Friday, February 28, 2003

Lay Off Jay!
After reading some of the comments made lately about Jay Caruso, I want to say something in his defense. He is definitely an unredeemable conservative; and he does tend to get his knickers in a twist when something offends him. But he is a gentleman, and he is willing to listen, and he has been known to smack down anyone who is disrespectful to Jane. So LAY OFF ALREADY!

Thursday, February 27, 2003

The Attractions of the Isms
Inevitably, when I find myself discussing Latin American politics with Americans, someone asks me why, considering the glaring example of the old Soviet Union and, closer to home, Cuba, Latin Americans seem to be prone to fall for the old discredited isms: socialism, communism, populism.

I always give the same answer: It would happen much less if capitalism wasn't such an effective recruiting agent.

The answer always seem to catch them by surprise. Some get defensive, some offended. The extreme response always is "if you hate capitalism, why are you in this country?"

I don't hate capitalism. I am very fond of it: my dearest hope is that, when I die, I can leave $10 million to my heirs and another $10 million to my favorite charities. But American capitalism has very little to do with capitalism as it is experienced in Latin America. American capitalism, as it is in all of the developed world, is cushioned by a network of social infrastructure, private and governmental, built over centuries. There are limits to what a company can do if faced with issues of public interest, and there are mechanisms for pursuing them if they trespass. This is not the case in Latin America.

Let me give you an example: Aguas Argentinas.

La Matanza is among the poorest districts in the Buenos Aires metropolitan area, a maze of tiny cinder-block homes wedged together along dirt roads. There are no sewers, so the rains flood its houses and septic tanks, which overflow into wells. Boiling is the only form of water treatment, and not everyone can afford the gas to boil the water. Nitrate levels, caused by sewage contamination, are dangerously high and waterborne diseases common. In Argentina, agonizing intestinal bugs cause 20 percent of infant deaths.

In 1993, as part of its deal with the World Bank, Argentina was forced to privatize its water and sewage utility. The government granted the concession to Aguas Argentina, a consortium founded by two French companies, Vivendi and Suez. The consortium promised to reduce water rates and to improve and expand water and sewage services. In order to make the move popular, the Argentinian government drove the price of water up 54% before the contract was signed, allowing the company to roll back the increases and appear as saviors to the population. The deal was considered by the World Bank to be a model for other privatization projects around the world.

The great irony was that the Argentinian public utility was a well-run company, and was showing a surplus. But, as in most Latin American cities, the metropolitan areas had expanded faster than the waterworks could keep up...Capital was needed in large amounts to bring water and sewer connections to the...vast poor neighborhoods of Buenos Aires. But the World Bank refused capital for expansion and upgrades unless Argentina privatized the water system.

At first, Aguas Argentinas made improvements in the old dilapidated infrastructure. However, in spite of having promised not to increase rates for at least 10 years, the company asked and received an increase of 13.5% the next year. Over the next four years they also received $911 million dollars in loans from the World Bank's International Finance Corporation, which also purchased 7% of Aguas Argentinas' shares, becoming a partner in the business.

By 1996 Aguas Argentinas was charging $800 per household to connect to the water and sewage systems. Protest movements began in suburban towns and spread throughout Buenos Aires. The company agreed to reduce the connection fee to $200 but began charging a service fee to old clients to offset the loss, then asked to renegotiate the contract.

Minister of Economy Domingo Cevallo complained to the bicameral commission of the Argentinian Congress that Aguas Argentinas had built only about a third of the new pumping stations and underground mains it had promised to complete by 1997. It had invested only $9.4 million of a promised $48.9 million in sewage networks. In addition, the company had delayed construction of a wastewater treatment plant, resulting in most of the city's sewage being dumped directly into rivers and cesspools, creating serious health hazards and increasing the levels of nitrates in the water.

In order to save its "model" privatization project, the World Bank sent in one of its senior water managers to join the staff of Aguas Argentinas under a World Bank's Staff Exchange Program. This gentleman negotiated the rate increases for the company, then returned to the World Bank and arranged a $30 million water and sanitation loan for Argentina. In 1999, the country signed a new contract, giving Aguas Argentinas exactly what it wanted: it reduced its investment commitments, erased $10 million in fines for non-compliance, and pegged rate increases to fluctuations in the U.S. inflation rate. Nevertheless, in 2002, the company defaulted on about $700 million in loans and threatened to reduce water services unless the government guaranteed the loans in U.S. dollars. When the government refused, the International Monetary Fund forced President Duhalde to authorize a 10% rate hike for Aguas Argentinas as a condition for negotiating Argentina's foreign debt.

As of the beginning of the year, Aguas Argentinas is requesting another 15% rate increase. They are still dumping most of the city's untreated sewage into the Rio de la Plata.

What does this have to do with the "isms"?

Depending on whom you speak, Aguas Argentinas earned either between 15% and 20% each year (the Argentinian Economic Minister); as high as $40% (The Inter-American Development Bank); or $427 million over 4 years (a company spokesman). Former president Menem and several of his ministers are under indictment or investigation for corruption; some of the charges are related to the Aguas Argentinas contract negotiations. A single Menem ally, Santiago Soldati, made a profit of $150 million dollars. Union officials were brought off through a program which offered unions a 10% stake in the new company while firing half the workers. The officials joined the company's board. Meanwhile, according to El Clarin, during a meeting held by consumers in Buenos Aires, it was reported that 500,000 people in a single neighborhood south of Buenos Aires still have no connection to the water and sewer system. A woman who lives in front of the viaduct has to buy bottled water for all her needs. And the company still has not fullfilled its contractual obligations.

The Aguas Argentinas story is just another replay of the poor Latin American's experience with capitalism. Foreign companies come in, with the assistance of international financial organizations, make large profits, which are shared with a few politicians and local millionaires. Meanwhile, his children are still dying of dysentery, intestinal parasites, an assortment of diseases, and plain old hunger (in 2002, more than half the population of Argentina was below the poverty line). Land is owned by a privileged few; in some countries, as high as 70% of the productive land is owned by less than 10% of the population. The lucky poor are laborers that earn in a month what an average American worker earns during his morning coffee break; those who don't have a job scavenge in the dumps of the rich for a living or beg in the streets. There is no such thing as social mobility; the joke is that "if you are born poor and ugly you have a great chance to... die that way." Government officials are more interested in lining their own pockets and climbing their way into the upper crust to bother trying to create any social infrastucture.

If this was your life, wouldn't you follow the first man who promised you better? If someone says, "here's a system that gives everyone a fair share" do you think you would stop to consider questions of private property and complex economic mechanisms? Or would you look at your child's distended belly and scabby face and take a chance? If they were making you pay for rain, wouldn't you fight back?










Tuesday, February 25, 2003

Social Security Privatization
Let me say straight out that I don't understand the fine print of the Social Security privatization plan being floated around. If I understand the outlines correctly, workers would be able to divert some of their social security contribution into investment accounts. But since we would still have to make payments to those currently retired or nearing retirement, we would have to make up the lost funds by (1) raising the retirement age and cutting benefits or (2) raising taxes.

OK so far.

I'm looking at my pay stub. Without going into details, let's just say that I get a real good shave and haircut every month. Letting me divert even 10% of that into an interest-bearing investment would probably make me a lot more secure than relying on Social Security payments. I could even survive a 30% cut in government benefits, more if you let me divert more funds.

Here's the glitch: I would not put it into the stock market. I plain do not trust business any longer.

I am one of America's privileged workers in that, because I work in academia, my retirement funds are not subject to raids by a failing company. I am doubly lucky in that, because my principal account is managed by TIAA-CREF, and is widely dispersed among different investment options (Emma does not believe in putting her eggs in one basket, ever), the hit from the falling stock market, although not negligible, has been cushioned. I have friends, fully vested in some state workers retirement systems, who have taken a 2/3 loss. I know someone who went from millionaire to Wall-Mart employee in two months. Most of the losses came from investments in companies like Enron, touted by trusted Wall Street investment firms whose analysts, it turned out, were publicly pushing stock that they were privately trashing.

There may have been a time when American companies were managed for the benefit of all investors. What we have now is a system where a small elite of mega rich individuals and corporate officers award themselves stock options and golden parachutes with one hand and fire workers with the other. Small investors placed their trust in the idea that the marketplace would make their little thousand-dollar nest egg the equal of Scrooge McInvestor's millions, and that by watching what "the big guys" were doing, they could take a profitable ride on the coattails of the experts. It turned out that "the big guys" were benefiting from all kinds of inside information and accounting tricks that, while not technically illegal, certainly give Mr. McInvestor a huge advantage.

The situation is not helped by deregulation. I am told by conservatives that deregulation improves the markets all around by boosting competitiveness and driving prices down and stock prices up. That may be, in an ideal world; but in this environment, deregulation seems often to increase the fortunes of folks that--surprise, surprise--are heavy contributors to the political campaign financing system. And if the savings and loan and airline industries are any examples, the benefits of deregulation are at best mixed and at worst disastrous.

I'm no economist and I refuse to start now. I suppose it all would work if everyone played by the rules. But they don't, and our government does not seem inclined to make them. A small investor, just to break even, would have to become a stock market expert, instead on just trusting one. As long as the environment remains the same, social security privatization just seems to be throwing good money after bad.

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UPDATE Ariana Huffington tells me that shareholders are starting to take matters in their own hands to straighten out the mess.

Monday, February 24, 2003

The Celebrity Addiction
I came home early today, exhausted and stressed out, and decided to watch some tv before dinner. This was unusual enough to start the cat sniffing around my head and neck, miaowing in a tone clearly meant to imply that the pod people had captured his beloved mistress and replaced her with an inferior clone. After I got him settled down, I started to do a little surfing.

There was Joe Millionaire; the Bachelorette (is there in any language in the whole of the Universe a stupider word?); the preppie killer; a bunch of inane interviewers asking imbecile questions of vacuous pop stars; a mercifully brief commercial for a talk show about mothers who seduced their daughters' husbands; Tonya Harding (Tonya Harding!?); and a myriad other folks whose only goal in life seemed to be to get themselves in front of a camera, any camera, for any reason. Twenty minutes later I finally turned off the infernal machine, got metaphorically on my knees, and asked God one single question:

Who are these people?!

It was meant to be a snarky question but I got an immediate answer: These are the disposable celebrities.

More and more we are living in a culture that enthrones celebrity as the ultimate achievement. Not for any particular reason, just for being or doing something silly or bizarre. It could be, like the preppie killer and Tonya Harding, something reprehensible. No matter; you are famous. Some people actively pursue this status and are encouraged in the pursuit by family and friends, handlers and agents and a ratings-hungry media. They live their fifteen minutes in the spotlight, thinking themselves immortal. And then, as the spotlight moves on to the next target, they spend the rest of their sad little lives on the outskirts of the glitter palace, under the tent of the freak show.

Even the very word used to identify them is loaded with negative implications. Celebrity, in spite of its dictionary synonymity with "fame" or "renown" seems tawdry. slightly soiled; maybe we have made it so by stretching its meaning out of recognizable shape. To be "famous" begs the question: what for? To be "renowned" is to have distinguished oneself in some field of endeavor. To be a celebrity means that your name and face are recognizable to the tv-watching public. This month, anyway.

Even worse that the disposable celebrities are the celebrity ghouls, those people who seem to spend their lives devoted to the pursuit of a kind of borrowed glory. These are the people who really think that there is some kind of personal relationship between them and a celebrity. They stand behind the red ropes at the Academy Awards waiting to wave at their favorite actor, and really believe that his general wave in the direction of the noise means that they have been singled out individually. There's a kind of disconnect from reality that at its most extreme creates stalkers and murderers; empty people looking to fill themselves with fantasy lives.

It's late and I'm too tired, and I don't think I could be philosophical anyway; and besides, I'm sure somebody has already written a couple of books about the syndrome, including a self-help one on breaking the addiction. But there's something sick to this whole thing.