Five or six years ago, Paul Krugman was my idle, but gradually his being an op ed reporter on the New York Times forced him away from things he likely would have posted but for restrictions on what the "mainstream media" can say about the government's activites. But I find his column today an appropriate one vis-a-vis the new situation in Greece.

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July 5, 2015                                                                                                                                     Original Here

Europe dodged a bullet on Sunday. Confounding many predictions, Greek voters strongly supported their government’s rejection of creditor demands. And even the most ardent supporters of European union should be breathing a sigh of relief.

Of course, that’s not the way the creditors would have you see it. Their story, echoed by many in the business press, is that the failure of their attempt to bully Greece into acquiescence was a triumph of irrationality and irresponsibility over sound technocratic advice.

But the campaign of bullying — the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.

What’s more, they weren’t. The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose. The landslide victory of the “no” side offers at least a chance for an escape from this trap.

But how can such an escape be managed? Is there any way for Greece to remain in the euro? And is this desirable in any case?

The most immediate question involves Greek banks. In advance of the referendum, the European Central Bank cut off their access to additional funds, helping to precipitate panic and force the government to impose a bank holiday and capital controls. The central bank now faces an awkward choice: if it resumes normal financing it will as much as admit that the previous freeze was political, but if it doesn’t it will effectively force Greece into introducing a new currency.

Specifically, if the money doesn’t start flowing from Frankfurt (the headquarters of the central bank), Greece will have no choice but to start paying wages and pensions with i.o.u.s, which will de facto be a parallel currency — and which might soon turn into the new drachma.

Suppose, on the other hand, that the central bank does resume normal lending, and the banking crisis eases. That still leaves the question of how to restore economic growth.

In the failed negotiations that led up to Sunday’s referendum, the central sticking point was Greece’s demand for permanent debt relief, to remove the cloud hanging over its economy. The troika — the institutions representing creditor interests — refused, even though we now know that one member of the troika, the International Monetary Fund, had concluded independently that Greece’s debt cannot be paid. But will they reconsider now that the attempt to drive the governing leftist coalition from office has failed?

I have no idea — and in any case there is now a strong argument that Greek exit from the euro is the best of bad options.

Imagine, for a moment, that Greece had never adopted the euro, that it had merely fixed the value of the drachma in terms of euros. What would basic economic analysis say it should do now? The answer, overwhelmingly, would be that it should devalue — let the drachma’s value drop, both to encourage exports and to break out of the cycle of deflation.

Of course, Greece no longer has its own currency, and many analysts used to claim that adopting the euro was an irreversible move — after all, any hint of euro exit would set off devastating bank runs and a financial crisis. But at this point that financial crisis has already happened, so that the biggest costs of euro exit have been paid. Why, then, not go for the benefits?

Would Greek exit from the euro work as well as Iceland’s highly successful devaluation in 2008-09, or Argentina’s abandonment of its one-peso-one-dollar policy in 2001-02? Maybe not — but consider the alternatives. Unless Greece receives really major debt relief, and possibly even then, leaving the euro offers the only plausible escape route from its endless economic nightmare.

And let’s be clear: if Greece ends up leaving the euro, it won’t mean that the Greeks are bad Europeans. Greece’s debt problem reflected irresponsible lending as well as irresponsible borrowing, and in any case the Greeks have paid for their government’s sins many times over. If they can’t make a go of Europe’s common currency, it’s because that common currency offers no respite for countries in trouble. The important thing now is to do whatever it takes to end the bleeding.

THIS WOULD BE GOOD NEWS FOR THE EXPLOITED CHINESE WORKERS -- PROVIDED FOXCONN MANAGEMENT DOES NOT CONTINUE CHEATING. IN EITHER EVENT, PRICES FOR iPHONES WILL PROBABLY RISE.

Blogger's Note: China's most egregious exploitation of workers in high-tech factories like Foxconn Technologies is due to their being cheated by the company's management. Although expressly forbidden by Chinese law and perfectly transparent to regulators (if there are any), no company CEO or manager has ever been prosecuted.

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Foxconn, which recruited workers at a 2010 job fair in Shenzhen, China, said Saturday it would sharply raise its wages.

By DAVID BARBOZA and CHARLES DUHIGG

Published: February 19, 2012

BEIJING — The announcement Saturday that Foxconn Technology — one of the world’s largest electronics manufacturers — will sharply raise salaries and reduce overtime at its Chinese factories signals that pressure from workers, international markets and concerns among Western consumers about working conditions is driving a fundamental shift that could accelerate an already rapidly changing Chinese economy.

Trainees at a Foxconn industrial park in Shenzhen,
China, walked beneath a poster of Terry Gou,
chairman of Foxconn's parent, Hon Hai Precision
Industry.

But the true meaning of Foxconn’s reforms, analysts say, will depend in part on how effectively the company can remake an economic system that has relied for much of the last decade on luring migrants to work cheaply for long hours in mammoth factories building smartphones, computers and other electronics.

Plants depend on workers’ being at assembly lines six or seven days a week, often for as long as 14 hours a day. Such facilities have made it possible for devices to be turned out almost as quickly as they are dreamed up. 

For that system to genuinely change, Foxconn, its competitors and their clients — which include Apple, Hewlett-Packard, Dell and the world’s other large electronics firms — must convince consumers in America and elsewhere that improving factories to benefit workers is worth the higher prices of goods.

Foxconn employees in Shenzhen. The company has
announced plans to invest in automation.

“This is the way capitalism is supposed to work,” said David Autor, an economist at the Massachusetts Institute of Technology. “As nations develop, wages rise and life theoretically gets better for everyone.

“But in China, for that change to be permanent, consumers have to be willing to bear the consequences. When people read about bad Chinese factories in the paper, they might have a moment of outrage. But then they go to Amazon and are as ruthless as ever about paying the lowest prices.”

Foxconn, with 1.2 million Chinese employees, is one of China’s largest employers. It assembles an estimated 40 percent of the smartphones, computers and other electronic gadgets sold around the world. Foxconn’s decisions set standards other manufacturers must compete with.

The announcement by Foxconn, which said that it would raise salaries as much as 25 percent, to about $400 a month, came after an outcry over working conditions at its factories. In recent weeks, labor rights groups have staged coordinated protests in various countries after reports that some of Apple’s Chinese suppliers operate harsh, abusive and dangerous facilities. To stem criticism, Apple hired a nonprofit labor group to inspect the plants it uses.

Workers welcomed the announced raises and overtime limits, though some were skeptical they would cause much real change. “When I was in Foxconn, there were rumors about pay raises every now and then, but I’ve never seen that day happen until I left,” said Gan Lunqun, 23, a former Foxconn worker. “This time it sounds more credible.”

By bowing to such demands, Foxconn has conceded that employees and consumers have gained a sway once possessed only by Chinese bureaucrats and executives at the global electronics firms that hire Foxconn to build their products.

Foxconn’s announcement also reflects how quickly China’s economy is shifting. Many of the country’s employers are facing labor shortages, which also puts upward pressure on wages, as do inflation and government demands to raise minimum wages.

Over 100 million migrant workers returned to their village homes this month to celebrate China’s Spring Festival, otherwise known as the New Year. Traditionally, factories have had no problem luring those workers back. But many Chinese cities are still confronting serious labor shortages, even though the holiday ended weeks ago. A recent Chinese government report said this year’s labor shortage was more pronounced than those in previous years.

And just as China’s exporters are struggling to cope with labor shortages in coastal regions, they are also confronting higher raw material costs and a strengthening Chinese currency, which makes Chinese goods more expensive in other nations.

“China can’t guarantee the low wages and costs they once did,” said Ron Turi of Element 3 Battery Venture, a consulting firm in the battery industry. “And companies like Foxconn have developed international profiles, and so they have to worry about how they’re seen by people living in places with very different standards.”

No other company in the world has quite the manufacturing scale of Foxconn. Nearly every global electronics company has some tie to the manufacturing giant, and while much of its work can be done cheaply, with low-skilled workers, the sheer volume of goods and scale of its operations make it China’s single biggest exporter.

Some of its campuses are considered small cities, with as many as 200,000 workers. Many are housed in dormitories near the assembly lines and are expected to be ready to rush into work should new orders flow in.

The Foxconn model, though, is under pressure. While most companies operate with similar dormitories, wage structures and work schedules, staffing Foxconn’s large sites has grown increasingly difficult. A new generation of young people in China are more reluctant to migrate to coastal cities, live in factory dorms and toil long hours. Many are staying closer to home, because of new opportunities in inland provinces. That has created labor shortages on the coast.

Social scientists say young people here are also less willing to accept factory jobs for long periods. Meanwhile, demographic changes have meant China has fewer young people to join the work force.

If the workers will not move to the coast, the logic is that the coastal factories ought to move to where the workers are living. Big manufacturers like Foxconn have responded to such challenges by moving factories inland.

And worried that the old model is dying, Foxconn has announced plans to invest in millions of robots and automate aspects of production.

David Barboza reported from Beijing, and Charles Duhigg from New York.