The Multinational Monitor
The United Nations

Tracking Transnationals By Richard Caplan The UN's Environmental Project By Nancy E. Wright Workers of the World By David Geracioti Peronism in a Troubled Economy By William Steif Paraguay in Transition By William Steif

Behind the Lines Editorial Stopping Toxic Trade The Front Interview The US and the UN: The Heritage Point of View Economics Speculation and Debt By Patrick Bond Labor Lethargy at Labor By Jim Sugarman A Tribute to I.F. Stone By Ralph Nader Corporate Profile Occidental Petroleum: Politics, Pollution and Profit By Stuart Gold Review Muckraking or Money Making Names In the News Resources ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR July/Aug 1989 VOLUME 10, NUMBERS 7 & 8, JULY/AUGUST 1989 EDITORIAL STOPPING TOXIC TRADE The United States and the other industrialized nations are using the Third World as a dumping ground for hazardous chemicals and waste. Producers of these highly dangerous materials want to focus international debate on stronger export regulation of hazardous substances. An outright ban is in order, however, not prior informed consent (PIC). PIC requires written consent from the importing country prior to shipment of hazardous substances. The distinction between PIC and previous notification schemes allows for the continued sloppy export of toxic materials. Today the EPA is responsible for monitoring the export of hazardous chemicals. In April 1989 the U.S. General Accounting Office (GAO) released a report on the EPA's dismal record of enforcing compliance with the export notice requirements for unregistered chemicals. The EPA is required to notify all governments and relevant international organizations every time it makes a significant regulatory decision on a chemical. In addition, before shipment of prohibited chemicals, importers must acknowledge that they are aware of the U.S. domestic ban. The EPA is also required to inform the importing country's government, through the State Department, of the sale of a dangerous substance. The GAO report found the EPA deficient in all of these areas. But the GAO report fails to challenge the fundamental problems of export regulation. PIC shares this flaw. Its proponents argue that it is the best solution because it forces the receiving country to acknowledge the shipment. PIC, however, does not address the abundant problems connected with dangerous chemical exports. Third World waste handlers often lack proper protective clothing or adequate storage facilities. And too often misleading advertising and inadequate labelling lead to improper usage which results in poisoning and death. The statistics bear this out: 50 percent of pesticide poisonings and 90 percent of pesticide-related deaths occur in developing countries, despite the fact that these countries account for only 20 percent of world pesticide use. In 1977 the United States severely restricted domestic use of the nematicide DBCP, used extensively on pineapple and banana plantations, because it was proven to cause male sterility. This action did not stop Castle & Cooke and Standard Fruit, both American banana producers, from continuing to use DBCP at their Costa Rican and Honduran plantations. Over 1,000 men were permanently sterilized from their contact with the poison. The EPA, following the requirements of the Toxic Substances Control Act, had tried to notify governments in the developing world about DBCP but failed because the system was too cumbersome. The DBCP tragedy is not the exception--it is the norm. A full 25 percent of the pesticides exported from the United States are restricted or banned by the EPA for domestic use. By allowing the export of these hazardous materials, the United States implies that human life in the Third World is worth less than human life in the developed world. Adherents to PIC argue that banning impinges upon the sovereignty of the Third World. PIC's governmental acknowledgement requirement is meant to leave the ultimate decision to accept or reject the hazardous substance with the importing country. The sovereignty argument, however, obfuscates the real issues. First, it is often dictatorial regimes which make the decision to import, a decision based more on venality than on scientific evidence. U.S. companies have been more than willing to take advantage of this situation. The money involved is staggering. For instance, Sierra Leone was offered $25 million by an American company to accept toxic wastes. Luring impoverished people with such vast sums of money to handle something so dangerous is criminal. Second, dumping can boomerang. Many of the pesticides that are banned domestically re-enter the United States on produce from countries using these products; about 50 percent of imported produce is pesticide contaminated. And, up to 60 percent of the food the FDA has identified as tainted reaches the consumer. Finally, it is rare that a legitimate argument can be made supporting an exception to a ban. Usually those seeking a waiver are looking for what is expedient or less costly in the short run--not what is best. The Third World is beginning to assert its proper sovereignty by rejecting hazardous wastes from the West. In 1988, the member states of the Organization of African Unity (OAU) agreed to halt all trade in industrial waste to the continent. In addition, the Non-Aligned Movement (NAM) expressed concerns about the waste shipments to Africa. As the world's largest dangerous chemicals exporter and as a major participant in the export of hazardous wastes it is incumbent upon the United States to assert its leadership in the effort to ban the trade in both areas. To pursue the prior informed consent option is to wink and assume that the developing world is somehow equipped to handle these dangerous materials. Such an approach is disingenuous and dangerous for the Third World. Laissez faire export of hazardous substances allows the industrialized countries to escape the full costs of living in the chemical age. Endorsing a ban on the export of dangerous chemicals can only elevate the U.S. standing in the world. ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR July/Aug 1989 VOLUME 10, NUMBERS 7 & 8, JULY/AUGUST 1989 THE FRONT No Nuke Victory IN A LOCAL Sacramento California referendum, residents voted to shut down the Rancho Seco Nuclear Generating Station. The plant, when working, partially powered Sacramento since 1975. The June 6, 1989 victory for safe energy advocates marks the first public vote to close an operating nuclear plant. Some of those who fought to keep the plant open believe the vote's impact will not be far-reaching. They say the vote had nothing to do with nuclear power or even the Rancho Seco plant itself. Voters, they say, were disenchanted with Sacramento Municipal Utility District (SMUD) and what they called wasteful spending on uniforms and bonuses and mismanagement of the plant. The vote, according to Kim Dellinger, spokesperson for Citizens for Affordable Energy, a pro Ranch Seco group, may not keep the plant shut indefinitely. The referendum specified that the plant should no longer be operated by SMUD, not that it should be closed forever. In addition, Dellinger said it is unlikely that there will be a domino effect resulting in multiple plant closures nationwide. Ed Smeloff, who supported plant closure, agrees. "This was not a referendum on nuclear power." Smeloff is one of five elected SMUD board members and a supporter of nuclear power. "This was an issue about one plant," he added. Michael Remy, a Sacramento attorney and founder of Sacramentans for Safe Energy (SAFE), believes otherwise. He said the Rancho Seco closing could have a "significant effect" on plant closings worldwide. "A lesson to be learned by the anti-nuclear coalition is that we need to, and I hate this word, 'network' beyond our immediate constituents," Remy said. Citing Rancho Seco as an example, Remy said anti-nuclear activists must make alliances in the business community, with people who will respond to economic arguments though they may not be persuaded by arguments on safety and the environment. "We can win support and allegiance [from] relatively conservative business types, particularly in the private sector, who are driven by efficiency methods in their own business," Remy said. "If it can be shown that nuclear power is inefficient and artificially subsidized, we can gain allies who are not inherently anti-nuclear." Remy's interest in Rancho Seco began after Three Mile Island, when the Nuclear Regulatory Commission served Rancho Seco five fix-it tickets and closed the plant until SMUD complied. In 1986 SMUD officials announced another $93 million repair job. In response to this action Remy formed SAFE. He sent an open letter to the SMUD board and placed an advertisement in a local newspaper requesting a SMUD report showing the validity of the repair work. When no report was forthcoming from SMUD, Remy himself commissioned the QUEST report which, according to Smeloff, recommended closure of the plant on the basis of economics, engineering and law. Smeloff said the report was "overlooked by the board." SMUD officials proceeded to spend $400 million on repairs and modifications which resulted in a 27-month outage from 1985 until April 1988. Though the plant had been stop and go, particularly during the preceding four years, that outage was the longest and the most costly. In December 1986, SAFE gathered enough signatures to put a referendum on the ballot. The referendum, Measure B, said, in effect, shut the plant. SMUD responded with a proposal for an 18 month public review, termed Measure C. After this interim step the SMUD board promised that another vote, Measure K, would determine the ultimate fate of the plant. In the first vote, SMUD's proposal beat out the closure ticket by half a percentage point. According to Remy, Measure C diffused the support for the proposal to shut the plant and took from SAFE all voters who were undecided. In early June of 1989, the proposed Measure K came to the ballot and 53.4 percent of the ratepayers voted to shut the plant. The vote was non-binding but a SMUD board resolution passed earlier expressed the board's commitment to follow the will of the people. The day after the vote the plant stopped generating electricity. Dellinger believes the people's decision was misguided. She said SAFE, not SMUD, had the power in Sacramento. Citizens for Affordable Energy had to come to the defense of SMUD against Remy and SAFE since, as a public utility, SMUD officials "could not lift a finger or spend a dime" in defense of the plant, she said. "Unfortunately, voters went to the polls without all the facts." There is still confusion over what might happen in Sacramento. Currently the plant is undergoing a $200 million to $400 million shutdown operation, according to Ron Scott, a Rancho Seco spokesperson. Because the costs will be passed on to ratepayers, Dellinger said, "it's like building a whole new plant, closing the doors, and walking away--we still have to pay the bills." Board member Smeloff said there is some "slipping and sliding" among board members in how far they might follow the will of the people. He said there are some who would like to sell the plant to a private utility which could continue to operate it. Rancho Seco's future is still a question mark and the impact of the closing on other plants is unclear as well. But if safe energy advocates like Michael Remy have their way, nuclear plants throughout the country may soon be forced to defend their claims of efficiency and cost-effectiveness. -Barak Kassar ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR July/Aug 1989 VOLUME 10, NUMBERS 7 & 8, JULY/AUGUST 1989 OSHA's Doubledealing A NEW STUDY by the National Safe Workplace Institute (NSWI) details how the Occupational Safety and Health Administration (OSHA), under the Reagan administration, used "megafines"-- penalties over $100,000--in order to appear tough on corporations that violated worker safety laws, but negotiated privately with the employers for drastic reductions in the fines. The study, Unintended Consequences: The Failure of OSHA's Megafine Strategy, used OSHA data to show how the Department of Labor's Office of the Solicitor negotiated with corporate officials to reduce megafine penalties, often without even requiring abatement of existing hazardous conditions. According to NSWI, from 1986 to 1989 OSHA imposed a total of $29.3 million in megafines on some of the most notable corporations in the United States. Through negotiations, these fines were bargained down to $9.5 million, an average reduction of 67.5 percent per fine. Moreover, the violating employer paid the original megafine penalty in only three of the 35 megafine cases between 1986 and 1989. The study's author argues that, "Instead of penalizing violators, OSHA's megafine strategy has allowed employers to negotiate and finance their safety compliance through penalty reductions." Furthermore, because interest charges on unpaid fines are not imposed during the bargaining process, no pressure is brought to bear on corporate violators to act in a timely manner; in essence, employers receive a monetary reward for stalling negotiations. Today, 24 megafine cases brought over a year ago remain unresolved. The NSWI study urges collection of interest on unpaid fines during negotiations to speed up the process, maintaining that, "Mounting debt from interest charges on unpaid penalties would lead to more timely settlements, more rigorous enforcement, and ultimately, safer workplaces." Megafines were first imposed under President Carter and were all but eliminated as an enforcement tool in the first six years of the Reagan administration. Reagan's enforcement strategy called on OSHA officials to group violations by category instead of separately, a method which tends to create smaller fines. After six years of passive enforcement and cutbacks in personnel, OSHA was severely criticized by Congress and the media. In 1986, Labor Secretary William Brock was determined to dampen the criticism by reinstituting megafines. This strategy was designed, according to the report, to make it look like the Reagan administration was getting tough on corporate crime. For example, when a corporation was slapped with a million dollar fine the media would spotlight the action and mistakenly represent it as the final outcome. The public was unaware that subsequent negotiations resulted in much smaller fines than those hyped by the administration. NSWI argues that Brock's megafine strategy "gave American workers, Congress and the media the impression that OSHA had toughened." Although Brock's new "get-tough" strategy appeared laudable, in reality megafine cases became media cases tantamount to propaganda. Nevertheless, Secretary Brock succeeded in deflecting the criticism aimed at OSHA, to the detriment of U.S. workers. Union Carbide, the chemical company responsible for the Bhopal disaster, was the first beneficiary of Secretary Brock's new megafine strategy. In 1986, the corporation was cited for over 495 wilful record-keeping violations at two of its plants. These violations contributed to a release of toxic substances which led to 141 workers being hospitalized at its Institute, West Virginia plant. Although OSHA hit Union Carbide with a $1.39 million fine, subsequent negotiations between the company and the government reduced the number of violations to 287, thereby reducing the fine to $408,000, a 70.6 percent reduction. And although the federal government has the power to impose criminal penalties for record-keeping violations, it chose not to do so in this case. NSWI argues that the Carbide settlement established a "terrible precedent" and that, "By early 1987, OSHA knew that large and small corporations had engaged in massive fraud to prevent costly inspections and penalties. The federal government's decision not to prosecute Carbide made it unlikely that it would prosecute other corporations." The Chrysler Corporation also escaped criminal prosecution. In 1986 Chrysler was penalized $910,000 by OSHA for 182 wilful record-keeping violations at its Belvedere, Illinois plant. When the Labor Department's Office of the Solicitor stepped in to negotiate a deal for Chrysler, it followed its usual procedure of excluding union representatives and the OSHA personnel who discovered the violations. A deal was worked out which provided fora 67.6 percent reduction in fines. Most of the megafine reductions were accorded to the largest and most prestigious U.S. businesses including Shell Oil, which obtained a 57.8 percent reduction in fines, Ford Motor Company with a 36 percent reduction and USX, which paid half the original megafine penalty. -Jim Donahue ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR July/Aug 1989 VOLUME 10, NUMBERS 7 & 8, JULY/AUGUST 1989 Defective Defense A RECENT REPORT on the defense procurement process called for shifting responsibility for weapons purchases from the Department of Defense to a new, independent "procurement corps," to counter what the reports' authors called America's "defective defense." The recommendation for a separate government entity to handle all purchases of weapon systems is the most far-reaching of a series of suggestions for improving military procurement outlined in Defective Defense: How the Pentagon Buys Weapons That Do Not Work, by Louis Nemeth and Kukula Kapoor Glastris, published by Ralph Nader's Center for Study of Responsive Law. "We're spending billions of dollars for planes that can't fly, missiles that can't find their destinations, and tanks that can't roll," said Nemeth. "The Pentagon has over and over proven itself either unwilling or unable to improve our procurement process." The procurement corps, as described in the report, would be staffed with procurement experts with no other missions, allegiances or temptations, in contrast to many DoD personnel who currently hold sway over the process. Their charge, Nemeth said, would be "to buy the most effective weapons at the lowest possible cost, and to ensure that the systems function as promised once production begins." "What happens too often now," explained Glastris, "is that after, say, the first 50 jet fighters are delivered, someone discovers that the wings will crack, so the company that built the defective wings gets a multi-million dollar contract to reinforce those same wings that they should have built right the first time." Military contractors, the Department of Defense and Congress form a "triangle of common interests," asserted Nemeth, that often supersedes concerns about weapon system reliability, quality and effectiveness. "The only way to stop the arming of our military with defective weapons is to take responsibility for buying those weapons away from the military. That is what the procurement corps will do," Nemeth said. The report also criticizes the Pentagon policy, announced last month, of paying all development costs of new weapon systems in an effort to improve weapon system quality. "DoD contends that forcing contractors to assume some development costs encourages them to 'skimp,' often at the expense of quality," the report states. "[This] ignores the fact that the Pentagon already has the authority and ability to demand quality in weapon systems. Development contracts provide no guarantee of production contracts to follow. If a system is not up to par the Defense Department can merely decline to purchase it and shop elsewhere." The report examines the problem of defective weapon systems, analyzes how such systems find their way into the U.S. arsenal and makes recommendations to remedy the problem. In addition, the authors have compiled a catalogue of 41 defective weapon systems and outlined the procurement history and problems of these systems. Included in the catalogue are many systems fundamental to the U.S. arsenal. Jet aircraft cited include the F-14, F-15, F-16 and F/A-18. Helicopters include the Vietnam-era AH1 and UH-1 as well as the brand new AH-64 Apache. The AMRAAM HARM, Maverick, Phoenix, Sparrow, Sidewinder and cruise missiles are all cited as having had or continuing to have serious problems in their performance, as do the M-1 tank, B-1 bomber, and Aegis ship defense system. Among the contractors cited for producing defective systems are: Ford Aerospace, General Dynamics, Grumman Aerospace Corporation, Hughes Aircraft, LTV Corporation, Lockheed, Martin Marietta, McDonnell Douglas Corporation, Northrop Corporation, Raytheon Company and Rockwell International. "What the report demonstrates is that much of what the military buys is defective," Nemeth said, "and that taxpayers end up spending billions to correct problems that should have been caught" before the systems went into production. The report cites several factors as causing the problem of defective weapons, including the vested interests of Department of Defense procurement officers, the lack of competition in military contracting and the practice of concurrent development, by which weapon systems are developed and manufactured simultaneously. In addition to establishing a procurement corps, the report's other major recommendations include: More accurate and extensive testing of weapon systems before procurement is allowed to proceed; Increased competition in awarding contracts, and an increased number of "prime" contractors producing major weapon systems; Making contractors assume some of the costs of weapon system development to increase contractor stakes in weapon system reliability; Prohibiting "concurrent" development, by which weapon systems enter full-scale production before testing is complete; Insisting on warranties for all major weapon systems; Tightening restrictions on the "revolving door;" Making contractors liable for deaths and injuries resulting from use of defective weapon systems; and Reinvigorating public yards, largely idle in recent years, in order to reduce dependence on contractors. Copies of the report are available for $12.50 for individuals/$25 for organizations from the Center for Study of Responsive Law, P.O. Box 19367, Washington. D.C. 20036. ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR July/Aug 1989 VOLUME 10, NUMBERS 7 & 8, JULY/AUGUST 1989 THE FRONT Senators and South Africa Three years have passed since the U.S. Senate overwhelmingly approved a ban on new U.S. investment in South Africa through passage of the Comprehensive Anti-Apartheid Act of 1986. Yet, an examination of recently released Senate financial disclosure reports, which show senators' investments for 1988, reveals that many who support economic sanctions against South Africa continue to invest their own money in companies profiting from apartheid. Sen. John Danforth, R-MO, leads the list of U.S. senators with investments in companies doing business in or with South Africa for 1988. He held at least $1.4 million in companies involved with the South African economy. Danforth supported sanctions in 1986, declaring on the Senate floor that, "this senator has no hesitation at all in voting for sanctions." Ironically, since 1985 the senator has increased his holdings in such companies an average 54 percent. According to a spokesperson in his Washington office, the Missouri Republican is not likely to support further sanctions contained in a pending bill prohibiting personal and current investment in South Africa. In response to a similar survey by Multinational Monitor in 1986 and 1988, Sen. Danforth claimed that his South Africa-tied holdings were in a "blind trust" over which he had no control. His investments in companies linked to South Africa, however, were not in a blind trust and were noted on his public financial disclosure statement, authorized and signed by the senator. The senator has also claimed that over 90 percent of such holdings belong to his children. Although most senators disclose investments owned by their children or spouse, Danforth failed to indicate the beneficiary of each investment on his financial disclosure statement. The second leading investor for 1988 in companies linked to South Africa, Wyoming Republican Malcolm Wallop, held at least $861,011, a 58 percent increase since 1985. Mr. Wallop, who did not support the 1986 sanctions bill, generated income from these investments of at least $32,711. John Glenn, D-OH, followed Sen. Wallop, maintaining the third largest total investment in companies with South Africa ties. The senator held at least $575,022 in such companies, an average 27 percent increase since 1985 and 1987. In response to a survey by Multinational Monitor in September 1988, the senator attempted to minimize the significance of his investments by arguing that such companies are not wholly dependent on South Africa. For example, in October, 1988, the senator argued that his investment in General Motors, a company with ties to South Africa, is not tantamount to supporting apartheid. Sen. Glenn told Multinational Monitor: "I doubt if General Motors is more than one or two percent dependent on everything they do in South Africa ... that would be my percent of an investment in South Africa, [but] . . .I suppose that's like 'a little bit of pregnancy' ... I invested in General Motors because it's one of our giant American companies that does their business in [the United States]. The people that do my investing for me . . . didn't run out and say, 'hey, here's a company that does some business in South Africa, let's buy some stock in it.'" Anti-apartheid activists argue, however, that such investments help legitimize South Africa's system of racial separation, particularly when senators hold their own investments in companies profiting from apartheid. Richard Knight of the New York based anti-apartheid organization The Africa Fund argues that senators' investments "have the effect of supporting the apartheid economy because it lessens the pressure [on U.S. companies] to cut off all ties to South Africa." Many senators use investment management firms that decide where their money is invested and may be unaware of their South Africa tied holdings. When asked if he thought it was right for a senator to hold investments in corporations that reap millions of dollars from apartheid's low wage work force, Glenn responded, "I didn't even know that I had them." Senate Foreign Relations Committee member, Nancy Kassebaum, R- KS, followed Sen. Glenn with $333,016 invested in companies linked to South Africa, an average 22 percent increase from previous surveys. Even while she was leading the fight to restrict investments under the 1986 sanctions bill, Kassebaum held stock in 15 companies linked to South Africa. The senator does not support further sanctions. Alabama Democrat Howell Heflin rounds out the top five, maintaining $318,006 in companies doing business in or with South Africa. Mr. Heflin supported the 1986 sanctions bill. Following Heflin, Senate Foreign Relations Committee chairman Claiborne Pell, D-RI, held $292,007 in 1988, the sixth leading investment. In the last few years, Pell divested half his stock from such companies, reducing holdings by $968,036, the largest divestiture of any senator. In response to a survey by Multinational Monitor in September, 1988, Pell stated that he had instructed his investment professionals "to seek to insure that I have no investments in companies that operate in South Africa." However, he also added that, "In a few cases stocks have not been sold because of major tax consequences." Freshman senator Herbert Kohl, D-WI, invested $155,803 in companies with South Africa connections, placing him seventh, behind Claiborne Pell. Kohl generated the largest amount of income from his tainted investments, pocketing $473,223 from dividends, capital gains and selling shares of stock. In response to the September 1988 survey by Multinational Monitor, Ernest Hollings, D-SC, claimed that he had sold all stock in companies doing business with South Africa. His disclosure reports for 1988 reveal, however, that he had sold only $50,000 worth of stock in such companies. In 1988 Hollings was the eighth leading investor, holding a $100,001 investment in IBM, a corporation that maintains a licensing agreement with a South Africa based corporation. John Warner, R-VA, with at least $50,001 and John Chafee, R-RI, with $25,003, are the ninth and tenth ranked investors, respectively. Chafee's holdings increased an average of 45 percent since the 1985 and 1987 surveys. Former vice presidential candidate Sen. Lloyd Bentsen, DTX, was the 12th leading investor in companies linked to South Africa. As a vice presidential candidate, Sen. Bentsen attempted to clear his investment portfolio of such investments, but he still holds at least $15,001 in Columbia Pictures, a subsidiary of Coca Cola. Many of these senators hold influential positions with respect to U.S. foreign policy and are therefore empowered to make significant decisions about the U.S. relationship with South Africa. Such influential senators include six members of the Senate Foreign Relations Committee who collectively held a minimum of $659,033 in companies with South Africa ties. In addition to Sens. Pell and Kassebaum, those members are: the ranking minority member Jesse Helms, R-NC, with $10,002, Rudy Boschwitz, R-MN, $20,004, Frank Murkowski, R-AK, $3,003 and Mitch McConnell, R-KY, with at least $1,001. Anti- Apartheid activists argue that if these investments are any indication, investment portfolios could influence votes on further sanctions more than a concern for Black South Africans. The stated purpose of the Comprehensive Anti-Apartheid Act of 1986 is to "promote political, economic and social change leading to the dismantling of apartheid ... in the Republic of South Africa." But critics charge that the Act does not go far enough and have called for passage of Senate bill 507, "Amendments to the Anti-Apartheid Act of 1986." The bill strengthens sanctions outlined in the 1986 Act, requiring that a "United States person [or corporation] may not purchase, acquire, own, or hold any investment in South Africa." The Senate Foreign Relations Committee vote on the bill will be a more significant test of each senator's commitment to ending apartheid. Four senators included in the investment survey, Sens. Helms, Kassebaum, Wallop and Danforth have already indicated opposition to the tougher sanctions. The survey was conducted by comparing senators' financial disclosure reports for 1988 with a list of companies doing business in or with South Africa. The list is published by The Africa Fund, a New-York based anti-apartheid organization. Senators disclose the value of their investments according to ranges (e.g.1,001-5,000,5,001-15,000, 15,001-50,000, etc.). Only the minimum investment value was included in this survey. -Jim Donahue and Katherine Isaac ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR July/Aug 1989 VOLUME 10, NUMBERS 7 & 8, JULY/AUGUST 1989 CTC TRACKING TRANSNATIONALS: United Nations Centre on Transnational Corporations by Richard Caplan Richard Caplan is an editor of World Policy Journal. Earlier this year, a U.S.-based company offered to establish mining operations in a certain African country. Because of the country's economic plight, the company's offer was received with great interest, but it also raised concerns. The company, whose letterhead identified it as a subsidiary of a major U.S. mining firm, was to be granted mineral rights as part of the deal. Feeling ill-equipped to evaluate such a high-stakes venture, the country turned for advice to the United Nations Centre on Transnational Corporations (CTC). What the Centre discovered was enough to quash the deal: the company had no known assets and, moreover, it had fabricated its affiliation with the parent firm. The CTC receives many such requests for assistance each year, making it, in a sense, the United Nation's (UN's) own "multinational monitor." Established in 1975 in the wake of revelations about International Telephone & Telegraph's (ITT) attempts to destabilize Chile and at the height of Third World demands for the creation of a New International Economic Order, the Centre has become the focal point at the UN for all matters relating to multinational corporations. Not only does it attempt to strengthen the negotiating capacity of countries-- particularly developing countries--in their dealings with multinational corporations, the CTC is also a leading research center, engaged in a wide range of studies on the impact of multinational corporations on home and host countries. Since 1977, it has also been working to forge an agreement on an international code of corporate conduct that would govern relations between sovereign states and multinational firms. As Peter Hansen, the CTC's executive director, sees it, the Centre's mandate is "to minimize the negative consequences that the operations of transnational corporations have and to maximize the positive contribution they can make." Over the years, the work of the Centre has expanded, if only because of the increasingly important role that multinational corporations play in the global economy. Today these firms employ 70 million people worldwide, produce 25 percent of all manufactured goods and are responsible for approximately $135 billion in investment capital, including vital transfers of technology. "We're dealing with an 'issue area' that was perceived to be very great in the mid-1970s," says Hansen, "but which is indisputably much greater today." The Centre is an autonomous agency, though it also gets direction from the Commission on Transnational Corporations, a 48-member intergovernmental body of representatives from each of the three major blocs--the developing countries, the socialist countries and the advanced industrial states. It is the Commission that has primary responsibility for drafting the U.N. Code of Conduct on Transnational Corporations, whose provisions, when adopted, will represent international consensus on the definition of the "good corporate citizen." The Code, which will be non-binding, is meant to fill a void in the corpus of post-war multilateral economic covenants. Presently, there are regulations and institutions governing trade, monetary relations and development lending but no framework for direct foreign investment. "We're still living at the stage of the law of the jungle," says Hansen. "There [are] no globally agreed upon rules of what's right and what's wrong for transnational corporations, no sense of global responsibility to match the global reach of corporations." For years code negotiations have bogged down over such fundamental issues as what defines a transnational corporation (the socialist countries wishing to exclude state-owned enterprises) and the arcane but critically important distinction between international law and international obligations. (Many Third World countries find the latter objectionable since they derive, in part, from customary laws of the colonial era.) Almost everybody, including business representatives, favors adoption of some code though there are great differences of opinion over just how effective an instrument it can be. Esther Peterson, who represents the International Organization of Consumers Unions at the U.N., is very optimistic about what results it might achieve. "Even though the Code will be voluntary," she says, "it will have great credibility and moral authority because it will be based on f international consensus." Peterson cites the precedent of U.N. Consumer Protection Guidelines, which are also non-binding. "They contain a lot of recommendations that are now being adopted as national legislation--in Uruguay, Brazil, Spain and Kenya," she points out. Bruce Rich, a senior attorney with the Environmental Defense Fund, is less sanguine. "Just look at international law in general and how often that's flouted. Here you've got something that's much more ethereal and less well-grounded." Rich believes that "targeted campaigns" like the Nestle boycott and the South Africa divestment effort "where you can muster enough critical mass to force corporations to really do something," are more effective at influencing multinational corporate behavior. Given the mood and circumstances surrounding the origins of the Centre, it is not surprising that it has often been regarded with suspicion in certain quarters. William Stibravy, who represents the International Chamber of Commerce--the business lobby at the U.N.--explained a few years ago that the Centre and certain other U.N. institutions were "tailor-made for countries or individuals who simply wanted to lash out at private enterprise generally and at multinational corporations specifically." Criticism of the CTC has not been limited to the private sector. Anti-CTC rhetoric was a prominent feature of the Reagan administration's U.N.-bashing. Speaking to a closed luncheon of the International Business Council in 1985, Alan Keyes, then- Assistant Secretary of State for International Organization Affairs, characterized the Centre as a weapon designed "to attack the premises and legitimacy of the Western way of life, to attack the very concept and idea of capitalism, and the positive role of multinational corporations in development." Today the shrill blasts of Reagan-era invective have given way to a "more constructive environment," in Hansen's view. "I've certainly seen evidence of change in the way the United States has been addressing issues and in the way various U.S. departments have been participating supportively in the Centre's work." A shift in attitude is also evident in the business community. "We perceive that there has been, over recent years, a decline in the degree of antagonism between the Centre and business and in the Centre's attitude toward business," says Ronnie Goldberg, senior vice-president of the U.S. Council of Business. Business would be even happier she adds, if the Centre were to omit environmental concerns from its agenda. "These are not multinational issues; these are issues for every business-- local as well as multinational." The Centre, like other U.N. agencies, often finds itself at the mercy of shifting political winds. Yet, it has probably been more consistent in its work than have been the attitudes toward it. And the Centre is certainly more benign and even conservative an institution than some of the controversy it has attracted would suggest. Through the assistance it has given to countries interested in establishing foreign investment regimes, for instance, the CTC has helped open doors for multinational corporations--in China, the Soviet Union and the socialist countries of Eastern Europe, among others. Its EMPRETEC program has identified and trained local entrepreneurs in Argentina, Nigeria, Venezuela and Uruguay. And a code of conduct, most everyone agrees, is as much in the business community's interest as anyone else's, since it helps to define the "rules of play." Indeed, some accuse the Centre of being too responsive to business pressure. According to Archie Singham, a professor of political science at Brooklyn College and a self-described "resident anthropologist" in the U.N. Delegate's Lounge, it is often said that the Centre on Transnational Corporations ought to be renamed the Centre for Transnational Corporations. What certainly has changed over the years is the international economic climate, and that cannot but affect the work of the Centre. During the 1970s developing countries, emboldened by the Organization of Petroleum Exporting Countries' triumph over the wealthy industrial nations, were denouncing the "imperialist exploitation" of multinational corporations and pressing hard for the establishment of a new, more equitable, global economic order. Now these same countries, crippled by debt and disillusioned by the failure of some of their experiments in alternative development, are courting the multinationals. In his statement before the U.N.'s Economic and Social Council recently, Hussein Haniff, speaking on behalf of the developing countries, expressed his "concern [over] the substantial reduction of flows in direct foreign investment to the developing countries" and urged the Centre "to study these trends and make recommendations on the ways and means of increasing the operations of transnational corporations in developing countries." The socialist countries, too, are more open to a greater role for multinationals in global development than they were in the past. "For years the Soviets would stand up in the Commission and give a speech about the need to control TNCs," observes one U.N. official. "Now they get up and talk about the importance of getting TNCs involved in developing countries." This convergence of interests, more than any other factor, explains the dramatic shift that has taken place in the debate over multinationals at the U.N. and the relative absence of controversy surrounding the Centre these days. Ironically, it is the increasing inequities of capital that are breaking down the resistance to multinational expansion--a goal the business lobby has strived for many years to achieve. Although the Centre has never been the watchdog agency that some hoped and others feared it would be, it has at times demonstrated a real boldness. When the U.S. government refused to cooperate with the Centre's efforts to identify the brand names of U.S.-manufactured goods for inclusion in a consolidated list of banned products, the Centre sidestepped Washington and sought the assistance of non- governmental organizations. And when the Philippine government under Corazon Aquino solicited the Centre's advice on negotiating the $2.2 billion debt it owes for the now mothballed Bataan Nuclear Power Plant (which was built near a volcano and several earthquake faults after Westinghouse reportedly paid a Marcos relative $80 million in bribes), the Centre dispatched a high-level expert team to the Philippines and is said to have advised the government to adopt a hard line. Still, the Centre could be playing a more forceful and constructive role in shaping the development agenda. Its goal of "making the world safe for foreign investment and foreign investment safe for the world," as Peter Hansen puts it, ignores the fact that increased capital flows may actually contribute to a worsening of economic trends. The globalization of production has brought with it a general reduction in wage levels--here and abroad--as workers outbid each other to attract capital. And when wage levels fall, so does demand, resulting in a glut of goods and increased pressure for protectionist measures. Mark Anderson, an economist with the AFL-CIO who also serves as an "expert adviser" to the Commission is critical of the Centre for buying into the conventional wisdom in this respect. "They're seemingly enamored with an export-led strategy. But everybody can't be an exporter and, moreover, such a strategy harms the interests of U.S. workers." The Centre has stressed the need for debt relief, which would tend to improve demand. But it has not addressed the larger question of the relationship between transnationalization and wage levels and the need to improve purchasing power worldwide. "Subsistence wages is not exactly an effective growth strategy," Anderson says. The Centre claims that wages are not in its purview, that the more appropriate forum for such a matter is the International Labor Organization. And yet, it does not leave it to the World Bank or the International Monetary Fund alone to deal with debt issues. The CTC does play an important role in setting the international agenda on a number of different issues. External pressures, however, can play a significant role in shaping the Centre's agenda. Barbara Adams, a consultant to the U.N.'s Non- Governmental Liaison Service, says "I think the Centre does have some kind of capacity to behave differently. Where the pressures are going to come from, that's a different question." ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR July/Aug 1989 VOLUME 10, NUMBERS 7 & 8, JULY/AUGUST 1989 UNEP THE UN'S ENVIRONMENTAL PROJECT by Nancy E. Wright Nancy E. Wright is a former research associate for the United Nations Association and a former consultant for the United Nations. UNEP was established in response to a recommendation by the United Nations Conference on the Human Environment in Stockholm in 1972. It describes itself as "the environmental conscience of the U.N. system," formed "to motivate and inspire, to raise the level of environmental action and awareness at all levels of society worldwide." Based in Nairobi, Kenya, UNEP maintains a professional staff of nearly 200 and has an estimated annual budget of $30 million. Among its environmental services are: a Global Environment Monitoring System (GEMS), a network of information on climate, atmosphere, oceans, renewable resources and pollution; the Global Resources Information Database (GRID), a system designed to provide information about the earth's resources to planners and policy-makers; the International Register of Potentially Toxic Chemicals (IRPTC) which provides policy-makers information on potentially hazardous chemicals currently in use; and Infoterra which provides governments and industries in 137 countries with technical data about all aspects of the environment. UNEP gathers the data from more than 6,000 institutions and in over 1100 areas of environmental research. Having successfully put in force a treaty designed to limit the production and use of Chloroflourocarbons (CFCs) and prevent further damage to the ozone layer, the United Nations Environmental Program (UNEP) is confronting the next major environmental challenge to the atmosphere: global warming. UNEP, led by Executive Director Dr. Mostafa K. Tolba, is breaking new ground in achieving international consensus on environmental issues. In addition to the ozone treaty, UNEP can boast of a number of significant accomplishments since its establishment in 1972. For example, through multilateral negotiation UNEP has developed the Med Plan, an intergovernmental effort to halt Mediterranean Sea pollution, (1978-1980); 10 regional seas programs, modeled on the Med Plan's example; the Convention on International Trade in Endangered Species, established to control trade in wildlife products; a Global Plan of Action for Marine Mammals; and a plan for a Hazardous Waste Treaty, approved in March of this year and likely to be implemented by mid-1990. Among these successes, the ozone treaty represents a unique convergence; those negotiations included the public and private sectors as well as the scientific community concerned about the potentially harmful effects of CFCs on the earth's atmosphere. Addressing the U.N. General Assembly soon after the treaty negotiations were concluded, U.N. Secretary-General Javier Perez de Cuellar said that for the first time, "the combined efforts of governments, scientists and industry to prevent a global issue from reaching crisis proportions" had led to a universally-supported international treaty. Efforts leading to the agreement can be traced to the 1970s, when several countries began to restrict production and/or consumption of CFCs which are widely used in refrigerants, styrofoam, cleansers and aerosol components. In March 1985, the European Economic Community and 21 countries, including the United States, adopted in Vienna a Convention for the Protection of the Ozone Layer which called on all parties to limit activities which could result in depletion of the ozone layer and set general guidelines for cooperation in legal, scientific and technical exchange. It set no specific numerical limits on CFC production or use, however. In 1978, the United States banned the use of CFCs in aerosols and in September 1987, the United States, the EEC and 22 other countries signed a new preventative agreement: the Montreal Protocol on Substances that Deplete the Ozone Layer; at present a total of 39 countries plus the EEC have signed and ratified it. The Montreal Protocol calls for a freeze on CFC production and consumption at levels not exceeding those of 1986, a 20 percent reduction of the 1986 levels by 1993 and an additional 30 percent reduction by 1998. Some environmental groups are not sure that the reductions are enough to alleviate the problem. According to Rod Fujita of the Environmental Defense Fund (EDF), "A lot of evidence has come out recently that says that cutting CFC production by 50 percent won't solve the problem. Representatives from the United States and other countries say that we need to cut the emissions more than that to solve the problem." Nevertheless, Fujita considers the Montreal agreement a relative success. Despite this success, environmentalists say that UNEP operates at a disadvantage because of its financial dependence on industrialized countries. "To date the organization has performed admirably on a tight budget," says Jeff Leonard, of the World Wildlife Fund. But, he adds "If the global environmental agenda continues to flower, UNEP will also have to grow and/or change." Conrad Von Moltke, editor of International Environmental Affairs, also points to the crippling effect of UNEP's small budget. "UNEP's disabilities are linked to lack of resources.... Traditionally its operating budget has been nothing short of indecent, with the United States contribution to UNEP equalling about the same amount as EPA employees spend each year on coffee." With or without funding increases, UNEP is moving to start work on new environmental treaties. Growing concern about the greenhouse effect, along with the success of the ozone treaty, has prompted UNEP to lay the foundation for an international agreement to prevent further global warming. Tolba says that global warming is "one of the most serious issues the world is facing." UNEP's Governing Council awarded the issue top priority at its first special session in March 1988. And in May 1989, 103 countries attending the Governing Council decided to begin negotiations for an international treaty on global warming and climate change in 1990. UNEP, in close collaboration with the World Meteorological Organization, will prepare a draft treaty, based, in large part, on the findings of UNEP's Intergovernmental Panel on Climate Change. Although both ozone depletion and global warming affect the atmosphere, important differences between the two issues may complicate negotiations toward a treaty on the latter. Dr. Noel J. Brown, Director of UNEPs York Liaison Office, asserts that "there is now considerable ferment in the world community to establish a normative basis to protect our atmospheric resources and to stabilize climate. The Vienna Convention and the Montreal Protocol have given us a truly global framework for dealing with these global issues." But Dr. Peter Haas, professor of political science at the University of Massachusetts at Amherst and a specialist on global environmental affairs, explains some of the potential complications, saying "It is difficult to generalize from the ozone treaty to other cases [because] the scientific evidence on global warming is not as solid and a much stronger opposition is mobilized against developing a [global warming] treaty." Perhaps the most fundamental barrier to a global warming treaty is that, according to Haas, "effective treatment of greenhouse gases would require a fundamental transformation of modern industrial life." Brown also acknowledges this obstacle. "In attempting to address the contributors to global warming, we are talking about the centerpiece of industrialized civilization, which is energy use," he says. And Leonard points out that the problem will soon spread beyond the industrialized nations. He says that soon "developing countries may need to turn more to the use of fossil fuels, a leading contributor to the greenhouse effect, to offset their current problems of deforestation and soil erosion due to overuse of wood." The business community is making efforts to show its interest in and attention to environmental issues through such measures as creating a Global Climate Coalition with a mandate to communicate to governments and communities business's concern about global warming. But Dr. Irving Mintzer, a Senior Associate with the Climate, Energy and Pollution Program of the World Institute in Washington, D.C., suggests that the actions and commitments from the private sector are still very cautious and limited. "We must proceed in a thoughtful manner, so that we don't destroy the economies of the world," warns Mr. Tony Vogelsberg, Environmental Manager for Freon Products (CFCs) at DuPont. DuPont, along with Pennwalt Corp., announced a phase-out of CFC production over the next decade almost immediately after scientists confirmed that ozone depletion is three times greater than originally estimated. But Vogelsberg points out, "The ozone protocol affects a relatively narrow segment of the industrial sector. Global warming, on the other hand, involves so many players that it will be hard for any one industry to step up to the plate and take the lead." Environmentalists believe that the deciding factor in the negotiations for the Montreal Protocol was the preponderance of scientific evidence concerning the damage that CFCs cause, and that the global warming treaty will have a considerably greater chance of success if it too is based on a strong scientific foundation. Brown says "You cannot base policy on ill-conceived data or data which has not been adequately tested. Establishing a reliable scientific basis is one of the major tasks of the Inter-Governmental Panel on Climate Change." Perhaps the most unprecedented aspect of the development of the Montreal Protocol was the active participation of the private sector. UNEP hopes that participation will be maintained throughout the negotiations on global warming. "As in the case with ozone, the private sector has the research capabilities to develop alternatives to using resources and products which exacerbate global warming," Brown notes. Mintzer calls the interaction between industry and UNEP "a new front, a constructive approach." He says that "the most important aspect of the ozone negotiations was the cooperation among industry, government and non-governmental organizations." Contrasting ozone with global warming, however, Mintzer stated, "Industries ... don't yet have the message on global warming." He believes that b y continuing to educate people and raise public awareness about the problem, environmentalists will be able to change that. "New risks, as well as new profit opportunities, will be generated as both concern and research increase," he says. Dialogue between UNEP and the private sector is a relatively new phenomenon, although, as early as 1975, UNEP created the Industry and Environment Office to serve as a liaison to industry. Both UNEP and industry appear hopeful that the dialogue between the two sectors will continue for some time. Dr. W. Ross Steveris, environmental affairs manager of E.I. du Pont de Nemours & Co. remarks, "I would like to think of this interaction as a trend that will continue." Haas says that he believes industry will continue to respond to national polices rather than becoming a moving force in developing environmental treaties. To the extent that this is true, UNEP and other intergovernmental bodies may face the difficult challenge of negotiating with an industry that wants to appear environmentally conscious while still maintaining a high level of resistance to substantive changes. Stevens reveals DuPont's conception of balancing environmental concerns with good business sense. "We believe there will have to be a great deal of give and take for a number of sectors," he states. "The issue of atmospheric pollution is too tough to expect everyone to be a winner and no one to be a loser. Hopefully, the final package will be one where everyone believes he benefitted and no one feels he has lost too much." Libby Bassett, a writer on population, environmental and development issues for UNEP and other environmental organizations, expressed confidence in UNEP's ability to handle the complex negotiations remarking, "UNEP has a tradition of creating consensus in the face of difficult circumstances." In Bassett's words, "Environmental language is one that can bring parties in conflict to the table." ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR July/Aug 1989 VOLUME 10, NUMBERS 7 & 8, JULY/AUGUST 1989 ILO WORKERS OF THE WORLD by David Geracioti David Geracioti is a freelance writer in New York City. On May 17, 1988 President Ronald Reagan did something that no U.S. president had done since 1953; he signed an International Labor Organization (ILO) Convention. Reagan's action was surprising in light of his administration's dismal record on labor issues. In its 70 years of existence, the ILO has formulated 168 conventions establishing basic international labor standards--in such areas as freedom of association, occupational health and safety, and social security. But the United States has only ratified nine of these conventions. In fact the United States withdrew from the ILO in 1977 after bitterly criticizing the ILO's agenda as too politicized, though it returned in 1980. It is odd that the United States, which considers itself the torch bearer in the international human rights movement, should have such a tumultuous relationship with the ILO. What is the ILO? The ILO was established in 1919 by the Treaty of Versailles. As a specialized agency in the United Nations since 1946, its stated goal is to contribute to the establishment of universal peace through promoting social justice by improving working conditions and labor rights throughout the world. According to Georges Minet, deputy director of the ILO's mission at the United Nations in New York City, setting international standards and supervising their observance are the two "pillars" of the ILO's function. Minet says that its tripartite structure makes the ILO different from the other specialized U.N. agencies. "The conference is composed of representatives of governments, business and workers. That is really the backbone of the whole thing," he said. Employer and worker delegates are expected to act and vote independently of one another and, in democratic countries, delegations vote independently from their governments. The United States' employer representative is chosen by the United States Council for International Business (USCIB), and the worker delegates are chosen by the AFL-CIO. Representatives from the Departments of Labor and State make up the government delegation. The ILO is divided into three principle bodies: the International Labor Conference (ILC), the Governing Body and the International Labor Office which runs the day-to-day operations and secretarial duties in ILO offices worldwide. The International Labor Conference is the supreme governing body of the ILO. The principal functions of the Conference are: the preparation and adoption of international labor standards in the form of non-binding recommendations and conventions which are binding on countries that ratify them; approval of the ILO program and budget; and general discussion of major social and labor problems, based on a report submitted by the Director-General. Membership The ILO currently has representatives from 152 independent nations and is open to all countries that are members of the United Nations. Nations not belonging to the UN may apply to the ILC for admission as long as they are willing to abide by the ILO Constitution. Member states pay an annual contribution based on their population and Gross National Product. In the latest budget, 1988-89, the net contribution to the ILO's coffers was $162,314,089. The United States contributed $40,607,500; Japan, the second largest contributor, gave the ILO $17,639,898; and the Soviet Union was third, contributing $16,584,103. The ILO's total budget for 1988-89 was $324,860,000. The United Nations Development Project (UNDP) is the main funding source of the ILO's operational activities, providing 47.9 percent of total expenditures. The ILO is facing a program decrease of 2.3 percent from its 1987-88 budget. Officials at the ILO envision similar program rollbacks for the next budget, currently under consideration at its 76th annual ILO Conference in Geneva. Development projects in Africa received more than 51 percent of the total expenditures in 1988, followed by those in the Americas which received almost 13 percent; Asia and the Pacific and the Middle East got 2.4 percent each; and Europe received 1 percent. The U.S. and the ILO Since the end of World War II the relationship between the United States and the ILO has been strained. The United States became disenchanted when the ILO's agenda shifted away from the West in the 1960s and 1970s. David Morse, director-general of the ILO from 1948 to 1970, says the organization was simply responding to the changing world order brought on by the collapse of the colonial empires which gave rise to the newly independent Third World countries. "In the early 50s you had these countries like India, Pakistan and all the African countries except Egypt, Ethiopia and French and British West Africa which were already independent. And the first organization they joined was the ILO, not the UN," says Morse. "So, I began to gear our programs to their needs. We launched technical assistance programs, vocational training, skill training and rehabilitation for the handicapped. We taught them how to build bridges, hospitals, universities, you name it." The United States and other Western countries used their influence, according to Morse, to expand the ILO's activities in the areas of human rights, with particular emphasis on freedom of association. In 1977 the United States pulled out of the ILO, citing its failure to pursue its mandate. The move was supported by the AFL-CIO. "We felt that certain countries were [trying] to turn the ILO away from concerns that were legitimate workers' concerns and actually turning it into a political mouthpiece," explained Steven Slezak, a member of the AFL-CIO's Department of International Affairs. "In the United States we have true tripartite representation and we have great battles [between the three delegations]. The Czechoslovakia labor delegate is appointed by the Communist Party of Czechoslovakia and they do whatever the party line is. The idea is that the three legs of the triangle are independent, representing the true interests of the people whom they have been charged to represent. So, we led the walking out" and the ILO lost a lot of support in the form of money, Slezak added. A State Department official who specializes in international organizations said that the United States walkout changed the organization a little, but that a double standard still exists. "Democratic countries should have a rigid standard of freedom of association and worker rights, freedom to organize, freedom to strike, all these things that we treasure in our tradition," he said. "Any violation should be thoroughly censured. But the communist countries were immune, because they claimed they had had a socialist revolution [and] didn't need any of these things." Another criticism of the ILO involves its enforcement powers. "It's very unfortunate," said Walter Russel Meade, Senior Fellow at the World Policy Institute, "but the fact is under the current ILO system, you can ratify a convention and it doesn't mean anything. Plenty of countries have ratified them and don't observe any of them. There is no effective force either in international public opinion or various trade organizations in the ILO itself for enforcing adherence to its conventions." Minet's response is that there is machinery in place in the ILO to pressure countries to abide by the ratified conventions. The Committee of Experts on the Application of Conventions and Recommendations requires member countries to submit detailed reports explaining the measures taken to comply with ILO proscriptions. In the United States, the problem is inverted since it does not ratify the conventions even though it has minimum wage laws, social security, occupational health and safety and other ILO- like labor standards. Minet and Slezak do not believe that the ILO legislation would be superfluous. Both men say that the United States needs to ratify the basic human rights conventions, like No. 87, freedom of association, and No. 105, the abolition of forced labor, to regain its lost credibility. "The subject matters are redundant. You have some legislation and health coverage, but how do you reconcile the fact that this is a country which has a tradition of free trade unionism, but has never ratified the basic freedom of association at the international level?," Minet asked. "Many of those conventions were not ratified by the United States because of this excuse, that's what it is really, that you have this federal system, and all the states have their own autonomy. And the federal government cannot guarantee that states will implement these instruments. That is not a valid argument." Minet believes that it is a strong, pure free-market ideology which inhibits the United States from ratifying the ILO Conventions. Meade clarified the rationale behind the U.S. failure to ratify many of the conventions. "It's just too cumbersome of a process. The United States Constitution is awkward in its relationship between treaties and domestic laws. In the past," he said, "when Congress has passed labor legislation, it is evident from the speeches that the legislation is intended to comply with international standards as defined by a given ILO convention. The official U.S. position is that while we do not ratify that many conventions on constitutional grounds, we nevertheless intend to fully bring our domestic legislation into harmony and observe them." American labor legislation, however, does not match European standards according to Minet. He also says that public support for the ILO is lacking in the United States. James Berge, Corporate Vice President of the Motorola Corporation and a former employer delegate, voicing a common complaint among UN critics, said that the United States overfunds the ILO and the UN. The United States should stay in the ILO, according to Berge, because "it would be dangerous not to, because the countervailing forces of the planned market communities are ever present." Berge believes employers offer an important perspective to the ILO. "As an employer I think that it is extremely important for the private sector to participate in this tripartite activity, because by [the ILO] charter they must develop compromised points of view in order to represent their very different constituents. Whereas I can go and speak as forcefully and as strongly as I feel based on my experience on a given issue." But he suggests that the ILO stick to a stricter interpretation of its role in labor standards and leave the political rhetoric to the United Nations. Recent success The most obvious ILO success story is the recent legalization of Poland's independent Solidarity movement. When General Jaruzelski's regime initiated martial law in 1981, Solidarity leader Lech Walesa appeared before the ILO Conference and said that Conventions 87 and 98 had given his movement some added muscle in its demand for legalization. According to the ILO, Walesa said that the ILO "played an important role [in] the restoration of trade union freedom in Poland." Walesa reportedly told the new ILO Director-General Michel Hansenne that he would welcome continued support in the fields of training and workers' education. The ILO has achieved an excellent record with its technical programs like its National Vocational Institute in Costa Rica and its social security programs in the Ivory Coast and worldwide, said former Director-General Morse. Last year the ILO spent about $95 million on its technical programs worldwide and another $75 million on regional field programs in the Third World and Europe. Like other international bodies involved with development issues, the ILO has reached out to multinational corporations. "There was a time when the multinationals were considered the bad guys and the ILO fed that notion," said Brian Glade, Director of International Labor Affairs for USCIB. "Since 1976 when [the ILO] put out their Tripartite Declaration on Multinational enterprises, many multinationals voluntarily instituted the recommendations and subject themselves to an ILO survey every three years. Since then, I have seen a real change in the ILO's attitude [toward multinationals]." A State Department source said that the ILO has garnered a positive image in the governmental community too. "I think that there have been a number of accomplishments in recent years," he said. "The progress on Solidarity in Poland is evidence that we are moving toward the single standard.... I think that there is a renewed interest" in the ILO in this country he continued, "and now a growing appreciation of a growing global economy and more people realize that some of these things need to be subjected to international standardization." A task force has been established to develop U.S. positions on ILO matters. The President's Advisory Committee on the ILO is chaired by the Secretary of Labor and includes the presidents of the USCIB and the AFL-CIO, as well as the Secretaries of State and Commerce and the National Security Advisor. The AFL-CIO is pleased with the possibility that the United States will begin to play a more active role in the ILO. "We participate fully, because when it comes to protecting liberties, redundancies are fine and dandy,n said Slezak. "Convention 87 would be somewhat redundant, but as the air traffic controller strike showed, violations do happen." There is still some philosophical opposition to the ratification in the business community, according to Brian Glade. "Part of the ILO's problem is what I call the Kellog-Briandism," offered Meade. The Kellog-Briand pact was established to outlaw war in the 1920s. It was signed in 1928 by 62 countries. The Versailles era diplomacy was marked by high ideals that everyone signs but no one does anything about. There is a big legacy of that in the ILO," he added. "Beginning with the Helsinki agreement in 1975, there has been a very marked trend--not just by the United States--to take seriously what had been previously regarded as meaningless boilerplate. And that movement is starting to affect the ILO," Meade explained. The United States may have an embarrassing ratification percentage in the ILO, but that has not bothered recent administrations. A spokeperson for the Labor Department expressed the U.S. attitude clearly, saying "It's not that the United States needs the ILO's conventions; the conventions need the United States." In the post-war era the United States has often preferred to act unilaterally. This ambivalence toward international cooperation is shifting now that the ILO is perceived to be taking business interests into account. But the real test of U.S. resolve will come when and if the ILO becomes more aggressive in pushing international labor rights in this age of globalized capital. ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR July/Aug 1989 VOLUME 10, NUMBERS 7 & 8, JULY/AUGUST 1989 PERONISM IN A TROUBLED ECONOMY by William Steif BUENOS AIRES, ARGENTINA--In 1945 Argentina and Canada had the same population and the same per capita income. Today, Argentina's population of 32 million is six million larger than Canada's, and Argentina's $2,400 per capita income is one-sixth of Canada's. According to Armando Ribas, a U.S.-trained, Argentine economist, "Argentina had the wisdom of inheriting the ideas that lost World War II. Those ideas were a folkloric fascism and a deep antagonism to the United States." The victory of the Peronist Party's candidate, Carlos Saul Menem, in the Argentine presidential election on May 14, 1989 is evidence that these ideas live on. Menem, 58, governor of the small province of La Rioja, attracted nearly 48 percent of the vote; Cordoba governor, Eduardo Angeloz, 57, of President Raul Alfonsin's ruling Radical Civic Union, picked up just over 37 percent; and Alvaro Alsogaray of the Union of the Democratic Center received most of the remaining votes. In the Argentine Electoral College System, this was a clear-cut victory for Menem. Alfonsin, recognizing the obstacles to effective rule during an extended transition, voluntarily stepped down at the end of June, well in advance of Menem's December inauguration. Nonetheless there were problems. In the month of May alone, inflation reached 70 percent, provoking widespread rioting and looting in the capital as well as the cities of Rosario, Mendoza and Corrientes. The former president's ignominious departure stands in stark contrast to his inauguration in December of 1983 which was greeted with a sense of relief. He was championed then as a civilian ruler capable of replacing the military junta, disgraced by its costly defeat in the Falklands War (Las Malvinas in Argentina) and haunted by the excesses of the "dirty war" it had perpetrated for seven years. Alfonsin was expected to heal the wounds, put Argentina on a democratic footing and lead the country to prosperity. His administration did make headway in rectifying some of the military's abuses, but he achieved little success in the economic sector. As the economy worsened, Alfonsin's support eroded. Public antipathy reached a peak during the 1988 presidential election campaign when graffiti in Buenos Aires was dominated by the slogan, "Alfonsin--falso y ladron"--"Alfonsin--liar and thief." Ribas, who worked on Alsogaray's campaign, says that the country is coming to realize how inefficient the economy of the last 40 years has been. "In the 1960s, after Peron left, our economy grew 3 to 4 percent a year despite the inefficiencies." But then, in 1973, government expenditures increased from 37 to 47 percent of Argentina's $78 billion Gross Domestic Product (GDP). "We managed to borrow a lot, overvalued our currency, and the economy collapsed in 1981 (with the world recession and oil crisis) and the lending abruptly stopped, says Ribas. "Now no one dares to reduce the level of government expenditures." The expenditures include a $2.5 billion annual loss from 300 state- owned enterprises and salaries for two million government workers, out of a labor force of just under 12 million. "At the end of the 19th century Argentina's GDP was bigger than that of all the rest of Latin America put together. Now we have Latin- Americanized Argentina," Ribas says. An unusual feature of the Argentine economy is that despite the fact that its literate, trained labor force is nearly 90 percent urban, about four-fifths of the country's $8.5 billion worth of exports are still agricultural--mostly wheat, corn, soya and meat. General Motors and Chrysler both left the country years ago, though Ford, in a joint venture with Volkwagen, remains. Argentina has enormous resources and none of the race problems of other Latin American nations. By the late nineteenth century, the few nomadic Indians who roamed the Argentine pampas were killed off, and Spanish, Italian and German immigrants transformed the land into a fertile powerhouse, producing huge quantities of wheat, corn and beef for export. British investment brought industrialization such as a nationwide rail system (now losing $2 million daily). The vestiges of this British activity remain although Argentina has not resumed diplomatic relations with the United Kingdom since they were severed during the Falkland's War. The fight for Las Malvinas remains a salient feature of the Argentine political landscape. In the heat of his campaign in February, Menem remarked, "I don't know how much blood we will have to shed, but our territory will return to the Argentine people." Menem qualified his bravado the following day with a statement that he was only speaking "metaphorically." The Falklands defeat was a high price for the Argentine people to pay, but it did bring an end to the seven year military rule. The destructive legacy of the junta, however, persists; there are weekly demonstrations at the Plaza de Mayo, where each Thursday afternoon the "mothers of the disappeared" march, reminding onlookers that somewhere between 9,500 and 30,000 people "disappeared" during the rule of the latest military junta. Pro-government people use the smaller figure, anti- government people the larger, but no one disputes that the military seized and murdered thousands during the 1976-83 "dirty war." The military still insists that those who were killed "were all Communists," but many surviving friends and relatives say this is not true. Those who opposed the junta simply "disappeared." The desaparecidos proved to be a sticky issue for the civilian rulers after 1983. Alfonsin had to walk a fine line between seeking justice and not provoking the cornered military establishment into attempting to overthrow him. In 1987-88 there were three military uprisings against the Alfonsin government. The military has since gained public favor by crushing a leftist revolt at La Tablada military barracks, in January. Some in Buenos Aires fear Menem will be ousted if he does not handle the economic crisis, the crux of which is the $59 billion foreign debt. During his campaign, Menem said he would limit payment on foreign debt to 10 percent of total exports, much as the now- beleaguered president of Peru, Alan Garcia, promised in his campaign. That would limit Argentina to around $850 million in annual payments but by the end of 1988, Argentina had accumulated nearly $3 billion in interest arrears to commercial banks alone. Finding sources of new investment poses an even greater challenge to Menem's effort to revive the economy. "The proportion of new investment in our economy has fallen from about 25 percent of GDP to 10 percent, due to Alfonsin's policies," says Pascual Santiago Palazzo, managing director of the Argentina office of a Paris-based multinational. "Therefore, there's been no growth.... The middle class lost 40 percent of its purchasing power between 1983 and the start of 1989--and it's much worse this year." His charge that there's been "no growth" is mostly supported by the latest government figures: GDP grew 5.5 percent in 1986, 2 percent in 1987, 1.5 percent in 1988. This year, most economists agree, there will be no growth and there may even be negative growth. "Over the past 40 years our average per capita income has gone down 11 times," says Francisco Mezzadri a Stanford-trained economist who used to work for the Organization of American States. "We lack flexibility in both our labor and financial systems. Our whole investment process has to go through a bottleneck, we can't grow because of our rigidities," he continues. Santiago Palazzo blames government corruption for some of the problems. For example, he says, "there was supposed to be $1 billion in low-interest, long-term housing loans for the poor. But $300 million of that went to Alfonsin supporters, the politicians and their families." According to Mezzadri, Argentina "is a country where investors face a very high uncertainty--therefore, there ought to be a higher premium for investment." But Mezzadri says that instead, Menem seeks "an economic status quo. He wants to enforce a cooperative system where everyone keeps his share." Mezzadri believes this is unrealistic. He notes that Argentina's infrastructure is crumbling and needs increased input, not stable maintenance. "Hospitals, schools, communications, transport, shipping, they're all getting half the new investment they got five years ago." All major business here is done in dollars, but U.S. investment has tended to dry up over the past decade or two. Instituting free market principles and ending corruption are the common solutions offered by economists and politicians here. But such posturing has done little to alleviate the crisis brought on by the austral's (Argentine currency) downward plunge in value early last February. The plunge led to a run on the banks; bank customers changed their australes to dollars, yen, Swiss francs and other "hard" currencies; then either deposited them in Uruguayan banks, a 55-minute hydrofoil ride across the River Plate estuary, or horded them. This panic serves to illustrate one of this rich nation's worst problems, capital flight. The World Bank has estimated that private deposits outside of Argentina amount to $21 billion, and banks in Switzerland and New York have put the figure between $23 billion and $35 billion, excluding stocks, bonds, and real estate holdings abroad. Capital flight is a vote of "no confidence" in the government and there is no World Bank or International Monetary Fund prescription that can change that fact, just as there seems to be no prescription to deal with the country's large "informal" or "underground" economy. Some estimate the worth of that "black" economy as equivalent to a third of the official GDP, all untaxed. Perhaps that's why tax collections in 1988 ran 8.8 percent below those of 1987, according to government figures. Menem may have to look beyond the confines of his Peronist platform if he is going to lead his country out of its current economic morass. In the meantime the army bides its time. U.S. Fortune 500 Companies Operating in Argentina Abbott Laboratories: Pharmaceutical & lab products. American Home Products: Drugs, food, household items. AMP Inc: Electrical wiring devices. Armco Steel Corp: Sheet steel, bolts. Avon Products Inc: Cosmetics and perfumes. Bausch & Lomb Inc: Vision care products. Black & Decker MFG Corp: Electric and pneumatic tools. Borg-Warner Corp: A/C equipment, chemicals & plastics, industrial products, transistor equipment. Brunswick Corp: Outboard motors & drives, bowling/ fishing equipment, valves & pumps. Clark Equipment Co: Construction machinery, industrial machinery, heavy duty drive line components. The Coca-Cola Co: Manufacture & sale of soft drink syrups, juices & food products, movie production. Colgate-Palmolive: Pharmaceuticals, cosmetics, & detergents. Combustion Engineering Inc: Technical construction. Corning International Corp: Glass, ceramic materials. CPC International Inc: Food products. Crown Cork & Seal Co Inc: Cans, bottle caps; filling & packaging machinery. Cummins Engine Co Inc: Diesel engines. Deere & Company: Agricultural, construction & grounds care equipment. Diamond Shamrock Corp: Chemicals. Dow Chemical Co: Chemicals, plastics, pharmaceuticals. Dow Corning Corp: Silicones, silicon chemicals. Dresser Industries Inc: Supplier of equipment & technical services to energy and natural resource industry. E. I. Du Pont de Nemours & Co: Chemicals, plastics, specialty products & fibers. Eastman Kodak Co: Photo products chemicals, information management. Eaton Corp: Advanced technical products for transportation & industrial markets. Emhart Corp: Refrigerated display cases, shoe machinery & material, adhesive, sealants. Exxon Corp: Petroleum & petroleum products. Federal-Mogul Corp: Vehicular replacement parts, antifriction bearings. Ferro Corporation: Chemicals, plastics, refractories. FMC Corp: Machinery & chemicals for industry, agriculture & government. Ford Motor Co: Automobiles, trucks. Foxboro Co: Control equipment, industrial instruments. General Electric Co: Electrical & related products. The Gillette Co: Razors, blades, small appliances. Goodyear Tire & Rubber Co: Tires, rubber products. W. R. Grace & Co: Specialty chemicals, natural resources, consumer services. International Business Machines: Information handling systems, equipment & services. International Flavors & Fragrances Inc: Flavors, fragrances, aroma chemicals. Johnson & Johnson: Surgical, medical & baby products. Johnson Controls Inc: Automatic control systems. Operating in Argentina Kellogg Co: Food products. Eli Lilly & Co: Pharmaceuticals, agricultural & cosmetics. Litton Industries Inc: Electrical systems, business machines, marine engineering, paper, printing. Manville Corp: Fiberglass products, paper & forest products, roofing & insulation, industrial minerals. Medtronic Inc: Medical devices. Merck Sharp & Dohme International: Pharmaceuticals, chemicals & biologicals. Monsanto Co: Chemicals, plastics, petroleum products, man-made fibers. Nalco Chemical Co: Chemicals for water and waste water treatment, oil production & refining, industrial processes; water/energy management service. NCR Corp: Data process system, supplies & service. Norton Co: Abrasives, drill bits, construction & safety products, plastics. Parker-Hannifin Corp: Hydraulic, automotive parts & systems. Pennwalt Corp: Chemical products, diversified industrial systems & equipment, health products. Pfizer Inc: Pharmaceuticals, cosmetics, hospital products, chemicals. Raytheon Co: Microwave, power, X-ray & industrial tubes; radar & sonar systems, appliances, aviation, construction. Revlon Inc: Cosmetics, health care products. Rohm & Haas Co: Chemicals & plastics. Schering International: Pharmaceuticals, medicines, toiletries, cosmetics, human & animal health products. Scott Paper International Inc: Paper & paper products. Seven-Up International: Soft drinks. Sherwin-Williams Co: Architectural & industrial coatings, wall & floor coverings, spray equipment. Smithkline Corp: Pharmaceuticals, diagnostic instruments & equipment, laboratory services. Storage Technology Corp: Computer components & peripheral equipment. Tektronix Inc: Electronic display & measurement equipment. Tenneco Automotive: Ride control parts, exhaust systems & components. Texas Instruments Inc: Semiconductors, electrical controls. Union Carbide Corp: Carbon products, chemicals, plastics, gases & related products. Unisys: Electronic information systems. United Merchants & Manufacturers Inc: Rayon, cotton, nylon, sheeting & drills, glass & plastic fabrics. United Technologies Corp: Aircraft, marine engines, automotive & space equipment. Upjohn Co: Pharmaceuticals, agricultural products, industrial chemicals. Warner-Lambert Co: Pharmaceuticals, medical products. Westinghouse Electric Co: Equipment for generation, transmission, utilization & control of electricity. Witco Corp: Chemical & petroleum products. ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR July/Aug 1989 VOLUME 10, NUMBERS 7 & 8, JULY/AUGUST 1989 PARAGUAY PARAGUAY IN TRANSITION by William Steif Paraguay is the size of California, has a similar climate and, like California, stretches north and south. But there the similarity ends. Asuncion is a city of almost a million people in a landlocked country of four million. More than 90 percent of Paraguayans live in the country's southeast. The northwest Chaco, over which Paraguay and neighboring Bolivia fought a war from 1932-1935, is a vast expanse, inhabited by very few people. Guarani Indians live there--Guarani and Spanish are Paraguay's official languages--along with descendants of Spanish settlers. More recently, Japanese and German farmers have established large soybean estates in the Chaco. Cattle graze there, too, and peasants grow cotton on 20- to 40-acre plots. But over all, only five percent of Paraguay's land is used for agriculture, according to economist Fernando Masi. The biggest business of the Chaco centers on the 300 air strips where light planes land carrying cocaine from Bolivia. The Chaco is a stop on the route narcotraficantes use to get their product to the world market. The southeast part of the country is busier, with more farming, more towns and lots of smuggling of "non-registered" goods. Everything from refrigerators to soy beans to drugs move across the Parana River to Brazil and Argentina. Paraguay's population is growing modestly, 2.7 percent a year, but the harshness of Stroessner's dictatorship gave a million Paraguayans the impetus to leave, mostly to Argentina. Those who left tended to be the best educated and most productive Paraguayans. Paraguay's minimum wage is $140-a-month and Masi says only 40 percent of the labor force nationwide is paid that. He says "almost half" of the labor force is unemployed or under- employed. -W.S. ASUNCION, PARAGUAY--For nearly 35 years, until February 3, 1989, General Alfredo Stroessner ruled as the dictator of Paraguay. He and his Colorado Party, founded as the National Republican Party September 11, 1887, in emulation of the U.S Republican Party, ran "a patrimonial system," according to Fernando Masi, an economist who worked for the World Bank in Washington, D.C., and who now heads the Paraguayan Institute for Latin American Integration. That meant, Masi says, that Stroessner "distributed the wealth of the state to a small group of people, creating a new military-civilian elite which had big farms, numbered bank accounts in Switzerland [and] five or six houses apiece." Stroessner also abolished export taxes in the 1960s to benefit himself and his allies. Typical of the new elite, Masi says, was the Colorado Party chairman, Juan E. Pereida. He had 40 storage containers on the border from which goods were smuggled into Brazil. He also had "four or five planes, 100 suits and his wife had 40 pairs of shoes"--not in Imelda Marcos' league, but enough to live comfortably in a country where the 1988 per capita income was about $1,200. General Andres Rodriguez, was another member of Stroessner's elite circle. Rodriguez, in fact, has family ties to Stroessner- -his daughter is married to Stroessner's younger son. But it was Rodriguez who ousted the dictator in February and forced him to flee to Brazil. In addition to commanding the Paraguayan Army's 1st Corps, Rodriguez owns a large cambio, a moneychanging institution. Rodriguez got rich through Stroessner, says Estevan Caballero, executive director of Paraguay's new Center for Democratic Studies. But the relationship between the two began to change late last year. According to Caballero, as Stroessner grew older he became concerned that his army was not loyal to him so he made changes in the military command. Caballero says Stroessner "didn't favor Rodriguez's 'boys'--the general commanding the 2nd Corps, for instance, was demoted--and Rodriguez felt his political and economic power threatened." In December 1988 Stroessner asked Rodriguez to retire. By the end of January, he ordered Rodriguez to step down and closed the Central Bank and all foreign exchange offices, the cambios in which Rodriguez had invested deeply. That triggered Rodriguez's revolt. He surrounded the quarters of Stroessner's elite guard with troops and began to fight. One to three hundred people were killed, but Stroessner was defeated. After taking power, Rodriguez immediately made changes. He sent four of Stroessner's cabinet ministers to jail, while a fifth holed up in the Honduran Embassy with no guarantee of safe passage out of the country. Most Paraguayans agree that the new Rodriguez cabinet ministers are improvements over their predecessors. Carlos Romero Pereira, whose father was Paraguay's president for four months before Stroessner's 1954 coup, says "people are making plans again, laughing. There's a completely different sense of life and optimism. They want to believe in something different." Rodriguez consolidated the nations's three exchange rates, so that exporters were no longer at such a disadvantage on farm products. This measure was intended to limit smuggling, though it is not yet clear if it will accomplish that. Rodriguez pledged to "privatize" the state-owned enterprises which represent about half of Paraguay's formal economy. Except for an oil refinery, all have been running at a loss. Rodriguez promised to follow the constitution which called for a presidential election within 90 days of Stroessner's exile. That caused some grumbling from Liberal Party leader Domingo Laino and several fringe-party candidates who said that it was impossible to organize within 90 days. But Rodriguez stuck to the constitution and received 75 percent of the vote on May 1, keeping him in office for the remaining four years of Stroessner's term. Laino received 18 percent of the vote. Because Rodriguez pledged to stay in office only for the remainder of Stroessner's latest five-year term, his victory is a sign that most Paraguayans favor some form of transitional rule. "People here are conservative," says Masi. Stroessner is responsible for that. His 35 year reign dramatically shrunk the political spectrum. "There's no leftist influence here on the political scene," says Caballero. "We have no legal Communist Party, no clandestine Marxists." According to Caballero, Stroessner "jailed and tortured" 8,000 people, making it difficult for an effective opposition to develop. Carmen de Lara Castro, a founder of the Paraguayan Commission for defense of human rights, corroborates that figure, though she adds that no one knows the precise number of political activists jailed and tortured. Her human rights group- -non-governmental and one of Latin America's oldest--was formed during one of Stroessner's many "waves of repression." She says, "most political prisoners were peasants" whose relatives, in fear for themselves, ignored the prisoners' plight. Middle class people, she says, were more likely to be freed, "depending on the mood of the dictator." Lara Castro spent time in jail, as did her sons, her brother, and her brother-in-law, who was jailed for eight years. Her latest jail term--five days--began on December 9, 1988 when she arrived back in Asuncion from a human rights gathering in Spain. She was accused of "master-minding" a human rights march to be held in Asuncion the next day. "I was put in jail like a war criminal," this retired teacher in her 60s says. "There were no plates, forks or knives. I had to eat off a newspaper on the floor like a dog." Romero Pereira is a leader of the Colorado Party's "ethical" faction, which broke with the party in 1985, "demanding that the government correct wrongs." He says that after the break, he was persecuted by Stroessner's junta. "I was put in jail twice in 1987, four days each time, with more than 20 people in a small cell. Some people in my party were in exile 30 years." The Stroessner regime's extended brutality has induced a survivalist passivity in the people of Paraguay. Masi points to the 60 percent hike in electricity rates in 1988 to emphasize the extent of the inertia. "There were no protests. The state grew like a monster and nearly digested the whole country," he says. Some have credited Stroessner with improving Paraguay's infrastructure, but the facts point in a different direction. There are only 88,000 telephones and 1,250 miles of paved roads in Paraguay and only Asuncion and a small city near the Brazilian border have running, potable water. Paraguay's underdevelopment cannot be attributed to a lack of resources. Aldo Zucolillo, owner of the nation's biggest newspaper, ABC Color, claims that Paraguayans "have the richest country in the world." For example, the Itaipu Dam on the border with Brazil is owned jointly by the two nations and is one of the world's largest hydro power producers; a second dam, Yacyreta, is being built on the Paraguay-Argentina border and is also jointly owned; and a third hydro dam is in the works at Salto del Guaira. Zucolillo says that "by the 21st Century we'll have more than 20 million kilowatts of electricity being produced. Half belongs to us, worth five billion to eight billion yearly. We'll never use all our share, so we can sell it to 32 million consumers in Argentina and 145 million in Brazil." But first Rodriguez's regime has to confront the immediate economic problems: a foreign debt of $2.2 billion, a 30 percent annual inflation rate and a Gross National Product (GNP) which has grown less than 6 percent from 1981 to 1988, going from $5 billion to 5.3 billion. Legal exports last year--mostly soya, cotton, timber and meat--amounted to about $500 million, while service on foreign debt amounted to 69.3 percent of the export total. Under these circumstances, paying off the country's foreign debt is likely to be difficult. "If we could get the money Stroessner and his clique stole, we could pay off a third of our foreign debt," Masi says. But chances of that are slim. Paraguay has a better chance of improving its economic indicators by bringing the "informal" economy under control and limiting the "non-registered" goods smuggled to Brazil and Argentina. Masi says half of Asuncion's economy is "informal;" this amounts to at least $1 billion to $1.5 billion yearly. Rodriguez and subsequent governments face problems of a country that has been drained of its energy and its resources by 35 years of military rule. It bodes well that there is hope still left in the people, but Rodriguez may have to work miracles if he is not to disappoint them. U.S. Companies in Paraguay AFIA/Firemen's Insurance Co: Insurance American Bureau of Shipping: Ship surveys and classification Avon Products Inc: Cosmetics Bank of America: International banking Braniff International Corp: Air transport Brown & Root Inc: Construction and consulting Chase Manhattan Bank: International banking Citibank: International banking Coopers & Lybrand International: Accountants and auditors First National Bank of Boston: Commercial banking INA Corp: Holding co.,insurance and financial services Morrison-Knudsen Engineers Inc: Engineering and construction management McCann-Ericson Inc.: Advertising National Car Rental System Inc: Vehicle rental and leasing Pan American World Airways Inc: Air transportaion Peat Marwick Mitchell & Co: International accountants and consultants Price Waterhouse & Co: Accountants and auditors SGS Control Services Inc: Quality and quantity control checks Ted Bates Worldwide Inc: Advertising J. Walter Thompson Co: Advertising World Courier Inc: International courier service ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR July/Aug 1989 VOLUME 10, NUMBERS 7 & 8, JULY/AUGUST 1989 INTERVIEW THE U.S. AND THE UN: THE HERITAGE FOUNDATION POINT OF VIEW An Interview with Mark Franz Mark Franz is the Policy Analyst for the Heritage Foundation's United Nations Assessment Project. He has written several articles on the U.N. including, "The U.N.: Still a Long Way to Go," published in The World and I. MULTINATIONAL MONITOR: What are the origins of the Heritage Foundation United Nations Assessment Project? MARK FRANZ: The United Nation's project of the Heritage Foundation [was] started in 1982 ... in response to the general perception in the United States that ...[the UN] was not very conducive to promoting U.S. interests. MM: What role would you like to see the United States play in the UN? FRANZ: [I] don't see ever a very useful role for the United States to play in the General Assembly. It's largely an advisory group, that might lead to the question, well if it's just advisory what harm does it do? Over the past 15 to 20 years they have been encroaching on the power given by the charter [to] the Security Council. [W]hen the UN was founded, the Security Council was given all the power of the organization to act. As well it should, you have the veto by the five major powers and it reflects the realities of the world. Where[as] the General Assembly has no semblance of reality. Now, I see a continued strong role for the United States in the Security Council. I would have not probably [disagreed] with the United States pulling out of the General Assembly all together. It does us no good and it costs us a fortune. MM: Is the UN something we should use solely to promote U.S. interests? FRANZ: I don't see any other reason for foreign policy of any type, be it multilateral or bilateral, [other] than advancing the interest of the sovereign country which you represent. That is the definition of foreign policy and if it is multilateral, granted there are trade-offs in foreign relations, but it should be no different from a bi-lateral relationship. [In] a multi- lateral [relationship] you should get more in return than you give or you should not participate. MM: How do you rate the UN on development issues? FRANZ: They're dreadful. The UN has been one of the main causes of poverty in the Third World ... [In] a lot of Third World countries, . .. all the expertise they get is what the UN sends them and the UN Industrial Development Organization (UNIDO), the UN Conference on Trade and Development (UNCTAD), the ILO [International Labor Organization] the whole litany of them have just really sown bad advice. MM: Should workers in the developing countries have the same rights as workers in the United States? FRANZ: A lot of that depends upon the individual country; that is basically still a domestic issue. Of course you can make recommendations and the UN should do that, but it should make good recommendations .... [N]ationalizing industry and insisting on a minimum wage equivalent to a wage in a developed country is not going to do that country any good; it is not going to help it develop, it is going to run it into the ground and make it worse. Too often, it is just assumed that you can leap-frog a developed country into the policies that we have developed over 200 years. MM: Isn't the right criticized for promoting privatization in the Third World? FRANZ: No, we developed that way through free market principles. Only since this time we have been able to provide a certain minimum level of the safety net, we didn't have a safety net before 1929. But that helped us in our ability to develop. Also, [on] the privatization issue, if you look at most of these Third World countries, what you have is a lot of poorly run nationalized industries which are costing the government money, just a fortune in subsidies. [P]rivatize those, let them run within the market and that will free up money to use on things that are necessary: education, maybe some social services which are necessary for the very poor, so the people are not starving. MM: Can the UN play a constructive role here? FRANZ: Sure, they can promote privatization, they can say 'Look if you sell this lousy steel mill that you own, that is costing you almost $400 million a year, if you sell your railroad and you will free up another $2 billion. You can spend that money elsewhere on education, on things that will help you in the long term.' That is the kind of advice that should be given, rather than 'No, you should nationalize industry X because of whatever reason.' MM: Can the UN mitigate some of the negative impact that multinational corporations (MNCs) have on the developing world? FRANZ:I don't think that the UN is [an] equipped and unbiased entity that can do that right now. Maybe in some other form an international organization could do so. MM: What about the UNEP? FRANZ:I think ... it has been politicized too much.... Politicized [means it extends] outside of the organization or the specialized agency's technical mandate ... If it extends beyond that and passes a resolution that has a clause that condemns Israel and South Africa, that distracts from its purpose and effectiveness. MM: What about an organization like the ILO which has a mission of protecting and advancing worker rights? You could give that one definition in the Third World and another in the industrialized country. FRANZ: There you get to what U.S. policy should be toward that organization. If we think that any particular organization is ... giving bad advice, then I don't think we have an obligation to support that organization. Especially, when there is nothing we can do to change it. MM: With the internationalization of capital is there a need for an ILO to promote international worker rights? FRANZ:I really don't think so. I think that each country has a different labor market, a different sectorial breakdown of ... labor. You ... have to work that out on a national basis, between the government and workers. MM: Is it proper to impose free market dictates on other countries? FRANZ: Well, I think once you free up the market, then you have some basis on which to judge what you should be producing. Until you do that you have no way of knowing that, and you can say we need whatever Belgian endive, for our population, but how do you know that unless that is exactly what the people want to spend their money on and it should be their decision. MM: I'm talking about staple products. FRANZ: How can you determine what is going to best lead that country into self-sustaining growth without a market, without a mechanism for determining what would bring the best return and can be the best distributor? I just have seen so many . .. agricultural pricing boards trying to determine what should be produced from this bureaucratic office building in the capitol, and you can't do that, it has got to be done on a level where you and I can determine what is of value to each of us. MM: But if a country is so indebted that the main goal is to increase the GNP and the export earnings to repay debt, is that a free market principle? FRANZ: Why are you in debt? You have to ask yourself that question. The reason you are in debt is because you have practiced poor economic policies in the past, you have to [be] responsible for those past mistakes. MM: How free a range should MNCs have in the Third World? FRANZ: You want to try and not stifle any positive aspects because even now that the CTC is acknowledging that multinationals play a very positive role in providing investment capital and some infrastructure and some jobs to these countries. You want to walk a fine line, you don't want to force these companies out of business in a particular country. But then again you do have a certain amount of responsibility that the corporation should show for just common sense [and] safety.... MM: What is your view of MNC responsibility? FRANZ: I don't know. Perhaps there is some way of establishing a general code by which there would be a minimum by which multinationals would have to operate. I am not convinced that the UN or the Center for Transnationals is the way to go about doing much because of the past politicalization. Right there is no way ... that a multinational corporation could take a dispute to any UN agency. They know ... the outcome is going to be against the multinational, regardless. MM: Do you think Nestle coercively marketed its infant formula? FRANZ: You can't call a strong marketing agenda coercion. That is basically the point that is being made, that these people are being coerced into buying. MM: Nestle provides equipment to hospitals that push their infant formula. Is that a proper marketing technique? FRANZ: It is. MM: Even if it harms babies? FRANZ: I don't believe that is the case. This was a little bit before my time, [in terms of] being involved with international organizations. But [from] all that I have read on the whole Nestle case and some of the same things are happening with pharmaceuticals right now, I don't believe that was the case of malice on their part or just corporate greed to do that. I think it was a perfectly legitimate marketing technique and it provided a product. MM: Do you see the problems the United States is having with the UN as a reflection of the problems the United States is having more generally in the world? FRANZ: No, I see it just the opposite. I see the UN as kind of [an] archaic left over from the 1970s, the very radical days of New International Economic Order and the notion that ... the Third World was poor because the developed world was rich. That is not at all the case. I think that the rest of the world is coming around ... look at the developments in the Soviet Union, until recently the political crackdown, but economically in China and some of the less developed countries and Southeast Asia, and Latin America, especially Chile. The realities are not being transferred over into the UN. MM: An American corporation did have undue influence on the domestic policies of Chile. How upstanding an example is that for bilateral relations? FRANZ: The Chilean economy has improved over the past two years, going from an inflation rate of over 100 percent going down to 10 percent; unemployment is down substantially; the currency has stabilized; and it looks like the political situation is turning up. It looks like Pinochet is going to relinquish power and that ... is a bilateral success story. It was in spite of advice of international organizations. MM: But Pinochet would not have been in power except for U.S. intervention. FRANZ: True, I am not arguing for U.S. installation of dictators because you have some real losers. Somoza created a lousy economy in Nicaragua and then the ultimate result was even worse with the Sandinistas. Well, you have had that kind of history, a worse kind of history with U.S. intervention than not.... [W]hile granted Pinochet did turn the economy around, I don't think it was due to the fact that he was installed by the United States. MM: Where do you stand on prior informed consent as far as a hazardous waste treaty is concerned? FRANZ: I think that is perfectly legitimate. MM: What about banning the export of those wastes that our own regulatory agencies have decided are too dangerous for human life not just American life? FRANZ: Well, I think, as a guideline, [it's fine]. This is typical of what the UN does. It doesn't prescribe a law for less developed countries. It publishes reports and recommendations and they can incorporate that in their domestic law. I think as far as that goes, anything is perfectly acceptable. MM: An American company was caught bribing the president of Sierra Leone for $25 million to accept hazardous waste. Is it wrong to offer such vast sums of money to people who are so poor to accept these things which are so dangerous? FRANZ: I would say it is morally wrong. MM: Well if it's morally wrong what do you do to rectify it if that is the free market? FRANZ: The problem I have is in establishing just a flat ban on something, say a U.S. ban on certain activities by a multinational which may involve certain mitigating circumstances; there may be a very safe way of disposing of [waste] in that country. MM: The UN is proposing a treaty on the trade in hazardous wastes. Should the United States be leading the way? FRANZ: Not knowing the specifics of the treaty, I can't say specifically, but I think, in principle, yes. MM: Does that go against your argument in other areas? It could be construed as being anti-U.S. interests if an American company cannot sell these wastes. FRANZ: No, I would argue that a treaty agreement, which would be taken although under UN auspices, is much like any of our other treaty obligations on a limit on certain activities, but broader U.S. interest could take precedence over specific multinational ... interest. MM: Has the Heritage Foundation come out against bilateral aid as well as multilateral aid? FRANZ: [The] problem with a lot of the bilateral aid, [is] it goes from government to government; people don't see this money. It is scraped off the top by the foreign minister, then the cultural minister takes his cut and then it goes on down the line. It never makes it down to the people. MM: Would private volunteer organizations make it a more efficient process? FRANZ: Yes, the problem that you run into there is incentives for increasing private voluntary participation.... [T]he current foreign aid bill is running $17 billion or so. You take that $17 billion and turn it into tax credits, if people would do certain things on a private sector basis, it could help a community build an irrigation system and give them a tax credit that is equivalent to what kind of aid would have been spent on that. MM: You want to focus bilateral aid to achieve self-sufficiency. Is the UN a forum to define self-sufficiency? FRANZ: That is the policy that the United States should be pursuing in the UN, to push for a definition of what is development, what would constitute development. It is not giving somebody money until the next year, when you have to give them twice as much more. That's not development. MM: Is it instituting an economic system where all agricultural products are geared toward export? FRANZ: No, I think not. We saw the disastrous effect of an import substitution policy. Where you have ... a country which is [a] relative small internal market and they ... [establish] a huge tariff where you can't import necessary products of an industrial society, manufactured goods and you subsidized the industries and it just doesn't work. Tanzania practiced that for years and that is one of the main reasons that it is in the trouble it is in. A lot of sub-Saharan Africa is that way and in debt also. They borrowed for these projects that are ... doomed not to work. You have to look at the realities of trade and figure where does the country have the comparative advantage and if it can benefit most from producing coffee, then produce coffee. MM: Is that self-sufficiency? FRANZ: I think it can become self-sufficient if prudent policies are pursued by the country. When times are good, when agricultural prices are high and you are in a surplus in payments account, you don't do blow that. You invest it in something that might expand your base out of coffee. MM: How do you expand when any surplus you are going to have in a good year has to go to the International Monetary Fund (IMF) or American banks to pay the interest on the debt? FRANZ: I think a lot of the rescheduling and I would argue that right now American banks could write-off probably all of the holdings down there. I have a huge gripe about Citicorp, Chase Manhattan, the banks screaming bloody murder right now, saying 'Oh no, we have got to hold these countries for all they are worth,' and they can write it off right now, but the market value of most of these loans is about 20 percent of the book value, you have got to write them down. I sure as hell don't want to subsidize these damn banks. I ... believe that the U.S. government should tell the banks that 'You are on your own, we are not going to bail you out, the World Bank is not going to bail you out and the IMF is not going to bail you out.' If that was ever made clear to American banks they would look at their books [in] purely fiduciary terms and say 'Hey, these loans are worth [about] 20 cents on the dollar. Write them down; that is what they are worth.' That is what you do with any bad asset. But what is keeping them afloat and what is keeping these loans going is the United States alluding to, by way of the Baker Plan or the Brady Plan or whatever it may have been, 'Yeah in the end we are going to pay up,' so they had no incentive to write these loans off. Then the World Bank is going to bail them out of it. MM: Would you like to see as an outcome of devaluing these debts a new infusion of money through the IMF or private banks to instigate your call for self-sufficiency? FRANZ: You couldn't do it on the same basis that you did it ... the first time around.... The banks had a bunch of Arab money that was being made on the price of oil and they had to do something with it and they gave it to countries indiscriminately and that is the same as a loan and that is just [a] bad investment. This comes into a problem of domestic insurance in the U.S. on bank deposits. There is a certain amount of security there and all the S&Ls and most of these guys are going scot free, just like criminals and bad managers at best. They are not paying the price. You and I are, the taxpayer. We are going to pay $50 billion on the damn savings and loan fiasco. I think that is utterly wrong.... The same thing with the [debt] situation, the U.S. government, World Bank [and] the IMF cannot provide the incentive to make more bad loans. You have to completely restructure that whole system. MM: What about the Brady plan? FRANZ: The Brady Plan is a disaster. It is horrible. MM: Will the UN be around in 20 years and, if so, will the United States still be a part of it? FRANZ: I think so, but I think it will be a much changed UN. I have seen the first signs of a trend away from the bad years of the UN which is basically from the 70s to the present. ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR July/Aug 1989 VOLUME 10, NUMBERS 7 & 8, JULY/AUGUST 1989 E C O N O M I C S SPECULATION AND DEBT by Patrick Bond Patrick Bond is a visiting scholar at the Institute for Policy Studies and economics correspondent for Pacifica Radio News. "This whole system is like the Titanic. As it crossed the Atlantic, it hit an iceberg and ended up at the bottom of the ocean. The international system created at the end of World War II is in the same situation: The engine room, and the second class decks (that's us in the Third World) are already flooded - but the First Class passengers still have not grasped what is happening and keep on partying as if there were no problem..." -Fr. Jose Alamir, Franciscan Priest from Sao Paolo, Brazil There is a rising tide of speculation and debt in global and national economies which, since the mid-1970s, has undercut international financial stability. This instability has, in turn, led to the destruction of several major financial institutions. Continental Illinois and First Republic Bank of Texas, hundreds of smaller banks and savings and loans (S&Ls), securities dealers like Drysdale and stock brokers like E.F.Hutton and Texas insurance firms are among the damaged institutions. Outside of the United States, debt has grown to unprecedented proportions. Third World debt stands at $1.3 trillion. Domestic and foreign debt of our allies in the industrialized world is approaching $10 trillion. The United States has the biggest foreign debt--with about $500 billion owed to foreigners--and also owes an extraordinary amount to internal creditors. At year-end 1988, the $11.4 trillion U.S. domestic debt was divided between government ($2.7 trillion), consumers ($3.1 trillion), corporations ($5.5 trillion) and farmers ($142 billion). In 1982, total U.S. debt was $5.6 trillion, or 178 percent of the gross national product (GNP). Today total U.S. debt is 225 percent of the GNP. Ironically, as many financial institutions are going under in record numbers (see box - omitted here), those that remain are gaining power over other companies, consumers and even over sovereign nations. The source of this power stems from the high levels of national and international debt. Indebtedness diminishes borrowers' independence and gives creditors increased control over economies. Evidence is everywhere: the power of banks and the International Monetary Fund (IMF) dictates national economic strategies to Third World nations; and banks and Wall Street firms force corporations to opt for short-term profit-maximizing strategies. Unfortunately, industry officials, policy-makers and the media often ignore the larger, structural economic problems, suggesting that isolated cases of fraud and mismanagement or technological overreach are the primary cause of financial failures. Even when structural problems are cited--for example, rising interest rates or the collapse of the energy and agriculture sectors--commentators explain that such problems are symptoms rather than causes of the travails of high finance. Crying "fraud" (and hence laying the blame on lax regulation) or pointing to seemingly uncontrollable economic forces, allows the industry to avoid discussion of fundamental problems such as: 1) The tendency now apparent in the economy toward unproductive use of resources and redistribution of wealth from debtor to creditor; 2) The question of who is to pay for cleaning up after the foolhardy financial speculators--taxpayers and small depositors, or instead the institutions and individuals who profited; and 3) The prospect that without a complete overhaul-- the kind of full-scale re-regulation of finance that took place in the 1930s--it is likely that overzealous financial speculation will just reappear. Debt history The Third World debt build-up and other international financial problems began shortly after economic stagnation gripped the U.S., in the late 1960s. A similar economic slowdown followed in Europe and Japan only a few years later. These developments are at the root of the debt problem. For example, Robert Pollin of the University of California/Riverside says that corporate debt is a direct function of declining corporate rates of profit, starting in 1965. In order to keep up with increasingly fierce competition, Pollin explains, corporations were forced to borrow more to grow, rather than relying on profits. They also began to shift more of their liquid funds into financial assets rather than reinvesting them in less immediately profitable new plants and equipment. That tendency also helps to explain the rush of huge amounts of capital into speculative markets, from real estate, to art, to stocks and bonds. Pollin also says that while corporate financing strategies undergird the debt mountain, the recent unprecedented spate of consumer borrowing can be traced to two phenomena: 1) the 14 percent decline in real (after inflation) wages of lower- and middle-class earners from 1972 to 1985, combined with a 9 percent rise in housing costs, which forced consumers with below-average incomes to borrow 60 percent more than they had historically just to maintain a 1970s standard of living; and 2) the rash of speculative investments (mainly real estate and stocks and bonds) made by the wealthiest 5 percent of the population. In other countries, debt has had a similar impact. Japan has an even more speculative economy than the United States, characterized by excessive inter-corporate stock acquisitions, exploding housing costs and a financial scandal that unseated P.M. Noboru Takeshita in April. In the Third World, billions of poor people are made to feel the debt crisis through the policies of a new set of financial-managerial elites from the IMF. The IMF typically orders debtor countries to produce more cash crops and raw materials for export. In addition, IMF austerity measures include removing price supports, an unpopular measure which recently led to the tripling of oil prices and riots in Venezuela. Venezuela's President Carlos Andres Perez, said that the March 1989 riots (which followed the subsidy cuts) in which police killed more than 600 people were "the consequence of the dramatic deterioration of the economy due to a crisis whose name I write in capital letters: FOREIGN DEBT." Popular unrest throughout Latin America, including the prospect of a leftist victory in Brazil's November presidential elections, is pushing Treasury Secretary Nicholas Brady and the Bush Administration into a slightly new posture on Third World debt. The banks' reaction to government-sanctioned "voluntary debt reduction," according to bank analyst Raul Madrid of the Washington-based Investor Responsibility Research Center, is positive. "The banks as a whole are very supportive of this move. Of course, they would love it if they [could] have guarantees on their debt. They would love it if they [could] have tax incentives that would encourage them to do what they're doing already." Those incentives will be paid for by taxpayers from the industrial countries, mainly through last year's $85 billion recapitalization of the World Bank, and by this year's IMF funds. Bailouts As with the Third World debt, efforts to stabilize the domestic financial situation require a huge infusion of taxpayer funds. But rather than encourage reform-minded ideas put forward by the consumers and workers most affected by financial speculation, the Bush administration, Congress and government regulators rely almost solely on establishment experts. This pool of experts is dominated by such free market theorists and orthodox financial practitioners as George Benston of Emory University and FDIC Chairman William Seidman whose proposed solutions reflect the narrow perspective they represent. Their unswerving faith in the financial system blinds them to the waste of spending tens of billions of taxpayer dollars to keep the speculation-driven finance sector afloat. Deregulatory zeal Deregulation advocates want to remove the barriers between different financial institutions (including the shaky S&Ls), and between finance and commerce more generally. A congressional proposal nearly approved in 1988 would have permitted banks to sell stock, to sell insurance and even to fund real estate development projects. Turf wars between the House Banking and Commerce Committees temporarily blocked such changes, and so the Federal Reserve Board took unilateral steps to permit banks to invest in more risky ventures like junk bonds. The danger of deregulation in the current environment is clear. "Financial time bombs are ticking away," says Doug Henwood of the Left Business Observer. "The Texas insurance industry is already unravelling. GM and Ford are suffering unprecedented defaults on auto loans. The Northeast real estate market is going soft. And bankers have been lending furiously to finance leveraged buyouts. Should a recession make these loans go bad, all hell could break loose." The worst examples of deregulatory mistakes can be found in the S&L industry. To help S&Ls survive the 1970s decline in consumer deposits and the locked-in, low-rate 30-year mortgages, Congress passed the Depository Institutions Deregulation and Monetary Control Act of 1980 (which lifted the 5.5 percent interest cap on S&L savings accounts and let S&Ls bid for deposits at the market rate of interest) and the Garn-St Germain Act of 1982 (which let S&Ls pay higher interest rates and make commercial loans). S&L regulators like M. Danny Wall, Chairman of the Federal Home Loan Bank Board, then allowed highflying S&Ls to pay extremely high rates to attract deposits, and make far too many risky loans and investments, especially in commercial real estate markets in the Southwest. In Congressional testimony, Wall, who designed the 1982 deregulation, was forced to acknowledge that the nation's healthy S&Ls "remain heavily committed to the residential mortgage market ... [while] insolvent institutions have dramatically and rapidly increased their commercial mortgage lending in recent years.n A 1989 Bank Board study asserted that S&L commercial investments of a direct "equity" (ownership) nature "do not generate returns sufficient to cover the costs of funding them." But die-hard free market proponents like Benston tell a different story: "In my studies of California S&Ls, the higher the level of direct investments (by the S&Ls), the lower the risk. The new investment powers allowed a more diversified portfolio, and that meant a higher rate of return." The solution to the S&L crisis, Benston concludes, lies in forcing S&Ls to be better capitalized (i.e., make fewer loans per S&L shareholder dollar) and in having the government close failing S&Ls down earlier. "This is where public policy should go, rather than asset reregulation," says Benston. Indeed, on Capitol Hill, this argument caught on so quickly that there was no serious effort to end the S&Ls' direct investment powers, despite evidence of the need for full-fledged financial industry reregulation. Welfare for wayward financial institutions There are others in the policy-making establishment who represent the antithesis of deregulatory market discipline. They look to government involvement to solve the crisis. Policy makers like Seidman put the banking system's interests above those of the public and of non-financial corporations, advancing the "too-big-to-fail" policy. "Too-big-to-fail" proponents argue that there are some 50 banks and 30 S&Ls which are so large and so tied into the domestic financial power centers (through interbank deposits and loans secured by bank stock), that the failure of any one of these would quickly cause the whole system to cave in. Consequently, proponents of this theory argue that the failure of such institutions must be prevented at all costs. The real effect of this policy is that big depositors in large banks gain access to federal deposit insurance normally provided only to small depositors, thus prompting capital flight from small-or medium-to large-sized banks. The beneficiaries of such a government subsidy are the largest banks, which now, in essence, have unlimited deposit insurance at no extra cost, and the corporations and rich individuals who keep more than $100,000 in their accounts. The policy has been formally applied in three near-failures--Continental Illinois (1984) (see box - omitted here), First City of Houston (1987) and First Republic Bank (1988)--whose ultimate total cost to the FDIC is estimated at $5 billion. These enormous bailouts are only the worst of a run of bank failures that began in 1982. Prior to 1982, the FDIC was only authorized to help keep a bank open only if its operations were deemed "essential." For example, regulators considered the $1 billion Commonwealth Bank of Detroit essential to the urban community in 1972, and agreed to lend it $35.5 million in capital notes. (Commonwealth needed a second FDIC bailout in 1976.) In a similar case in 1980, the FDIC gave a $325 million loan to First Pennyslvania, an $8 billion Philadelphia bank, calling First Pennsy "a significant provider of financial services to minority and low-income residents of the inner-city." (The Philadelphia bank subsequently shut down many inner-city branches and was harshly criticized by Philadelphia community development groups for discriminatory 'redlining' practices against black neighborhoods.) The "essentiality" argument was dropped in 1982. The FDIC makes bailouts available today if keeping the bank open at government expense costs less than shutting it down. This was the rationale for government giveaways such as the July 1988 bailout of Texas' First Republic Bank by NCNB Corporation which will cost the government well over $5 billion and the rash of S&L deals made by the Federal Home Loan Bank Board in the waning days of 1988. In both instances, there are disputes about the government's reasoning, since the FDIC did not seriously consider running First Republic Bank on its own and since even the Bank Board's own commissioned study questioned the accounting by which the S&L deals were calculated. As a result of the new guarantees for big banks, according to Robert E. Litan of the Brookings Institution, "The FDIC is on its way to joining the FSLIC in bankruptcy." In 1988 the bank insurance fund recorded a loss: $4.2 billion. It was the first time in its history that it had a deficit. This development makes one of President Bush's "band-aid" proposals for the S&L mess--merging the FSLIC with the FDIC--much less appealing. President Bush's proposal to solve the S&L crisis involves both kinds of establishment remedies. The plan, which he describes as "the fairest system that the best minds in this administration can come up with," calls for leaving the deregulatory environment intact and maintaining FDIC support for what economist Robert Kuttner calls "the most lethal combination of all, entrepreneurship without risk." While the worst violators are being shut down, many other S&Ls continue to use depositor funds to buy junk bonds and take equity positions in speculative commercial real estate projects. The administration's plan shifts S&L oversight responsibilities from one industry captive, the Federal Home Loan Bank Board, to another, the FDIC, which was criticized by the House Government Operations Committee in October 1988 for failing to halt extensive commercial bank fraud. Bush initially estimated that his plan would cost $90 billion, a fraction of the $335 billion that House Banking Committee Chairman Henry Gonzalez, D-Tex, now says the plan will cost over 30 years. Faulty arithmetic aside, Bush's attempt to keep the costs "off-budget" through bonding authorizations for a new "Resolution Funding Corp." has also been attacked because it adds $4.5 billion to the expense, due to the higher interest rates that the government must pay. Henwood objects that "These days, the only conceivable cure for busted credits is the creation of more credit in ever more exotic forms." Populist financial reform Though politicians and the media have by and large ignored them, alternatives to the establishment experts' thinking and to the Bush S&L rescue plan do exist. Ralph Nader recently issued a report on the S&L crisis which included a proposal, and some general principles for reform of the financial system are being circulated nationally by a new "Financial Democracy Campaign" (FDC) led by the Rev. Jesse Jackson, Texas Agriculture Commissioner Jim Hightower and other populist thinkers in the national community group ACORN (Association for Community Organizing and Reform Now) and the Durham-based Institute for Southern Studies. The FDC principles call for the S&L cleanup costs to come from the very richest part of the U.S. population, who have received excessive interest income in the 1980s, and from money market funds which brokered "hot money" (especially $100,000 certificates of deposit) to risky S&Ls. Both Nader and the FDC call for taxes on speculative financial activities like leveraged buyouts and stock purchases. Populist critics of the financial system suggest a variety of ways to integrate a required housing component into S&L portfolios. The FDC emphasizes the problem of "redlined" inner- city neighborhoods and the need for a national low-interest housing fund to which all financial institutions would contribute. Nader calls for the Federal Home Loan Bank System to fund community development by investing 20 percent of the system's capital in non-profit housing. Housing experts led by Michael Stone of the University of Massachusetts at Boston say that bankrupt S&Ls should be reconstituted as mutually-owned, locally-oriented housing finance institutions that would emphasize socially--rather than individually--owned housing. The thrift industry and housing are not the only concerns of populist critics. The FDC has also criticized other sour financial gambles that have haunted the global economy since the early 1970s such as Real Estate Investment Trusts and downtown office buildings, Third World loans, currency speculation, precious metals and commodity speculation, stock purchases and leveraged buyouts and exotic instruments such as interest rate futures and options swaps. The FDC condemns these speculative machinations as unproductive for workers, farmers, small businesspeople and consumers in the United States. Populist critics are questioning the financial industry's power structure, both by attacking laissez faire economics and by challenging the rights of the financial system to police itself at taxpayers' expense. The FDC notes that "a banking license that is guaranteed by the public requires public obligations from the bankers." Although the reform agenda was mostly ignored in the S&L bailout this year, other opportunities for populist intervention against the financial industry are on the horizon including the IMF funding request, increasing congressional concern over leveraged buyout loans to over-indebted companies involved in takeovers, and the decline in the ability of the United States to borrow in international credit markets without ever-higher domestic interest rates. ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR July/Aug 1989 VOLUME 10, NUMBERS 7 & 8, JULY/AUGUST 1989 LABOR LETHARGY AT LABOR by Jim Sugarman In response to demands from Congress, labor unions and even less reform-minded industry trade associations, the Department of Labor (DoL) has been taking a more aggressive stance in its efforts to promote worker rights. Awaking after the eight years of Reagan's pro-industry reign, the Labor Department has announced several new projects in the few months since President George Bush's inauguration. These include setting new levels for permissible exposure to toxic chemicals, restructuring the Job Training Partnership Act and issuing final regulations on the notification of plant closings as well as holding hearings on a variety of other regulations. One of the most controversial achievements of the new DoL has been the creation of new permissible limits on exposure to more than 300 industrial chemicals and substances. Only 24 such standards had been established over the last 18 years. It was not just workers who found this inaction frustrating; industries were forced to solicit private scientific advice on safe levels for chemical exposure. John Pendergrass, head of the Occupational Safety and Health Administration, claims his agency has made a "20-year leap forward in the level of worker protection." In order to set so many standards so quickly, OSHA relied on the suggested levels recently established by the American Conference of Government and Industrial Hygienists (ACGIL). Prior to this, ACGIL had always intended that its levels were meant to be debated in the field and then revised as necessary; they were not supposed to be the sole source on which to set exposure limits. After discussing the issue with DoL, however, ACGIL has decided that it has no objection to this practice, according to ACGIL executive secretary, Bill Kelly. Others, however, still see problems with this heavy reliance on ACGIL data. Peg Seminario, an associate director at the AFL-CIO, says OSHA is violating the congressionally mandated process for setting exposure limits. ACGIL limits are not enough, she says. They "are not fully protective limits, they are limits that industry can live with." Instead of setting ACGIL standards for 300 chemicals, unions would rather see OSHA focus on setting standards for 50-75 priority chemicals. Union staff say OSHA should use all available information, especially data collected by the National Institute on Occupational Safety and Health (NIOSH). Threshold levels for carcinogens established by NIOSH are traditionally lower than those set by the ACGIL. Unions and professional organizations agree, however, that it is encouraging to see action where previously there was none. Another area of neglect which is now receiving greater attention from DoL is job creation and training for the underclass. The Job Partnership Training Act (JPTA) forced the Department to formulate a comprehensive program to train the truly underprivileged. The DoL's initial program came under fire from Congress and antipoverty groups because the program focused too heavily on the more easily employed. The DoL has responded by restricting access to the program to the "truly disadvantaged," usually meaning drop-outs, illiterates and the chronically unemployed. Others have suggested establishing two separate programs: one for adults and one for the large number of "youth at risk," those with several disadvantages who, without help, will become permanent members of the underclass. Once again, the private sector has played an unusually strong role in demanding more government action. Industries, starving for qualified workers and worried about the country's widening skills gap, are active members of the JPTA. Robert Ivry, vice- president of a social policy research group which studied the JPTA for the government says DoL has been "very constructive" in its response to the initial criticism. This administration, he claims, has been a "refreshing change" from the Labor Department under Reagan. DoL has also released the final regulations for the Worker Adjustment and Retraining Notification Act, more commonly known as the plant-closing law. Companies with more than 100 workers must now give 60 days warning to a recognized worker representative or to each individual worker before closing a plant. They must also give 60 days notice of any planned lay- offs of either more than 50 workers or, for plants employing fewer than 500 people, of 33 percent of the full-time workforce. The Act, however, allows many exemptions. For instance, if a company decides that issuing closing notices would discourage the business or capital that it needs to remain open, notification is not required. Cases where the closing or lay-off is "caused by business circumstances that were not reasonably foreseeable at the time the notice would have been required" are also exempt. Gene Casraiff, a lobbyist for the United Auto Workers, anticipates that industries will try to use the exceptions to avoid complying with the intent of the law. "We expect many companies to take full advantage of the loopholes," he said, but "we'll just have to take them to court and see what happens." Unions had urged DoL to mandate stiffer penalties for infractions of the Act. As it stands, companies which fail to give notice must give back pay plus some medical expenses for the period of violation up to 60 days. They also must pay a civil penalty of $500 for each day of violation. Because these penalties will be enforced by federal courts rather than the Department of Labor, unions worry that it may take as long as two years for employees to receive their back pay. "When a worker finds out Friday that he won't have a job Monday, he's still got bills to pay" says Casraiff. "Back pay two years later is not enough." Meanwhile, Reagan's deregulatory legacy is still evident in other areas of the department. DoL has responded to demands from the nation's working poor for improved child care by proposing tax credits of up to $1,000 per child for low income families. Secretary of Labor Elizabeth Dole states that "this credit gives parents the flexibility to choose whatever type of child care fits their needs." Children's advocates say that tax credits are an evasion of the issue. "This is an income supplement, not child care" says Helen Blank of the Children's Defense Fund. Advocates have appealed to Congress which is considering a new bill on child care sponsored by 43 representatives. (See sidebar) It remains to be seen whether DoL's new-found vigor will have real, positive impact on U.S. workers. Hearings on a wide range of regulations are still ahead: the Labor Department will be reconsidering safety standards for underground work, looking into regulating industrial homework and issuing regulatory standards for hazardous wastes at worksites. The Labor Department is also expected to address questions of liability for on-site childcare centers, demands for national health care and demands to find more reliable ways of collecting data on accidents and deaths in the workplace. While unions and public policy analysts say Secretary Dole still has a long way to go in providing safe workplaces, they almost universally agree that there has been an encouraging and significant change compared to the Reagan administration. Now that worker rights advocates do not have to devote all of their energies to fighting deregulation, they can pressure the DoL to bring about further positive gains. The day when the Labor Department takes the initiative to protect U.S. workers without such pressure, however, has still not arrived. International Parental Leave Policies The United States and South Africa are the only major industrialized nations that do not guarantee some form of job- protected maternity leave. Sixty-seven industrialized nations, excluding the United States, provide monthly or weekly cash benefit to families for every child regardless of income and work status of parents. Single mothers often receive additional assistance. Many European nations also provide maternity grants at the time of childbearing to assist with the cost of supplies and equipment for the new baby. Of 135 countries providing leave, 125 mandate paid leave. All European nations, and 81 percent of nations in Central America, the Caribbean, and South America, provide cash benefits during maternity leave. Japan provides 12 weeks for mothers at 60 percent of pay; France provides 16 weeks at full pay, and unpaid leave for up to two years for both mothers and fathers; Germany provides 14 weeks for mothers at full pay, and another 10 to 12 months at a reduced rate. Source: A Vision for America's Future: An Agenda for the 1990s, Children's Defense Fund. ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR July/Aug 1989 VOLUME 10, NUMBERS 7 & 8, JULY/AUGUST 1989 TRIBUTE A TRIBUTE TO I.F. STONE by Ralph Nader His name was I.F. Stone and his was the power of example for two generations of journalists. As a 14-year-old in the year 1921, he could wait no longer and started his own publication. At college he could not wait to graduate and went into daily journalism. When newspaper after newspaper failed his standards of accuracy, truth and importance, he started with his wife, Esther, the famous I.F. Stone Weekly in 1953 right out of his kitchen. Stone's inspiration for the weekly came in part from the newsletter In Fact, which George Seldes, the muckraking reporter, began in the forties. The Stones visited the Seldes family and spent several days learning the ways and means of surviving with one's own newsletter. Stone did more than survive. By the time he closed the weekly in 1968, due to failing health, he had a circulation of 70,000 worldwide. Albert Einstein was a subscriber; his $5 check was not cashed, but it was framed. What was so unique about "Izzy" Stone? First, he read the written record, carefully and indefatigably. Congressional hearings, Defense Department reports, and other documents, documents and documents. He never played the favorites of the insider journalist. He was the modern Tom Paine--as independent and incorruptible as they come. The result of his reading was that he knew what he was writing about. He knew what was important and what was fluff. And he tied these facts to a ferocious practice of the First Amendment. Stories about Stone are legendary in Washington. Notwithstanding poor eyesight and bad ears, he managed to see more and hear more than other journalists because he was curious and fresh with the capacity for both discovery and outrage every new day. He never was jaded at what official and corporate corruption or prevarication he located. He could be jovial and irascible--the latter reaction most likely addressed to erroneous writing. He wanted to hand his Weekly over to a young reporter but never found one who could meet his standards for consistency and stamina. So since 1968, he wrote articles, jolted many a budding journalist at conferences and delved deeply for the past 10 years in the original Greek archives relating to ancient Athens and especially the trial of Socrates and the crisis of free speech that it represented in ancient Athens (population of 45,000) which became a national best seller. What Stone never talked about was the effect he had on many reporters who, often without attribution, "lunched off" his scoops. He taught them courage and insistence without ever meeting them. For it was Stone who took on Joe McCarthy early and fearlessly. It was Stone who showed that the Pentagon- military contracting complex was a highly tiered boondoggle wrapping its wrongs with the flag. For over 50 years, I.F. Stone was both journalism's Gibraltar and its unwavering conscience. While others in his profession cowered, he stood tall to challenge the abusers of power no matter where they came from--right, middle or left. He did not have favorite perpetrators to let off. He was only concerned with the victims that the bullies pushed around or the dictators oppressed. He never allowed past acquaintances with influential power brokers to dictate any self-censorship. At one student journalism conference, he was introduced as an "investigative reporter." He promptly took his introducer to task, saying that such a description was redundant. All reporters should be investigative, he declared. Through the originality and significance of his writings and addresses, Stone became a one man media--free, penetrating and, oh, so democratic in spirit. On Sunday June 17, 1989, he passed away at the age of 81 in a Boston hospital after a heart attack. If I.F. Stone had been born in ancient Athens over 2000 years ago, there would now be statues of him in front of major newspaper buildings. ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR July/Aug 1989 VOLUME 10, NUMBERS 7 & 8, JULY/AUGUST 1989 CORPORATE PROFILE OCCIDENTAL PETROLEUM: Politics, Pollution and Profit by Stuart Gold The name Armand Hammer is synonymous with Occidental Petroleum, the company he has headed for the past 33 years. And, Occidental Petroleum's success is Armand Hammer's success. Few major companies are so intimately identified with their chairman. In the early 1970s Armand Hammer, chairman and CEO of Occidental Petroleum, struck a deal with Libya's revolutionary ruler, Muammar Qadaffi. Hammer relinquished majority control of Oxy's oil holdings and in the process broke the stranglehold the oil companies had on Libyan oil. Qadaffi rewarded Oxy with major oil concessions while "Big Oil" chastised the company for abandoning the team position. The Libyan deal marked Occidental's entrance into competition with "Big Oil." Occidental was not always capable of taking on the big boys and winning. Under Hammer's tutelage the company has diversified into a huge energy conglomerate encompassing oil and gas production, petrochemicals, pipelines, mining and agribusiness. Oxy's growth has been staggering; in 1956 Hammer bought the company for $120,000, today Oxy is the 14th largest industrial company in the United States with revenues of almost $20 billion and profits of $302 million in 1988. This growth is a direct result of Hammer's business acumen. His story is one of riches to more riches; one which began in the Soviet Union in the 1920s. His business dealings with the USSR began with Lenin's New Economic Policy (NEP) and, excepting Stalin's rule, have persisted to this day. This relationship resulted in crucial economic ties to the West for the Soviet Union and a bonanza for Hammer in the form of asbestos and coal mining concessions. He also operated as an agent for Soviet trade with the United States. Even when NEP was ceased in 1925, ending almost all foreign concessions, Hammer was given a pencil-making factory. When Stalin consolidated his power in 1929 and proceeded to nationalize the remaining foreign concessions Hammer traded in his concessions for priceless Russian art previously owned by the czars. Where other foreign businesspeople lost money, Hammer was able to sell the art work for $11 million during the Depression. Hammer's "Midas" touch allowed him to profit in the face of a potential pitfall. Hammer's public persona has many dimensions. Hammer is a world renowned art collector and a self-described world citizen promoting "peaceful coexistence." The same Armand Hammer was censured by the Securities and Exchange Commission (SEC) for falsely claiming both that there was a gold deposit on Oxy held land and that Oxy "may have one of the largest iron ore deposits in the Western part of the United States." Hammer also pleaded guilty to an illegal campaign contribution given to Richard Nixon in 1972 and received a suspended sentence. Despite Hammer's attempts to portray himself as a benevolent and enlightened CEO, Oxy, the company that has been the main source of his wealth, is a despicable corporation. The most infamous stain on Oxy's record was exposed in 1978 when the Love Canal area of Niagara Falls, N.Y. was declared a health emergency, forcing its evacuation. Hooker Chemical, an Oxy subsidiary, had been responsible for dumping tens of thousands of tons of toxic chemical wastes in a dump that bordered a residential area. Almost 11 years after it was exposed, Love Canal still stands out as a monument to corporate indifference and deceit. Occidental has never admitted responsibility for the Love Canal fiasco, citing the fact that the dumping occurred prior to Oxy's purchase of Hooker. This line of reasoning, however, does not hold up under scrutiny. According to Eugene Martin-Leff, assistant attorney general for New York State, the "evidence shows [that Oxy made] an effort to abandon the landfill [in order] to avoid responsibility." Oxy "refuses to recognize any responsibility for the site," Martin-Leff added. The battle between the residents and the state on the one hand and Occidental on the other continues because, as Martin-Leff points out, Occidental has fought "tooth and nail" by "throwing tremendous legal resources and scientific consulting costs into the defense of every single issue.n He adds that, "As I soon as [Oxy's] evidence has been demolished they come with a new scientific consultant and a new theory of how the chemicals" escaped the confines of the dumpsite. Martin-Leff says it is difficult "to be working hard to disprove one theory and [then] have [Oxy's] lawyers admit casually that it wasn't a viable theory." The delays and legal wrangling stand in stark contrast to the description of Occidental's behavior provided in Hammer, the 1987 biography of Armand Hammer. In this book Hammer says that "When in the late 70s the scope of the damage became clear, Occidental moved as quickly and expeditiously as possible, under the complex circumstances to ameliorate the situation, even though Occidental had had nothing to do with the cause of the trouble." Employees of New York's Department of Environmental Conservation, however, offer a different version of events. For instance one source told Multinational Monitor that "There's a very definite corporate policy for delay" regarding the clean up of the Niagara Falls area. Occidental is "taking years and years," the source continued, "and [has] done nothing. I can't believe that it's not been by design." The latest development in the case came in February 1988 when the court declared Occidental liable for the cleanup at Love Canal. Martin-Leff said the state is trying to prove that Hooker's original sale of the land to the school board was so reckless that Hooker should pay punitive damages. The state is seeking $270 million in punitive claims and another $70 million in expenses, including the purchase of new homes for the more than 300 families who were forced to move. Martin-Leff believes it could be five more years before the case is finally settled. "Love Canal is not the biggest, just the best known" instance of Occidental's dumping of highly toxic wastes, according to Marco Kaltofen of the National Campaign Against Toxic Hazards (NCATH). Occidental Chemical is regarded by environmental groups as one of the worst polluters in an industry where the competition for that position is fierce. Many of OxyChem's problems arise from its product line. Unlike much of its competition Oxy has moved into the production of halogenated hydrocarbons which contain chlorine, fluorine and carbon tetrachloride. "Chlorinated chemicals have a tremendous amount of byproducts, 150,000 well known, persistent, biocumulative toxic byproducts," according to Kaltofen. "If you wanted to maximize pollution, you'd adopt Oxy's product line," he added. Hammer's view of his company's behavior sounds more like wishful thinking or self-delusion than reality. "We believe that corporate responsibility demands we guard the public health and safety, and to that end we have spent many millions of dollars on environmental protection. We will never cease doing so," he asserts. Unfortunately, such claims don't jibe with the facts. Oxy's well known problems with chemicals have not prevented the company from expanding its chemical operations. In fact, OxyChem has become the top earner among the company's subsidiaries, accounting for more than two thirds of its after tax profits in 1988. According to Mike Young, an international oil analyst for Smith-Barney, "chemicals account for a disproportionate amount" of Occidental's profits. Despite the fact that analysts believe chemical prices have peaked, Oxy has been "building up the chemical business very aggressively," according to Robin Shoemaker, a domestic oil analyst for Shearson-Lehman. In light of Oxy's history of violations, this build-up has ominous implications for the environment. As Kaltofen puts it, you would have to "work hard to pick a larger chemical polluter worldwide." OxyChem may be Oxy's greatest profit maker, but its agribusiness subsidiary is its largest source of revenue. In 1988 IBP, Inc. accounted for more than $9 billion of Occidental's revenue (almost 50 percent of total revenues). With 24 percent of the domestic fresh beef market and an 11 percent share in fresh pork, IBP is the largest meatpacking business in the country. IBP, like OxyChem, has some problems. IBP holds a lions share of fines from the Occupational Safety and Health Administration (OSHA). In May 1988 OSHA announced fines of more than $3.1 million against IBP for wilfully exposing the workers at its flagship plant in Dakota City, Neb. to cumulative trauma disorders, especially "Carpal Tunnel Syndrome," resulting from highly repetitive motions with meat cutting knives. OSHA's investigation revealed that IBP knew about these problems but "did not attempt to devise or implement solutions." In addition, OSHA investigators report that "the company often aggravated a disorder by placing an employee who had been treated for such a disorder back in the same job once the symptoms subsided." Corporate behavior of this sort has led to years of strained labor relations at IBP, according to Al Zack of the United Food and Commercial Workers (UFCW). Since 1969, every new contract has been accompanied by a strike or lockout. The most recent dispute began in December 1985 when IBP locked-out the workers for 15 months because, Zack argues, IBP wanted to avoid paying compensation for plant renovations. When the plant reopened in March 1987, the lockout turned into a strike which lasted until August 1987. Capturing the relationship between Occidental and IBP, Zack said "Parents have to be responsible for [their] kids. Oxy didn't make [IBP] more responsible and that's their failure." Speaking of Armand Hammer, Zack said it is "ironic [that] this man is the friend of the worker's paradise, the Soviet Union, and yet is so indifferent to his employees. Armand Hammer as a businessman," he elaborated "is a far cry from the Armand Hammer of the society pages." As far as Zack is concerned, Occidental does not inculcate responsible behavior in its subsidiary, it only collects the profits. Zack did, however, acknowledge that as a result of an internal shakeup at IBP there has been a marginal improvement in labor relations. He said that in the latest round of negotiations management behaved differently. It was the "first time they really respected their workers." Those talks were connected to negotiations with OSHA over IBP's 1988 fines. As part of a detailed three-year plan designed to reduce occurrences of Carpal Tunnel Syndrome IBP agreed to pay OSHA $975,000. That reduced figure included the resolution of another fine of $2.6 million in 1987 for poor record keeping on health issues. The $975,000 was almost $5 million less than the combined total of the two fines. The cumulative impact of Occidental's legal and regulatory problems on its financial status is difficult to quantify. Smith-Barney analyst Young did say that when dealing with a company that has a product line like Oxy's it is necessary to "consider it as a skeleton in a closet that could come out." In addition to Love Canal and the other Niagara Falls landfill problems, Occidental's Cities Service (now OXY USA) subsidiary was fined $708 million in 1988 for violating the Department of Energy's (DOE) petroleum price regulations. In January 1989, Occidental reached an agreement with the DOE whereby it will pay $40 million up front and another $164 million over the next eight years. Shearson-Lehman's Shoemaker argues that even though Oxy has more of these problems than most companies he does not "think any of it will become a major problem for the company. It won't damage the value of its shares." That's good news for Armand Hammer, but bad news for those affected by Oxy's operations. Armand Hammer said in his book, Hammer: "In all my time and in all my actions, I have tried to accomplish something of a lasting benefit to the world; to add what I can to the riches of the planet and to share with all people the beauty and the delight of life." Such rhetoric mocks those who have gotten caught in Occidental's path. Ask the victims of Love Canal what Armand Hammer has shared with them; it is certainly not the "beauty and the delight of life." From his lofty perch, Armand Hammer is insulated from the harm his company has inflicted upon too many communities. It's time for Hammer to face the reality of Occidental's irresponsibility. Hammer's Wasteland The following examples round out the picture of a callous company hiding behind a colorful leader. DBCP - Dibromochloropropane (DBCP) was a chemical used to control nematode worm, that preyed on fruits in California and elsewhere, especially bananas and pineapples. DBCP, in addition to killing nematodes, causes male sterility. OxyChem's Lathrop, Calif. plant produced DBCP until the EPA banned the chemical in 1977. But before that workers were carelessly exposed to DBCP even though the company had access to scientific studies for years which showed the risks involved with such contact. Occidental's handling of its employees' affected by the poison reveals a great degree of indifference for their health and safety. In a film made about this tragedy, called Song of the Canary, an Occidental official, referring to tests that had shown testicular atrophy in animals exposed to DBCP, says "Heck, we just didn't draw the conclusion that there'd be sterility from the fact that the testicles were shrivelling up." Fifty- seven workers brought suit against Occidental, Dow Chemical and Shell, two other large-scale producers of DBCP. Occidental ultimately settled 25 claims against the company for $425,000. In a 1975 internal memo, at the same Lathrop, Calif., facility, chief environmental engineer at the plant, Robert Edson, wrote, "Recently published California State Water Quality Control laws state that we cannot percolate chemicals into the ground water. The laws are extremely stringent about pesticides. We percolate all of our gypsum water, our pesticide wastes and 1 percent to 3 percent of our product into the ground in the form of production losses. Not only must we stop this by law, but it will recover $20,000 to $40,000 a month in losses. "Our laboratory records indicate that we are slowly poisoning all the wells in the area and two of our own wells are contaminated to the point of being toxic to animals or human beings. This is a time-bomb that we must defuse." Instead of defusing the time-bomb, Occidental exacerbated the situation by not disclosing Edson's report for three years. Internal documents from Hooker Chemical's Jacksonville, Fla. plant revealed that the company's senior management knew and approved of the local management violating the plant's pollution permit. According to the documents plant operators altered the operations of the smokestacks and spillways to make it look to outside inspectors that the company was in compliance with the pollution restrictions imposed on its operations, when actually emissions were occasionally 100 times the permissible level. Hooker knowingly polluted the groundwater in Montague, Mich. and also contaminated White Lake, a tributary of Lake Michigan. Occidental refused to submit to the House Committee on Oversight and Investigations a 1968 study conducted by the company of groundwater contamination resulting from dumping. Occidental wrote a letter to the Committee stating, "In light of the fact this question is subject to litigation, counsel has advised us that it would be inappropriate to supplement our answer outside the forum where this issue is being litigated." Occidental's chemical operations are not the only wrongdoers in the Oxy corporate family. Island Creek Coal, Oxy's coal enterprise, has a history of malfeasance. The company has been fined for failing to conserve topsoil when stripmining, rendering restoration nearly impossible. In addition, Island Creek Coal has exceeded emission limits at its coal processing plants and has failed to revegetate mined areas. Occidental has a history of using cash "gifts" to further its business interests. In a 1981 article on Armand Hammer in the New York Times, Edward Jay Epstein describes some of these unconventional dealings. In order to get an oil concession in the Persian Gulf, Hammer personally delivered $1,871,000 to the Emirate Sheik. According to Epstein, "Hammer says that the payment was a legitimate part of the contractual arrangement ..." Occidental's own board produced a memo revealing that the company had also paid a Nigerian Consul $295,000. In addition $3 million was transferred to the Bahamas, allegedly to bribe Venezuelan officials, according to Epstein. "Hammer characterized these charges by his own committee as 'unproven allegations.' He points out that an oil company is often obliged to pay intermediaries in underdeveloped countries, and it cannot then prevent them from using these fees to bribe government officials." Not everyone agrees with Hammer's assessment. A lawyer formerly employed by Occidental filed a suit alleging that Occidental "engaged in and sought to conceal corrupt practices in the countries of Venezuela, Trinidad, Peru and other countries." Another former employee, John Shaver, filed a complaint that he was fired from his job in Latin America because he refused to "engage in illegal, unethical and corrupt practices, namely, the bribery of officials of the government of Guatemala." These examples are too numerous to be dismissed. Source: Corporate Shadow Boards, Americans Concerned About Corporate Power, 76 pp., April 17, 1980. Available for $5 from the Center for Study of Responsive Law, P.O. Box 19367, Washington. D.C. 20036. ------------------------------------------------------------------------------ [] MULTINATIONAL MONITOR July/Aug 1989 VOLUME 10, NUMBERS 7 & 8, JULY/AUGUST 1989 BOOK REVIEW MUCKRAKING OR MONEY MAKING The Press, Inside America's Most Powerful Empires--From the Newsrooms to the Boardrooms by Ellis Cose William Morrow and Co. 1989 353 pages, $22.95 Reviewed by William Jackson The period from 1968 to 1975 is one of particular importance to the development of new leadership in the newspaper world. The Vietnam War, the assassinations of Reverend Martin Luther King Jr. and President John and Robert Kennedy, urban riots and Watergate convulsed the nation and had repercussions within the newspaper industry as well. Indeed, the general upheaval during this time was focused and amplified within these organizations. In Ellis Cose's book, The Press, the vision of an old order slowly giving way to new and fresh attitudes at the papers is depicted through sketches of Ben Bradlee, Don Graham, Otis Chandler, Arthur Ochs "Punch" Sulzberger, Abe Rosenthal and the men or viewpoints they replaced. The book's treatment of its subject matter is uneven, offering an important but limited perspective on the changes taking place. Cose describes the time of transition at The Washington Post, Los Angeles Times, New York Times, and the Gannett and Knight-Ridder empires. But his personal portraits of the major characters involved, while occasionally providing insight into their behavior, tend to be shallow and even simplistic. Some of the most revealing narrative episodes concern issues of race within the newsroom and the relationship of the world inside journalism to the one outside. Cose captures the feeling of immediacy of a daily news operation but his work sometimes suffers from an overly strong identification with management concerns. He glorifies the growth in coverage, size and profitability that took place under the new management and fails to assess the negative impact of such growth as the papers evolved into what Ralph Nader calls "corporate conglomerate[s] ... with a bottom-line mentality." Cose describes this evolution, primarily through the eyes of the new managers as they face conflicts over racism, paternalism to the home market in the age of mass media and their institutions' relationship to the government. The Washington Post serves as an example for this review, reflecting the changes that took place at many newspapers across the country. At The Post in the mid-1960s, any coverage of Washington D.C.'s racial tension was considered disloyal to the city. In 1966, Ben Gilbert and Ben Bradlee, assistant managing editor for local news and managing editor respectively, clashed over a story by a reporter whom Bradlee had recently recruited. The story involved one of the frequent conflicts between the District police force and black youths in the city. After a shouting match with Gilbert, Bradlee finally overruled him and ran the story. Cose gives Bradlee credit for wanting greater coverage and objectivity, saying "He did not share Gilbert's enthusiasm for boosterism. He wanted to make the Post belligerently independent." The Post came of age with Bradlee's and Donald Graham's rise to power, with a new team of reporters and managers and with the climactic events of the early seventies including the publication of the Pentagon Papers. The Post's Howard Simon told Cose that the Pentagon Papers were the beginning of a competition of equals between the Times and The Post. Simons said, "until the Pentagon Papers, The Post hadn't made some sort of ultimate commitment to go super first class," and Cose explains that "For Bradlee, the Pentagon Papers rivalled Watergate in importance." The Post's decision to go "first class" had a down side as well, according to Cose. Along with the acclaim, there was criticism of an overzealousness, exemplified by the "Jimmy's World" incident (the Janet Cooke story which was exposed, long after publication, as a complete fabrication). That story's demise had a sobering effect on the new stars of the invigorated press who were brought face-to-face with the flip side of the fame and glory which accompanied the Watergate investigation. The business side of The Post's operation was changing too. In The Progressive, John Hanrahan writes that "over the last 15 years, Katherine and Donald Graham have made The Post one of the most profitable papers in the country--an investor's delight." According to Hanrahan, this transformation took place at the expense of the workers and their union. Yet, in Cose's book, Don Graham appears as a kind of management hero who brings responsibility and tough-mindedness to the paper. The Post press operators and their union appear as early obstacles to his plans for the company. There was a strong perception within The Post management, as well as among many reporters that the union brought the harsh treatment that it received on itself by sabotaging the presses when it went on strike in 1975 and Cose seems to concur with this view. Unlike his treatment of the 1962-63 strike at the New York Times, Cose almost exclusively offers management's perspective on The Post labor conflicts and omits description of The Post management's behavior which several Post writers have described as distinctly and intentionally anti-union. Tom Sherwood, a Post reporter since 1974, told Hanrahan that after The Post went public with its stock, "They got hooked on profits. On management's part," he added, "there have been outdated and abusive labor tactics and a warfare-with-the- workforce mentality ever since they worked on busting the union in the mid-1970s." Cose, however, paints a very different picture of that time. He reports that during the strike, those who ran the paper were "sustained by ... willpower, camaraderie, and the feeling that they were fighting the good fight." There is no mention of strikebreaking or of the press operators' demands. He writes, "Since the late 1960s, Post production had been throttled by the pressmen. They regularly disrupted the production schedule to wring concessions from the company or stretched out their work to get overtime ... [Donald] Graham saw their actions as a form of guerrilla warfare that made delivering the paper on time impossible." In an interview with Cose, Bradlee explains that management saw itself as powerless in the disputes. "The word 'negotiations' with the union was a joke. You didn't negotiate, you bluffed the union. And when they wanted to call your bluff, you caved. You had to cave. You were in a highly competitive race with the Star and you couldn't print without them." But this situation was soon turned around under Graham. He trained non-union workers to run the necessary equipment and he invested in new technology which eventually enabled The Post to turn out the paper during a strike. Cose reports that a reporter who covered the strike "began to realize that the paper being formed in the crucible of the strike was very different from The Post he had known. The Graham outlook, so benevolent in the past, was tougher." The author's comments regarding journalistic styles and personalities during the period of change reflect a greater sympathy for the underdog and a stronger critique of the powerful. Cose emphasizes the importance of racial integration in the newsrooms at The Washington Post and the Los Angeles Times as well as management's increased awareness of the need for black reporters, fairness in hiring and coverage of urban and civil rights issues at those papers. He makes clear that the same conflicts and bureaucratic in-fighting over turf, titles, assignments and positions which went on in other institutions and in society at large, took place within the newspapers. What is remarkable is the degree to which Bradlee, Graham and Chandler, among others, made conscious efforts to bring about these changes in organization and outlook within their newspapers. Though he is critical of traditional racist and short-sighted views in newspaper management, Cose allows that these views were not considered out of place at the time. He captures the loneliness and defensiveness black reporters experienced and their struggles for recognition and power. The Press gives a sense of the innovation, growth and power- brokering which gave rise to new empires stretching across the communications industry. It does not, however, offer much analysis of the changes and what they meant for readers. Cose hints at future developments stemming from the increasing power of management, advertisers and stockholders; but, in the end, The Press does not explain the effect that these developments have had on newspaper workers, on news coverage and on the communications industry as a whole. .