State of the Union: A Nation Off Track

So, we’re all eagerly awaiting President Bush’s State of the Union address to hear the honest facts about the nation’s economy, among other key issues.

OK, not.

Looks like we’ll have to dig up the real deal on our own by taking a gander at some of the recent data and what they portend for us working types.

Tonight, Bush likely will talk about the great economic recovery we’ve seen in the past couple of years. But newly released data from two separate sources reveal just how skewed the distribution of economic growth has been in the current recovery, according to the Economic Policy Institute.

Data from the Bureau of Economic Analysis through the third quarter of 2006 show that a historically high share of corporate income is going into profits and interest (i.e., capital income) rather than employee compensation. And a newly released Congressional Budget Office (CBO) analysis of household incomes shows that a greater share of this capital income goes to the richest households than at any time since the CBO began tracking such trends. In other words, our economy is producing more capital income and that type of income is more likely to go to those at the very top of the income scale. Together, these dynamics are contributing to a uniquely skewed recovery.

That means those in the top 1 percent of the income scale received 59.4 percent of all the capital income in 2004 (CBO's latest data), up from 49.1 percent in 2000 and just 37.8 percent in 1979. The increase in the concentration of capital income to the upper 1 percent grew as quickly over the four-year period from 2000 to 2004 as over the preceding 11 years (1989–2000).

So, the economic recovery Bush will tout is mostly about the rich getting richer. And those tax cuts that Bush will call the shining star of his economic acumen? Guess what. They’re helping the rich more than the economy. As Citizens for Tax Justice puts it:

First, the tax breaks enacted since 2001 are heavily skewed toward the very wealthiest few. Second, because the tax cuts are being paid for with borrowed money, the cost of paying the added national debt more than wipes out any benefits from the tax cuts for 99 percent of residents in each state. Only the best-off one percent are net winners from the president’s fiscal policies.

But those tax cuts for the wealthy must do something for the overall economy, right? Indeed. According to the Center on Budget and Policy Priorities:

Congressional Budget Office data show that the tax cuts have been the single largest contributor to the reemergence of substantial budget deficits in recent years. Legislation enacted since 2001 has added about $2.3 trillion to deficits between 2001 and 2006, with half of this deterioration in the budget due to the tax cuts (about a third was due to increases in security spending, and about a sixth to increases in domestic spending). Yet the president and some Congressional leaders decline to acknowledge the tax cuts’ role in the nation’s budget problems, falling back instead on the discredited nostrum that tax cuts “pay for themselves.”

As the Center on Budget and Policy Priorities sums up:

A study by the president’s own Treasury Department recently confirmed the common-sense view shared by economists across the political spectrum: Cutting taxes decreases revenues.

The Bush administration ran the Clinton budget surplus into the ground after less than a year in office—and has kept adding to the national tab so that the United States is now more than $8 trillion in debt (that’s nearly $29,000 for every man, woman and child in the nation). Yet after all these years of draining the federal budget into oblivion, administration cronies now suddenly are sounding the alarm.

And they’re offering solutions. But they’re not suggesting the nation cut back on the $255 million a day Bush is spending on the Iraq war or back off those tax cut payoffs to wealthy donors. Instead, in a recent speech, Ben Bernanke, Federal Reserve chairman, used a warning about the growing deficit as the opening salvo to attack on what’s left of our country’s successful heath and retirement programs.

Warning against complacency over the federal deficit, Ben S. Bernanke, the Federal Reserve chairman, said Thursday that recent positive trends on the budget were a “calm before the storm” masking a long-term danger posed by looming deficits in Social Security and Medicare.

snip

Bernanke’s comments were consistent with his past warnings, and those of his predecessor, Alan Greenspan, about the unfunded cost of the postwar generation’s retirement. But his tone was more urgent, and it seemed aimed at the arrival of a new Democratic-led Congress that is just now setting its priorities.

Let’s see. The budget deficit is in the dumpster and the Bush administration wants to salvage it by cutting back on retirement and health care. Let’s look at retirement. Without Social Security, millions of retired Americans would struggle in poverty. Between 1960 and 2004, Social Security helped cut the poverty rate among seniors by more than two-thirds, from 35 percent to 10 percent. Social Security takes on more, not less, importance as we go forward, with fewer and fewer workers getting retirement benefits on the job. As AFL-CIO Secretary-Treasurer Richard Trumka said in testimony today before the House Ways and Means Committee:

Only half of American families have an employer-provided retirement plan of any sort, a proportion largely unchanged for decades. However, whereas 40 percent of workers participated in employer guaranteed “defined-benefit” pension plans in 1980, today only 20 percent have such plans. In substituting “defined-contribution” for defined benefit plans, employers are shifting the risk of retirement onto workers. And American workers are ill prepared to carry this risk.

There are a lot of reasons why Bush’s approval rating has tanked, according to recent polls. And it’s pretty clear that Iraq isn’t the only reason 71 percent are saying the country is seriously off track.

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Traveling Again to China, Paulson Forgets to Pack Workers’ Rights

Tula Connell is with the AFL-CIO. I have asked her to contribute to this blog to help enlarge the conversation about unions, international trade and, well, anything else that pops into her fertile mind. - Bonddad

Treasury Secretary Henry Paulson needs a new appointment scheduler.

Someone on his staff failed to notice that as the former Goldman Sachs honcho heads to China this week, the U.S. Trade Representative was slated to released the 2006 Report to Congress on China's WTO Compliance. The report, issued today, is highly critical of the Chinese government's failure to meet their obligations. It places a “particular emphasis on reducing IPR [intellectual property rights] infringement levels in China” and on pressing China to make greater efforts to institutionalize market mechanisms and make its trade regime more predictable and transparent.

The timing couldn’t be worse for Paulson.

When Bush and the Republican Congress rammed through China’s membership in 2001, they assured us that making China a full partner would ease the path for that nation to lower its trade barriers and bring its laws and regulations into compliance with international standards. In fact, the opposite occurred: Since China joined the World Trade Organization (WTO) in 2001, the U.S. deficit has grown to more than $200 billion. In 2005, the trade deficit with China grew by 25 percent to $202 billion—the largest bilateral deficit in world history.

Behind this unsustainable trade deficit are two major factors: China’s policy to devalue its currency and its abysmal workers’ rights record. In fact, the Treasury Department once again is delaying the release of its semi-annual report on currency—so as not to embarrass Paulson while in China. Although the undervaluation of China's currency has become accepted fact, every Treasury report to date has failed to suggest taking any action.

While Paulson will chat with China’s leaders about the China’s currency devaluation, he has no intention of bringing up workers’ rights.

He should—if not because ethical principles call for providing fellow humans with decent working conditions and living wages, then for our own self-interest as a nation. Because addressing China’s human rights violations is one important step toward reversing the declining U.S. trade balance with China.

The deterioration of working conditions in China continues every year, with nearly non-existent enforcement of wage, overtime, safety and health and environmental laws. Oppressing Chinese workers is the functional equivalent of devaluing currency. In failing to address the systematic abuse of its workers, the Chinese government further displaces U.S. jobs.

American companies like Wal-Mart rack up billions of dollars in profits by taking advantage of the artificially low wages made possible by the Chinese government’s repression of democracy, political dissent and fundamental human and workers’ rights.

Application of an International Trade Commission model shows that up to 973,000 manufacturing jobs and 1,235,000 total jobs are displaced by China's repression of labor rights. The nonprofit Economic Policy Institute (EPI) estimates 410,000 manufacturing jobs were lost to China between 2002 and 2004. U.S.-China Economic and Security Review Commission studies conclude that between 70,000 and 100,000 jobs are moved annually to China, and those numbers accelerated after 2001.

The 2006 annual report of the U.S.-China Economic and Security Review Commission (a bipartisan, congressionally appointed commission) also provides evidence that China has been seriously inconsistent in meeting its obligations as a member of the WTO. The report backs up conclusions in the AFL-CIO’s Bush administration report card on China and an AFL-CIO Solidarity Center study on workers’ rights in China.

In July, the AFL-CIO filed the second workers’ rights case against the Chinese government. The Bush administration rejected the petition, despite the lack of improvement for Chinese workers since we filed the first petition in 2004. As we filed the petition this year, workers from across the nation sent nearly 70,000 letters to President Bush and Congress urging them to take action to halt the abuse of China’s workers.

For instance:

• Chinese mines are the most dangerous in the world, with more than 10,000 Chinese miners dying in industrial accidents each year (some 80 percent of the worldwide total).
• Rates of illness and injury have never been higher in China’s manufacturing sector as officials of China’s own Work Safety Administration conceded as recently as February 2006.
• There are as many as 10 to 20 million child workers in China—from one-eighth to one-quarter the number of factory workers.
• China’s minimum working age standard is widely violated, and the Chinese government does little to enforce the standard. As the U.S. State Department stated in its 2005 Human Rights Report on China, “The government continued to maintain that the country did not have a widespread child labor problem.”
• The Chinese government implements an extensive system of forced labor camps. The precise number of forced prison laborers is unknown, but estimates range from 1.75 million to 6 million and higher.

The right to strike was removed from China's Constitution in 1982 because the political system had "eradicated problems between the proletariat and enterprise owners." But as aggregate unpaid wages have risen to record levels, along with increased child labor, Chinese workers are walking off the job in massive numbers, despite the illegality of their actions and the risks involved.

According to figures from China’s Ministry of Public Security, there was a sharp rise in officially registered public disturbances in 2005. Large-scale incidents of "mass gatherings to disturb social order" rose by 13 percent. In one report, "mass protests" or "mass incidents," including riots, demonstrations and collective petitions, rose from 58,000 in 2003 to 87,000 in 2004.

These abuses allow producers in China, including many multinational and U.S. corporations, to operate in an environment free of independent unions, to pay illegally low wages and to profit from the widespread violation of workers’ basic human rights.

The second factor behind China’s trade advantage, the nation’s deliberate undervaluing of its currency, the yuan, enables the Chinese government to export products at an artificially low price—running up the U.S. trade deficit and costing good American jobs. In fact, the yuan is estimated to be undervalued by as much as 40 percent.

An AFL-CIO report shows China’s fixed currency rate artificially lowers the price of its goods by 40 percent and subsidizes exports, putting U.S. companies and workers at a disadvantage. The lack of currency flexibility has been a major factor in U.S. job losses and a trade deficit with China that hit $202 billion last year.

In a letter to the Wall Street Journal earlier this year, AFL-CIO Secretary-Treasurer Richard Trumka said the Chinese government’s deliberate undervaluing of its currency is an anchor “that is dragging down American manufacturing and the middle class:”

Currency manipulation is one of the primary reasons for the massive bilateral trade imbalance between the United States and China, as well as for the flood of investments by U.S and other multinational companies. On top of the Chinese government’s record capital investments in manufacturing, foreign direct investment (FDI) in the country increased from $46.8 billion in 2000 to $60.3 billion in 2005. Seventy percent of China’s FDI is in manufacturing, with heavy concentration in export-oriented companies and advanced technology sectors. The dangers of this model of development are apparent: job and technical capacity loss in the U.S., growing inequality and political and financial instability in China, and the accumulation of nearly $1 trillion in U.S. dollar assets by the Chinese government. This is also a development model based upon the brutal repression of workers’ rights and human rights.

Last year, the Senate introduced legislation sponsored by Sens. Charles Schumer (D-N.Y.) and Lindsey Graham (R-S.C.) that would have imposed a 27.5 percent tariff on all Chinese imports if that country did not raise the value of its currency within 12 months. The bill was never introduced in the House, and Senate leaders chose not to bring it up in the last session.

Paulson fears the next Congress will pass a tariff, and this is his last-gasp trip to convince China to voluntarily devalue its currency.

But unlike the 109th, the new Congress not only is more likely to take a firmer line on China’s currency devaluation, it will insist that the administration include workers’ rights as a key part of trade agreements and bilateral negotiations.

And the AFL-CIO will be working with Congress to ensure that going forward, trade deals aren’t just free but fair.

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