Maquilapolis, the City of Factories

What is the human price of industrialization? What is the price of globalization? Maquilapolis, the city of factories, highlights two problems at the ground level: those related to when capital comes into a town and those related to when capital leaves a town. The genius of this film is that it tells the story from the perspective of the women working in Tijuana’s factories in collaboration with the filmmakers.

It is understandable that the film and many of the people in the film conflate globalization with industrialization. If this (pollution, poverty, and joblessness) is globalization, I don’t want it, was the sentiment in the film. But the horrible problems that have occurred in Mexico, such as pollution causing babies to be born without fingernails or brains, aren’t unique to globalization per se. It is probably more accurate to say that these things are the awful pains that occur when a country goes through the wrenching social, economic, and environmental changes that correspond with an Industrial Revolution. Just ask America at the turn of the century or China at present.

While I was watching the film, I kept thinking: If these factories moved from Mexico to Asia, I wonder how bad conditions are in a place like China that doesn’t have the civil society mechanisms that are profiled in Maquilapolis and eventually brought about justice. The industrial dump that was contaminating the Tijuana neighborhood with lead and other chemicals was finally cleaned up, thanks to the women advocates.

The horrors of industrialization are nevertheless very real and very serious. One of the main characters, Carmen, spends all night working at a television factory only to come home to a shack built with discarded garage doors and a dirt floor. She suffers from kidney damage from the chemicals in her factory and only makes 6 dollars a day with which she must support her self and her three children. A young girl and a dog were electrocuted from electrical wires frayed in puddles. Raw sewage runs everywhere. After running through the rest of her harrowing schedule of taking care of her house, her children, and the factory job, she gets about one or two hours of sleep a day. In the end of the film, Carmen wins enough severance pay to cover the costs of paving her home’s floor.

The second problem in the film is more about globalization: When cheap labor became available in East Asia—after China’s accession into the WTO—many of these factories exited Mexico, leaving many Mexicans jobless and hopeless. The problem of capital flight in Mexico was analyzed in depth during our recent book talk with Kevin Gallagher. He spoke about Mexico’s enclave economy and the need to complement foreign direct investment with strategic domestic policies. From Gallagher’s essay, The Enclave Effect:

New research shows that although Mexico was initially successful in attracting multinational corporations, foreign investments waned in the absence of active government support and as China became increasingly competitive. Moreover, the foreign investment created an "enclave economy" the benefits of which were confined to an international sector not connected to the wider Mexican economy. In fact, foreign investment put many local electronics firms out of business and transferred only limited amounts of technology.

This evidence doesn't suggest that foreign investment or trade agreements are bad things. They suggest that the costs of lifting performance requirements and adopting draconian expropriation rules could very well outweigh the benefits of new treaties with such provisions.

One of the most thought provoking moments in the film is when Tijuana labor leader thinks aloud about the relationship between corporations and the government. With both the government and the companies shirking their responsibility to the communities, Jaime Cota asks, “Who is worse: The one who pays for sin or the one who sins for pay?” For a moment, the viewer thinks about the possible tradeoffs before realizing that this rhetorical question digs deep into the assumptions underlying the marriage of democracy and capitalism.

Like the film Black Gold, Maquilapolis uncovers some of the misery that accompanied the production of everyday goods like TVs or plastic bags. In Black Gold’s case, it is your daily cup of coffee. But the innovation in Maquilapolis was that the subject of the film, the factory women, produced some of the filming (like the documentary about Calcutta’s red light kids Born into Brothels), images, and sounds. The result is honest and profound.

Photo from California Newsreel.

Black Gold Shows Bitter Trade Problems

As I have argued in Policy Innovations, ethical trade policies would be based on the principles of freedom and fairness. Thanks to our friends at California Newsreel, I was able to view the extraordinary documentary on the coffee trade Black Gold. The film tells us that something is wrong in the global trading system. Consider these points from the film:

• Africa has become more dependent on aid than ever before.

• Over the past 20 years, Africa’s share of world trade has fallen to 1 percent.

• If Africa’s share of world trade increased by just 1 percentage point, it would generate a further 70 billion dollars a year or five times the amount Africa currently receives in aid.

Why can’t Africa access trade as a tool to generate wealth? The film, produced by British filmmakers Marc Francis and Nick Francis, follows the heroic story of Tadesse Meskela, an administrator of the Oromio coffee cooperative in Ethiopia. Meskela has devoted his efforts to securing a fair wage for his coffee farmers since the global price of coffee plummeted after the International Coffee Agreement, which stabilized prices, collapsed in 1989.

The big players in setting the global coffee price are companies like Kraft, Nestle, Proctor and Gamble, and Sara Lee. Nevertheless, Starbucks, which is also a minor coffee buyer in Ethiopia, is one of the main characters in the film. It is not clear why this is the case other than that Starbucks is so popular that it can possibly influence public opinion. The film also contrasts the situations at fancy cafes in Trieste and Seattle with the squalid health and living conditions in Ethiopia’s coffee growing communities. Who is at fault?

Is it the New Yorker drinking coffee at Starbucks? Is it the problem of the Italian barista? Is it the US Trade Representative’s fault for not securing a trade deal in Cancun? Is it the responsibility of Illy coffee’s board? How about the New York City commodities trader? All of these characters appear in the film, but I wonder why the American, European, or Japanese politician responsible for farm subsidies never made a debut. In a Syriana-esque way, the film suggests that the system itself is broken but no single person is in charge. Something is wrong in the global trading system and judging by the sinister music that plays during certain scenes, everyone in the supply chain holds some responsibility.

As consumers, we certainly hold power and responsibility. I was perusing the Black Gold's excellent website and found a link to a PBS page that tells you where your coffee came from. An interesting comment here from a page on Kraft’s Maxwell House:

As with their Yuban brand, Kraft does not use fair trade coffee beans with their Maxwell House products. Pat Riso, a spokesperson for the company, was quoted in an article as saying that “the reason we don't offer it is because consumer demand for fair trade products is quite limited.”

In other words, if consumers demanded more fair trade coffee, the company would follow their wishes. There is a lot to unpack there. Clearly, the level of moral responsibility a company has in society is a huge topic of debate. Many have argued that we shouldn’t necessarily expect companies to behave ethically all on their own, especially as long as their fiduciary duty is to maximize profit. But I would also argue that companies are just tools to organize people, and people absolutely have an ethical duty to act responsibly.

From a policy perspective, the problem is inequity in subsidies and other resources. Rich countries can send huge teams of lawyers to WTO meetings, far outflanking any team a poor country can send. Meanwhile, rich countries are subsidizing their farmers in the hundreds of billions of dollars each year. Now the United States is under WTO scrutiny for possibly exceeding the legal limit of farm subsidies. From Reuters:

Monday’s WTO probe of US agricultural support for wheat, maize, rice and other crops comes three days after the US Senate passed a $286bn farm bill, following a similar bill from the House of Representatives in July. The White House has threatened to veto the bills, saying they failed to overhaul crop subsidy rules.

The Canadian and Brazilian complaints to the WTO are about whether US support topped Washington’s limit of $19,1bn a year since 1999, except 2003, for the most trade-distorting support. “Canada estimates during these years the US exceeded its WTO commitment levels by billions each year,” the Canadian government told the WTO.

But there is some good news on the fair trade coffee front. From CNW:

Fairtrade Labelling Organizations International (FLO), the only certification model that guarantees a fair minimum price to farmers that meet strict social and environmental criteria, is announcing an increase of the guaranteed minimum washed Arabica coffee price to US$1.25 per pound, to take effect on 1 June 2008. This new minimum price will be valid through at least June 2010, when another price review will take place. The coffee price adjustment, consisting of an average increase of US$0.05/lbs, will benefit more than 250 producer organizations in countries throughout Asia, Africa and Latin America, representing almost 1 million small farmers and their families.

It is clearly a complex issue that the film just brushes. But Black Gold deserves a lot of credit for highlighting the disparities along the coffee supply chain. We should be mindful of these gaps when we make decisions at the supermarket, company boardroom, or voting booth.

Photo by cgfan.

IEA's Nobuo Tanaka on Japanese Energy Policy

For a book chapter I am writing, I was able to get an interview with my former boss and the current head of the International Energy Agency Nobuo Tanaka. I was reading over the interview today and decided it was so insightful that it should appear in full on FG. Mr. Tanaka responded by email from the climate change talks in Bali last week.

How might Japan serve as a model for developing and developed countries in terms of energy policy and efficiency?

I want to suggest two points. The first point is consistency. Japan has been making efforts to improve its energy efficiency and use oil alternatives consistently after the 1970s oil shocks. This effort has created Japan's leading energy efficiency.

The second point is innovation. Japan has created and incorporated a mechanism to encourage innovation within its energy efficiency policy or regulation (top runner regulation, for example). This mechanism has helped Japan to achieve two goals at the same time: improve energy efficiency and industrial competency. Consistency in the application of the policy has also helped create a stable business environment to accelerate energy related innovation on the consumer side.

What is the role of Japanese public opinion in Japan's formulation of energy policy, especially nuclear energy policy?

Japanese people tend to be keen for energy security because Japan is an isolated island country with very few domestic energy resources.

This basic recognition among the people helps Japan to improve energy efficiency and increase oil alternative use (including nuclear energy use) constantly, regardless the level of oil prices.

Currently, the environment--or sustainable growth--is also on the top of the agenda for Japanese people. This is also helping Japan to make nuclear energy play a very important role.

How can Japanese energy policy help with regional cooperation?

Having realized rapid economic growth and energy demand growth as a result, Asian countries have understood their vulnerability to energy related crises, including high oil prices. And they are now very keen to learn how to improve their energy efficiency, increase the use of oil alternatives, and develop emergency preparedness measures.

Because of deep interdependence of Asian countries' economies, improving regional energy security is now a common target for all Asian countries and Asia as a whole.

Japan can support regional cooperation to solve this problem with its experience and technologies.

Furthermore, I personally expect Japanese energy industries to play a more important role in the more integrated Asian energy market if Japan adopts appropriate policies. However, there may not be much time for Japanese industries. Chinese industries, which are now fully occupied with their domestic energy demand, also will become interested in this integrated Asian energy market.

How has Japanese energy policy been affected by the international environment, such as oil prices, wars, and climate change?

First, I believe that the experience of World War II clearly has had substantial effects on Japanese energy policies, especially the focus on energy security.

Having said that, concerning consumer side energy policies such as energy efficiency and diversification of energy resources, Japan has been making efforts very constantly to ensure both, regardless of oil prices.

On the other hand, supply side energy policies (such as supporting domestic companies’ development and maintenance of oil and gas fields) have sometimes been influenced by oil prices. The restructuring of JNOC [Japan National Oil Corporation] is one example.

Finally, since the 1990s, climate change issues have been affecting energy policies. In particular, the Kyoto Protocol has had a big impact.

What is the best way for Japan to achieve energy security?

I want to suggest two points. First, Japan should reconstruct its energy policies or energy strategies by widening its range from the domestic market to the Asian region. Like the European energy market, the Asian market will be integrated as Asian economies experience deepening interdependence. Japan should reconsider how it can enhance its energy security and energy sustainability with other countries and further develop an integrated energy market in Asia.

Second, 30 years after the oil shocks, it might be a good time to review Japan’s energy policy, especially its mechanisms to accelerate innovation. There are good examples emerging in Europe and other Asian-Pacific countries, which have been developing more market-oriented measures. Japan can improve or refine its innovation mechanism by studying the experiences of others.　

But it is sometimes difficult to adopt new policies if previous ones have proved successful.

(Photo from IEA.)

Candidates tiptoe around trade

An unusual story from Bloomberg's Hans Nichols and Julianna Goldman this morning. Unusual how? Well, for starters, it treats trade as a complex issue with wide-ranging, and by no means uniform, consequences.

Democratic presidential hopefuls are tip-toeing around an inconvenient economic fact: Iowa and New Hampshire, the states hosting the 2008 campaign's first contests, benefit from free-trade policies that many residents nonetheless blame for lost jobs. Hillary Clinton, Barack Obama and John Edwards are seeking to avoid alienating workers from agriculture and other export- intensive industries while appealing to those from U.S.-focused businesses that have fallen behind, especially union members.

In the past I have accused presidential candidates from both parties of engaging in "Campaign Protectionism." I have also offered an explanation for the unsettling phenomenon of declining support for free trade in the U.S.. Namely, the benefits are disguised while the costs are highly visible. Opportunistic politicians have often exploited this perception gap to great advantage. Hillary Clinton, especially, has wavered on support for free trade, giving the appearance of a naked play for labor union votes. Along with Obama and Edwards, she opposed the U.S.-South Korea free-trade agreement. Now, in this Bloomberg report, some nuances emerge.

"You have winners and losers from trade,'' New York Senator Clinton said at a Dec. 13 debate in Iowa. People "are gaining because we're exporting,'' she said, while others have lost jobs.

The location of this remark is significant. Support for Edwards is strong in Iowa and he is known as a union favorite. Could this be the beginnings of a navigation back towards the center in anticipation a general election campaign?

Sometimes, as in New Hampshire, trade's 'winners and losers' live side-by-side, making it difficult to tailor the message to the audience. Moreover, the unique juxtaposition of the Iowa caucuses and New Hampshire primaries presents a difficult challenge to a candidate's desire for consistency. Nichols and Goldman cite poll numbers showing the two states are mirror images on free-trade: New Hamphire in favor, Iowa against.

Holding Charities Accountable

When author Michael Conroy spoke at the Carnegie Council recently about his book on the certification revolution that is changing the way corporations behave, I asked him a somewhat controversial but nonetheless pressing question in the nonprofit community: Governments are elected, corporations have stockholders, but to whom are NGOs accountable?

Conroy gave a thoughtful answer, referring to democracy and the markets. In an ideal world, he said, governments that are democratically elected would listen to civil society and the initiatives that this part of civil society is advocating.

Second, these initiatives are calling consumer and business-to-business preferences on a set of values. If civil society pushes for something that the population as a whole doesn’t support, it won’t have much impact. If these advocacy campaigns don’t ring true with consumers, it won’t have impact. It speaks to the democratization of information, he said.

I would add that nonprofits have other effective stakeholders as well: Their funders, their boards, and public opinion. If they aren’t doing good work, their funding will dry up, their boards will force change, and public opinion will exacerbate the first two phenomena. To be sure, as nonprofits become more powerful, it is important to make sure they live up to the values that they espouse.

You can listen to the conversation with Michael Conroy here.

This week, The Wall Street Journal published an insert devoted to the growing philanthropic sector worldwide, focusing on the effectiveness, the power, and the accountability of this happening. On the front page of the insert, Sally Beatty cites some sobering polls taken by NYU scholar Paul Light. Based on a 2006 survey of 1,000 respondents in the United States, the following percentage agreed with these statements: About 71 percent said that charities waste a great deal or a fair amount of money; 44 percent said that directors of charities are paid too much; and only 18 percent said charities do a good job running their programs and are fair in the decisions.

Beatty suggested a three-prong approach to improve charities: 1. provide more information about the challenges and successes of charities; 2. adopt higher standards and better ways of measuring results; and 3. adhere to those standards. She suggests that charities should be more open about the problems they have encountered and publish their travails online.

Speaking of the power of the individual, a chart derived from Giving USA 2007 shows that 75 percent or about $223 billion of giving in 2006 came from individuals. Foundations come in second at 12 percent, bequests third at about 8 percent, and corporations last at 4 percent. But companies are becoming more adept at stepping in to help charities when needed, for example in the case of disasters.

Where does the money go? According to the same article, about 33 percent goes to religion, 14 percent to education, and 10 percent to human services. International affairs, our sector at the Carnegie Council, gets only 4 percent of the pie.

I would like to take this opportunity to show you our new donations web page for our program at the Carnegie Council here. We try to be as open, transparent, and accountable as possible. Please consider giving generously.

(Photo by TW Collins.)

Co-operative Food Ethical Policy

In this video clip from a Guardian climate change conference, Paul Monaghan, head of ethics and sustainability for the Co-op Group, speaks on how businesses can use long-term power purchase agreements for renewable energy, help scale up microgeneration of electricity, improve energy efficiency, get involved with public policy in a positive way, and use carbon offsets.

Monaghan's passion led me to investigate the Co-op Group a little more, and I found that they are developing a new member-led ethical policy for the food they sell. "Going forward the ethical and environmental priorities that underpin our co-operative products will be in line with members' concerns," writes Guy McCracken, Chief Executive for Food Retail at Co-op. They've developed a questionnaire to figure out what those concerns are and how to prioritize them. The questionnaire covers food quality, diet and health, environmental impact, ethical trading, community retailing, animal welfare, metrics for success, and future member consultations.

I'd say meeting half of these targets would be admirable. Does the co-op as an organizing principle give them an advantage?

Buy Low, Sell High?

Some giggle-worthy economic news from a highly unusual source.

Page Six, the gossip page of the New York Post, is reporting that the weakening dollar is having an unexpected impact on the price of high-quality marijuana in Manhattan.

"Most of the high-end marijuana sold here comes from Canada," our source in the herbal world reports. "With the Canadian dollar becoming more valuable against the US dollar, the dealers have had to raise prices about 25 percent." The commercial-grade weed comes from Mexico, and the peso hasn't moved as much. "But Canada has the real high-quality hydroponic stuff," said our stoner source, who is feeling the pinch.