December 4, 2021

It’s the Economy: Economic Recovery, Made in Bangladesh?

Nearly every rich country has gone through a “T-shirt phase” — an economic period in which there are a significant number of poor farmers who, rather than toil on unproductive land, accept harsh work conditions and low wages in textile and apparel factories. Britain started its T-shirt phase in the late 18th century; the United States had two — New England in the 19th century, then the South in the 20th. During the last 80 or so years, many Asian countries — first Japan, then Korea, Taiwan and China — progressed from the T-shirt phase into broader economic development. Cambodia, Vietnam, parts of India and Sri Lanka are passing through this now. But Bangladesh, where an eight-story apparel factory tragically collapsed last month, killing hundreds of workers and devastating the country, is in the midst of a particularly confusing T-shirt phase. The question is whether it will emerge into a more developed economy, like its many predecessors, or remain stuck, like Haiti.

According to the comprehensive “Ashgate Companion to the History of Textile Workers,” a study of 21 countries over 350 years, nearly every nation suffered through its T-shirt phase differently. Argentina’s brutal encomienda system literally worked indigenous laborers to death. The Hapsburg monarchy’s T-shirt phase coincided with its own collapse. Japan’s progress was slowed by a world war; Germany’s was all but destroyed by two. New England’s textile workers had it relatively good; if conditions didn’t improve, they could threaten to leave for the frontier.

All these countries, however, experienced the same broad phenomenon. Lex Heerma van Voss, an editor of the “Ashgate Companion,” told me that the T-shirt phase lasts only as long as there are large populations of farmers with few options. This is known as a “race to the bottom.” Factory owners compete by offering low prices, which are accomplished by paying workers tiny wages. Cutting costs by a few pennies per shirt may sound trivial, but mass-market brands find that even a slight increase in price destroys demand. And those pennies at wholesale become dollars at retail.

But once the factories have absorbed all these desperate farmers, they need to find a new competitive advantage. That usually involves making better products. When the T-shirt phase ends, a “race to the top” usually begins. Factories often shift to finer clothes, like dress shirts, which require skilled workers. This phase often involves the growth of unions and rising wages. It’s typically followed by one in which factory owners, forced to pay more, seek out ever more profitable lines of business. That can mean the move to low-end electronics assembly, then auto plants and maybe even airplane manufacturing. At the high end of the spectrum, you begin to see what the U.S. manufacturing economy is going through now — expensive products, like medical devices, which are often made by machines that are operated by highly skilled workers.

Bangladesh is in that moment when the race to the bottom coincides with the beginning of a race to the top. Munir Quddus, dean of the business school at Prairie View AM University in Texas, remembers living as a teenager in Bangladesh, in the ’70s, when it was one of the poorest countries on earth. Since the arrival of textile manufacturing, in the late 1970s, the country’s poverty rate has fallen to less than 40 percent from 70. The average Bangladeshi went from living on about $1 a day to more than $5. But while there have been modest improvements in some factories (“They have air-conditioning,” Quddus says), there are still thousands of decrepit ones with minimal oversight. Quddus also points out that roughly 10 percent of Parliament seats are occupied by factory owners, and others have strong political ties. This includes Sohel Rana, the owner of the factory building that recently collapsed.

Article source: http://www.nytimes.com/2013/05/19/magazine/economic-recovery-made-in-bangladesh.html?partner=rss&emc=rss

Economix Blog: Bernanke Unplugged

Ben S. Bernanke, the Fed chairman, at the University of Michigan on Monday with Susan Collins, dean of the Ford School of Public Policy.Daniel Brenner/AnnArbor.com, via Associated Press Ben S. Bernanke, the Fed chairman, at the University of Michigan on Monday with Susan Collins, dean of the Ford School of Public Policy.

Much is made of the fact that Ben S. Bernanke, the Federal Reserve chairman, is more open and candid than his predecessors, but in fairness, that’s a low bar. His public appearances are infrequent by comparison with other national leaders, his remarks are guarded and his personal life is carefully obscured.

Except when Mr. Bernanke, a former college professor, speaks with students.

The Fed chairman seemed relaxed and happy as he answered questions at the University of Michigan on Monday, much the same as he did last year when he taught a series of classes at George Washington University.

Asked what keeps him up at night, Mr. Bernanke joked that he and his wife have a dog that shares their bed. Asked whether he reads online commentary, he replied, “I follow a lot of baseball blogs myself, actually.”

Even when he talked about the economy, he sounded like a man who had left work and was spending some time with some friends.

So how are things looking, Ben? “As long as fiscal policy isn’t getting too messed up, consumers seem to be more upbeat,” he said. Local governments have stopped cutting jobs. Better yet, people are building houses again.

“That’s one factor that’s going to help us have a better year, I hope, in 2013,” he said.

Why did the Fed decide in December to stop predicting an end date for low interest rates, and instead to describe its economic objectives?

“We gave a date which was just our best guess, and then it changed a couple of times,” Mr. Bernanke said. “What we’ve tried to do in our more recent evolution is explain what we will be looking for.”

Hopefully that will be more clear, he said. And as he noted later, he really is trying to be more clear.

“There’s just been an enormous change and we are just much, much more transparent and easy to understand than would have been the case 15 or 20 years ago,” Mr. Bernanke said.

So what’s the deal with all these experimental strategies?

The problem with central bankers in the 1930s, Mr. Bernanke said, is that “they were afraid to do anything that was unorthodox.”

“Sometimes,” he went on, “you need to consider unorthodox approaches.”

Some of those things have worked; others not.

How about the latest campaign, the Fed’s effort to reduce unemployment more quickly by purchasing mortgage-backed securities?

“We think we’re getting some effects. It’s kind of early.”

Mr. Bernanke is a former college professor, and it’s easy to imagine him slipping back into the role once his time as chairman comes to an end.

But even in Monday’s relatively loose atmosphere, it was impossible to forget that the Fed chairman would shortly return to Washington.

And how are things back in Washington?

“We’re not out of the woods yet,” he said.

Article source: http://economix.blogs.nytimes.com/2013/01/14/bernanke-unplugged/?partner=rss&emc=rss

As Wall St. Polices Itself, Prosecutors Use Softer Approach

Federal prosecutors officially adopted new guidelines about charging corporations with crimes — a softer approach that, longtime white-collar lawyers and former federal prosecutors say, helps explain the dearth of criminal cases despite a raft of inquiries into the financial crisis.

Though little noticed outside legal circles, the guidelines were welcomed by firms representing banks. The Justice Department’s directive, involving a process known as deferred prosecutions, signaled “an important step away from the more aggressive prosecutorial practices seen in some cases under their predecessors,” Sullivan Cromwell, a prominent Wall Street law firm, told clients in a memo that September.

The guidelines left open a possibility other than guilty or not guilty, giving leniency often if companies investigated and reported their own wrongdoing. In return, the government could enter into agreements to delay or cancel the prosecution if the companies promised to change their behavior.

But this approach, critics maintain, runs the risk of letting companies off too easily.

“If you do not punish crimes, there’s really no reason they won’t happen again,” said Mary Ramirez, a professor at Washburn University School of Law and a former assistant United States attorney. “I worry and so do a lot of economists that we have created no disincentives for committing fraud or white-collar crime, in particular in the financial space.”

While “deferred prosecution agreements” were used before the financial crisis, the Justice Department made them an official alternative in 2008, according to the Sullivan Cromwell note.

It is among a number of signs, white-collar crime experts say, that the government seems to be taking a gentler approach.

The Securities and Exchange Commission also added deferred prosecution as a tool last year and has embraced another alternative to litigation — reports that chronicle wrongdoing at institutions like Moody’s Investors Service, often without punishing anyone. The financial crisis cases brought by the S.E.C. — like a recent settlement with JPMorgan Chase for selling a mortgage security that soured — have rarely named executives as defendants.

Defending the department’s approach, Alisa Finelli, a spokeswoman, said deferred prosecution agreements require that corporations pay penalties and restitution, correct criminal conduct and “achieve these results without causing the loss of jobs, the loss of pensions and other significant negative consequences to innocent parties who played no role in the criminal conduct, were unaware of it or were unable to prevent it.”

The department began pulling back from a more aggressive pursuit of white-collar crime around 2005, say defense lawyers and former prosecutors, after the Supreme Court overturned a conviction it won against the accounting firm Arthur Andersen. That ended an era of brass-knuckle prosecutions related to fraud at companies like Enron.

Another example of this more cautious prosecutorial strategy: Government lawyers now go to companies earlier in an inquiry, and often tell companies to figure out whether improper activities occurred. Then those companies hire law firms to investigate and report back to the government. The practice was criticized last year when the Justice Department struck a settlement with Beazer Homes USA, a home builder accused of mortgage fraud.

This “outsourcing” of investigations — as some lawyers call it — has led to increased coziness between the government and companies, some critics say.

In banking, the collaboration is even stronger, dating to the mid-1990s when banks were asked to regularly report suspicious activities to the Treasury Department, an effort that aimed at relieving regulators of some of their enforcement loads. But it gave regulators a false assurance that banks would spot and report all wrongdoing, former investigators say. Moreover, companies are not as likely to come forward with evidence related to senior executives or to widespread patterns of misbehavior, some academics say.

Intended to make the most of the government’s limited investigative resources, the government’s cooperation with corporations and industry groups can work well and save money when business hums along as usual. But some veterans of government prosecutions question such collaboration in financial crisis cases, and contend they should have been pursued more aggressively.

“Traditionally, a bank would tell the Department of Justice when an employee engaged in crimes, but what do you do when the bank itself is run by a criminal enterprise?” said Solomon L. Wisenberg, former chief of the financial institutions fraud unit for the United States attorney in the Western District of Texas in the early 1990s. “You have to be able to investigate without just waiting for the bank to give you the referral. The people running the institutions are not going to come to the D.O.J. and tell them about themselves.”

A Clash of Agencies

Article source: http://feeds.nytimes.com/click.phdo?i=363bdd3067a16b3da1879e448d0bb4df