the next decade. Organizing via die NLRB or even card checks won’t do it. But new approaches to organizing can only be successful if a real mobilization of the union base occurs and if this mobilization also includes the unorganized and community allies in ways not previously developed. Structural change at the top, as well as down to the local level, are both necessary to facilitate the new organizing and a new mobilization of Labor. Achieving union density in numbers is essential. But density in numbers and density in bargaining units are not necessarily the same thing, and the latter won’t happen without aggregating unions eventually at some point into new sectoral organizations. Nor will union density in any sense result without creating a new structure dedicated to the mission of mobilizing new local forces, union and non-union alike, around concrete conflicts and struggles like organizing drives, boycotts, strike support, corporate campaigns, community demands and protests, and the like.

The road back will of course not be easy. Labor’s historic shock troops in manufacturing have been decimated over the past twenty-five years and face even greater challenges immediately ahead trying to stop even further offshoring and outsourcing. The construction trades unions were ripped apart even earlier, in the 1970s, by the open shop drive led at die time by the Construction Users Business Roundtable (now just Business Roundtable), and then forced into major metropolitan enclaves where once guaranteed prevailing wages are now under at¬tack by corporate-government forces. The manufacturing unions have been shredded by corporate ‘Free Trade’ policies, runaway shops, out-sourcing and offshoring now for a quarter century. The Teamsters union has been driven into a corner by deregulation and the undermining of their once premier National Freight Agreement. Meanwhile, a new assault on the public employee unions’ basic right to bargain for their members and their pension benefits has begun to take shape. At the same time at the political-legislative level, a massive financial commitment and political restructuring by the corporate elite of the Republican Party and a corresponding shift in the leadership of the Democratic Party have enabled the corporate offensive to outflank and overwhelm liberal elements in Congress and within the Democratic Party itself Given these realities, while not abandoning political action, workers and unions must nevertheless return to their roots, their base, as their first priority and rebuild and mobilize anew.

That rebuilding requires a new structure at the top but only if it is based on a new open, democratic structure at the bottom as well. That new structure at all levels should seek to create a new kind of rank and file and new forms of cross-union solidarity activities that generate solidarity not only intra-union but across unions and between unions and community organizations as well. Most importantly, that structure must be willing to release the energy and creativity of the union membership itself without which there is virtually no possibility of organizing 10 million new members, restoring union bargaining and political density, or having the slightest chance that workers may yet check the current Corporate Offensive — an offensive about to intensify still further in the months immediately ahead.

A Concluding Thought

Sitting recently in a local working class truck stop, I had the occasion to order a cheap cup of coffee. It had brewed for too many hours in a pot that probably hadn’t been cleaned out for some time, producing that sharp bitter taste that neither cheap saccharin nor chemical creamer can tame. The coffee was bad. Period. But on the side of the cup were the words of WE.B. Dubois, the great Black thinker and activist of early 20th century America, written sometime back in the 1920s or 1930s no doubt, which said simply: “It is time to stop thinking what you are and to start thinking about what you can become” I drank the coffee slowly, savoring every word with each sip of the brackish brew. And I thought about the words of another many years ago who said to me as a younger man: “The first act of change is not the doing. It’s not even believing you can do it. It’s seeing what you’ve done before it even happens”.

Copyright May 2014

Jack Rasmus, from ‘The War At Home: The Corporate Offensive From Ronald Reagan to George W. Bush’, Kyklos Productions LLC, San Ramon, CA, 2006

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Today, May 1, 2014, is International Labor Day. It is worth summing up how well American workers—and their unions—have fared over the past year; since the so-called economic recovery began in mid-2009; and for the recent decades preceding.

What’s happened to jobs, wages and incomes, health and retirement security, and other indicators of the quality of life for the more than 100 million non-supervisory wage and salary earners—the core of the working class in America—over the past decade and especially since 2009?

What a summary of the facts tell us is as follows:

*While jobs have been created for managers, supervisors, and highly skilled business and technical professionals since 2009, job levels for the core of the American working class—the category of the more than 100 million ‘Production & Non-Supervisory Workers’—is still 11 million below 2007 pre-recession levels. Manufacturing jobs are still 1.4 million fewer today than in 2007, and Construction jobs 1.3 million fewer.

*The real unemployment rate in the US is approximately 14%, when the ‘hidden unemployed’ are added to the ranks of the officially declared full time unemployed (U-3) and underemployed (U-6) estimates. That’s approximately 22 million still jobless after five years of so-called economic recovery.

*The quality of job creation since 2009 has been extremely poor by past historical standards. The US is ‘churning out’ high paying-good benefit jobs for low pay, increasingly part time/temp (contingent) jobs, with few if any benefits. 79% of jobs lost during the recent recession paid more than $14/hr., while 58% of the jobs created since recession were low pay (less than $14 and with a median of only $7.69hr.)

*While 5 million plus jobs have been added since the official ‘end’ of the recession in June 2009, more than 5 million have left the labor force or been unable to find work as new entrants—a 5+million ‘in’ and a 5+ million ‘out’ additional churn. As labor force participation has declined in general (from 66.2% to 62.9% since 2009), and has fallen especially rapidly for age groups 35 and below, previously retired workers are entering the labor force in record numbers as their savings are depleted and retirement benefits are being reduced. The fastest growing age groups entering the labor force are: age 65-69 (64% increase in participation), 70-74 (91%), and >75 (81%).

*The US economy is not only churning out high pay for low pay, and labor force drop-outs for new hires, but is also churning non-union for union jobs, in the process reducing private sector unionization to historic lows not seen since the 19th century.

*Union membership in the private sector has fallen to only 6.7% of the total labor force, or 7.3 million—down roughly 5 million since 1980 despite 45 million more wage workers having entered the labor force. And for the first time in decades, since 2009 union membership in the public sector has also begun falling since 2009, down by more than 2% points.

*The US is experiencing a chronic long-term problem in the 21st century creating jobs sufficient to keep up with the growth of its population, a structural problem in the US economy that clearly pre-dates the onset of the latest recession. Since just 2009, the ratio of employed to the US population has fallen from 63% to 58.7%. The population is growing much faster than the economy can create jobs.

*The US economy has developed a corresponding problem of inability to find jobs for the long term unemployed, whose numbers are growing as a percent of total jobless. The long term jobless as percent of total unemployed remains twice that (36%) of historical average (18%) today, five years into the recovery.

*Income inequality is growing in the US not only because the rich are getting richer, but because the US working class is locked into stagnant wage growth (in best of times) or declining wage growth (in recession or slow growth times) for the past 30 years.

*The real average hourly wage for the 100 million plus full-time employed core working class, adjusted for inflation, has declined despite nearly five years of ‘recovery’, from $8.86/hr. (adjusted in 1982-84 prices as per the US Government estimates) to $8.83/hr.

*But when adjusted for the core working class as a whole—not just full time employed—the decline in core working class income since 2009 has been precipitous—(i.e. when adjusted further for the rise of millions more part time/temp workers, unemployed, for millions of workers leaving the labor force, for millions rise of workers on disability, for millions’ expiration of unemployment benefits, and for workers’ rising share of healthcare benefits costs and reductions of pension benefits). The adjusted decline is at least 15%.

*Per US Government statistics (unadjusted per above), real median household income fell 4.1% under George W. Bush, collapsed by 9.6% since 2008 under Obama, recovering only 3.4% of the overall decline since 2012—i.e. a net loss of more than 10% since 2000.

*The share of wages & salaries of total National Income has declined steadily for 30 years, from 55.6% in 1983 to 52.0% in 2007 just prior to the recession. It has continued to fall during the recession period, 2007-09, as well as during the post-2009 recovery, to 49.1% today.

Concluding Comments

Much has been written over the past year about the growing income inequality in America, and how the wealthiest 1% households, who almost exclusively derive their income from returns on capital (capital gains from stock & bond trading, foreign exchange & derivatives speculation, interest, real estate, rents, etc.), have accrued 95% of all the national income gains in the US economy since the June 2009 so-called economic ‘recovery’ officially began.

Liberal economists like Paul Krugman, Robert Reich, James Galbraith and others have been writing numerous books and countless newspaper columns on the subject of income inequality in general over the past year. They have finally discovered in recent years the sad fact of accelerating income inequality in America, a developing trend that has been in progress for decades, at least since the early 1980s.

But while liberal economists today are finally focusing on why and how the wealthiest 1% are accruing more for themselves, not enough attention has been paid to why and how more than 100 million working class households in America have been doing so poorly—and increasingly so—during recent decades and in particular during the most recent period, 2004-2014. Nor have mainstream commentaries offered much in the way of correcting the historic decline in American working class conditions. How to improve the latter is just as important as taming the runaway capital incomes of the rich and super-rich. But only tepid and conservative proposals are forthcoming thus far from the mainstream economic profession, proposals that are long term and ‘safe’ for the owners of Capital today and do not embarrass their political friends and benefactors.

The condition of the 100 million plus working families in America today, International Labor Day 2014, is as lamentable as the accelerating accrual of income and wealth by the 1% is disgusting. Of course, the two trends are not mutually exclusive but directly related. The rich and very rich are becoming super-rich and mega-rich in large part at the direct expense of the rest.

(Note: A more detailed analysis of these trends is forthcoming in a public article by Dr. Rasmus under the title ‘An American Labor Balance Sheet: 1984-2014’. Look for a copy on his website below in coming weeks).

Dr. Jack Rasmus is author of the 2010 and 2012 books, “Epic Recession: Prelude to Global Depression” and “Obama’s Economy: Recovery for the Few”, Pluto Presss, 2010 and 2012. He hosts the weekly radio show, ‘Alternative Visions’, on the Progressive Radio Network in the USA. His website is http://www.kyklosproductions.com and his blog is jackrasmus.com. His twitter handle is @drjackrasmus.

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Listen to this archived radio interview at:

http://www.alternativevisions.podbean.com

or at:

http://prn.fm/alternative-visions-resurging-immigrants-rights-movement-us-0426

SHOW ANNOUNCEMENT:
‘Dr. Jack Rasmus welcomes grass roots immigrants’ rights leaders, Nativo Lopez and David Bacon, to discuss the new resurgence in the immigrants rights movement in the U.S. With deportations under the Obama administration now exceeding 2.5 million since 2008—including half a million of legal US citizens (youth & children or deported parents)—Jack and guests discuss the key demands of the immigrants rights groups today and the resurging activity at the grass roots. Jack asks guests why the Obama administration has not introduced executive orders to defend immigrants, while continuing to hide behind the failure to pass any legislation by Congress. David Bacon explains that while millions are being deported, the administration has increased the numbers of ‘guest workers’ coming into the US to work in agriculture and elsewhere under sub-wage and sub-working conditions and bringing hundreds of thousands of skilled tech workers to the US while deporting record level millions back to Mexico, central America and elsewhere. Jack’s guests explain how free trade agreements, like NAFTA and CAFTA (and soon the TPP) play a key role in driving emigration to the US. Nativo Lopez discusses the key demands of the movement today, and in conclusion raises the question why 22,000 US agents are needed on the border today, developing new procedures for mass roundup and mass incarceration and detention in camps and rapidly expanding the use of drones and other technology. Is the border control strategy in development today perhaps a ‘dress rehearsal’ for something yet to come throughout the US down the road?”

Show Guests Interviewed:

David Bacon is a California writer and photojournalist, documenting the impact of the global economy, migration, and human rights..He was a founder of the Labor Immigrant Organizers Network, and board chair of the Northern California Coalition for Immigrant Rights, and a union organizer for two decades with the UFW and the ILGWU.His books include Illegal People – How Globalization Creates Migration and Criminalizes Immigrants (Beacon Press, 2008), The Children of NAFTA (University of California Press, 2004) and Communities Without Borders (Cornell University Press, 2006). His new book is The Right to Stay Home (Beacon Press, 2013), and is about the social movements seeking alternatives to displacing communities and criminalizing the migrants produced by displacement.

Nativo Lopez is a leader of the immigrants rights organization, Hermandad Mexicana, and has been active in Mexican and Latin American undocumented workers’ rights groups and movements in the southern California area for decades.

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The following url accesses my April 23 radio interview explaining why China will experience a ‘hard landing’ economically as it struggles to address shadow banks and speculators, tame asset price bubbles in real estate and forex trading, while keeping its real economy stable. How China’s slowdown impacts emerging markets and Europe regional economies negatively is also explained. China’s economic and financial stability is the key to the near term outlook for the global economy. Listen at:

http://voiceofrussia.com/us/2014_04_23/Analyst-China-Is-The-Global-Economic-Linchpin-1143/

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For my Alternative Visions Radio Show interview of April 19 with oral-historian, Staughton Lynd, on the show’s continuing theme of ‘Are American Unions at a Strategic Impasse’, and Lynd’s new book, ‘Solidarity Unionism’, listen to the archived show at:

http://www.alternativevisions.podbean.com

Apr 19th, 2014 on the progressive radio network

Show Announcement:

‘Dr. Rasmus interviews Staughton Lynd, long time oral histories labor historian, as part of the Alternative Vision show’s continuing focus on the subject: ‘Are US Unions At a Strategic Impasse’? Lynd recounts his oral history interviews with union activists and local leaders in the 1930s-40s and their warnings on the limits of Labor’s then developing strategies that have since become the norm for the past 75 years—i.e. industrial, bargaining, organizing, and political strategies that now appear in recent years to have exhausted their potential for advancing workers’ wages, benefits, and standard of living in the 21st century. Both Jack and Lynd discuss the broad ‘legal web’ that has developed the past half century that today have effectively neutralized and defeated past union strategic approaches, as well as prevent internal union renewal ‘from below’. Current promising movements by low wage workers, immigrant workers, and union reform movements in recent years (i.e. Chicago teachers, Boeing workers, etc.) are considered for their great potential for union renewal. But both Jack and Lynd agree these spontaneous movements will likely atrophy, as in the recent past, unless some form of new union-community permanent organization at the grass roots emerges to break through the ‘legal web’ and internal union organizational roadblocks that prevent union renewal from below today. The ‘Great Task’ is to develop some kind of permanent labor-community organizational network that, according to Lynd, “doesn’t give away workers freedom of action in order to become a permanent organizational structure that prevents that freedom of action”–as is the case today. Lynd agrees to return to the May 3 Alternative Visions show to discuss this view further in his forthcoming new book, ‘Solidarity Unionism’, and Rasmus agrees to update his similar views on the necessity of new ‘labor-community alliance’ organizational forms for the 21st century.”

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Whereas my feature articles and public presentations provide a view of my longer term economic analysis, and my blog entries intermediate term, those interested in my very short term reflections on the US and global economy may find my twitter account remarks of interest. The following are my twitter entries for the month of March, 2014 (join me on twitter for future remarks, available on this blog’s sidebar).

MY TWEETS FOR MARCH 2014:

#China So goes German economy, so goes Europe! But so goes China economy, so goes Germany. Will China slowdown mean Eurozone stagnation?

#QE As US ‘tapers’, is global QE dead? No. QE2 in Japan inevitable + new Eurozone banking union & deflation=coming to Europe as well-in 2015

#Germany While Obama-US worry re. German-Russia trade now at $100 bil., China visits Berlin to expand German-China trade already at $200bil.

#Ukraine Read my analysis of details of IMF-Ukraine package terms at my blog at http://jackrasmus.com

#Ukraine Is Obama-Putin deal in the making? No NATO in Ukraine(yet); no invasion of eastern Ukraine(for now); keep fascists out of new Govt

For my analysis of today’s 3-27 IMF Deal on the Ukraine read my ‘Ukraine’s IMF Deal Means Greece-Like Depression’ at http://jackrasmus.com

US housing starts (investment) falls 3rd consecutive month + new home sales flat or falling for five months =more US real investment decline

US capital investment spending drops -1.3%, vs. consensus forecast of 0.5%, more indication of slowing global investment and future growth.

Eurozone QE is now inevitable, as German Central Banker, Wiedmann, signals OK if drift toward deflation continues (also inevitable).

Rumor of China new stimulus-more infrastructure spending & money injection. Same larger package didn’t work ’13, why should it work in 2014?

Emerging markets betting on yet another China stimulus to offset its slowing economy. Will it come? 60-40 says ‘no’.

China manufacturing declines again, for sixth consecutive month. Eurozone continues to choke on Ukraine crisis. Emerging markets churning.

#Ukraine. My ‘Alternative Visions’ radio shows of 3-22 and 3-15 on Ukraine economy are archived for download at http://www.alternativevisions.podbean.com

#Ukraine. For more on analysis of Ukraine economic crisis, listen to my weekly ‘Alternative Visions’ radio show at PRN.FM
#Ukraine economy.

For my in-depth analyses of Ukraine economic crisis, see my ‘Who Benefits, Who Pays?’ at website http://www.kyklosproductions.com

History will show Obama biggest foreign policy blunder:let US Neocons drive US policy & US lend support to proto-fascist led coup in Ukraine

Growing possibility that Ukraine crisis, if continues, will push Eurozone into its ‘third dip’ recession by late 2014. Odds = 50-50.

Euro to rise as money flows into currency from China’s central bank,from emerging market capital flight, & EU businesses move to sidelines

Eurozone negatives growing–Ukraine crisis worsening, Euro rising, Draghi refusing to intro QE, and China, Germany’s biggest export, slowing

Is US heading for faster ‘disinflation’ (or deflation later?). Producer prices fall 0.2% in Feb. and rise only 0.9% for year.

#ChinaEconomy. Global markets plummeting today on China econ news. Want to know why I predicted it weeks ago? Go to http://www.alternativevisions.podbean.com .

#Ukraine Big Italian Bank, Unicredit, posts record losses and lays off thousands. Unicredit among biggest EU banks with exposure toUkraine

Breaking news: CIA charged by Senate with spying on Congress and secretely deleting 800 pp. of Congressional documents from Senate computers

#ukraine. Deep causes behind Ukraine crisis-USA nervous Germany/EU growing gas/oil ties to Russia. USA wants to export its gas to EU instead

#Ukraine crisis will turn violent, stopping fragile EU recovery in its tracks. ECB (aka German central bankers) won’t intro QE
US ’13 GDP growth based on false inventory surge now waning.

Credit based US consumption not sustainable. Rising gas/food prices=further hit
Latest Japan GDP growth comes in below forecasts by government and experts.

More evidence of slowing global economy.
Confirming my prediction China’s slowing economy: Feb. -18% record fall in China exports. See my 3-1-14 radio show http://alternativevisions.podbean.com/

Re US Economy, when economists have no real explanation (and politicians want to hide the truth), they always turn to ‘Weather Metaphors’

As Japan real economic growth slows (now 1%), watch for second round of QE2 (deja vu the Fed circa 2010-11 anyone?)

As Eurozone drift to deflation continues (assured with coming Ukraine bailout and Russia sanctions), the ECB will introduce version of QE

US business press now raising idea of a China ‘Bear Stearns’ moment, as defaults loom in wake of debt and asset bubbles

Ukraine foreign exchange reserves being depleted $4b per week. Only $12b left. Will EU and US ‘backfill’, or will currency collapse before

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ALTERNATIVE VISIONS RADIO SHOW, April 5, 2014
Progressive Radio Network, NY

“Alternative Visions Radio Show host, Dr. Jack Rasmus, and guest discuss the buildup toward a coup being prepared by US and its business-right wing friends in Venezuela today. Jack’s guest is longtime union activist, Alan Benjamin, who works in the International Labor Office in Geneva, Switzerland, with access to information globally on the Venezuela situation. Benjamin provides an eye-witness view of contemporary events in Venezuela, based on his frequent direct contact with unionists on the ground in Venezuela in recent weeks and days. Jack and Alan discuss the current relationship of political forces today in Venezuela, including the various alignments of classes there, political parties, union organizations, students, US sponsored and funded NGOs, small business v. large businesses, small farmers and peasants, and splits within the military. Benjamin explains the history of US coup attempts in Venezuela and Latin America in recent decades and parallels with recent events in the Ukraine coup. Who is behind the recent killings in the streets? What are the splits within the anti government right wing forces, as well as within the government itself? What are some of the USA’s current various plans (‘A, B, and C’) to destabilize Venezuela along multiple fronts? These and other related topics are addressed—in this ‘fact-based’ exploration of what’s happening in Venezuela today.

Alan Benjamin is a long time member of the Office & Professional Employees Union in the U.S. and its delegate for a number of years to the San Francisco Central Labor Council, AFLCIO. He is a member of the coordinating committee of the ‘Labor Fightback Network’ in the USA, and has been involved in numerous undocumented US workers’ organizations defending US immigrant workers rights, as well as active in organizations defending US students from government education spending cutbacks.”

This show is available at:

http://prn.fm/category/archives/alternative-visions/

and at:

http://www.alternativevisions.podbean.com

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Alternative Visions – US Health Care Costs Again Rising–Not Slowing – 3/29/14

This hour-long interview and show is accessible at:

http://prn.fm/category/archives/alternative-visions/

SHOW ANNOUNCEMENT:

“Dr Jack Rasmus welcomes as his guest, Tom Moore, a nationally known expert on health care costs with 30 years experience in medical cost analysis in government and as a consultant, to discuss rising health insurance premiums and costs today in the US. Jack and Tom discuss why health care premiums and deductibles are again on the rise, and projected to escalate at double digit annual rates further in 2015 under Obamacare. Dr. Rasmus notes the sharp contradiction between national consumer polls and surveys that show health care insurance premiums and deductibles rising again at double digit levels vs. government and Obama administration reports that claim total healthcare spending in the US is slowing. So what is it? Are personal out of pocket costs rising and about to escalate even more—or are the government reports of total healthcare spending slowing correct? Are health insurance companies, that have become big finance companies expanding worldwide, about to rip off the US public again with double digit further premium and deductible hikes once Obamacare is implemented? What can you expect in coming months. Jack and Tom discuss the details and the real data.’”

Guest Tom Moore, Jr. is the co-founder of Community Campaigns for Quality Care and serves as its Board Chair and Chief Financial Officer. He brings over 30 years’ experience in health policy and program management, having held major federal and state government positions including the Director of California Department of Social Welfare, Director of the Office of Legislation for the U.S. Public Health Service, and Deputy Director of the California Department of Health Services for the Prepaid Health Plan program in Medi-Cal. Tom was also a Senior Health Policy and Program Consultant to the California Health Care Coalition, where he represented CHCC members on the board of the California Hospital Assessment and Reporting Task Force (CHART), recognized as a national model for health care quality measurement and reporting. He has consulted with the International Longshore and Warehouse Union and the California State Council of the Service Employees International Union on health benefits, including serving as SEIU’s liaison to CalPERS. Working with his CCQC partner, Sally Covington, he has participated in development of projects to identify and improve questionable variations in utilization of clinical services in Montana, Oregon, and California and currently supports delivery system improvement projects with IBEW L1245 (Northern California).

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Today, March 27, 2014, the IMF released the broad outlines of its terms and conditions for loans and other measures for the Ukrainian economy. What those terms and conditions mean is less a rescue of the Ukrainian economy than the onset of a Greece-like economic depression for the Ukrainian populace.

Ukraine’s economy had clearly entered a recession, its third since 2008, sometime in the latter half of 2013. Some recent estimates of the likely contraction of the economy in 2014-15 have ranged from 5%-15% in GDP decline.

The ‘IMF Standby Agreement with Ukraine’ text released March 27, acknowledges the current severe economic instability of the Ukrainian economy. What it fails to acknowledge, however, is how the IMF package will further adversely impact that economy.

The IMF deal calls for $14-$18 billion in IMF financial support provided over the next two years, 2014-15. Another potential $9 billion reportedly will come from other countries, although in yet unspecified form. The European Bank for Reconstruction & Development apparently will provide $2 billion of that $9 billion.

Presumably the US aid package of around $1-$2 billion now currently working its way through the US Congress represents another element of the $9 billion. The remaining $5 of the $9 billion non-IMF funding is yet unidentified.

The $27 billion total is well in excess of the $15 billion that was being talked about in prior weeks by the public press and more than the $20 billion Ukraine had asked the IMF for at the end of 2013—an indication that the economy has been deteriorating more rapidly than reported since the beginning of 2014.

In previous articles on the Ukraine economic situation a few weeks ago, this writer estimated that at least $50 billion would be needed to stabilize the Ukraine’s economy over the next two years. That figure may even rise by 2015.

The IMF Statement of March 27 addresses what it considers the most important economic weaknesses of the Ukrainian economy that require immediate and focused attention. Those weaknesses include the Ukraine’s current trade deficit, its rapidly declining international currency reserves, its fiscal budget deficit, and the budget deficit of its state-owned national gas company, Naftogaz.

The IMF estimates that the Ukraine’s trade deficit (exports minus imports) at around 9% of GDP ($17 billion a year) is due to Ukraine’s stagnating exports. What the IMF proposes in order to resolve this is to allow Ukraine’s currency to continue to ‘float more freely’. The Ukraine currency so far in 2014 has already fallen 26% to the dollar. So the idea is to allow the currency to decline still further. In theory, that will make Ukrainian exports more competitive and in turn reduce the trade deficit. The problem is it will also result in a sharp rise in the cost of imports and therefore inflation for Ukrainian households. The IMF policy of promoting further currency decline, in other words, will mean even more domestic inflation, primarily impacting households, and therefore less spending by households on other goods and services.

Allowing the currency to decline further also suggests that IMF policy is for the Ukrainian central bank not to intervene aggressively in coming months to prop up the currency in global markets. That releases more of the IMF funds to service debt payments to western banks for the current and past loans. As the IMF statement indicates, “large foreign debt repayments loom in 2014-15.” The amount of debt payments due is estimated at $6.2 billion. So Ukrainian households will in part pay for the debt payments to western banks by having to adjust to higher inflation and reduce their real spending.

Given that $6.2 billion of the $27 billion IMF total package will go to servicing debt payments to the west, it also means that only around potentially $21 billion of the IMF total bailout remains to stimulate the Ukrainian economy. But the key word here is ‘potentially’, since much less than the $21 billion will actually go into the economy—and will be offset by far more ‘taken out’ per the IMF deal.

A $21 billion net IMF injection is an economic illusion. Here’s why.
First, the Ukraine’s economy will decline as a result of the IMF package because IMF measures require major changes in Ukraine’s monetary and fiscal policies that will in net terms slow, not stimulate, the Ukrainian economy.

For example, the IMF statement calls for monetary policy that targets “domestic price stability while maintaining a flexible exchange rate”. What that means is that the central bank, the National Bank of Ukraine (NBU), will be required by the IMF to reduce the Ukraine’s money supply and thus raise domestic interest rates, as part of “an inflation targeting framework over the next twelve months to firmly anchor inflation expectations.” Minus the economic jargon, what that means is that the NBU and IMF policy raising interest rates will slow the economy in order to offset expected inflationary pressures from imports that will occur from a further currency decline. That interest rate hike policy designed to offset expected import inflation will further slow the real economy. And that translates into a further loss of jobs as businesses cut back production due to rising interest costs.

But that’s not the half of it. IMF measures will not only result in rising import inflation, but will produce even greater inflationary pressures as a result of IMF-dictated terms related to Ukraine’s natural gas.

Estimates are that natural gas prices will increase by 79% as a result of the IMF-dictated 50% increase in gas prices. Simultaneously, as gas prices escalate gas subsidies to households will be totally phased out over the next two years, according to the IMF deal.

It has been reported that gas subsidies to households are equivalent to 7.5% of Ukraine’s GDP. So eliminating gas subsidies means a reduction in consumption of $6.5 billion a year, as households will have to reduce other consumption to pay now for the gas price hikes and the total phase out of gas subsidies.

That phase out of gas subsidies and 79% increase in gas prices means a $13 billion cut in real consumption over two years, 2014-15. That $13 billion reduces the remaining $21 billion of the IMF package still further, leaving only $8 billion in potential net remaining stimulus for the real economy from the IMF deal. However, that’s still not the entire picture of the IMF deal negative impact on the Ukrainian economy.

The IMF deal also calls for ‘Fiscal Policy’ reforms, or what it calls the need to “implement deeper fiscal adjustment” that will “reduce the fiscal deficit to around 2.5% of GDP by 2016.” That 2.5% budget cut represents another $4.5 billion in combined annual Ukrainian government spending cuts (and/or tax hikes), presumably in each of the next two years.

The spending cuts will no doubt come out of government job reductions and wage cuts for remaining government workers. It will also undoubtedly include deep cuts to the pension system affecting all retirees, which some estimate will mean cuts in pensions by up to 50% by 2016. It is possible that the $4.5 to $9 billion in government deficit reduction over the next 1 to 2 years will mean sales tax hikes for consumer households as taxes are cut for businesses, since the IMF statement of March 27 also calls for “measures to facilitate VAT (value added tax) refunds to businesses”.

In its March 27 statement the IMF has not spelled out the required job, wage, and pension cuts specifically. It is clearly waiting for the Ukrainian interim government to inflict those economic wounds on itself and the Ukrainian people, following which the IMF Management and Executive Board will approve the offered deal.

To summarize, the IMF deal of March 27 calls for paying western banks and lenders $6.5 billion over the next two years in debt servicing payments. It additionally requires the reduction of household gas subsidies by another $13 billion plus the total phase out of gas subsidies. And it indirectly calls for the Ukrainian government to cut spending by at least $8 billion (2.5% of GDP) over the next two years—in the form of cuts in government jobs, wage cuts for government workers, and pension payment reductions of a likely 50% for retirees in general.

Add all that up, and not surprisingly it’s around $27 billion. That’s $27 billion of economic spending and stimulus taken out of the Ukrainian real economy per the IMF deal. In other words, just about the $27 billion that the IMF purportedly will provide to the GDP per the March 27 announcement. Which means Ukrainian households will pay for the IMF’s $27 billion package with higher gas prices, elimination of gas subsidies, government job and wage cuts, and big pension payment reductions.

But $27 billion is not really an ‘even trade off’. It’s really a net negative stimulus for Ukraine due to the composition of the IMF deal. Keep in mind, the $6.2 billion in debt servicing payments outflow to the west will have absolutely no positive impact on Ukraine’s GDP. So, first of all, it’s really only the IMF net $21 billion ‘’in” vs. the Ukrainian $27 billion taken “out” of the economy per IMF requirements. But even $21 billion ‘in’ vs. $27 billion ‘out’ is not the true net estimate.

The $27 billion taken out reflects a household consumer spending ‘multiplier effect’ that is much larger than the $21 billion net domestic Ukraine injection by the IMF. If one assumes a conservative 1.5 multiplier effect, the amount taken out of the Ukrainian economy is more like $40 billion over the next two years—a massive sum given that the Ukraine’s GDP in 2012 was no more than $175 and was flat to stagnant in 2013. Of course, the $40 billion ‘out’ is adjusted by the $21 billion ‘in’ and its multiplier effect. But while the $40 billion ‘out’ will definitely occur, there is no guarantee the full $21 billion IMF injection “in” will actually happen in turn.

Some of that $21 billion will no doubt be ‘put aside’ by the Ukrainian central bank to replenish its foreign currency reserves, today at around only $10 billion or less. Some of it will be used to assist Ukrainian businesses to purchase European imports of intermediate goods, projected to rise in cost significantly as Ukraine’s currency continues to decline. And some of it will go to loans from the NBU to Ukrainian businesses that will hoard the cash and not use it to expand production. All this means that probably no more than half the $21 billion IMF net injection will actually affect the real Ukrainian economy. Given these ‘leakages’, the multiplier effects of the IMF injections will no doubt prove to be negative. It is not unreasonable to assume no more than a net $10 billion of the IMF’s $21 billion will get into the Ukraine’s real economy as a stimulus.

That leaves no more than a $10 billion net stimulus over the next two years, offset by a ‘multiplier’ of $40 billion reduction in the real economy over the next two years. A net reduction in Ukraine’s GDP of $30 billion in the next two years, or about $15 billion a year, represents a cumulative decline in GDP of at least 18%. And that’s a Greece-like Depression.

By absorbing the Ukrainian economy into the Eurozone, the latter is in effect taking under its economic wing yet another ‘Greece’ and ‘Spain’. And as in the case of those latter economies, those who will pay will not be the bankers and multinational businessmen, but the Ukrainian people. But that is the essential and repeated history and legacy of IMF deals globally for the last three decades.

Dr. Jack Rasmus
March 27, 2014

Dr. Rasmus is author of the 2010 and 2012 books, “Epic Recession: Prelude to Global Depression” and “Obama’s Economy: Recovery for the Few”, Pluto Presss, 2010 and 2012. He hosts the weekly radio show, ‘Alternative Visions’, on the Progressive Radio Network in the USA. His website is http://www.kyklosproductions.com and his blog is jackrasmus.com. His twitter handle is @drjackrasmus.

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(The following is an excerpt from the just published in depth article, ‘Who Benefits from the Ukraine Economic Crisis’. For the full 5k Word Article, go to the website, http://www.kyklosproductions.com/articles.html, for a discussion of the outcomes of the crisis for Russia, Europe, and US interests, as well as the Ukraine)

“Today, Sunday March 16, 2014, 83% of the Crimea’s eligible voters have voted by 97% to secede from Ukraine and join Russia. Simultaneously, negotiations between the European Union and IMF with the interim government in the Ukraine, brought to power by a Coup D’etat on February 22, continue toward a conclusion set tentatively for March 21. Extreme political uncertainty thus promises to continue for weeks and perhaps months given these events, while economic conditions consequently continue to deteriorate in the Ukraine from an already extremely precarious state.

Most accounts of the situation in the Ukraine and Crimea have focused to date on political events and conditions. Little has been said in the press about the economic consequences of the Coup and subsequent events, or likely scenarios for the future.

What interests—in the Ukraine and global (i.e. western Europe, USA, Russia)—stand to benefit economically from recent and future events in the Ukraine? Who stands to lose? There’s a well-worn saying, if you want to find out ‘who benefits’, then “follow the money trail”. That trail will also lead to the inverse, ‘Who Pays’.

1. The IMF Deal of March 2014: Who Benefits, Who Pays

While the final version of the latest IMF package for the Ukraine is still in development, past relations and deals between the IMF and Ukraine indicate some likely characteristics of ‘Deal #2’ due on March 21. (Deal #1 was the agreement reached on February 21 between the IMF and the pre-Coup government of President Yanukovich. While that former deal was agreed to on the 21st, it was upset within 12 hours by the violent street actions of proto-fascist forces and the still unidentified sniper killings of more than 100 protestors and police forces in Kiev).

Former agreements and proposals between the IMF and Ukraine since the ‘Orange Revolution’ of 2004 resulted in IMF loans to the Ukraine as follows:

2005 IMF deal terms: $16.6 billion in loans to Ukraine

2010 IMF deal terms: $15.1 billion in loans to Ukraine

December 2013: Ukraine requests another $20 billion from IMF

The Orange Revolution of 2004 resulted in severing much (but not all) of the Ukrainian economy from Russia. That caused significant economic contraction for the Ukrainian economy for several years after. Think of the similar effects of the severance as if the west coast economy of the US—California, Oregon, Washington—were stripped from the USA and joined Canada. While the rest of the world economy, including Russia, enjoyed a moderate real economic recovery from 2004-07, Ukraine did not benefit much due to the economic severance from Russia that followed 2004 and the Orange Revolution. Ukrainian GDP declined or stagnated. In other words, the IMF deal of 2005 did little for the Ukrainian economy.

Then came the global economic collapse of 2008-09, generated largely by US, UK and western banks’ over-speculation in financial securities. The Ukrainian economy and GDP, like many economies, collapsed by more than -15% during those two years. That led to the second IMF deal of 2010. Ukraine believed the second deal would open its exports to western Europe and that would generate recovery. However, the European economy (EU) itself slipped into a second, ‘double dip’ recession in 2011-13, and demand for Ukrainian exports did not follow as anticipated. Ukrainian GDP again stagnated after a short, modest recovery, and then slipped into a recession again in the second half of 2013. In short, the 2010 IMF deal did little for Ukraine as well.

In fact, the 2010 IMF probably slowed economic recovery, as it required a 50% increase in household gas prices and corresponding cuts in subsidies for the same. That significantly reduced aggregate consumption demand by Ukrainian households and slowed the economy. So did corresponding IMF demands for reductions in government spending, which were a precondition for the $15.1 billion 2010 IMF package.

One of the reasons no doubt that the Yanukovich government last December 2013 decided to forego another IMF deal was the reported requirement by the IMF that household subsidies for gas be reduced by 50% more once again. Other onerous IMF requirements included cuts to pensions, government employment, and the privatization (read: let western corporations purchase) of government assets and property. It is therefore likely that the most recent IMF deal currently in negotiation, and due out March 21, 2014, will include once again major reductions in gas subsidies, cuts in pensions, immediate government job cuts, as well as other reductions in social spending programs in the Ukraine.

This possibility does not seem to bother current interim prime minister, Arseny Yatsenyuk, who has publicly commented by the cuts, saying that “we have no other choice but to accept the IMF offer”. In fact, Yatsenyuk and his post-Coup government even stated before negotiations with the IMF began this past week that they would accept whatever offer the IMF and the EU made.

Early leaks of the forthcoming March 21 IMF/EU bailout deal appear that the EU/IMF will provide a $2 billion immediate grant and subsequent $11 billion in loans. The European Investment Bank will provide a couple billion more. For a total package of around $15 billion. But there is no reason to believe that the coming $15 billion will prove any more economically stimulative to the Ukraine than did the 2010 deal of $15.1 billion. The Ukraine, European, and world economy is even weaker today than it was in 2010 when a brief, modest economic recovery globally was in progress. Today the trend is economic stagnation in Europe, significant slowing growth in China, and collapsing emerging markets. Western Europe in general, and Germany in particular, will focus on subsidizing and expanding its own exports first, and will be little interested in encouraging Ukrainian exports to Europe at the expense of its own industries. Thus, as was the case with the post-2010 IMF deal, western Europe in 2014-15 will not represent a major source of export demand to stimulate Ukraine’s economy. More bailouts from the EU/IMF and the USA will quickly be required.

The $15 billion promised represents less than the $20 billion the Ukraine said it needed last December—i.e. before its currency fell 20% and its foreign exchange reserves fell to less than $10 billion. And less than the $35 billion the new interim prime minister, Yatsenyuk, admitted is needed. This writer in an earlier article has forecasted more than $50 billion will be required, given the projected 5%-15% GDP decline expected for the Ukraine over the next two years.

Even if one assumes all the IMF’s $15 billion will actually go into the Ukrainian economy directly the concurrent cuts to gas subsidies, pensions, government jobs and government spending demanded by the IMF/EU deal will almost certainly offset much, if not all, of the IMF/EU $15 billion.

Considering just the question of gas subsidies to households:

The latest Ukrainian GDP (2012) figures show its GDP was equivalent to $176 billion in nominal terms (and $335 billion if adjusted to global prices, or in ‘PPP’, purchasing power parity, terms). Household gas subsidies reportedly amounted to 7.5% of GDP in 2012. That’s about $13 billion in nominal terms. So if the IMF deal pending reportedly requires a cut of gas subsidies of 50%, that’s about -$7.5 billion taken out of the Ukrainian economy. So the $15 billion IMF results in only half that in terms of real stimulus effects. The $15 billion becomes only a net $7.5 billion to the Ukrainian economy.

Cutting gas subsidies will not only result in removal of income for household spending who lose the subsidies, it will also result in sharp increases in gas prices that will reduce spending by nearly all households.

Then there’s the likely IMF demand for pension cuts. Particularly hard hit by the IMF deal will be elderly women households, who receive the majority of the pensions and which are spent to support children and grandchildren.

The cuts to gas subsidies and pensions, and rising gas prices, will reduce consumption immediately (and therefore GDP immediately) easily by more than $10 billion.

IMF-demanded cuts in other government spending will further offset the nominal IMF/EU $15 billion stimulus. Ukrainian government spending today represents 46% of GDP. The IMF will almost certainly therefore also demand a significant reduction in that 46%. That will mean in the short term even further GDP decline. That leaves a net real economic effect on the Ukrainian economy of well less than $5 billion.

But there may not even be the $5 billion to begin with.

The lion’s share of the $15 billion IMF loan will go to western banks (especially in Austria and Italy who are seriously exposed) to pay principle and interest on previous loans to the IMF and western banks (about $2 billion this year), will be used to finance future exports from the Ukraine (now running a $20 billion a year trade deficit), or will be used by the Ukrainian central bank to prop up the Ukrainian currency (now falling 20%). How much of the $15 billion in the IMF/EU package will be initially diverted to cover bank loan interest, finance trade deficits, and for Ukraine’s central bank efforts to slow the collapse of its currency remains to be seen. It past IMF deals are an indicator, much of that $15 billion will be used as a first priority for the preceding purposes. What’s left, if any, will go directly to the Ukraine economy. What’s left will no doubt amount to far less going into the real economy, than that which will ‘taken out’ of the Ukraine economy as a result of cutting gas subsidies, government spending, and pensions.

Add in rising inflation from ending of gas subsidies and inevitable rising unemployment from cuts in government spending, it is not difficult to estimate that the latest IMF deal will have no more positive impact on the Ukrainian economy than did the prior 2010 and 2005 IMF deals. Indeed, it will most likely have an even greater negative impact on the economy in general, and the average Ukrainian in particular.

To briefly summarize in terms of just the net impacts of the EU/IMF deal, ‘Who Benefits’ include: western European banks who will continue to receive principal and interest payments from the IMF that would had defaulted; global currency speculators who will be able to sell Ukrainian currency to the Ukrainian central bank at a subsidized price, Ukrainian companies that will be given export credits to continue selling to western Europe and the western Europe companies that import the Ukrainian exports at a more attractive price.

Those ‘Who Pay’ and who lose include :majority of Ukrainian households that will have their real income reduced as they pay higher prices for gas, Ukrainian elderly who will have their pensions cut, Ukrainian government workers who will lose their jobs, and all Ukrainian households who will lose other government services.

But all the foregoing only refers to the negative net economic impacts from the pending March 2014 IMF deal. What about the general economy, apart from the IMF deal, which is predicted to contract by 5%-15% over the next two years even assuming no worse development in political instability?

Who gains longer term from the Ukraine being more completely integrated into the western economy? Who loses longer term?

(For parts 2 through 7 of this article, go to the website, http://www.kyklosproductions.com/articles.html.)

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