November 1992
Editorial
The Front
Features
Lending Discrimination
By Jonathan Brown
By Peter Bosshard
Interview
An Interview with Marcos Arruda
Environment
By Virginia Warner Brodine
Corporate Profile
Pollution and Exploitation
By Julie Gozan
Letters
To the editor:
The article by Holley Knaus in the September 1992 issue regarding the differences between Cultural Survival and Survival International’s point of view about the "development" of the rainforest economy in Brazil raises a very important - indeed a fundamental - set of issues regarding "sustainability." Both points of view have sensible-sounding arguments. Cultural Survival’s idea is that if the forests can be seen as economically "valuable" in the North’s terms as they are, then there will be less pressure by governments and other powerful groups to treat them as "underutilized land" ripe for "development." Survival International, on the other hand, argues that it is poor policy for indigenous peoples to become dependent on an uncertain, even fickle, global market for their livelihoods.
On the whole, my sentiments lie more with the arguments of Survival International. But the debate does raise the question of what level of economic exportation indigenous peoples (or, for that matter, any peoples anywhere) ought to become dependent on. Are there any principles to guide us here?
I suggest that people should live beyond their environmental income, on a sustainable basis. They should always be able to generate at least a subsistence level of survival from their own lands - those demarcated to them by binding agreements. Any production greater than subsistence might be then traded for different surpluses from elsewhere. But to become dependent on that trade for survival was courting disaster and inviting exploitation, of both labor and resources.
I believe this principle offers a reasonable guideline for different societies in determining how much of their resource base to "commoditize" in the global marketplace. If well- meaning groups, such as Cultural Survival and Survival International, would help indigenous peoples to make this evaluation - and show them the dangers of over- dependency on uncontrollable external markets - then they may be able to achieve improved economic benefits without endangering their future well-being and the sustainability of their subsistence resource base.
Yours truly,
Mary E. Clark
Professor Emerita
of Conflict Resolution
George Mason University
Fairfax, VA
To the editor:
I read your magazine frequently, and appreciate the variety and quality of information it offers. However, I must register one small complaint: the cute headline "The Tree Whackers" tagged on to the otherwise excellent Weyerhaeuser profile really bothered me [Multinational Monitor, October 1992 ].
I was born in Washington state and have spent 35 years watching Weyerhaeuser at work. These guys (and they are guys) are forest-killers and ecosystem-destroyers. To call them tree whackers is to trivialize what they do in the same way the company does when it calls itself the "Tree Growing Company." This corporation has irrevocably altered the health of our forests, rivers, wildlife habitat and rich agricultural lands with their monoculture tree farms and malls. There is nothing trivial or cute about it.
Sincerely,
Janine Blaeloch
Seattle, WA
Stone paid $42,000 to OSHA in penalties for safety violations after 42-year-old John Odom was killed in the company’s Hodge mill. Odom, a general mechanic with the company since 1968, was crushed to death by a machine while doing routine maintenance work when another employee started the hydraulic pump on the machine’s paper winder. OSHA fined Stone for its failure to lock out the machine, so that it could not be turned on during maintenance.
Stone’s transgression of OSHA regulations was classified as a repeat violation after an investigation into the March 1991 deaths of workers Durwood Aldy and Charles Malone. Aldy and Malone were killed while doing routine maintenance work on another machine in the same plant when a paper roller fell on them. Stone paid $12,075 in penalties to OSHA in September 1991 in connection with that accident.
Stone General Manager Marion Burns claims, "We have redoubled our efforts here to upgrade all facets of our safety program to insure that something like this doesn’t ever happen again."
Occupational safety advocate Joseph Kinney, executive director of the Chicago- based National Safe Workplace Institute, says that OSHA should have been more aggressive in its response to the deaths at Stone. "OSHA has taken minimal action when it should be pulling the trigger on corporate crime," says Kinney.
"According to some estimates," the letter reports, "the [United States] will lose 500,000 more jobs to Mexico as factories relocate to take advantage of the ultra-low wages and lax environmental and labor laws. And, to make matters worse, those working families who already suffered from depressed wages in the 1980s would be the hardest hit."
The members of Congress describe the dangers of expanding maquiladora plants - foreign businesses based in Mexico which manufacture products mainly for export - throughout Mexico, which they claim will further damage living conditions for Mexican workers, many of whom "live in shacks with no running water or electricity." The letter exhorts Clinton to table the draft agreement and to renegotiate for inclusion of critical labor and worker rights, environmental and health and safety provisions in NAFTA.
The $80 million contract was signed by Nur Elmy Osman, who described himself to Achair executives as the state health minister in Ali Madhi Mohamed’s interim government. The deal was called off after the overthrown Somalian dictator Mohamed Siad Barre found out about the arrangement and brought it to the attention of Somalis in Kenya in an apparent attempt to discredit those who ousted him. Ali Madhi Mohamed, who controls only part of the Somalian capital of Mogadishu, says that Oman is no longer part of his "cabinet" and that he was given no authority to sign on to the toxic trade deal.
Somalia, currently the focus of international attention due to widespread starvation resulting from famine and civil war, has been the victim of illegal toxic waste trafficking prior to the attempted Achair deal. According to the environmental organization Greenpeace Italy, the Italian waste broker Progresso, which served as an intermediary between Oman and Achair, had already dumped 22,000 gallons of pesticides and agrochemicals in northern Somalia, near the country’s border and the Red Sea state of Djibouti.
Jim Valette, toxic trade campaigner for Greenpeace, comments, "As long as industrial countries have open borders for waste export, these types of schemes will create another layer of tragedy in desperate parts of the world."n
- Julie Gozan
ON AUGUST 24, the Akatsuki-maru freighter left Japan ’s Yokohama harbor bound for "La Hague" plutonium plant in France , where it will pick up a cargo of reprocessed nuclear waste in the form of explosive and highly toxic plutonium oxide. Although both the Japanese and French governments are keeping secret from the public both the date and the route, any day now the ship, bearing over one ton of plutonium, will leave France to transport this freight back to Japan.
Japan’s acquisition of massive amounts of plutonium exposes the entire world and its environment to the threat of the deadly substance. The Akatsuki-maru and its successors will follow one of several 17,000-mile trans-oceanic routes. An accident or attack on the ship could lead to disastrous contamination of the marine ecology and require the evacuation of populated harbors. The nations along the ship’s route have both the right and the responsibility to protect the environment and public health by demanding that plutonium shipments do not enter their territorial or economic zone waters. Countries throughout Africa, South America, Asia, the Caribbean and the Pacific have requested information about the route and emergency plans for the shipment. Within Japan and internationally, citizens and anti-nuclear groups have organized to oppose the shipment. Yet the Bush administration has approved Japan’s plutonium reprocessing and shipping plans, despite vocal opposition from organizations such as Greenpeace International and the Nuclear Control Institute and U.S. Senator John Glenn, D-Ohio, and Representative Neil Abercrombie, D-Hawaii, among others.
If this shipment of plutonium goes ahead as planned, Britain ’s Sellafield reprocessing plant, operated by British Nuclear Fuel Ltd. , will also begin returning plutonium extracted from Japanese nuclear waste. Reprocessing nuclear fuel for plutonium, one of the world’s most volatile and lethal compounds, is being touted by the nuclear industry as the solution to the problem of what to do with the world’s nuclear waste. Yet reprocessing plutonium greatly exacerbates the nuclear waste problem because the process of separating plutonium from other nuclear waste increases the overall volume of hazardous waste 160 times.
Japan will use the plutonium as fuel in its fast-breeder reactor in Monju. Theoretically, the reactor, which "breeds" more fuel than it uses [See Breeding Disaster," Multinational Monitor, April 1992 ], will itself eventually produce enough plutonium to make Japan self-sufficient in energy. The Japanese government, which has no oil or uranium resources, insists that it needs to go through with the plutonium reprocessing program in the interest of national security. Yet the Japanese Power Reactor and Nuclear Fuel Corp. ’s claim that it needs plutonium from France for immediate use is based only on incomplete and highly questionable data that the plant recently released. According to Jinzaburo Takagi of the Citizens’ Nuclear Information Center in Tokyo and Paul Leventhal of Nuclear Control Institute, the data appear to understate the amount of plutonium produced and overstate the amount of plutonium consumed as fuel in Japan’s nuclear program, creating an artificial shortage in order to justify a "need."
This so-called "need" of the Japanese government, which is seamlessly enmeshed with the "need" of the nuclear industry for profits, is now being imposed on the rest of the world. The Akatsuki-maru plutonium is the first of between three and five plutonium shipments a year planned as part of Japan’s nuclear breeder reactor program. Japan intends to ship up to 45 tons of plutonium before the year 2010 alone. Plutonium is one of the world’s most toxic radioactive substances, with a half-life of 24,131 years. If released into the environment, plutonium would remain a deadly contaminant for tens of thousands of years. Plutonium oxide particles are especially dangerous, as the particles can be easily inhaled and absorbed into the food chain.
Furthermore, this shipment, and each of those which will follow, will provide enough plutonium to construct over 120 nuclear weapons. William Dircks, deputy director of the International Atomic Energy Agency in Vienna, has repeatedly warned that commercial production of plutonium is leading to an "international political and security threat" and has recommended the implementation of internationally controlled storage sites for plutonium as an alternative to reprocessing.
Despite the much heralded fall of the nuclear arms race, commercial plutonium production threatens to overturn any hope for nuclear non-proliferation in the coming century. Without strong opposition from the public, the post-Cold War nuclear industry will generate more plutonium, and at a faster rate, than the U.S. military ever did, and will transport it all over the world. Rather than allowing the creation of a global plutonium market, citizens groups in all nations should band together to demand that the nuclear states discontinue all present and future plans to transport and stockpile plutonium and enact a global ban on its production and use.n
A FORMER OFFICER of the U.S. Department of Agriculture’s (USDA) Food Safety and Inspection Service (FSIS) has come forward to reveal that the USDA ordered inspection agents to release to the public beef carcasses that may be infected with tuberculosis (TB). A secret change in beef inspection standards has allowed carcasses infected with TB to be shipped to consumers, according to Dr. Wilfred Rosario Sr., a 16-year veterinary medical officer for FSIS in Southern California.
Rosario recently disclosed that all area FSIS veterinary meat inspectors were verbally instructed on May 19, 1989 to no longer condemn certain cattle carcasses confirmed by laboratory analysis as displaying symptoms of TB. No proposed change in the standards for condemning TB carcasses has been published in the Federal Register, and no written communication on the change was ever received by FSIS employees.
"Meat that under current law must be condemned due to confirmed TB symptoms is now being routinely released for people to eat," says Ken Morrison, an attorney assisting the Government Accountability Project (GAP), a Washington, D.C.-based whistleblower support organization that is representing Rosario. "This secret, off-the- books change in inspection standards has created an illegal risk to public health and safety."
TB-infected beef has been routinely condemned in the United States since 1906. According to Morrison, federal inspection regulations adopted twenty years ago stipulate that a cattle carcass may only be passed for human food if the carcass is found free of TB lesions during a visual inspection. If the inspection reveals evidence of lesions, the inspector is authorized to condemn the carcass immediately. The 1989 order communicated to the inspectors, however, that they were to condemn only those carcasses for which laboratory tests found TB bacilli on small tissue samples.
Rosario charges that he was ordered to release a carcass that displayed markings he diagnosed as TB lesions. Disregarding the results of a microscopic laboratory test confirming that the lesions were in fact characteristic of those caused by TB, his supervisor would not allow the carcass to be condemned, citing the new policy. Rosario was subsequently presented with a cash award by the agency "for recognizing lesions of tuberculosis" on the very carcass which had long since been shipped to and consumed by the public.
Jim Greene, spokesperson for FSIS says, "We are exhaustively looking into the alleged charges. ... We cannot comment on whether or not there has been a change in standards because we are still in the process of investigating." According to Morrison, however, the USDA has repeatedly defended the new policy permitting the release of infected carcasses.
Department of Agriculture officials have refused to meet with Rosario to discuss his concerns, even after the U.S. Office of Special Counsel found a "substantial likelihood" that Rosario was correct and ordered then-Secretary of Agriculture Clayton Yeutter to investigate. In a three-and-a-quarter page report to the Special Counsel released in October 1990, Yeutter, now President Bush’s deputy campaign chair, simply dismissed Rosario’s concerns as "an apparent misunderstanding" of the policy and the terminology used by the agency.
Morrison sharply criticizes the report, claiming that Yeutter sidesteps essential issues in his analysis. For example, Yeutter fails to address the fact that the policy requires the release of carcasses when the laboratory is unable to find any germ that explains the presence of TB-like lesions - meaning that the test has been inconclusive. As Morrison says, "The defense that an inconclusive test result means lesions may not be tuberculosis begs the question," since federal regulation prohibits the release of a carcass unless it is "found free" of TB lesions.
A November 1990 letter from Tom Devine, GAP legal director, to Donald Di Julio, of the U.S. Office of Special Counsel, notes, "Current regulations ... prohibit the release of carcasses not ‘found free’ of TB lesions - an affirmative burden clearly not being definitively met under the new policy."
Yeutter points out in his report that a subsequent culture test of the carcass released by Rosario failed to demonstrate the presence of the TB germ. Morrison counters that the carcass was shipped out two months before the test results were available. "The administration’s doublespeak responses appear to be intentional attempts to avoid the real issues in order to deceive the public," says Morrison.
Devine’s letter to Di Julio outlines several questions about the TB policy, including whether the policy has been implemented nationally or just regionally; what is the scientific basis for implementing the new policy; and under what legal authority was the new policy implemented. Devine says that Yeutter’s report fails to address any of these issues.
Morrison says that the change in beef inspection standards is particularly shocking in light of the rise of tuberculosis among the U.S. population. "The law imposes burdens on our national food inspection system in order to protect the public from diseased products," he says. "The Bush administration has no legal right to expose consumers to any increased risk from meat that should be condemned, even if the motive is to save the meat industry a little money."
- Julie Gozan and Holley Knaus
ANCHORAGE - In order to accomodate the gold mining and pulp industries, the pro- development administration of Alaska Governor Wally Hickel is proposing to put human health and environmental protection on the line by significantly lowering certain state water quality standards, proposing weak human health criteria for other standards and allowing for the continued operation of facilities that are violating state law.
New draft wastewater permits issued this spring by the U.S. Environmental Protection Agency (EPA) required pulp mills in Sitka and Ketchikan to comply with Alaska’s existing water quality standards. According to the Southeast Alaska Conservation Council (SEACC), a Juneau-based environmental organization, however, the mills have never complied with the standards [see Razing Alaska: The Destruciton of the Tongass Forest," Multinational Monitor, July/Aug 1990 ]. SEACC claims that, instead of enforcing state regulations, the Hickel administration sped up an ongoing review of state water quality standards in response to the EPA’s action and proposed regulatory changes which would allow the mills and other violators to continue polluting at their present levels.
The Alaska state Department of Environmental Conservation (DEC) proposals "are quite clearly driven by the interests of the pulp mills and the gold mines," says Anthony Turrini, staff counselor for the National Wildlife Federation in Anchorage. The most significant relate to the setting of standards based on human health criteria.
The proposed standards would allow the Sitka and Ketchikan mills to dump 85 times more dioxin than recommended by the EPA, and would permit gold mines to release 250 times more arsenic than the EPA’s standards. The proposals also allow industry to dump 10 times the agency’s recommended standard for chloroform.
According to David Sturdevant, water quality standards coordinator for the DEC, the EPA’s most stringent recommended risk level for dioxin, chloroform and arsenic is set at a factor of 10-6 (meaning a one in 1,000,000 chance of getting cancer over a lifetime of exposure to a particular substance). The DEC has proposed adopting a less stringent 10-5 risk factor (one in 100,000 chance). Sturdevant points out that more than one half of U.S. states have adopted the less stringent standard.
Sturdevant says that determining risk levels is a complex process based on scientific data which is not necessarily conclusive. "There is no book you can look at," he says. The DEC has factored other considerations into its decision to adopt the higher risk factor. "This is a social and economic policy decision," says Sturdevant. "The state does recognize the economic concerns involved in [industries] having to meet stricter standards."
Sturdevant points out that the mills in Sitka and Ketchikan provide almost 25 percent of the economic base of those areas. "The Department believes we must be sensitive to the effects of [stricter] standards on those mills and on the people that work there," he says.
The Hickel administration has also proposed changing the definition of "mixing zones," which are legalized pollution zones where standards for pollutants may be exceeded. Industry is currently prohibited from dumping potential and proven carcinogens for both humans and aquatic life into mixing zones. According to SEACC, the proposed changes would allow for the discharge of potential carcinogens, by imposing a prohibition only if the chemical were a "proven" carcinogen to humans.
Yet another Hickel and DEC proposal would eliminate the regulation of all hydrocarbons in water and permit toxic concentrations in unlined tailing ponds and other "wastewater treatment facilities" to exceed state standards.
Environmentalists and concerned citizens have mobilized opposition to the revisions during a recently extended public comment period. Their input, however, is likely to have little influence on DEC decisions regarding the standards. "Public comment only has a real influence if the government has an open mind," says Turrini. "In this case the DEC already has some very clear objectives."
The EPA must approve the final standards and it has expressed concern over some of the state revisions. An October 5 memo from Sally Marquis, EPA Region 10 water quality standards coordinator, to Sturdevant spells out the federal agency’s reservations about many DEC proposed changes, including those for regulating hydrocarbons and mixing zones and for human health criteria for arsenic and dioxin. The memo states that certain revised standards for arsenic and dioxin do not comply with the Clean Water Act.
Environmentalists fear that Region 10 officials and the DEC will reach a compromise over the course of the public comment period, and that the EPA will eventually approve greatly weakened standards. Marquis’s memo states, "We are hoping that we can resolve many of these concerns during the remainder of the public comment period." And SEACC’s Marna Schwartz notes that the EPA’s concerns were only made public under great pressure from environmentalists. "It’s pretty amazing that both agencies felt that this should be kept confidential, especially in a state where the largest employer - commercial fishing - is completely dependent upon clean water to keep it in business," she says.
- Holley Knaus
by Jonathon Brown
FOR MANY YEARS, explicit discrimination in mortgage lending was part of a broader pattern of racial discrimination and segregation in residential housing markets. For example, until 1950 the Code of Ethics for Realtors prohibited real estate agents from being "instrumental in introducing into a neighborhood ... members of any race, nationality, or any individual whose presence will clearly be detrimental to property values in that neighborhood." As recently as 1970, Prentice-Hall published a textbook for real estate appraisers which declared that "the mixing of residents with diverse historical backgrounds within a neighborhood has immediate and depressing influence on value."
Discrimination against people of color by mortgage lenders has been a long-standing civil rights concern in the United States. Both Title VIII of the Civil Rights Act of 1968 and the Equal Credit Opportunity Act of 1976, commonly called the Fair Lending laws, prohibit discrimination against mortgage applicants on the basis of race or national origin. While these statutory prohibitions have been the law of the land for many years, there has been scant administrative or judicial action to challenge lending practices that suggest discriminatory behavior by mortgage lenders. A major reason for this inaction was the lack of publicly available data showing the disposition of mortgage loan applications by race of the applicant - the type of data that may be strongly suggestive of discrimination, and used to exert pressure on regulatory agencies to take action and to facilitate civil rights litigation.
However, in 1989 Representative Joseph Kennedy, D-Massachusetts, succeeded in tacking on to Savings & Loan bailout legislation an amendment that requires mortgage lenders to include information on the race and income of mortgage loan applicants in public reports on their mortgage lending activity. These mortgage activity reports are required by the Home Mortgage Disclosure Act (HMDA), a disclosure law enacted by Congress in 1975, to provide information on the extent to which individual banking institutions are "redlining" - referring to a pattern of discrimination in which financial institutions refuse to make mortage loans, regardless of credit record of applicant, on properties in specified areas - in inner city neighborhoods. Prior to the Kennedy Amendment, lenders were required by the HMDA to report only the location (by census tract) of their mortgage loans. Under the Kennedy Amendment, lenders now have to report not only the number and location of loans made, but also the number and location of applications, the race and income of the applicants and the disposition - meaning whether the loan was approved or denied - of the applications. In addition, the type of lenders subject to HMDA was expanded to include not only depository institutions and their subsidiaries, but also the larger mortgage companies.
The additional information required by the Kennedy Amendment has transformed HMDA into a more powerful tool for detecting discriminatory lending patterns. This new data, which first became available in late 1991 and is reported each year, has already provided a powerful impetus to strengthen Fair Lending enforcement and may ultimately result in serious efforts to root out discriminatory mortgage lending practices.
Fair lending?
While the Fair Lending laws have for the most part eliminated explicit forms of discrimination by mortgage lenders, the evidence suggests that people of color are still subject to subtle forms of discrimination in obtaining access to mortgage credit. Over the last 14 years, HMDA data have consistently shown that mortgage lending rates are dramatically lower in African-American and Latino neighborhoods than in white neighborhoods. Research examining the mortgage market in cities such as Boston and Washington, D.C. has found that the proportion of home sales financed by mortgages from banking institutions is considerably lower in minority neighborhoods than in white neighborhoods. This body of data on loan originations suggests that residents of minority neighborhoods do not enjoy the same access to mortgage credit as the residents of white neighborhoods.
During the 1980s, the federal banking regulators collected systematic data on mortgage loan applications and the disposition of such applications. Data that indicate the applicant’s race can be used to determine whether loan application approval rates are lower for people of color than for whites. These data on approval (or denial) rates are generally not made available to the public in any great detail, and data for individual lending institutions are particularly inaccessible. However, in 1989 the Atlanta Journal-Constitution used the Freedom of Information Act to obtain from the Federal Home Loan Bank Board summary data on loan approval rates for a number of major metropolitan areas. The data show that on average, applications from African- American applicants were rejected by Savings & Loans at a rate twice as high as that for white applicants. The Atlanta Journal-Constitution story sparked increased interest in mortgage discrimination, raised new doubts about the adequacy of Fair Lending enforcement by the federal banking agencies and aided passage of the Kennedy disclosure amendment later in 1989.
Until recently, administrative and judicial actions to enforce the Fair Lending laws have been minimal to non-existent. Both the banking industry and banking regulators have argued that disparities in lending rates between minority and white neighborhoods and even disparities in application approval rates between minority applicants and white applicants do not provide probative evidence of discriminatory conduct by mortgage lenders. From this perspective, loan rate and approval rate data have only limited significance because they do not take into consideration possible differences in mortgage loan demand between minority and white neighborhoods or possible differences in the ability of people of color versus whites to meet credit underwriting criteria. Over the last 15 years, federal regulatory agencies have repeatedly employed this line of reasoning as grounds for refusing to initiate serious efforts to investigate individual mortgage lenders for Fair Lending violations. In particular, banking regulators have been unwilling to systematically review the loan files of individual banks to determine if race has been an underlying factor in their mortgage lending decisions. Bank regulators have also refused to implement testing programs under which testers would be employed to determine if minority and white applicants with comparable credit credentials receive different treatment when they apply for mortgage loans.
The sustained efforts by federal regulators and the banking industry to downplay the significance of race-based disparities in the HMDA and other lending data has also worked to discourage attempts to enforce the Fair Lending laws through private litigation. As a consequence, unlike other major civil rights areas such as discrimination in regard to housing sales and rentals, employment, education and voting rights, where there has been extensive litigation, there have been virtually no major judicial decisions defining the nature of discriminatory practices in regard to discrimination in mortgage credit markets.
A central tenet of U.S. civil rights law is that practices which do not intentionally or directly discriminate against people of color may nonetheless be unlawful under certain circumstances if they have discriminatory effects. Because of the dearth of judicial decisions on the issue of mortgage credit discrimination, no progress has been made in carving out an "effects test" doctrine for this important branch of civil rights law.
Byting the banks
In late 1991 the Federal Reserve Board (FRB) published the first extensive analysis of the expanded HMDA data mandated by the 1989 Kennedy Amendment. The FRB analyzed the entire HMDA database for 1990, the first year of data with information on applications, disposition, borrower income and borrower race. The analysis found that white applicants for conventional loans were rejected only 14.4 percent of the time, compared to 33.9 percent for African American applicants and 21.4 percent for Latino applicants. With respect to government-insured mortgage loans, the respective denial rates were 12.1 percent for whites, 18.4 percent for Latinos and 26.3 percent for African Americans.
Public dissemination of the HMDA data for 1990 triggered a spate of newspaper stories analyzing race-related disparities in loan approval and denial rates within individual metropolitan areas and for individual mortgage lending institutions. During 1992, the vast scope of the HMDA database, the marked disparities it revealed, the extensive media coverage of the issue and, undoubtedly, the increased attention paid to the oppressive conditions of inner-city neighborhoods after the Los Angeles riots in April, combined to create a political climate in which the long-standing presumption that such disparities are not indicative of discrimination and do not warrant investigation has begun to erode. Yet it is within the last month that two important events occurred to dramatically destroy the presumption of nondiscrimination.
In October, the Federal Reserve Bank of Boston (FRB Boston) released a comprehensive study of mortgage lending discrimination in the Boston metropolitan area. HMDA data for Boston for 1990 had shown that on average African-American and Latino applicants were rejected at a rate 2.7 times greater than white applicants. The FRB Boston designed a statistical study to determine the extent to which this disparity remained if all the factors employed by lenders in reaching credit decisions were taken into consideration. In other words, the FRB Boston sought to test the validity of the presumption of nondiscrimination.
To do this, the FRB Boston examined loan application files for a total of 4,500 mortgage loan applications at 131 Boston area financial institutions. From each file the FRB Boston collected data on 38 variables which lenders have indicated as relevant to reaching credit decisions - for example, various aspects of the applicant’s economic situation and credit history and the appraisal of the property to be acquired.
The FRB Boston’s analysis found that inclusion of all the credit decision variables reduced the disparity in the white and minority denial rates from the average ratio of 2.7 to 1 shown by the HMDA data to a ratio of 1.6 to 1. This dramatic result indicates that when the relevant credit decision variables are taken into consideration, minority applicants in the Boston area will still encounter a denial rate that is 60 percent higher than white applicants. According to a statement released by Richard Syron, president of the FRB Boston, "The racial disparity found in the HMDA data is substantially reduced when additional economic factors are considered, but it remains significant and it must be faced directly. Unfortunately, race plays a role, perhaps an unconscious and unintended role, but a role nonetheless, in mortgage lending decisions."
Another key finding of the FRB Boston study goes a long way toward explaining how discrimination enters the loan-decision process. The study found that the majority of loan applicants, both white and minority, had some flaw in their credit credentials and that in many cases these flaws were overlooked. This shows that even where lenders adopt detailed underwriting standards, they exercise tremendous discretion in applying these standards - a situation ripe for the introduction of subtle prejudice. According to the study, "Given the same imperfections in a mortgage application, whites seem to enjoy a general presumption of creditworthiness that blacks and Hispanics do not. Lenders seem more willing to overlook flaws for white applicants than for minority applicants."
The fundamental message of the FRB Boston study’s findings undercut the presumption that major disparities in mortgage loan approval rates between whites and people of color are not the result of discriminatory behavior. Since the 1990 HMDA data reveals disparities for other U.S. metropolitan statistical areas (MSAs) that are roughly the same as those shown for Boston, the clear implication of the FRB Boston study is that a major federal initiative to strengthen Fair Lending enforcement is required. Of equal importance, the HMDA data reveals that many individual mortgage lenders in many different cities exhibit disparities in approval and denial rates that are far greater than the average rates for their metropolitan area. As the Office of the Comptroller of the Currency, the federal regulator of national banks, has observed, "This study is definitive. It changes the landscape."
Essential Information’s Banking Research Project analyzed the 1990 HMDA data for 21 metropolitan areas to determine how the mortgage loan denial and approval rates in these areas compare with those in Boston. In assessing racial disparities in the disposition of mortgage loan applications, it is important to examine the loan-approval rate as well as the loan-denial rate. In many instances, non-approval results from withdrawal of the application rather than denial by the lender. However, such withdrawals may be the consequence of excessive delay by lenders in processing an application - a subtle way for the lender to signal the borrower that the application is not likely to be approved.
A second landmark event in the evolution of Fair Lending enforcement occurred in September when the U.S. Justice Department filed suit against one of the largest mortgage lending institutions in Atlanta, Decatur Federal Savings and Loan Association , for having engaged in a "pattern or practice" of discrimination against African-American mortgage applicants. This judicial action represents the first time that the federal government has brought a pattern or practice suit against a mortgage lender for violations of the Fair Housing Act and the Equal Credit Opportunity Act.
Before filing the suit, the Justice Department conducted a comprehensive statistical review of Decatur’s loan files, very similar to that conducted by the FRB Boston. HMDA data for Decatur showed that African-American applicants were rejected at a rate almost three times greater than that of white applicants. The Justice Department’s analysis of over 4,000 Decatur loan files revealed that even after controlling for all underwriting variables, race was a significant factor. The Justice Department’s suit also charged that Decatur had pursued marketing policies that sought to limit the volume of mortgage loan applications from African Americans and that such marketing policies violated the Fair Lending laws. According to the Justice Department, all of the branch offices that Decatur had opened in the Atlanta area were located in white-majority areas. Decatur also defined its lending area to exclude most of the African-American neighborhoods in the Atlanta area. Decatur aggressively solicited mortgage loan referrals from real estate brokers who are part of the white community, but rarely solicited such business from African-American realtors who serve African-American neighborhoods. Further, Decatur has not advertised its mortgage loans in media oriented to the African-American community and does not publicize the availability of FHA- or VA- insured mortgages, which are commonly sought by African- American applicants.
Decatur’s marketing strategy clearly depressed the volume of loan applications that it received from African Americans. According to the Justice Department, of the 24,300 mortgage loan applications received by Decatur during the 1985-1990 period only 6 percent were from African-American applicants.
Decatur entered into a consent decree with the Justice Department under which it agreed to hire an outside auditor to monitor its processing of mortgage loan applications for discriminatory conduct, adopt new marketing programs to affirmatively reach out to the African-American community, open a branch office or a regional loan office in a predominantly African-American section of Atlanta and provide $1 million in damages to 48 African-American individuals whose mortgage loan applications had been rejected between 1988 and 1992.
Civil rights
The FRB Boston study and the Justice Department suit against Decatur have greatly elevated the importance of the new HMDA data. Mortgage lenders whose HMDA data reveals a pattern of substantial disparity in loan denial or approval rates between white and minority applicants or a depressed volume of applications from people of color relative to their position in the local housing market must now be considered suspect under the Fair Lending laws. In this situation, the banking regulators will be under increasing pressure to thoroughly investigate their lending behavior to determine whether unlawful discrimination does in fact exist, and private litigation by civil rights organizations is likely to develop.
The new HMDA data should serve as a powerful spur to Fair Lending enforcement on two counts. First, the fact that such data is made public should exert strong pressure on the federal banking regulators and the U.S. Department of Housing and Urban Development to begin serious enforcement activity. Second, the public availability of the data enables civil rights and local community organizations to identify lenders with suspect lending patterns, strengthens their hand in negotiating remedial agreements and facilitates litigation where negotiation fails.
Sidebar
Gentrification
THESE FOUR CHARTS show the number of home mortgage loans made by HMDA reporters in 1990 per 100,000 owner-occupied housing units for the four major metropolitan areas of Philadelphia, Atlanta, Chicago and Los Angeles. This mortgage flow rate is shown for various census tract categories - for example, lower income African-American census tracts as a group or moderate income white census tracts as a group. The data is based on a computerized analysis of the 1990 HMDA data conducted by Essential Information’s Banking Project.
Census tracts classified as "Minority: 50 percent-75 percent" are those in which all people of color (not African Americans alone) comprise 50 percent to 75 percent of the census tract population. A comparable definition applies to those in the "Minority: 25 percent-50 percent" category. Census tracts are classified according to 1980 Census data. The charts do not provide loan flow data for census tract categories which had less than 1,000 owner-occupied housing units.
In some metropolitan areas, the relatively high mortgage loan flows shown for the various lower income census tract categories reflect a considerable level of gentrification. For example, the 1990 HMDA data show that of the 279 home purchase loans made in Atlanta’s "lower income" black census tracts 62 percent were made to upper and middle income borrowers and 40 percent were made to whites. In Los Angeles, the 1990 HMDA data indicate that 55 percent of the total of number of 2280 home purchase loans made in the "lower income" census tracts were made to upper income persons.
Sidebar
Redlining Chicago
GIVEN THE SEGREGATED NATURE of the housing markets in most U.S. cities, mortgage discrimination against minorities is as much discrimination against neighborhoods as it is discrimination against individuals. The map on the cover reveals the strong correlation between neighborhood race and home mortgage loan approval rates in Chicago. The map depicts the approval rate for applications to purchase one to four family homes received by all HMDA reporters in Chicago during 1990. Census tracts where the approval rate is 50 percent or less are shown in yellow, while tracts with an approval rate between 50 percent and 75 percent are shown in blue. Census tracts with an approval rate above 75 percent are shown in gray. The red line circumscribes census tracts in which minorities comprise 50 percent or more of the population.
Chart 5 is based on the same data as the cover map, except the home mortgage loan approval rate is calculated for census tract categories rather than individual census tracts. For example, the approval rate for all home mortgage loans made in African- American middle income census tracts was only 62 percent, compared to 80 percent for white middle income census tracts. Approval rates were not calculated for census tract categories for which the total number of applications was less than 50.
by Peter Bosshard
ZURICH - While Swiss citizens still like to believe that their country’s foreign reputation is made of chocolate, cheese and the Red Cross, Switzerland is actually best-known as a safe haven for the ill- gotten wealth of elites around the world. The Shah of Iran, Ferdinand Marcos, "Baby Doc" Duvalier, Sese Seko Mobutu and Nicolae Ceaucescu are just a few of the global villains who have hidden their assets in Swiss bank accounts and have cast a dubious light on the mountain republic.
International scrutiny of Switzerland’s banking practices is increasing. In 1990, for example, Philippine activists formed a "Swisswatch" group to protest the Swiss courts’ uncooperative handling of the Marcos deposits. To the dismay of Swiss authorities and business circles, the activists picketed the Swiss embassy in Manila for weeks and brought the issue to the attention of the international media.
Now, urging their nation to shed its association with the fortunes of deposed dictators, a network of Swiss citizens is pushing for banking law reform to eliminate incentives to relocate flight capital in Switzerland.
Capital flight
"Are Swiss bank accounts only for the very wealthy?" asks an advertisement placed by a Hong Kong-based money analyst in South, a now-defunct magazine once widely read by Third World elites. The answer reads: "Not at all. But they may be one of the reasons why the very wealthy got that way - and stay that way. ... If you’re after financial privacy, a Swiss bank account is the world’s greatest bargain."
Switzerland today does more foreign private banking than any country in the world - not in per capita, but in absolute, terms. Private banking is the most important service which Switzerland offers to global elites, and arguably its biggest contribution to the impoverishment of the Third World. Given the secretive nature of the business, it is not possible to definitively state the amount of Third World flight capital residing in Swiss bank accounts. Data compiled by the reputable McKinsey consulting firm on the role of the Swiss financial center, however, suggest that private Third World deposits in Swiss bank accounts total roughly 250 to 300 billion Swiss francs. (At present, 1.3 SFr. equals U.S. $1.00.) The Berne Declaration, a non-governmental organization, estimates the inflow of capital flight at 47 million Swiss francs per day.
According to the Economist magazine, "International private banking and tax evasion border on the synonymous." In other words, wealthy private citizens who bring their fortunes to Switzerland will usually not declare these assets to tax authorities. Furthermore, since many countries in the Third World do not allow free export of capital, Third World private deposits are often exported illegally - through private messengers or through illicit business practices such as the underinvoicing of exports or the overinvoicing of imports.
Tax evasion and illegal export of capital are the two most common practices which constitute capital flight. Assuming that the McKinsey studies are correct, approximately one out of every three flight capital dollars from the Third World is handled by Swiss banks. Credit Suisse banker Hans Mast, meanwhile, estimates the Swiss share of worldwide flight capital at 8 to 10 percent.
Banking on reputation
"The police should fulfill their mandate and confiscate unlawfully collected money twice a day," says Hans J. Baer, a well-known Zurich private banker. But let there be no misunderstanding: Baer is referring not to unlawful bank deposits, but to beggars in downtown Zurich. "The beggars and the drug addicts in the middle of the city are a gigantic competitive disadvantage. Our clients notice that Zurich has become less secure and dirtier than any other banking city," he says.
The concerned banker has a point. Heroin addicts in downtown Zurich mar Switzerland’s image of financial security which is preferred by wealthy foreign clients. Depositors are attracted to the Swiss financial center because of its social stability, banking know-how, location and legal foundations.
Switzerland’s political and social stability is unmatchedanywhere in the world. The country is ruled by a coalition government in which all four major national parties, including the Social Democrats, are represented. Since 1959, there has not been a single shift in the party composition of the government. A neutral country, Switzerland has also succeeded in keeping all foreign wars, including both World Wars I and II, outside its borders for almost 200 years. And social unrest is almost unknown. Since the 1930s, business has negotiated agreements with Swiss trade unions that have prevented most strikes. So Swiss banks are probably still the safest place on earth for ill-gotten, or untaxed, dollars.
Swiss banks also benefit from a reputation - built up over more than 200 years - for unique expertise in private banking. Certain banking families in Geneva have personally handled the fortunes of their client families for many generations. Their discretion and security is probably unequaled worldwide. And these bankers know the business of investing private deposits. Foreign clients walking into a Swiss bank can speak English or Spanish without any problems. Swiss bankers’ expertise is complemented by Switzerland’s technical infrastructure, ranging from airports to telex communications, which usually run efficiently. And Switzerland’s location in the center of Europe allows typcial foreign clients to visit their Swiss bank once a year, on the way to skiing vacations in St. Moritz or Zermatt. This is a comparative advantage with which Luxembourg and other financial centers cannot compete.
Keeping secrets
A legal system which places a premium on banking secrecy is yet another attraction to depositors looking to hide their money. Swiss banking secrecy laws are not stricter than those of their competitors in Austria or Luxemburg - for example, Swiss bankers are required to know their clients, and their Austrian competitors are not. But Switzerland’s secrecy rules are more than sufficient to satisfy depositors seeking to conceal their accounts. A few legal clauses play a crucial role in protecting the Swiss banks’ interest in the capital flight business:
o Strong sanctions. Violations of Swiss banking secrecy are punished more severely in Switzerland than in other countries. In practice, however, such violations almost never occur.
o Aiding and abetting. There are no legal provisions in Switzerland on the handling of flight capital. Instead, a "gentlemen’s agreement" monitored by the Federal Banking Commission prohibits banks from actively aiding and abetting capital flight. A Swiss banker is not allowed, for example, to organize a messenger service for private fortunes from, say, Lagos or Manila to Geneva. But the gentlemen’s agreement does not prohibit so-called passive aiding and abetting of capital flight. In practice, Swiss bankers are legally allowed to accept foreign deposits even if they know that appropriate taxes have not been paid on them and that they have been exported illegally. As long as the active part in the deal is played by a Hong Kong analyst, by a dubious foundation in offshore Liechtenstein or by a Swiss lawyer, the Swiss banks are not held legally accountable.
o International legal cooperation. Saudi arms dealer Adnan Kashoggi was brought to trial in New York in 1990 after being arrested in Switzerland and extradited to the United States. Switzerland maintains a good international reputation in relation to extraditions, but a very mediocre one in the case of financial derelicts. In fact, a state judge in Geneva who was supposed to deliver bank documents on Kashoggi’s illegal business practices to the New York court simply refused to do so for over seven months. "I would like to send some troops to Geneva to confiscate these documents, but unfortunately I can’t," Pierre Schmid, director of the Swiss office of international legal assistance, told Multinational Monitor.
In cases of fraud and corruption, Swiss authorities are slow to accomodate international legal proceedings. Swiss banks and the Marcos family, for example, have been able to block the release of the infamous Marcos deposits to the Philippines for more than six years now. Switzerland does not lend international legal assistance at all in cases of normal capital flight - Swiss law explicitly excludes tax evasion and illegal export of capital from such assistance.
Call for reform
A growing number of Swiss citizens, hoping to promote justice and improve their country’s reputation, are calling for reform of the country’s banking system. In May 1984, Swiss citizens voted on an initiative which proposed legal measures to curb tax evasion in Switzerland, along with restricting the role of Swiss banks in promoting international capital flight. The initiative was resoundingly defeated, by a margin of 73 to 27 percent. Later, official polls found that 60 percent of the voters actually supported measures against capital flight, but had rejected the initiative because of its internal provisions. Nonetheless, after the vote, the capital flight issue fell out of the Swiss political debate for several years.
In 1991, the Berne Declaration and the Action Group Financial Center Switzerland issued a manifesto for a "Switzerland without flight capital," a motto which echoes the 1989 initiative for a "Switzerland without an army." The manifesto addresses the main flaws of the legal situation in Switzerland, charging that "Swiss banks support corrupt elites and governments in the Third World and contributes to the increasing poverty of their people." The manifesto demands that Switzerland no longer shelter financial derelicts from international legal proceedings; that all aiding and abetting of capital flight by banks be prohibited by law; and that the Swiss government support international legal coordination on the issue so that imposing measures against capital flight in Switzerland will not simply shift the capital flows to other financial centers.
In the following months, the manifesto was signed by close to 200 non- governmental organizations from Switzerland and the Third World. Support came from across the political spectrum, from the Swiss Social Democratic Party to the Catholic Women’s Federation.
A Christian Democratic Congressperson has introduced a bill in parliament that reflects the manifesto’s demands. In October 1992, non-governmental groups staged a national action week to demonstrate popular support for measures against the inflow of flight capital to Switzerland. An expert hearing, local public meetings and a campaign newspaper spread critical information on the issue. Grassroots campaigners distributed fake flight capital bills on the streets in order to raise public awareness.
The campaign promoters are also working to reform Switzerland’s international reputation, which plays such a large role in sttracting flight capital to the country. They have sent letters to finance ministries around the world informing them about Swiss NGOs' campaign for legal changes. And advertisements in foreign newspapers, for which the funds are being secured, should have the same effect. Switzerland, the ads will say, might not be such a safe haven for flight capital in the future.
An interview with Marcos Arruda
Multinational Monitor: What is the origin of Brazil ’s debt crisis?
Marcos Arruda: During the 1970s, there was an enormous flow of petrodollars seeking easy investments throughout the world. The Northern countries sent ambassadors offering very cheap loans to finance investments in Southern countries. The 1970s was the decade of the two oil crises of 1974 and 1979, and it was also the decade of military regimes all over the world, many of them sponsored by the CIA. During the 1970s, 18 out of 21 Latin American nations were under military dictatorships. So the bankers actually dealt with our dictators on the big loans that created our countries’ overwhelming indebtedness.
The military dictatorship in Brazil used the loans to invest in huge infrastructure projects - particularly energy projects - that were useful to the private sector. After the government investments cleared the path, private capital was drawn in with subsidies, fiscal investment incentives, even co-investments with state companies, and private investors reaped the profits.
The state projects were intended to serve as radiators of development. The idea behind creating an enormous hydroelectric dam and plant in the middle of the Amazon, for example, was to produce aluminum for export to the North. The project involved the use of subsidized energy from the hydroelectric facility, minerals from Para (a state in northern Brazil) and a plant set up by transnational companies, including Alcan and Alcoa , in connection with a Brazilian state company. The government took out huge loans and invested billions of dollars in building the Tucurui dam in the late 1970s, destroying native forests and removing masses of native peoples and poor rural people who had lived there for generations.
The government would have razed the forests, but deadlines were so short that they used Agent Orange to defoliate the region and then submerged the leafless tree trunks under water. Now the trees are rotting, and we are having to pay millions of dollars to clean up the excessive amount of organic matter that is decomposing under water.
The hydroelectric plant’s energy is sold at $13 to $20 per megawatt when the actual price of production is $48. So the public sector of Brazil - meaning taxpayers - is providing subsidies of $28 to $35 per megawatt. We are financing cheap energy for transnational corporations to sell our aluminum in the international market, often to themselves; Alcoa in the United States or Alcan in Canada buy what Alcoa sells from Brazil, a product with very little value added.
We think these sorts of projects are destructive to the environment and financially irrational for the Brazilian government. The government is now responding to this irrationality with the magic word "privatize."
MM: What has been the overall effect of the debt on the Brazilian economy?
Arruda: Let’s take the decade of 1980-1989, which is now being called a lost decade - as I am sure the 1990s will be. From 1980 to 1989, Brazil paid a total of $148 billion as service on its debt - $90 billion in interest and the rest in principal. In 1980, the debt was $64 billion. Ten years later, having paid $148 billion on that debt, Brazil now owes $121 billion. This illustrates the vicious cycle of the debt, which has a simple logic: the more we pay, the more we owe. We argue that unless we break this cycle, there is no way out.
The way to break the cycle is to cancel the debt. But even cancellation will not solve the whole problem. Why? Because it is the very model of development that we have adopted in Brazil that is at the root of the process of indebtedness. And this holds true for all of the South. Our government and the rich of our countries have talked us into the idea that the more we imitate the North, the more we will develop. The International Monetary Fund [IMF] and the World Bank have come up with the same recipe for the development of the entire South, saying, "If you follow this prescription, you will clean up your economy, you will reshape your financial flows and you will be on good terms with the international financial community." But we’ve done it for 13 years now, and the results are devastating.
The main component of the adjustment process prescribed by the World Bank and the IMF for Brazil and the South as a whole involves restructuring our economy so as to drive all savings to investments in exports. The logic was: exports are the main source of foreign currency; sell your products abroad and you will have currency to pay the debt. So everywhere in the South there has been a massive effort to produce enough goods for export at the expense of the internal economy.
Let us think of our national economy as divided between the domestic economy and the external economy that produces for other countries. How can you drive investments in the internal economy to the external sector of the economy? By reducing the effective demand of the internal economy, reducing the real purchasing power of wage earners and using the surplus investment to produce for exports. This has meant 10 years of impoverishment and decapitalization of the domestic economy, which the national figures do not reflect.
The GDP figures show that we have had fair results because our exports did very well. Brazil alone averaged exports of between $25 and $30 billion every year.
However, what counts in paying the debt is not how much you export. What matters is the trade surplus, the difference between what is exported and what is imported. So the other mechanism to gain international currency to pay the debt was to compress imports. Since most of our industries still have to buy equipment and technology from abroad, the primary method for import compression involved deindustrialization, the cutting-down of internal production. For the most part, our industry could not replace its equipment over the last 10 years, so it is worse off now than it was 10 years ago.
Through the various adjustment measures, we actually were able to produce a trade surplus of approximately $69 billion in the 1980s. But we paid $148 billion to service the debt. How did we cover that deficit? First, we depleted our international reserves, which a nation maintains to cover imports that it cannot cover with its export earnings. Second, we took out new loans to pay old loans. That is the crucial element of the vicious cycle of indebtedness: you stop borrowing to invest in production, and you borrow to pay the former debt. The money does not even come in; it goes from one banker’s book to another, in the process becoming a liability of the Brazilian government.
MM: What is your argument in favor of cancellation of the debt?
Arruda: Many loans were illegal according to our countries’ existing constitutions. They were often secured under unconstitutional terms, requiring, for example, that a country give up its sovereignty and accept a biased court to decide contractual disputes. They were also often secured without any knowledge of Congress, which is itself a violation of the law. We believe that there should be an audit of our debt and we should decide how much of it is legal and how much is illegal and therefore should be recognized as nonexistent.
There are other important reasons the debt should not be paid in full. First, the creditors knew who they were lending to. The banks should be responsible for their irresponsible loans. They were lending money to unaccountable governments. The bankers knew that sooner or later the governments would be taken down and those loans would be called into question. They entered into those transactions anyway. So the creditors have to pay part of the price.
Second, our debt increased sharply as a result of the unilateral U.S. decision at the end of the 1970s to increase interest rates. Those interest rate increases multiplied the amount of Third World debt - at least that which was negotiated under flexible term interest rates - three or four times. This is another factor that was external to the actual borrowing process and should be taken into account when we decide how much we should pay.
Third, there is a secondary market for debt, in which the free market establishes how much any given Third World country’s debt is worth. Why don’t we use the free market rule to evaluate how much we should be paying as interest on the debt? In the case of Brazil, if you take the debt as $120 billion, and you take into consideration that the market value of our debt titles is 30 cents per dollar, the country should have to pay interest on only $36 billion out of the $120 billion. And yet, this year alone, Brazil is probably going to pay between $10 and $12 billion in principal and interest.
But the Brazilian government is not interested in confronting the creditors because it continues to cling to the myth that we cannot grow without foreign capital. This may be true for small countries like Puerto Rico or Uruguay , but it is not true for large countries like India or Brazil, especially given our immense natural resource base. If we decide that the existing model of development is not desirable, then we can go another way. Each part of the world can go a people’s way: a Latin American way, an African way, a Hindu way, instead of the white Western way of conceiving development.
MM: What elements have made up the imposed Northern method of development?
Arruda: After 1985 and the build-up of the Third World debt, the World Bank declared that it would make loans to Third World countries to begin to pay back or buy back their debts, but only if the countries agreed to abide by conditions. These included opening up their economies, bringing down tariff and non-tariff barriers, facilitating international investment in their countries, reducing the size of their governments, privatizing state companies and accepting debt-for-equity and debt-for-nature swaps. Latin America’s oil producing countries, Mexico and Venezuela , have accepted or are in the process of accepting these conditions. Just imagine the pressures on the other countries that do not produce oil. Argentina sold out and is now giving in to the conditions of the World Bank and the IMF.
Southern governments have reshaped the economy of their countries to the priorities of the North. The deal offered by the North was that it would help Third World countries diminish the size of their debt if they continued to pay. We argue that we cannot continue to pay. We have to use the surplus we are producing to invest in the internal economy. We have to redistribute wealth so that people’s demand for products increases, the economy grows again and only then can the surplus be used to pay the debt.
MM: What has been the effect of privatization in Brazil?
Arruda: Brazil has sold some of the most productive state companies to the private sector at very low prices. If the government prices the companies too low, it ends up giving out public assets that were the result of investments over decades.
Who buys these discounted companies? Usually companies of the same industry which already have oligopolistic power. Take the steel sector, which is run by a small number of companies. State investment in that sector was very important in regulating the market as well as not allowing it to be totally controlled by a cartel. Now we are selling the state steel companies and we are increasing the oligopolistic power of the cartel in that sector.
By criticizing the privatization policy, we are not saying that we reject all privatization. I belong to the Workers Party, which argues that we need a deep restructuring of the state of Brazil. But that restructuring does not involve transferring the best and most productive assets of the state to the private sector. Rather, we advocate democratizing the state.
MM: What do you mean when you talk about a Latin American model of development, or about democratizing the state?
Arruda: First of all, we want to move away from the logic of the free market, which is not truly free. The United States and Japan protected their economies when they were in the process of industrialization. Now we should have the same right to protect our economies.
The second element is to submit capital to the rule of human needs, putting human beings and their labor at the center of our projects. We have to give people the power to manage, control and participate in decision-making about the direction in which their companies, factories or farms are going to move. There must be more collective ownership and co-management of production. Collective decisions should be made about trade and about which technologies to adopt.
We argue against an economy centered on capital and based on the logic that the main purpose of economic activity is to produce more and more. That means depleting nature, destroying natural resources and using up non-renewable sources of energy.
We have to use the economy of enough as the criterion to plan the economies of the South and the North. There has to be a redistribution of wealth and resources from North to South. The North is using most of the world's energy resources. The North is the cause of most of the world's pollution, natural destruction and waste precisely because of its compulsive drive to always produce more. The North has to give up some of its excessive consumption. The world is one and its resources are limited. One of the conditions necessary for structural transformation of the South is structural transformation of the North.
At this time, the world is moving in the opposite direction. In 1960 and 1970, the richest 20 percent of the world controlled 70 percent of the world’s income. By 1980, the figure rose to 76 percent, and, by 1989, to 82.5 percent. So there is an acceleration of income concentration on a world scale which means fewer people have greater wealth, and more people are in need, everywhere on the globe. Something has to change for the earth to be viable over the next millennium.
MM: Do you view the creation of Mercosur, a planned common market for the Southern Cone of South America, as an example of a "Latin American model of development?"
Arruda: We do need a subregional arrangement that prepares the ground for more extensive integration. Countries of the subregion need to organize themselves to not submit so quickly to the strongest power in the region which is the United States. But even that benefit is undercut by the existing role of Northern corporations in our economies.
The Mercosur treaty sets January 1, 1995 as the date for the economic and commercial integration of Brazil, Paraguay, Uruguay and Argentina . Tariffs on between 400 and 900 products, ranging from agro-industrial goods to cars, are to be gradually reduced until they are eliminated altogether in five years. The agreement also covers infrastructure, especially energy. The intention is to more completely integrate, but these products and areas are to be integrated first.
There were many mistakes in setting the 1995 date, and in the treaty negotiating process as a whole. The treaty was agreed upon without any serious study of the reality of trade between these countries. There was no research about how each of the products will be affected by the creation of the free trade zone. How are these products’ markets structured? How do the products flow? How many people and what sectors do they involve? What will be the social, environmental, political and economic impact of creating a commercially integrated zone for each of these products? These questions were not considered.
The treaty process was almost totally improvised. Private companies are mostly in the front line of this process, because the governments don’t have all the information. And even if they did, they are not willing to take a leadership role. Europe has been integrating for almost 40 years, and when European countries attempt to negotiate economic, monetary, financial and even political integration, the conflicts are so great that they cannot come to an agreement. I believe that our timeline for the creation of Mercosur is absolutely unrealistic, that the process of commercial integration is going to have a very negative impact on people’s lives and that integration will intensify the process of production for exports in a way that is unsustainable.
MM: What are the main forces pushing Mercosur and pushing it so quickly?
Arruda: Companies that have already been working in this direction like Autolatina, which is a joint venture of the Brazilian subsidiaries of Ford and Volkswagen formed to face the competition of GM , Fiat and Mercedes Benz in the region. Autolatina was formed long before the Mercosur treaty was signed in 1991 and now it is one of the companies that is most prepared to take a prevailing role in the process of integration. Other strong proponents include grain companies and chemical companies like the German Bayer and BASF .
MM: So foreign multinationals that invest in the Southern Cone are well positioned to take advantage of Mercosur’s free trade zone?
Arruda: Absolutely. There is a growing trend toward creating export processing zones, which are completely free of controls and regulations. This gives transnational corporations the right to move in and produce without abiding by any rules. Proponents say that this is a way of preparing the ground for integration, but what it actually does is provide open havens in which corporations of any country, including those of the North, can come in, settle down and become an integral part of the territory that will have protections regarding the rest of the region and the world.
The fact is that these economies are already penetrated by Northern corporations. The creation of a zone that favors internal trade obviously has an underlying statement: "We protect ourselves from capital or trade coming from outside the zone." But we are still looking for the protections from the outside. Because when free market and neoliberal ideology is so widespread, countries are concerned with reducing and eliminating protections regarding any type of capital. So the idea that we are in the process of integrating the Southern cone is, in part, a lie. The governments are not interested in protecting the economy of the region from outside actors or in allowing this subregion to develop its own industrial infrastructure to produce and export with sovereignty or capacity to compete.
MM: How will the impeachment of Brazil’s President Fernando Collor de Mello affect Brazil’s basic economic development strategy?
Arruda: After Collor stepped down, his successor, President Itamar Franco announced a new secretariat. The two men now responsible for economic decisions are Paulo Haddad, a professor and consultant, and Gustavo Krause, an economist who was mayor of a medium-sized city of the Northeast. Both tend to be conservative, the latter being a member of the parties that kept the reins of power during military rule. So far, in terms of economic development, they have defined only what the Itamar adminstration will not do or change.
They do not seem to recognize that the 10 years of recession with inflation, which ruined our economy and caused severe suffering for the people, prove that the IMF’s and the technocrats’ concepts that have dominated economic planning for decades have failed with respect to the aims they proclaim. They do not intend to redefine "modernization" to give it a comprehensive meaning that includes social and human, scientific, technological, political and cultural development, rather than simply extensive and non-selective privitization.
They also seem to have decided that the politics of indebtedness - and Brazil's relationship with international creditors - will continue as under Collor. If these hypotheses are borne out, I foresee a new inflationary surge, deeper recession and growing masses of unemployed people. Without a deep change in the rhythm of debt repayment, and in our relations with creditors and transnational capital, we will never overcome the crisis, nor escape the position of being subordinate to priorites that are not our own.
by Virginia Warner Brodine
HAVANA, CUBA - Although suffering from both the 33-year-old U.S. trade embargo and the collapse of favorable trade relations, Cuba has bucked the global trend of poor countries eviscerating their environmental protections. With the country mired in its deepest economic crisis since Castro took power, Cuban legislators wrote environmental protection into the nation’s constitution this year, and the government has enacted a series of measures designed to protect the island’s ecology. Nevertheless, the clash between a long-term interest in preserving the environment and the temptation to ensure economic survival in the short term by exploiting island resources presents Cuba with some very difficult choices.
Forest protection
One of Cuba’s earliest environmental protection efforts was a move toward reversing the deforestation which had reduced woodlands to 14 percent of the island’s total land area by 1959. Using mature reforestation methods, Cuba has increased its forested area by more than 4 percent. It has ended its old practice of clear-cutting and diminished its reliance on monoculture crops. Fifty-five percent of new tree planting is for protected areas and 45 percent for commercial purposes, including logging and the production of oils used in pharmaceuticals and paints. Inter-planting with fruit trees is becoming a common practice, with mango trees frequently sharing space with fast- growing Caribbean pines, for example. Cuba’s people have actively engaged in community tree-planting schemes around schools and other institutions and along the highways. Over one-half of the population has been involved in these planting projects.
The Zapata wetland on the south coast and the Sierra Maestra National Park are among Cuba’s protected regions, and national parks now cover 100,000 hectares of land. Forest protection varies in degree and enforcement, and is strongest in the country’s bioreserves. The bioreserves comprise about 15 percent of the forest area and are used primarily for scientific study. Other areas are less protected and more heavily used for logging or recreation.
But the economic crisis is placing new pressures on the forests and Cuba’s forest protection and reforestation policies may soon fall by the wayside. For example, the oil shortage has spurred the Institute of Transportation into studying methods of using wood to run the railroads. On the other hand, Helenio Ferrer, vice president of COMARNO, the National Commission for the Protection of the Environment and Natural Resources, says that Cuba is cultivating other plant types for energy use which grow rapidly, burn well and are not as irreplaceable as trees.
Alternatives to oil
The cutoff of Soviet oil has forced Cuba to enact an emergency conservation program as the nation’s annual oil imports have plunged from 13,000 tons to 6,000 tons in the last few years since the severe reduction of trade with the formerly socialist countries. The government has contingency plans to keep the country running on as little as 4,000 tons annually. Government officials view conservation, biomass, mini-hydro and solar project not solely as emergency measures, but as permanent alterations in the country’s energy production mix.
The most visible sign of conservation is the ubiquitous bicycle. There are now 800,000 bicycles in Havana alone, most purchased from China . Cuba will soon produce bicycles domestically, and they are expected to be a principal form of local transportation well into the future.
Almost 30 percent of Cuba’s energy supply now originates from biomass. Of Cuba’s 160 sugar mills, 104 are totally powered by their own bagasse, a by- product of sugar production. In addition, waste fiber is used to make paper and other products. The process, however, deprives fields of the harvest detritus that has traditionally played an important fertilizing function. Farmers have partially solved this problem by reconstituting the plants’ waste water and returning it to the fields. The agricultural sector is also making heavy use of animal manure.
Hydrological sources of energy are limited, but small hydro projects, built with assistance from a German church-based organization, provide electricity for some isolated mountain communities.
Although Cuba harnesses little solar energy, the abundant sunshine it receives makes the island a good candidate to develop a vibrant solar industry. Now, prompted by the oil shortage, the government has established a Solar Institute in Santiago de Cuba. The Institute has primarily been engaged in small-scale projects such as water heating.
Unfortunately, Cuba is also continuing to develop non-renewable energy projects. It is constructing a nuclear power plant and undertaking a joint project with a European consortium to explore for offshore oil. Cuba’s illusions about the safety of nuclear energy were shattered by the disaster at Chernobyl, particularly since children affected by that accident were brought to Cuba for medical treatment, but the desperation caused by the oil crunch is so severe that the government is going ahead with its nuclear power plant plans anyway. Juan Antonio Blanco, professor of international relations at the University of Havana, describes Cuba’s resort to nuclear energy as being "like chemotherapy for a cancer patient. When it is a matter of survival, one takes the risk."
The price of pesticides
As the examples of forest and energy policy illustrate, the pervasive economic crisis intersects with environmental issues in a wide variety of ways. In some areas, it has actually led to a strengthening of environmental policies.
o The economic crunch put an end to revolutionary Cuba’s large-scale, centralized agricultural system’s intensive use of pesticides and chemical fertilizers. The lack of funds to purchase chemical pesticides and fertilizers on the world market made the move to organic farming more urgent. Farmers are replacing pesticides with biological controls, and reductions in chemical fertilizer are slated to continue, according to Ferrer, "to an ultimate goal of phasing chemicals out entirely."
Farmers are returning to more traditional and sustainable practices. A previous drive to replace farm animals with tractors has been reversed. Dairy herds are being built up as part of the effort to make Cuba self-sufficient in food. Farmers are also experimenting with newer methods such as using manure in the production of biogas and to help breed a worm that in turn is used for animal feed.
o The Cuban recycling experience contrasts dramatically with U.S. practices, where local government recycling usually comes only in direct response to the loss of landfill sites, reinforced by a growing public awareness, and is marred by lack of industry use of what has been collected. Recycling is far better organized and more nearly complete in Cuba, where the population now mines the waste stream for any useful material. From banana peels to toothpaste caps, everything possible is reused.
But in many other cases, the economic crisis is limiting the ability of the government to enact environmental programs, or leading it to pursue environmentally risky economic policies.
o Cuba’s efforts to build up its tourism industry as a means to generate foreign currency pose a number of environmental threats, but after some unpleasant lessons, the government is now working carefully to mitigate them. A causeway built as part of the tourist development of the Key islands off the country’s north coast interfered with the circulation of the water in the Straits of Florida which in turn depleted the fish habitat and caused mangrove trees to die. Once the case against the causeway was made, however, the government responded quickly: it removed a major span and replaced it with a bridge. Now interdisciplinary teams are doing baseline studies to determine the amount of development the Keys can sustain without losing their environmental integrity. These studies will determine the type and extent of hotel building and construction of other tourist facilities that will be permitted.
o The government is working to clean up the polluted Havana Bay, and is cracking down on industrial managers responsible for its contamination. For example, the government ordered managers of a fertilizer plant which was dumping waste into the harbor to change their operating practices. After failing to comply, they were charged with negligence, tried and are now in prison.
But the government’s clean-up efforts are hampered by lack of funds for a major overhaul of the city’s sewer system, built in 1902. The problem is less severe in newer sections of the city that were constructed with their own systems. The most advanced system is a housing project called Las Arboledas, which is currently being built. The end- products of sewage treatment will be water, usable for irrigation of the individual and community gardens which are now a feature of the Cuban urban landscape, and sludge, which is safe for fertilizing the gardens. Architect Gabriela Gonzalez acknowledges that there is a cultural barrier to the use of the sludge, which he hopes will be overcome by education and experience.
Environmental consciousness
The future of Cuba’s environmental initiatives is uncertain. In some ways, it is hard to see new governmental environmental programs and sensitivities surviving the enormous economic pressure which the country will be under for the foreseeable future. On the other hand, the emerging environmental consciousness of Cuba’s well-educated population and Cubans’ identification with the country’s land, waters and mountains - Cubans speak of "the island" as often as they call it by name - should buttress the government’s new emphasis on environmental sustainability.n
Sidebar
Global Warming
CUBANS ARE DEEPLY CONCERNED about the prospect of global warming and the failure of
the Rio Earth Summit to seriously address the greenhouse effect. The country is
particularly vulnerable to a rise in the level of the seas, since a very small rise in sea level
would swamp the Zapata wetland, reducing Cuban land area by 15 to 25 percent.
Scientists at the Institute of Geography point out that most research on global warming has been done in temperate areas of industrialized countries. They point out the need for international monitoring stations for the natural environment stretching through the Caribbean, Central America and northern South America. With its existing 68-station meteorological monitoring network and environmental science stations, Cuba is well positioned to participate in this globally significant scientific work, but more international support is needed.n
-V.W.B.
SYMBOLIZING THE INCREASING INTEGRATION of the world economy, the first piece of the empire assembled by the U.S. oil baron John D. Rockefeller is now owned by a British company. But changing national ownership has not affected the social orientation of the former Standard Oil of Ohio (Sohio), now owned by the oil giant British Petroleum (BP). BP has remained true to Rockefeller's ruthless legacy, placing its pursuit of profits above any human or environmental concerns.
Sohio, however, is just one important part of a massive multinational corporation whose early growth was closely tied to British imperialistic expansion. BP benefited enormously from Britain’s control of Iran ’s (then Persia’s) oil supply in the beginning of the twentieth century. Through its exploitation of Iranian resources, the company eventually developed into a powerful presence among the Seven Sisters oil companies. Today, BP is the largest company in the United Kingdom , the second-largest in Europe and the third- largest oil company in the world. BP’s London division is a $59 billion entity. Internationally, BP has sought and gained a reputation as an aggressive force in 70 countries, spending $20 billion in the 1980s to swallow its competitor in the North Sea, Britoil, along with Sohio in the United States.
In recent years BP has intensified its oil exploration efforts in various parts of the world while actively buying and transfering assets. In 1989, the company sold its coal mining and minerals operations in Australia , Europe, the United States and South Africa to Rio Tinto Zinc as part of its strategy to concentrate on oil, gas and chemicals.
Oil exploration and production account for 20 percent of BP’s revenues. BP’s primary exploration projects are in Alaska and the North Sea, with an increasing focus beginning in the late 1980s on China , Russia , Vietnam and West Africa. In 1991 the company produced more than 400 million barrels of crude oil, condensate and natural gas liquids and had proven reserves of 4.6 billion barrels of oil and 11 trillion cubic feet of natural gas.
BP is a major producer of chemicals, which account for 8 percent of its total revenues. The company’s products include petrochemicals and polymers, especially ethylene and derivatives, used in packaging, housewares, construction materials and cables; acetyls, used in paints, textiles, solvents and drugs; nitriles, used in synthetic rubber and plastic; and specialty products for aerospace, automotive, electronics and plastics industries. Another 8 percent of revenues come from production of Purina brand animal feed for the livestock industry, including products for fish farming and poultry breeding.
Refining and marketing account for 64 percent of BP’s revenues. BP operates five refineries in the United States, five in Europe, two in Australia and one in Singapore which altogether processed a total of 1.8 million barrels of crude oil per day during 1991. The company co-runs an additional refinery with Royal Dutch Shell in South Africa. BP sells refined oil products throughout the world, mostly through its 7,400 U.S. and 7,700 European service stations.
BP’s oil refining, trading and marketing in South and East Asia extend from South Korea to Indonesia, with operations based in Singapore and Kuala Lumpur, Malaysia . BP has a one-third stake in the Singapore Refining Company and in a refinery at Pasir Panjang in Singapore. In September 1990, BP began operating Papua New Guinea ’s first commercial hydrocarbons project. The company also has a stake in the Chevron-operated Kubutu oil exploration project in Papua New Guinea which the oil companies expect will produce 100,000 barrels of oil a day and environmentalists fear will bring catastrophe to the previously pristine Kubutu Lake ecosystem [See Assault on Papua New Guinea," Multinational Monitor, June 1992 ].
Fueling apartheid
BP prides itself on knowing no boundaries in its transnational ventures and it vehemently defends its extensive operations in apartheid South Africa. The international anti-apartheid movement regards the company as a long-standing enemy. BP sells oil and gasoline to the South African military and co-operates Durban’s South African Petroleum Refineries, the largest refinery in the country.
BP is one of the last three multinational oil companies which continue to refine crude oil in South Africa despite an international oil embargo. The company also violated the United Nations oil embargo against colonial Rhodesia (now Zimbabwe), supplying the then white-minority-led government with oil smuggled through South Africa and Mozambique until the country gained independence in 1980.
In 1979, BP’s Nigerian holdings were nationalized in response to allegations that the company was violating Nigerian sanctions and using its operations there to supply oil to South Africa. BP’s Nigerian project, a joint venture with the Norwegian government- owned Statoil, resumed its operations in 1991.
BP’s South African subsidiaries include: BP Southern Africa Ltd., which markets petroleum products; Adibis Ltd., which markets chemical additives; and South African Lubricants Manufacturing Co., a lubricants blending operation, which is another joint venture with Royal Dutch Shell. In 1990, BP had 3,187 employes, $342 million in assets, 864 retail outlets and 125 depots and distribution points in South Africa.
In 1990, BP’s U.S. division, BP America, cut its funding of the Cleveland National Association for the Advancement of Colored People Freedom Fund dinner, an annual event, when company officials learned that the theme for the fundraiser was South Africa, and that Randall Robinson, executive director of the Washington, D.C.-based, pro- disinvestment lobbying group TransAfrica, would be the keynote speaker.
According to TransAfrica Deputy Director Anne Griffin, "The BP/Shell operations in South Africa are an international model in the anti-apartheid movement of what should not be allowed to happen. Until apartheid is completely and overwhelmingly dismantled," she says, the organization remains opposed to foreign companies doing business in South Africa and will continue to sponsor its boycott of BP products begun in January 1986.
BP justifies its presence in South Africa by stating its position that "more investment means more employment" and therefore "more income and more housing and more education" in South Africa. Cleveland TransAfrica representative Grace Waite Jones charges, "The company says it is giving employment opportunities to Black South Africans. But the opportunities provided its workforce are negligible when compared to BP’s negative impact: the stalling of democracy in South Africa. Without crude oil, the South African government would stop working. So BP is keeping the apartheid government alive."
In 1986, BP Southern Africa began funding an integrated housing development in Cape Town, which it says will contribute to the elimination of segregation in housing. "We believe we can do more good by our presence in South Africa than we can by pulling out," says Thomas Koch, manager of public relations at BP America. Jones argues, "A couple of nice houses paid for by BP do not make up for apartheid segregation. Any charity the company performs in South Africa is akin to putting a tiny bandaid on an open wound."
BP’s America
Much of BP’s international clout comes from its growing success in the United States, where in recent years the company has become a major competitor with U.S.- based oil companies. BP America currently accounts for about 40 percent of the parent company’s global assets.
BP America has undergone a number of mergers and realignments in the past 20 years. The company’s original North American division, BP Oil Corporation, was headquartered in New York. On January 1, 1970, BP Oil merged with Sohio. BP and Sohio agreed that BP’s 25 percent interest in the Ohio company would be increased to 53 percent when the companies’ Alaska production reached 600,000 barrels a day, which occurred in January 1979. In March 1987, BP bought the rest of Sohio and is now the largest crude oil producer, one of the largest refiners and the seventh-largest retail gasoline marketer in the United States.
Since June 1987, British Petroleum has owned 100 percent of BP America, which is headquartered in Cleveland, Ohio. The company touts itself as a positive force for urban renewal in Cleveland, employing 4,000 people and making financial contributions to the local United Way chapter and other non-profit organizations. Jones, however, who held monthly demonstrations at the BP headquarters between 1989 and 1991 in coalition with anti-apartheid, environmental and anti-Gulf War activists, claims that the company’s commitment to the city is hollow.
"The bottom line is always the profit margin," she says, citing the approximately 800 lay-offs BP announced this year at its 45-story headquarters and research laboratories in Cleveland. "This fall BP also cut short its contributions to the Cleveland Free Clinic and a college scholarship program for local public high school students. The company cries poverty due to the recession, but it is cutting back on public works while it continues to make big profits at the gas stations," Jones contends.
Drilling Alaska
BP America was one of the first companies to exploit crude oil in the Prudhoe Bay area of Alaska. As majority owner of the Alaska pipeline, BP has resisted government regulation of oil activities in the state and sought permission to extend exploration to the Arctic National Wildlife Refuge (ANWR), threatening the existence of 180,000 Porcupine caribou that calve on the Alaska North Slope where BP plans to locate its oil and gas production. Porcupine caribou are a vital source of food for the Gwich’in people who live on both sides of the Alaska-Canada border. BP’s plans to drill in the ANWR indicate the company’s particularly callous willingness to sacrifice the environmentally sensitive area and its people in exchange for regional oil yields which are predicted to last only 6 months. The Gwich’in of Arctic Village and the Venetie, Chalkytsik, Fort Yukon, Old Crow, Fort McPherson, Arctic Red River, Aklavik and other traditional communities in northeast Alaska and northwest Canada have organized in an effort to keep oil companies out of ANWR.
Roger Harrera, executive consultant for BP’s Alaskan operations, BP Exploration Inc., has described the objections to ANWR drilling as an "emotional and aesthetic plea for untouched and untamed natural areas to satisfy the yearnings of mankind for the beauty and wilderness of nature," referring to the controversy as merely "an issue of local fauna." During the Persian Gulf War, BP began pushing its agenda in Alaska as a solution to U.S. dependence on imported oil.
BP Exploration lobbied to pass a bill proposed by Senator Bennett Johnston, D- Louisiana, aimed at reducing U.S. dependence on imported oil that would allow oil and gas development in the refuge. Although the bill was withdrawn in November 1991, environmental and indigenous rights groups in the area believe that it could be resurrected following the 1992 presidential election. For the time being, BP has dropped its Arctic Refuge campaign, but Cynthia Monroe, project coordinator for the Gwich’in Steering Committee in Anchorage, says that "once the next president is elected, industrial forces will gear up again to drill in the refuge. BP and the other oil companies will push very hard to force a pro-drilling bill through Congress."
"BP suceeds as a corporation," says Monroe. "It makes profits for its executives and shareholders. Where it fails is as an energy company, which should develop sustainable and safe energy. That is what BP is not interested in doing." Local criticism of BP’s activities in the region stem from previous environmental disasters: In January 1987, 966,000 gallons of BP oil leaked from a leased tanker into the Gulf of Alaska. In October of the same year, the same ship spilled 630,000 gallons of BP oil in the North Pacific. In 1990, the state of Alaska sued BP and other owners of the Alaska pipeline for not responding promptly and adequately to contain and remove spilled oil from the Exxon Valdez.
Leading in contamination
In August 1991, based on its analysis of Environmental Protection Agency (EPA) toxic release inventory data for 1990 (the most recent available), the Washington, D.C.- based public interest group Citizen Action named BP among the top 10 polluters in the United States. BP America’s two plants in Lima, Ohio were "far and away the biggest polluters in Ohio" according to a report released by the Ohio Public Interest Campaign in November 1988. The Lima chemical plant and adjacent refinery produced 68 million pounds of toxic pollution in 1987, including 8.2 million pounds released into the air, 58.2 million pounds injected underground, 380,000 pounds dumped into the Ottawa River and one million pounds disposed of on the land. The same two BP America plants also lead Ohio in chemical accidents, having spilled or accidentally released more than 300,000 gallons and 33 million pounds of pollutants into the water, groundwater and air between 1978 and 1988, according to the Ohio EPA.
Ed Hopkins, director of Citizen Action’s toxic action project, says that many of the chemicals released by BP America in Lima are potent carcinogens, including benzene, chromium and acrylonitrile. Others can cause genetic damage, fetal damage or birth defects at unsafe levels of exposure; these include formaldehyde, ethylbenzene, methyl ethyl ketone (MEK) and carbon tetrachloride. Lima residents are afflicted with abnormally high death rates for cancers of the lung, rectum and cervix and for emphysema, chronic bronchitis and bronchial asthma, according to Ohio Department of Health studies. Residents of the south side of Lima, near the BP plants, suffer from chronic nosebleeds and watering eyes.
In 1989, Lima area residents formed a community organization, Allen County Citizens for the Environment (ACCE), a BP watchdog organization to pressure the state to monitor the health risks posed by the company to the 1,000 employees at the Lima refinery and chemical plant and to local residents. "BP has treated us as a PR problem instead of taking our concerns seriously," says ACCE member and former president Norine Warnock. "The company is not used to having citizens ask questions. BP says enough has been done because the county commissioner completed an air monitoring study. Well, the study looked at car exhaust. It did not mention acrylonitrile or ammonium, which is a serious lung irritant."
In 1991, ACCE brought a lawsuit against BP, claiming that the amount of pollutants discharged from the Lima refinery into the Ottawa River exceeds the company’s National Pollutant Discharge Elimination permit. A U.S. district court ruled, however, that there was "insufficient evidence" of the charges. BP responds to accusations of environmental negligence by pointing to the recent replacement of a 35-year old nitric acid plant in Lima with a new $17 million facility, which the company says will reduce acid-rain producing nitrogen oxide emissions by 95 percent. Dave Little, spokesperson for ACCE, says that "the primary problem is that the company is trying to get away with the absolute minimum," describing BP’s attitude towards environmental and citizens concerns as "hostile."
"Allen County is an economically depressed area," says Little. "For about two years now the company has been using the line that anything done for the environment will cost jobs. Well, what is really hurting the economy here is Lima’s reputation. Outside of this town, people know that Allen County ranks number one in Ohio for pollution and that BP’s Lima plants rank number one in the state for emissions. People won’t move here. Businesses won’t move here."
"I have health problems," says Warnock, "and my four-year-old daughter has serious respiratory problems. Maybe those problems are not connected to BP but maybe they are. Who is going to tell us? I’ve spent thousands of dollars on hospitals and medication for my little girl. That money doesn’t help the economy in Lima; it only helps the hospital. The guy across the street has cancer. The woman down the street has brain cancer. The woman around the corner has brain cancer. The woman who lives next door to my child’s friend has cancer. The woman on the next block has breast cancer. The guy next door to her has cancer. And so does the woman next door to him. Those are just the houses I can see when I am looking out my own front door."
The situation in Lima presents a worst case scenario which is not anomalous to BP’s record of environmental accidents and violations:
o On August 20, 1992, the environmental organization Greenpeace International named BP as one of Scotland’s two biggest polluters. According to Greenpeace, oil, toxic organochlorines and heavy metals have been poured annually from a BP plant into Scotland’s estuary and coastal environments.
o A survey released in July 1992 by the Oakland, California-based Public Data Project found that BP’s chemical facility in Hull, England discharges twice the toxic MEK into the water than the total amount of MEK releases in the United States.
o In July 1991, BP was one of ten major oil companies cited by the U.S. Environmental Protection Agency (EPA) for discharging contaminated fluids from service stations into or directly above underground sources of drinking water. BP agreed to pay a fine of $74,000 and to clean up the contaminated water sources by the end of 1993. As of the same month, the EPA had identified BP as a potentially responsible party in the creation of 23 Superfund hazardous waste sites.
o In February 1991 a mechanical defect in underground pipes for an BP project at the British Stansted airport northeast of London caused the spill of 57,000 gallons of aviation fuel, killing hundreds of birds and fish and polluting the Stort River.
o On February 7, 1990, a tanker carrying BP oil spilled 400,000 gallons of Alaskan crude oil along the Orange County, California coastline off the shore of Huntington Beach. Oil residue from the spill contaminated the Huntington Beach Wetlands, which are a refuge for migratory waterfowl and contain a number of endangered species. The following month, California’s state Department of Fish and Game accused BP of falsely claiming to have performed oil spill cleanup work on Orange County’s Shoreline.
o In 1990, BP agreed to pay a $2.3 million fine as part of a settlement of an $11 million lawsuit brought against the company in 1986 by the EPA in connection with illegal discharges from BP’s Marcus Hook refinery into the Delaware River.
o BP London outraged environmentalists in 1990 by launching an ad campaign that promoted a new brand of unleaded gasoline with the claim that it caused "no pollution." BP later apologized for the statement.
BP’s Koch points out, however, that the company and its partners in the Wytch Farm oilfield development in southern England have been recognized by The Royal Society of Arts for integrating the development into "a scenic area of high amenity value."
Disgraceful labor record
BP has demonstrated no more respect for its workers than it has for the environment, and has racked up a miserable labor record.
o In January 1992, the Irish Gentlemen’s Union Club sponsored protests in Cleveland in response to BP’s refusal to sign the MacBride Principles, an international covenant that supports equal employment rights for Catholics in Northern Ireland. Koch says that the company does not intend to sign the principles. "We don’t believe it’s necessary," he asserts, "We are conducting our business in full compliance with fair employment laws."
o In January 1991, the Washington state Department of Labor fined BP America $135,000 for an explosion at a BP refinery that killed one worker and injured six.
o In 1991, BP was among a large group of coal producers fined by the U.S. Department of Labor for tampering with coal dust samples submitted to the federal agency in charge of monitoring mine health conditions [See The Great Coal Dust Scam," Multinational Monitor, July/August 1991 ].
o In September 1990, BP America paid $445,000 to 500 minority job applicants to settle a race discrimination case with the U.S. Department of Labor. A federal review of BP’s hiring practices in 1988 and 1989 determined that the difference between the percentage of people of color applying for clerical jobs at the company’s Cleveland headquarters and the percentage of people of color actually hired for those positions constituted race discrimination. The Labor Department’s Office of Federal Contract Compliance Programs reported that only 40 percent of applicants were white while 58 percent of jobs were given to whites. Under the settlement, 500 clerical applicants - 300 within the company seeking the clerical jobs, and 200 from outside the company - received a one-time compensatory payment from BP.
o Construction workers at BP’s North Sea operations confronted the company with a wave of wildcat strikes in 1989, using sit-ins on oil platforms to appeal for improved safety conditions and union recognition.
Citizens fight back
BP’s oil and chemical empire continues to grow, garnering profits at the expense of human rights, environmental health and safety. In a public relations brochure appropriately titled "The World of BP," British Petroleum maintains that its belief in responsibility to the public has resulted in "a proud history and a strong foundation for all our tomorrows." Yet the company’s actual record creates an entirely different picture -- of an arrogant multinational presence surrounded by victimized communities.
Fortunately, citizens’ organizations will continue in their efforts to hold the company accountable for its actions. "Even after five years of dealing with BP, I would like to think that it could start running a much cleaner operation," says ACCE’s Warnock. "I would like to think that its management could start taking us seriously. I don’t think BP is anywhere near that point. But we will keep trying. We are tenacious." Grace Jones agrees. "British Petroleum’s record stands, in South Africa and here in Ohio. And people are beginning to take notice."
A fire at the Imperial Food plant in September 1991 killed 25 workers and injured more than 50 others. The fire began when oil from a conveyer belt leaked onto a gas-fired chicken fryer. One hundred employees attempted to escape but found that many exit doors were barred. Roe had ordered that the doors be kept locked to prevent workers from stealing chicken parts and going outside for coffee breaks, and to keep insects from getting inside the plant.
Roe is eligible for parole in less than three years. The plea agreement dismissed charges brought against the plant’s managers, James Hair and Roe’s son Brad. Roe faces at least 19 lawsuits filed by the families of the victims.
"I have mixed emotions," says Dick Schultz, director of the North Carolina Occupational Safety and Health Project. "The penalty should have been more ... He’ll be back on the streets in three years. The positive side is that 19 years is 19 years more than any other sentence for an employer in the state for workers’ deaths."
David Graham, assistant district attorney in Monroe, North Carolina, said that the charges against Brad Roe and James Hair were dropped because the investigation found that the Imperial Foods was run "as a dictatorship." Graham says that Roe "personally formulated the locked door policy," and insured that the policy was carried out by plant janitors.
In the aftermath of the fire the state of North Carolina fined the plant $808,150 - the largest fine in the history of the state for workplace-safety-regulation violations. Since the accident, Roe has declared bankruptcy and closed all of his operations.
Members of the Canadian Association of Smelter and Allied Workers (CASAW) Local 4 have been on strike at the site since May 22, 1992. Royal Oak Mines hired replacement workers to continue production in the mine. According to the union, six of the nine workers killed in the September 18 accident were union members who had crossed the picket line to return to work. The other three were replacement workers.
CASAW charges that the accident stemmed from unsafe conditions at the mine which sparked the strike. When the explosion occurred, the miners were about 220 yards underground, travelling to their work area in a small railway car. The union claims that the company was transporting explosives into the mine when the railcars derailed, causing the explosion.
Royal Oak vigorously denies the union’s charges. "Claiming that the men had explosives in the car is absolutely untrue," Manager of Investor Relations Graham Eacott says. "There is absolutely no doubt that [the explosion] was deliberately set off. It wasn’t an accident. It has nothing to do with safety issues at all."
"If this was an accident," Harry Seeton, president of Local 4, says, "the company would immediately shine the light away from itself - and ... on the union."
The union distrusts the RCMP’s ability to fairly determine the cause of the accident. The RCMP’s chief investigator told CASAW that no one investigating the accident has any experience with underground accidents, according to Seeton. The union is calling for the Territories’ government to conduct an independent inquiry into the cause of the explosion.
Craven contracted with pesticide manufacturers to conduct residue tests on 43 pesticides to be submitted to the EPA under the Federal Insecticide, Fungicide and Rodenticide Act to enable the agency to set appropriate tolerance levels for the chemicals. The laboratory was charged with tampering with the concentrations of pesticide solutions being tested and manipulating controls on instruments to achieve the desired results on graphs. Consequently, pesticide manufacturers were defrauded of money they paid for the tests, and false information was submitted to EPA for use in setting tolerances and registering pesticides. Hugh Lowe, an attorney representing Craven, refused to comment on the indictment.
Susan Cooper of the National Coalition Against the Misuse of Pesticides says that the EPA inspection program has been consistently lax in attacking false data connected to laboratory testing. "The inspection program is a disaster," Cooper says.n
Mask of Democracy:
Labor Suppression in Mexico Today
By Dan La Botz
Boston: South End Press, 1992
190 pages
ON AUGUST 12, President Bush, Mexican President Salinas and Canadian Prime Minister Mulroney announced the conclusion of negotiations over the North American Free Trade Agreement (NAFTA) to encompass Canada , Mexico and the United States . In early October, presidential candidate Bill Clinton expressed reserved support for NAFTA, yet stipulated that he will only endorse an agreement that guarantees protection of U.S. jobs. In the United States, much of the debate over the agreement has focused on NAFTA’s threat to U.S. workers. Economists and labor leaders argue that the current version of NAFTA will inevitably result in an enormous loss of U.S. jobs as corporations relocate to Mexico to take advantage of lower wages and lax enforcement of standards. Both the AFL-CIO and the Washington, D.C.-based Economic Policy Institute estimate that approximately 500,000 U.S. workers will lose their jobs to lower-paid Mexican workers if the agreement goes through.
Less frequently discussed north of the U.S./Mexican border are the grave implications of this agreement for Mexican workers. Over the past 20 years, multinational corporations have relocated to Mexico to take advantage of the country’s maquiladora system, which provides non-Mexican corporations incentives to export into the United States. Wages, as well as environmental and labor standards, are notoriously low in the maquilas. In light of the proposed agreement which will expand the maquila system throughout the country, Dan La Botz’s disturbing book on labor rights in Mexico becomes all the more urgent.
Mask of Democracy: Labor Suppression in Mexico Today examines the history of the labor movement in Mexico, focusing on the country’s legal system which sanctions and promotes labor repression and on the effects of privatization and export- driven development on Mexican workers and unions.
La Botz outlines the working and living conditions faced by Mexicans today. Wages are half of what they were 10 years ago; the unemployment rate hovers at 25 to 30 percent, not accounting for the underemployed; safety and health conditions, already low, are deteriorating. Working conditions are tougher for Mexican women who work both in the formal economy and in the informal sector as street vendors, domestic workers or homeworkers and earn even lower wages than their male counterparts. Few have access to daycare, severe sexual harassment in the workplace is rampant and women’s role in the labor movement is severely restricted. Mask of Democracy also notes that millions of Mexican children work illegally, often in hazardous jobs.
La Botz argues that employers, the corrupt leadership of "official unions" and the repressive Mexican government use brutal methods to squash attempts by workers to protest these conditions or advocate for change. "Employers and union officials have ... threatened, beaten, kidnapped or even murdered labor activists. Those responsible for the violence are seldom brought to justice. The government repeatedly and continually uses massive police and military force to keep workers and unions under the control of [Salinas's ruling Institutional Revolutionary Party] the PRI," he writes.
The book makes the case that the Mexican legal system is designed to deny workers’ rights. La Botz writes, "The Mexican institutions which deal with labor are organized to ensure control by the official party and its unions, in an embrace that strangles all initiative or freedom. Mexican labor law and the institutions which administer it systematically deny workers their fundamental rights to free association, to labor union organization, to internal union democracy, and to carry out their own programs."
Most union members have been forced to join unions affiliated with the PRI, many as a condition of employment. Both the Boards of Conciliation and Arbitration and the Secretary of Labor regularly refuse to grant labor union charters to independent unions, with the exception of "white," or company-controlled, unions, which are routinely chartered. State labor authorities routinely deny workers the right to strike by declaring their strikes illegal or non-existent on the basis of technicalities. Rank-and-file union members have little or no control over union policies or leadership - dissident workers can be expelled from the union by an exclusion clause which also allows employers to fire them.
La Botz examines several private sector strikes and concludes that the Salinas administration’s push toward privatization and free trade pose significant threats to Mexican labor. "[Workers] demanding their rights be respected in the private sector," he writes, "are an even greater detriment to Mexico’s ‘modernization’ program based on a cheap-wage force and production for export than are public sector workers, and are therefore at greater risk." Workers at the Modelo Brewery , the Tornel Rubber Company and Ford Motor Company were all deprived of basic labor rights including the right to bargain collectively and to strike. Workers at all three companies met with physical and legal abrogations of their rights when they attempted to organize.
Perhaps most significant in light of the move toward NAFTA is La Botz’s examination of the maquiladora system as Mexico’s chosen model of development. Wages have plunged in the maquilas, from an average U.S. $1.38 per hour in 1982 to an estimated $.51 per hour in 1991. Exposure to toxics and environmental contamination along the U.S./Mexico border where the maquilas are located pose grave threats to workers’ health. Workers in the maquilas receive little help from their unions, the majority of which are affiliated with the PRI.
Mask of Democracy is a thorough and well-researched examination of the origin and current state of labor repression in Mexico, based on compelling interviews with Mexican workers and activists. It is particularly vital reading at a time when free trade is being strongly advocated by industrialized nations. The book is written with a deep understanding of what the corporate push for global economic integration will mean for labor standards and the lives of workers throughout the world. La Botz writes, "Mexican workers and their labor movement have already felt the impact of freeing trade for an entire decade. As they have been required to shape themselves into a cheap labor force with no rights, in order to make themselves more appealing to potential investors, they have lost their human dignity inch by inch."n
- Holley Knaus
Banking on the Brink: The Troubled Future of American Finance
By Roger J. Vaughan and Edward W. Hill
Washington, D.C.:
The Washington Post Company, 1992
366 pages
ONE THOUSAND U.S. BANKS are dying and perhaps 1,000 more are on the edge of insolvency. According to Banking on the Brink, a major new study by Roger J. Vaughan and Edward W. Hill, banks, which report all loans at their original value, are obscuring investment deterioration - particularly in "nonperforming" and commercial real estate loans. Banking on the Brink presents data which discount troubled loans at each of the over 12,000 banks and 1,500 bank-holding companies in the United States to estimate what the loans are actually worth.
When this accounting veil is lifted, Vaughan and Hill find that it would have cost the District of Columbia more than $50 billion to bail out sick banks at the start of 1992. Today, the cost has climbed up to perhaps $75 billion, and could exceed $100 billion if the problem remains unresolved.
Vaughan and Hill dispel important myths about U.S. banking health, providing the following conclusions:
o Banking’s underlying problems are not going away.
o Losses of sick banks cannot be absorbed by healthy ones.
o Repealing what remain of the Depression-era banking laws cannot solve the problems of failing banks.
o Mergers and tough capital requirements cannot rescue most failing banks.
o Preventing sick banks from closing their doors is not the answer.
Regardless of industry claims, Banking on the Brink finds that a taxpayer bailout of sick banks, at the cost of higher taxes, lower investment in infrastructure and cuts in federal services, is "virtually certain." Bank customers will suffer lower interest rates on accounts and higher charges on services, borrowers will be subject to credit rationing and everyone will experience slower economic growth and fewer jobs in the United States. It is not an optimistic picture, but as the authors remark, in this case, "The truth may not set us free, but it’s a start."
- Julie Gozan
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Books, Reports &
Periodicals
By Jonathan Brown
Banking Research Project, 1992
Edited by Jamshid A. Momeni
New York: Greenwood Press, 1986
and Racial Discrimination:
A Microeconomic Analysis
New York: National Bureau of
Economic Research, 1975
Latin America and the Debt Crisis
By Jackie Roddick
London: Latin America Bureau, 1988
The World Financial Crisis
and the Poor
By Susan George
New York: Grove Weidenfeld, 1990
Solidarity vs. Competition
By Kim Moody and Mary McGinn
Detroit: Labor Notes Books, 1992
Diversity, Trends and Conflicts
By Eliana Cordoso
and Ann Helwege
Cambridge, MA: MIT Press, 1992
By Dr. Francois Nectoux
Washington, D.C.: Greenpeace, 1991
Toward A Sustainable Future
By Jonathan Dushoff
Washington, D.C.: Center for Study of Responsive Law, 1992
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