Our Word is Our Weapon

I’m currently reading The Smartest Guys in the Room: Enron - A Business Epic, by Peter Elkind and Bethany McLean, which describes in minute detail the story of the company right up until its bankruptcy. It’s a fascinating book with some rather obvious lessons to be drawn.

The first is that genius becomes its own justification: some of those who lead Enron through its triumphant 1990s were true geniuses of business and finance, obliterating the old structures of commerce, trade, corporate management, and, eventually, legality and propriety. They were trailblazers, and clearly felt that morality was for wimps. Enron did cool new stuff that made lots of money: what wasn’t there to like? What Enron did was, eventually, massively illegal, but in the day to day reality of working there nobody seemed to think of it that way - they were finding loopholes, carving out new advantages, pioneering new techniques. Legality simply didn’t come into it.

Secondly, I had no idea that Enron perpetrated such a variety of frauds. They came up with or adopted such a dazzling array of techniques for inflating earnings and hiding liabilities, it is impossible to believe that very many large corporations around the world don’t use at least one of them or something similar. This suspicion receives further support from the willingness with which lenders, investment banks and business analysts connived with Enron in these various frauds for their own enrichment. As Parmalat shows, there is nothing distinctively American about ingenious criminal greed in the business world.

Thirdly, the story shows how totally inadequate public protections against this kind of fraud had become in America. It doesn’t look like the SEC or other corporate monitoring agencies had much idea what was going on at Enron: or if they did, they had no resources for investigating. Together with its auditors and bankers, Enron totally fooled the regulators, partly because Enron could offer the incentives for breaking the law that the American government didn’t bother offering for enforcing it.

If state mechanisms didn’t stop Enron, what about market mechanisms? Again, total failure here. The ease with which Enron hid the real details of its operations meant that the markets completely failed to arrive at a ‘true’ valuation for the company, with the results that millions of people were ripped off to the tune of billions of dollars. Enron’s monopoly on information, the self-interest of supposedly independent players, the weakness of public intervention - all these factors combined to allow a bunch of very smart guys pull of one of the crimes of the century. Is there any reason for thinking it won’t happen again?

Fair play to the IMF. This from the New York Times:

I.M.F. Says U.S. Debts Threaten World Economy
By ELIZABETH BECKER
and EDMUND L. ANDREWS

WASHINGTON, Jan. 7 — With its rising budget deficit and ballooning trade imbalance, the United States is running up a foreign debt of such record-breaking proportions that it threatens the financial stability of the global economy, according to a report released Wednesday by the International Monetary Fund.

Prepared by a team of I.M.F. economists, the report sounded a loud alarm about the shaky fiscal foundation of the United States, questioning the wisdom of the Bush administration’s tax cuts and warning that large budget deficits pose “significant risks” not just for the United States but for the rest of the world.

The report warns that the United States’ net financial obligations to the rest of the world could be equal to 40 percent of its total economy within a few years — “an unprecedented level of external debt for a large industrial country,” according to the fund, that could play havoc with the value of the dollar and international exchange rates.

The danger, according to the report, is that the United States’ voracious appetite for borrowing could push up global interest rates and thus slow global investment and economic growth.

“Higher borrowing costs abroad would mean that the adverse effects of U.S. fiscal deficits would spill over into global investment and output,” the report said.

White House officials dismissed the report as alarmist, saying that President Bush has already vowed to reduce the budget deficit by half over the next five years. The deficit reached $374 billion last year, a record in dollar terms but not as a share of the total economy, and it is expected to exceed $400 billion this year.

But many international economists said they were pleased that the report raised the issue.

“The I.M.F. is right,” said C. Fred Bergsten, director of the Institute for International Economics in Washington. “If those twin deficits — of the federal budget and the trade deficit — continue to grow you are increasing the risk of a day of reckoning when things can get pretty nasty.”

Administration officials have made it clear they are not alarmed about the United States’ burgeoning external debt or the declining value of the dollar, which has lost more than one-quarter of its value against the euro in the last 18 months and which hit new lows earlier this week.

“Without those tax cuts I do not believe the downturn would have been one of the shortest and shallowest in U.S. history,” said John B. Taylor, under secretary of the Treasury for international affairs.

Though the International Monetary Fund has criticized the United States on its budget and trade deficits repeatedly in the last few years, this report was unusually lengthy and pointed. And the I.M.F. went to lengths to publicize the report and seemed intent on getting American attention.

“I think it’s encouraging that these are issues that are now at play in the presidential campaign that’s just now getting under way,” said Charles Collyns, deputy director of the I.M.F.’s Western Hemisphere department. “We’re trying to contribute to persuade the climate of public opinion that this is an important issue that has to be dealt with, and political capital will need to be expended.”

The I.M.F. has often been accused of being an adjunct of the United States, its largest shareholder.

But in the report, fund economists warned that the long-term fiscal outlook was far grimmer, predicting that underfunding for Social Security and Medicare will lead to shortages as high as $47 trillion over the next 70 years or nearly 500 percent of the current gross domestic product in the coming decades.

(more…)

A belated Happy New Year to any and all readers of Our Word is Our Weapon. Ten years ago today, the Zapatista Army of National Liberation (EZLN in Spanish), who gave this website its name, were engaged in a war of rebellion against the Mexican government. An army of thousands of mostly indigenous Indian fighers from the poor southern state of Chiapas, they declared war on the 31st of December 1993, though the news only reached Mexicans on the 1st of January, the first full day of fighting, and which was also the day that the North American Free Trade Agreement came into effect. The text of their declaration of war follows.

Declaration of the Lacandon jungle: Today we say “Enough!”

To the People of Mexico

Mexican brothers and sisters,

We are a product of 500 years of struggle: first against slavery, then during the War of Independence against Spain led by insurgents, then to avoid being absorbed by North American imperialism, then to promulgate our constitution and expel the French empire from our soil, and later the dictatorship of Porfirio Diaz denied us the just application of the Reform laws and the people rebelled and leaders like Villa and Zapata emerged, poor men just like us.

We have been denied the most elemental education so they can use us as cannon fodder and pillage the wealth of our country. Nor do they care that we have nothing, absolutely nothing, not even a roof over our heads, no land, no work, no health care, no food nor education. Nor are we able to freely and democratically elect our political representatives, nor is there independence from foreigners, nor is there peace nor justice for ourselves and our children.

But today we say enough! We are the heirs of the people who truly forged our nation, we are the millions of the dispossessed, and we call on all of our brothers and sisters to join us on the only path that will allow us to escape a starvation caused by the insatiable ambition of a seventy-year-old dictatorship, led by a small inner clique of traitors who represent ultra-conservative groups ready to sell out our country. They are the same ones that opposed Hidalgo and Morelos, the same ones that betrayed Vicente Guerrero, the same ones that sold half our country to the foreign invader, the same ones that imported a European prince to rule our country, the same ones that formed the “scientific” Porfirsta dictatorship, the same ones that opposed the Petroleum Expropriation, the same ones that massacred the railroad workers in 1958 and the students in 1968, the same ones the today take everything from us, absolutely everything.

After we tried to do everything legally possible, based on our Magna Carta, to stop all this, as a last hope we invoke that same document, our Constitution, Article 39, which says:

National sovereignty resides, essentially and originally, in the people. All public power emanates from the people, and is constituted for the benefit of the same. The people have, at all times, the inalienable right to alter or modify the form of their government.

Therefore, according to our constitution, we declare the following to the Mexican federal army, the pillar of the Mexican dictatorship that we suffer from, monopolized by a one-party system and led by Carlos Salinas de Gortari, the maximum and illegitimate federal executive that today holds power.

According to this Declaration of War, we ask that other powers of the nation advocate to restore the legitimacy and the stability of the nation by overthrowing the dictator.

We also ask that international organizations and the International Red Cross watch over and regulate our battles, so that our efforts are carried out while still protecting our civilian population. We declare now and always that we are subject to the Geneva Accord, forming the EZLN as our fighting arm of our liberation struggle. We have the Mexican people on our side, we have the beloved tri-colored flag highly respected by our insurgent fighters. We use black and red in our uniform as our symbol of our working people on strike. Our flag carries the following letters, “EZLN,” Zapatista National Liberation Army, and we always carry our flag into combat.

Beforehand, we refuse any effort to disgrace our just cause by accusing us of being drug traffickers, drug guerrillas, thieves, or other names that might by used by our enemies. Our struggle follows the constitution which is held high by its call for justice and equality.

Therefore, according to this declaration of war, we give our military forces, the EZLN, the following orders:

First: Advance to the capital of the country, overcoming the Mexican federal army, protecting in our advance the civilian population and permitting the people in the liberated area the right to freely and democratically elect their own administrative authorities.

Second: Respect the lives of our prisoners and turn over all wounded to the International Red Cross.

Third: Initiate summary judgments against all soldiers of the Mexican federal army and the political police that have received training or have been paid by foreigners, accused of being traitors to our country, and against all those that have repressed and treated badly the civil population and robbed or stolen from or attempted crimes against the good of the people.

Fourth: Form new troops with all those Mexicans that show their interest in joining our struggle, including those that, being enemy soldiers, turn themselves in without having fought against us, and promise to take orders from the General Command of the Zapatista National Liberation Army.

Fifth: We ask for the unconditional surrender of the enemy’s headquarters before we begin any combat to avoid any loss of lives.

Sixth: Suspend the robbery of our natural resources in the areas controlled by the EZLN.

To the People of Mexico: We, the men and women, full and free, are conscious that the war that we have declared is our last resort, but also a just one. The dictators are applying an undeclared genocidal war against our people for many years. Therefore we ask for your participation, your decision to support this plan that struggles for work, land, housing, food, health care, education, independence, freedom, democracy, justice and peace. We declare that we will not stop fighting until the basic demands of our people have been met by forming a government of our country that is free and democratic.

Join the insurgent forces of the Zapatista Army of National Liberation

General Command of the EZLN

The Year 1993

————–

The fighting itself did not last long. The Mexican army responded with great force, but the Zapatista’s appeal to the nation and to the world for help was heard, and the Government crumbled under pressure, agreeing a ceasefire. You can read first-hand accounts of the first months of the EZLN’s struggle here, at the website of the book Zapatistas! Documents of the New Mexican Revolution.

The Zapatistas continued the war with words, firing off letters and communiques to presidents, schoolchildren and the world’s media from their base somewhere in the jungle of Chiapas, South-East Mexico. These writings articulated a spirit of rebellion against neoliberalism and injustice that was brewing around the world, and eventually inspired the so-called ‘anti-globalisation’ movement. ‘Zapatismo’ was the name given to the political philosophy and attitude of the Zapatistas, one that demanded without conditions a life of freedom, justice, equality and dignity for all. An archive of Zapatista communiques is available , though if you ask me the best translations are available in the book Shadows of Tender Fury.

The EZLN rebellion severely shook the Government (dictatorship, really) of the day, perhaps contributing to the financial crisis that rocked Mexico in 1994. People flooded to Chiapas from around the world to meet the rebels, to offer support and to learn more about their struggle. At every stage the Zapatistas respected international standards of warfare and ceasefire, treated any prisoners well and protected visitors.

They also consulted their people on every step they took. This was an army which only fought when the people wanted it to, and a leadership which only did what it was told. The spokesman of the EZLN was, significantly, a ’subcommandante’.

The Government eventually agreed to meet the Zapatistas for peace negotiations, but after weeks of dialogue the rebels rejected the results, deciding not to go back to war but to widen the dialogue to all interested parties, holding a National Democratic Convention in August 1994. This was the first hint of perhaps the most important aspect of Zapatismo: nobody was to be excluded who had a commitment to peace and the principles of freedom, justice, equality and dignity for all. At every stage the EZLN encouraged ordinary people to take up the struggle in their own way and fight for their rights and the rights of everyone else too.

After new elections in October, the Zapatistas again went to war in December 1994, capturing more ground and comprehensively out-foxing the army. In early 1995 the Government responded with massive force, pushing the rebels back into the jungle. The EZLN again appealed to the outside world and won the argument, forcing the Government to back down and again seek dialogue. More unsuccesful talks ensued, followed by a ‘national democratic consultation’ held by the Zapatistas.

In early 1996 the rebels finally reached agreement with the Government, in the San Andreas Accords, which met many of their demands. They continued to widen the struggle at every opportunity, holding an international ‘encounter’ for humanity and against neoliberalism in Chiapas, and setting up a purely political branch.

The Government never implemented the San Andreas Accords, preferring to stall, introduce the most insignificant aspects through legislation, and carry on a low-intensity harassment of the Zapatistas. The years since have been characterised by disappointments on the ground in Chiapas, contrasted with an ever-growing voice for the Zapatistas around the world, especially through protest networks and the Internet. Following a long period of silence, 2003 saw the Zapatistas announce the creation of autonomous, self-governing communities in the areas under their control. Today, the Zapatistas don’t receive as many visitors or as much overseas aid, but if you ask me their struggle is more significant than ever.

You can read a timeline of events in Chiapas since 1994 here. ‘Dignity’s Revolt’, a superb analysis of the political philosophy of Zapatismo by John Holloway, can be read here.

Brad De Long has posted about a series of data releases showing some interesting characteristics of the US economy, which has apparently been growing at a huge rate in recent months.

Firstly he shows (citing figures from the Bureau of Labour Statistics) that the ratio of the employed to the whole working age population has declined sharply since 2000, falling faster than the unemployment rate has risen. Why? Maybe people are retiring early, maybe more people are claiming disability when they’re ‘really’ just unemployed, maybe more people are no longer seeking work.

Related is the finding that half of the unemployed have been unemployed for more than ten weeks, the highest figure for almost ten years. It’s possible that the more long-term unemployed there are, the more there are choosing to stop calling themselves unemployed without actually finding work.

Thirdly, a more technical post concerns the difference between employment as measured by employers (based on payroll surveys) and as measured by workers (based on household surveys). Again, the discrepancy between the two counts has sharply increased since 2000. One possible explanation is that there are more people working in the informal sector and not being recorded in the employer survey.

Finally, De Long posts an extract from a Paul Krugman column claiming that, due to the decline in employment and apparently static real wage growth (compared to leaping stock profits), “for most Americans, current economic growth is a form of reality TV, something interesting that is, however, happening to other people”. The people over at PoorandStupid.com, however, beg to differ.