IPS Blog

Defense Contractors Venture into Health Care

Mental Healthcare: Underappreciated and Underfunded

(Image Money/Flickr)

The new champions of the Affordable Care Act are — so the Washington Post’s Business section reported last weekend — defense contractors? As their diet of military contracts gets leaner, the major feeders have been fattening up on new work helping to implement health care reform.

General Dynamics has been staffing the call centers that help consumers navigate the healthcare.gov website.  Northrop Grumman has been managing data-sharing for the National Institutes of Health.  Lockheed Martin has been doing the same for the Centers for Medicare and Medicaid Services.

There are obvious reasons to celebrate this development.  Who could fail to cheer when, as Jay Hancock writes in the Post article, “In a way that is deeply changing Washington contracting, growth opportunities from the federal government have increasingly come not from war but from healing”?

Federal spending is shifting, in a modest way, from guns to butter. Following this money should allow the contractors to let up a little on their clarion calls on behalf of weapon systems the country doesn’t need, including the ones the Pentagon doesn’t even want.

The big contractors are “systems integrators,” as they frequently tell us.  This gives them, in principle, rare capabilities to solve problems for the system that is integrating to provide health care for all.

But here’s why we need to worry:  One year ago, Northrop Grumman paid $11.4 million to settle a case brought by the Justice Department charging the company with improperly billing the government for costs on “hundreds of 2004 contracts.”  This is the very same company that the Department of Health and Human Services hired to help it detect Medicare fraud and control costs.

In 2011, the Commission on Wartime Contracting estimated the cost of waste and fraud related to contracting for the wars in Iraq and Afghanistan to be between $31 and $60 billion.  The range is so large because the Defense Department’s multiple accounting systems — our nation’s largest discretionary account remains unauditable — make hiding costs so easy and counting them nigh impossible. The companies that created so much of this waste are now entrusted with designing systems to control the costs of health care?  We’d better be watching.

From his perch as the next chair of the Senate Armed Services Committee, Sen. John McCain (R-Ariz.) plans to be the scourge of waste in defense contracting. Last week he identified one of his main targets: “cost-plus” contracts. This is the practice going back many decades which guarantees that contractors will be paid for all the allowable expenses they incur in the course of building a weapon system plus an agreed-upon profit. It is a system that reduces incentives to control costs. The cost overruns on the F-35 Joint Strike Fighter, for example — the most expensive weapon system and cost-plus contract in history — were reported earlier this year at $163 billion and have climbed since.

McCain told CongressWatch that he wants to ban all cost-plus contracts: “If you don’t ban them, here’s what happens: They come in with a lowball contract, so they can get the contract, and then that’s why the costs mount.”

Now back to those call centers that General Dynamics is staffing for healthcare.gov. The last line in the Post article reports that the company’s contract with the Department of Health and Human Services is indeed “cost-plus.”

While McCain is mounting his charge against Pentagon waste and these contracts in the Armed Services Committee, his colleagues over at the Health, Education, Labor and Pensions Committee — now charged with oversight of health care contracts performed by defense contractors — had better be doing the same.

Dispatch from Lima: Seven Trends We Spotted at UN Climate Talks

UN Climate Change Conference COP20 Inauguration

(Photo: cancilleriadeperu / Flickr)

The 20th annual UN Climate Change Conference (Conference of the Parties, or COP) is currently taking place in Lima, Peru. It’s a dress rehearsal for talks that should conclude a new international climate agreement in 2015. But with several strands of negotiations between governments, as well as hundreds of events being held in parallel, it can be hard to see the wood for the trees. So we’ve compiled a quick guide to some of the key trends shaping this year’s talks.

1. Zero emissions (but beware the small print)

Addressing climate change means rapidly weaning ourselves off the greenhouse gases that cause it. So what could be more welcome than a goal to reduce greenhouse gas emissions to zero by 2050?

A “net zero” movement is now pushing for carbon neutrality within one generation. But there’s a catch: “net zero” means you can still emit a lot, as long as emissions are somehow sucked out of the atmosphere elsewhere. That provision is already being used to support expensive and unproven measures to capture and store carbon from fossil fuel power plants and industry, as well as controversial, climate-manipulating geo-engineering.

Striving for zero emissions is a step in the right direction, but we’ll need more than a catch phrase to motivate investments in renewables, grassroots empowerment, and straight-up significant reductions in greenhouse gas emissions.

2. Setting your own target

“Intended nationally determined contributions” (INDCs) is the latest acronym in the alphabet soup of jargon that is routinely generated by UN climate talks.

INDCs are a way for countries to declare what concrete actions they’ll be taking to address climate change, in the hope that these ingredients can be baked into a new international climate agreement. The guidelines on what INDCs can be are intentionally flexible and ambiguous, allowing states to declare anything from economy-wide emissions targets to long-term national climate action plans.

Predictably, negotiators are now struggling to articulate INDCs in a way that is fair, equitable, and transparent. A number of developing countries are concerned that INDCs are becoming a ruse for developed countries to ignore tricky questions about their fair share of climate action, based on their current and historic responsibility for causing the problem in the first place.

There’s also a concern that INDCs will just focus on “mitigation” (reducing greenhouse gas emissions) even though, for many countries, adaptation (coping with the climate change that’s already locked in), finance and technology transfers are vital to any new international climate deal.

3. Everyone’s talking about justice

Until recently, if someone said “climate justice” they’d more likely than not be referring to the fact that climate change was mostly caused by a handful of industrialized countries and big corporations, who should pollute less rather than pushing “solutions” with negative impacts on Indigenous Peoples, people of color and the world’s poor. But this year we’re seeing “justice-washing” throughout the COP.

Even Lord Nicholas Stern, a leading capitalist climate economist, has been speaking the language of climate justice. While we are happy to hear that fat cats now have to open their eyes and ears to “local ownership” and “gender sensitivity,” these words shouldn’t be tossed around the point of meaninglessness.

4. Time to clean up climate finance

“Climate finance” is money from developed countries that is meant to help developing countries reduce greenhouse gas emissions (via mitigation) and deal with climate impacts that are already happening or unavoidable (adaptation). To this end, developed countries have promised to mobilize $100 billion dollars a year by 2020.

The reality of the climate finance delivered to date is not all rosy. For example, Japan provided $1 billion in loans to build coal-fired power plants in Indonesia, then counted it as their contribution to a “fast start” climate finance package that ran from 2012-2012. There are plenty more examples of dirty deals masquerading as climate finance, but we can’t afford sparse climate finance wasted on polluting projects.

It’s time for the COP to clearly define what can count as climate finance, including following the demand of civil society groups to adopt an exclusion list that prevents a new, $10 billion Green Climate Fund from funding fossil fuel projects.

5. Big oil everywhere

Last year’s UN climate change conference was awash with corporate sponsorship, which we warned could become “the new normal.” Twelve months on, big oil firms are everywhere. Shell and Chevron even co-hosted an event where the aforementioned Lord Stern spoke against divesting from fossil fuels (particularly oil and gas). Meanwhile, these same companies are lobbying hard to water down any potential climate deal.

What happened to climate change being “the biggest market failure the world has ever seen?” as Stern once wrote? We guess the oil companies never got the memo.

6. Forest conservation gets a makeover

The initiative to Reduce Emissions from Deforestation and Degradation (REDD+) has been a hot topic at the climate talks for several years, but the means of financing forest protection remain unclear.

The initial REDD+ idea, pedaled by the World Bank, was to build a market for forest carbon offsets: big corporations could compensate for their own pollution by paying to preserve tropical forests. But REDD+ has increasingly negative connotations, as many of the initial schemes have been associated with displacing and disempowering indigenous and peasant communities and undermining their land rights.

In light of all the bad press, many forest projects are dropping the REDD+ branding and are simply being labeled “conservation projects” or “administrative agreements.” It remains to be seen whether or not these are any better at helping local people to preserve forests without compromising their livelihoods.

7. Gender, and arguing about its relevance

Developing “gender sensitive” policy is an increasingly important part of emerging climate finance schemes. But some governments object, including those of Sudan and Algeria. They want references to gender removed from the policies being negotiated in Lima. The European Union and Mexico, amongst others, insist that gender is a priority. The impasse continues.

Tom Harkin and This Year’s Nobel Peace Prize

Stop child labor

(Photo: The Advocacy Project/Flickr)

On Dec. 10, anti-child labor crusader Kailash Satyarthi (with Malala Yousafzai) will step onto a storied stage in Norway to receive the Nobel Peace Prize, while here in the United States, Sen. Tom Harkin (D-Iowa) winds down 40 years in the Congress and Senate. Together and individually, these two men — from opposite ends of the earth — have helped immeasurably to combat the worst forms of child labor.

Picture this scene on the National Mall in the summer of 1998, vivid in our memories even 16 years later: Hundreds gather to greet Satyarthi and other marchers at the end of the U.S. leg of theGlobal March Against Child Labor. Since January of that year, under Satyarthi’s leadership, hundreds of thousands of children and their advocates in dozens of countries had marched to tell the story of de facto child slavery and to demand a stronger global convention to ban child labor. When they reached Washington, it was Harkin who stepped forward to embrace the weary marchers, Satyarthi among them, in front of the Capitol before the march’s final stage in Geneva at the International Labour Organization (ILO).

Because of the publicity generated by the march and the clarity of Satyarthi and Harkin and their colleagues, momentum grew for an ILO convention “On the Elimination of the Worst Forms of Child Labour.” Soon thereafter, in a display of bipartisanship unheard of today, Harkin worked with Sen. Jesse Helms (R-N.C.) — yes, that Jesse Helms — to secure the Senate’s ratification of the convention by a unanimous vote. The ILO convention was ratified quickly by more than 150 countries; the number of child laborers and children in dangerous jobs has fallen dramatically since.

Many readers of The Hill know well Harkin’s indefatigable energy to increase the minimum wage and to fight for the rights of workers. From his bravery in exposing human rights abuses in the U.S.-backed South Vietnamese regime in the early 1970s to his battle against the Augusto Pinochet dictatorship in Chile later that decade, to his work for exploited cocoa workers in Africa, Harkin has earned the admiration of human rights and worker rights defenders across the globe.

A key chapter of Harkin’s career has been his unrelenting quest to end child labor, collaborating with Satyarthi. We have been privileged to know Satyarthi over decades of involvement in two groups which he helped to create that are at the forefront of the fight against child labor:GoodWeave (formerly RugMark) and the International Labor Rights Forum. Both of these organizations stand also as part of Harkin’s legacy. Harkin served on the board of the ILRF and he has always been ready to support GoodWeave initiatives.

Part of why these initiatives serve as models is that they are based on local-global links. Early on in Satyarthi’s work in his native India, he built organizations that freed children, as young as 4, from lives of grueling “bonded” slave labor. Some were shackled to carpet looms in horrific conditions. But Satyarthi soon grew to understand that no matter how many children were freed, there were others to take their place — thanks in part to the global demand for hand-loomed carpets. This is where Harkin came in. He was among the few who had the audacity and vision to co-dream with Satyarthi about transforming this vicious global-local link of exploitation into a virtuous link of liberation: GoodWeave created a system of monitoring and enforcing the certification of carpets that gives an incentive to companies to end child labor, employ adults in dignified skilled work, and court consumers who want to buy carpets that are not made with child labor. As a result, buyers of hand-loomed carpets now have a clear choice.

In close coordination with these efforts, since 1995 Harkin has secured over $1 billion from the U.S. Labor Department to support hundreds of projects to combat child labor in over 90 countries.

When the Nobel Peace Prize committee announced its choice of Satyarthi in October, Harkin was exuberant: “It was Kailash’s example that inspired my own work to end the worst forms of child labor around the world. I have always been honored to call Kailash a friend, if not a brother, and I am proud that his work has been recognized by the Nobel Committee.”

And, so let us raise our glasses: As we celebrate Kailash Satyarthi, so too do we celebrate Sen. Tom Harkin. Few have done more to bring the voices of the dispossessed and marginalized into the halls of Congress — and with great humility, great humanity and great prowess. Thank you, Senator.

The Immigrant Community Deserves Bigger and Better

Photo: Flickr/Icars

Photo: Flickr/Icars

So many thoughts rushed through my mind as I stood in the United We Dream office waiting to hear President Obama’s executive action on immigration. I was surrounded by immigrants, Dreamers, allies, and many others who have courageously led the way for this moment to happen.

I thought about my relatives who lack legal status and are forced to live in the shadows. They live with fear of deportation and of being separated from their children every day.

I thought about my friends back in New Mexico who didn’t qualify for Deferred Action for Childhood Arrivals (DACA) in 2012 because they arrived to the United States a month after the deadline.


I thought about the parents of my friends with DACA status who also need relief. They deserve to be recognized as human beings, contributors to society and to live a life of dignity and respect. Relief from deportation and a work permit could be a step towards that.


As eight o’clock drew closer, the crowd grew tremendously quiet. The moment we had been fighting and pushing for had finally arrived. We watched Obama give details of his plan which included granting relief to parents of citizen or resident children, expanding the DACA program, and shifting the focus on deporting felons rather than families.

I looked around the room as the announcement came to an end. The scenes I saw were heartbreaking: young people hugging their parents, tears coming down their faces.  I saw friends comforting each other. I saw the pain and disappointment in the faces of all those who fought so hard for this victory, yet didn’t qualify.

Despite all the sadness and disappointment that six million people will continue to live in the shadows and leave their houses every day not knowing whether they will see their families again, there was excitement and hope.

There was happiness and joy for thefive million people who will qualify and are now closer to living more fulfilling lives with dignity and respect.

This moment was also a celebration. It was a huge organizing victory! People across the country joined forces and pushed for broader relief for families. People everywhere took part in rallies, protests, marches, hunger strikes, petitions and civil disobediences to bring attention to the fear our communities live in, the1,100 deportations that occur daily and the suffering that comes from family separation. Through hard work and determination, immigrant rights activists were able to move the President of the United States to take action.

This is a moment to celebrate the victory, but to also acknowledge that this isn’t enough! The fight continues for the six million undocumented immigrants that were left out. Our communities are tired of being thrown bones every twenty to thirty years and being told to be grateful. They need and deserve something bigger and better. It is time for this pressing and growing issue to be addressed with something more permanent in Congress.
And so I challenge Congress to get something done this year because a half-way measure just isn’t enough.

Darden Launches Unfounded Attack on IPS Research — Again

darden_logoThe Institute for Policy Studies released a report on October 1 which was the first to provide a detailed analysis of the compensation three top Darden executives will walk away with after being urged to resign in the face of investor pressure.

The key finding: Darden CEO Clarence Otis, Jr. and two other top officials are leaving the embattled restaurant corporation with compensation valued at an estimated $68 million.

In defending the payouts, Darden spokesman Rich Jeffers told the Orlando Sentinel (Darden’s hometown newspaper) that the current value of executive stock awards in the report “shows the strong performance for Darden’s shares.” The Sentinel helpfully points out that Darden’s shares have increased 14.5 percent — since Otis announced his resignation on July 28. In other words, he’s benefiting from investor enthusiasm over his departure.

Jeffers also said in a statement: “The figures cited are hugely misleading and significantly overstate the actual severance. The vast majority of the figures cited as severance were actually earned compensation, including the value of already vested stock options and non-forfeitable retirement benefits, that the individuals earned over their entire careers at Darden — which spanned 20 years for Mr. Otis, 15 years for Mr. Madsen and 40 years for Mr. Pickens.”

In fact, the IPS report could not be more transparent. It provides extensive details of the various types of compensation the executives are walking away with, based on the company’s own reports. A table on page 2 clearly distinguishes between “cash severance” and other forms of compensation, including executive retirement funds.

In Appendix 2, the report provides even greater detail on the methodology for calculating the current value of equity-based compensation, with separate columns for option and stock awards that had vested as of the end of fiscal year 2014 and those that will vest before the end of the executives’ severance periods.

The aim of this report is to provide the clearest, most comprehensive picture possible of the fortunes these three executives are likely to put in their pockets after their resignations from Darden. Exact figures will depend on the value of Darden shares when the executives cash in their option and stock awards.

This full picture is important because it reveals the extreme disparity within a firm known for rock-bottom wages for low-level workers. There is a growing body of research indicating that such wide gaps not only violate basic principles of fairness but also undermine business effectiveness.

This is not the first time Darden has responded to IPS research with attempts to obfuscate. In September 2013, IPS Associate Fellow Scott Klinger penned an op-ed that ran in a dozen major newspapers regarding the company’s wage practices for restaurant servers. As Klinger explained in this blog, the op-ed calls attention to the federal subminimum wage for tipped workers, which has remained at $2.13 per hour for more than 20 years. Darden has been a leader in the National Restaurant Association’s efforts to defeat national legislation that would raise the tipped minimum wage.

Samir Gupte, the Senior Vice President for Culture at Darden, claimed the op-ed was full of errors and denied that any workers at Darden make $2.13 an hour. His aim was to confuse the issue by focusing on restaurant servers’ total earnings, including tips, when the op-ed clearly focused on what Darden actually pays these servers directly. In a September 25 article in Nation’s Restaurant News, Darden spokesman Rich Jeffers affirmed the IPS claim by revealing that 20 percent of Darden’s hourly workers receive $2.13 an hour, before tips.

Once again, Darden’s disinformation campaign will likely backfire, raising awareness among more consumers about the company’s unfair compensation practices.

Why the People’s Climate March is Vital

People's Climate March protest

(Photo: Taymaz Valley/Flickr)

The People’s Climate March, where an estimated 400,000 protesters rallied in New York City in support of climate change prevention, offered a once-in-a-lifetime opportunity to experience the vast breadth of issues related to climate change and the diverse array of communities it would impact if left unchecked.

I joined the march because I care about the particular connection between climate change and our food supply. The way we feed ourselves is a vital aspect of our society and our culture — but the unfortunate reality is that the entire food production sector is one of the biggest causes of climate change. Processing, transporting, packaging, and refrigerating food contribute to at least 15% of the overall greenhouse gas emissions, with livestock production alone taking another sizeable chunk.

Coincidentally, this sector is also directly impacted by some of global warming’s worst affects. Climate change is already reducing the availability of fresh water and disturbing seasonal cycles. It’s hurting people’s ability to feed themselves, leading to displacement and raising the numbers of people living in conditions of malnutrition or starvation .

Worst of all, poor countries and communities — which have done little to contribute to the global climate mess — are and will continue to feel the brunt of the consequences. The impact of climate change on our food supply will only exacerbate existing inequalities in access to resources for these communities.

The sheer scale of the climate crisis will constrain and diminish our ability to grow food – unless we change almost everything. It has become evident, however, that systemic change is not likely bound to come from above. It will have to be built from the bottom up, by everyone, together.

The scale of mobilization required is massive, but as the People’s Climate March shows, a cross-cutting movement is indeed growing to combat the present unequal and polluting system. The climate movement is becoming increasingly interdisciplinary, multi-issue, and colorful. And moving forward, all kinds of participants — from trade unions to student associations, environmental organizations to faith congregations — will continue to be needed.

Climate change is likely the biggest challenge of this century. It will touch every person on this planet — which is why everyone can, and should, get involved and contribute to its solutions.



Let Us Eat Cake: The New Census Data on Poverty


(Photo: Bibbit/Flickr)

Poverty fell in 2013 U.S. Census data shows. It inched down from 15 percent in 2012 to 14.5 percent in 2013, but still higher than when the Recession officially ended in 2009.

So not yet time to eat cake.

…Or is it?

Cake and Food Assistance

If many state governors and GOP federal legislators had their druthers, we’d prohibit poor moms from buying cake for their children using food stamps. Cake and ice cream for birthday parties, some politicians apparently hope, will be only for the non-poor in America. Indeed, with the cruel cuts to the food assistance program (Supplemental Nutrition Assistance Program or SNAP) last year and aspirations foreliminating its earned-benefit status, it seems some GOP lawmakers feel that any food at all for poor people should be considered a privilege. This, despite the fact thatSNAP lifted 3.7 million people out of poverty in 2013 and could have assisted many many more.

Cake and Unemployment Insurance

Similarly, Unemployment Insurance proved a critical safety net catching 1.2 millionpeople before they fell below the poverty line. But this number is smaller than previous years due to House leaders allowing the benefit to expire and preventing all attempts to restore it. With a sluggish job market, high unemployment and a minimum wage which doesn’t provide a full-time worker with sufficient housing and nutrition needs in any state in the country, the elimination of this crucial safety net assistance is unjustified and unwise.

Poverty and deep poverty persist in this wealthy nation. Barriers to health care, quality child care, good paying jobs, adequate safety net programs, quality education, safe housing and adequate nutrition persist and austerity approaches increase these.

Cake and Corporate Greed

The good news is that alternatives to austerity for the poor abound. If we leveled down the gobs of frosting on the triple decker layer cakes we regularly serve up to tax-evading corporations, gambling Wall Street wolves and bloated CEO wallets, there would be enough cake to go around. Cut corporate subsidizies, close off-shore tax havens, tax Wall Street fairly, create green good paying jobs and institute universal healthcare are examples of what we can do.

Cake While Incarcerated and Undocumented

Finally, even if we do all of that and every belly has nutritious food and some occasional birthday cake, 2.4 million of mostly low-income people won’t be able to come to the table because they are incarcerated. An additional 11 million undocumented immigrants have no seat at the table at all.

Disproportionately poor and of minority ethnic and racial backgrounds, incarcerated and undocumented people in our country survive- or not- below the radar screen. Most of the those living behind bars in federal prisons are imprisoned for non-violent offenses. Exploding prison populations are squeezing state and municipal budgets. These skyrocketing costs are illogically being paid for by swelling the numbers of people fined and jailed for nothing more than being unable to pay a parking ticket, private probation or court costs. It’s a vicious cycle of cost and incarceration which serves only to create a resurgence of Debtors Prisons in the U.S. while doing nothing to curb costs.

Further, if the currently undocumented workers in the U.S. were to be granted legal right to work, studies estimate they would add over $2 billion annually to state and local tax contributions on top of the current $10.5 billion they already contribute.

So add immigration reform and criminal justice reform a commonsense approach to taxes, subsidizes, wages and budget and guess what?

We all get cake.

Don’t Go Back to Iraq!

(Jayel Aheram / Flickr)

(Jayel Aheram / Flickr)

This is how wars begin.

Barack Obama says we’re not going back to Iraq. “American forces will not be returning to combat in Iraq,” he said on June 19th, “but we will help Iraqis as they take the fight to terrorists who threaten the Iraqi people, the region, and American interests as well.”

The White House says it’s “only” sending 275 soldiers to protect the embassy, it’s only sending 300 Special Forces, they’re only “advisers.” There’s only one aircraft carrier in the region, they say, and a few other warships. They’re considering missile strikes but they’re not going to send ground troops.

Iraq isn’t a start-up war for the United States—we’ve been there before. And these actions increase the danger we could be heading there again. We thought we had a president who learned the lesson, at least about Iraq—he even repeats it every chance he gets: “There is no military solution.”

This is a very dangerous move. President Obama’s words are right: there is no military solution.But his actions are wrong. When there is no military solution, airstrikes, Special Forces, arms deals, and aircraft carriers will only make it worse.

We need to stop it now. Before the first Special Forces guy gets captured and suddenly there are boots on the ground to find him. Before the first surveillance plane gets shot down and suddenly there are helicopter crews and more boots on the ground to rescue the pilot. Before the first missile hits a wedding party that some faulty intel guy thought looked like a truckload of terrorists—we seem to be good at that. And before we’re fully back at war.

Iraq is on the verge of full-scale civil war along the fault lines set in place when U.S. troops invaded and occupied the country more than a decade ago. We need to demand that our government do five things right away:

First, do no harm. There is no military solution in Iraq—so end the threats of airstrikes, bring home the evac troops and Special Forces, and turn the aircraft carrier around.

Second, call for and support an immediate arms embargo on all sides. That means pressuring U.S. regional allies to stop providing weapons and money to various militias.

Third, engage immediately with Iran to bring pressure to bear on the Iraqi government to end its sectarian discrimination, its violence against civilians, and its violations of human rights.

Fourth, engage with Russia and other powers to get the United Nations to take the lead in organizing international negotiations for a political solution to the crisis now enveloping Iraq as well as Syria. Those talks must include all sides, including non-violent Syrian and Iraqi activists, civil society organizations, women, and representatives of refugees and displaced people forced from their homes. All relevant outside parties, including Iran, must be included. Building on the success of the ongoing nuclear negotiations with Iran, Washington should continue to broaden its engagement with Tehran with the goal of helping to bring the Syrian and Iraqi wars to an immediate end.

Fifth, get help to the people who need it. The Iraq war is creating an enormous new refugee and humanitarian crisis, escalating the crisis of the Syrian war, and spreading across the entire region. The United States has pledged one of the largest grants of humanitarian aid for refugees from Syria, but it is still too small, and much of it has not been paid out. Simultaneously with the announcement of an immediate arms embargo, Washington should announce a major increase in humanitarian assistance for all refugees in the region to be made immediately available to UN agencies, and call on other countries to do the same.

This is how wars can be stopped.

Rare Progressive Victory Will Help Build a Peace Economy

Keith Ellison Defense Spending Congress

Rep Keith Ellison presents amendment to Congress on peace economy transitions, June 18 2014

Progressives certainly haven’t had a whole lot to celebrate lately — most urgently, a possible military intervention in Iraq is on the horizon — but on the defense front there’s at least something worth a sip of champagne:

Cong. Keith Ellison (D-MN),  co-chair of the Congressional Progressive Caucus, recently introduced an amendment to the House defense appropriations bill to take $10 million from the Pentagon’s general operating account. The $10 million would be redirected to the Pentagon’s Office of Economic Adjustment,  an agency whose sole purpose is to help communities facing military base closures and Pentagon contract cancellations plan for themselves a future that is not dependent on a militarized economy.

Perhaps most surprisingly, the House of Representatives — the very same body that has blocked immigration reform,  climate change legislation, and cut the food stamp program all while adopting an all-of-the-above approach to weapons procurement — actually voted in favor of Ellison’s amendment.

It was quite a monumental moment. With Cong. Ellison’s leadership, a fractured Congress finally acted, even in a small way, together, providing us with the best chance since the end of the Cold War to achieve a less militarized economy.

I recently co-authored an op-ed on this very subject with William Hartung, Director of the Common Defense Campaign at the Center for International Policy, that Cong. Ellison later asked to be included in the Congressional Record. The op-ed, “Don’t Cut Programs that Help Communities Adjust to Pentagon Spending Reductions,” argued that transition money is needed if we are to help communities dependent on the Pentagon’s inflated post-9/11 budget transition to a civilian economy as our defense spending ramps down.

Now that we are finally seeing the beginning of a modest defense downsizing, to keep the momentum going we’ll need to help these defense-dependent communities, workers, and, businesses in their transition — and most importantly,  ensure that funds are well spent in building a foundation for the peace economy our country needs and deserves.

What Piketty Forgot

(Dai Luo / Flickr)

(Dai Luo / Flickr)

By now, it’s no secret that French economist Thomas Piketty is one of the world’s leading experts on inequality. His exhaustive, improbably popular opus of economic history—the 700-page Capital in the Twenty-First Century—sat atop the New York Times bestseller list for weeks. Some have called it the most important study of inequality in over 50 years.

Piketty is hardly the first scholar to tackle the linkage of capitalism with inequality. What sets him apart is his relentlessly empirical approach to the subject and his access to never before used data—tax and estate records—that elegantly demonstrates the growing trends of income and wealth inequality. The database he has compiled spans 300 years in 20 different countries.

Exactingly empirical and deeply multidisciplinary, Capital is an extremely important contribution to the study of economics and inequality over the last few centuries. But because it fails to address the real limits on growth—namely our ecological crisis—it can’t be a roadmap for the next.

Inequality and Growth

One of the main culprits of inequality, according to Piketty (and Marx before him), is that investing large amounts of capital is more lucrative than investing large amounts of labor.Returns on capital can be thought of as the payments that go to a small fraction of the population—the investor class—simply for having capital.

In essence, the investor class makes money from money, without contributing to the “real economy.” Piketty demonstrates that after adjusting for inflation, the average global rate of return on capital has been steady, at about 5 percent for the last 300 years (with a few exceptions, such as the World War II years).

The rate of economic growth, on the other hand, has shown a different trend. Before the Industrial Revolution, and for most of our human history, economic growth was about 0.1 percent per year. But during and after the rapid industrialization of the global north, growth increased to a then-staggering 1.5 percent in Western Europe and the United States. By the 1950s and 1970s, growth rates began to accelerate in the rest of the world. While the United States hovered just below 2 percent, Africa’s growth rates caught up with America’s, while rates in Europe and Asia reached upwards of 4 percent.

But as Marx observed in the 19th century, economic growth did little to reduce inequality. In fact, as Piketty demonstrates, wealth has grown ever more concentrated in the hands of the few, even as the pie has gotten bigger. Piketty developed a simple formula to illustrate how wealth gets concentrated: when the average rate of return on capital (r) is greater than the rate of economic growth (g)—in mathematical terms, when r > g.

Through the 19th and early 20th centuries, according to Piketty, the rate of return on capital exceeded that of growth, and inequality blossomed in the industrialized world. But in the 1950s, this trend began to shift—not because of redistributive economic policies, but rather as a consequence of historical calamities in the preceding decades. During this time, aggressive social, economic, and tax policies were ushered in by devastation and destruction.

With these policies set in place, the recovery efforts after the Second World War accelerated growth, which for the first time in recent history exceeded the rate of return on capital—that is, g > r—creating a middle-class.

A Mistaken Model

This was the period when economists and policymakers developed a fetish for economic growth, thanks in part to Simon Kuznets, an influential Belarusian-American economist.

Looking at data spanning from 1913 to 1948, Kuznets concluded—mistakenly, according to Piketty—that in the aggregate, economic growth automatically reduces income inequality. Kuznets argued that a rising tide of industrialization would at first create greater inequality as populations were left behind, but once they began to adapt to the new economic conditions, they would eventually gain access to more wealth as they became fully integrated in the new economic model—in essence closing the wealth gap.

It turns out, though, that the rich just keep getting richer.

This misinterpretation helped justify a quest for perpetual economic growth and free markets, paving the way for massive industrialization, accelerated climate change, and widespread environmental destruction, while simultaneously neglecting the very issue Kuznets set out to address: reducing income inequality.

In Capital, Piketty rigorously applies Kuznets’ analysis to a larger dataset and debunks the argument for perpetual growth. Instead, Piketty concludes that industrialization without any enforceable progressive taxation has actually created greater inequality.

Piketty thus forces liberal and conservative economists alike to rethink their models of growth. But if growth isn’t the answer, what is?

The Limits of Growth

Piketty prescribes a few remedies. But he does not take into serious consideration the limits to growth. He is a traditional Keynesian in this regard, which may be his biggest flaw.

His main prescription—a “progressive tax on global capital”—assumes that a 2-5-percent global growth rate is sustainable in the long run and, with a redistribution of capital, will reduce inequality. However, he concedes that a progressive tax on global capital is utopian. So instead, he’ll settle for a “regional or continental tax” as the first step towards a progressive tax on global capital—starting in the European Union.

Piketty’s solutions focus more on taxing egregious levels of wealth concentration than on the systemic conditions that incentivize the desire to accumulate egregious amounts of capital in the first place. He seems to believe that pushing tax rates high enough will deter CEOs from pursuing millionaire salaries, and that this can be done without hindering growth. The first is unlikely, and the second misses the real problem with growth.

Piketty spends about four pages of his 700-page tome talking around the limits to growth, but he fails to adequately address the fact that limitless growth—i.e., consumption—is completely unsustainable on a finite planet. Recent reports from NASA, the Intergovernmental Panel on Climate Change, and the U.S. government’s National Climate Assessment conclude that the planet cannot continue on the same path of economic growth if it is to sustain human life.

What this means is that it doesn’t matter if we implement a progressive tax on capital because our planet will not sustain forever a growth rate of even 1 percent annually. A dead planet will support neither high earners nor tax collectors.

Towards a New Economy

All this leads to a larger conundrum.

On the one hand, we have extreme inequality, where many live on less than $2 a day while others have so much wealth that it would require several lifetimes to spend. On the other hand, we have a climate crisis that has imposed limits to growth, so we can’t grow our way into shared prosperity.

The traditional approach to inequality is to bring down those at the top while raising up those at the bottom. But to what level should we bring people, considering our finite planet?

Do we want everyone to live a mythical American middle-class lifestyle? Where every family of four lives in a two-car-garage home with a TV in every room, and every family member has a smart phone, tablet, and computer? Where they take a vacation to the other side of the globe once a year, and send their children away to a university and buy them a car when they are of age?

Is this the standard of living we want for every person on the planet? Obviously it can’t be—it would require at least five Earths.

Piketty is right that our political economy favors the growth of inequality, and that inequality in turn poisons our politics. But while we should aspire to create a society that shares its prosperity, we need to address a much bigger gap than the one between rich and poor. We need to address the gap between what’s demanded by our planet and what’s demanded by our economy.

At the center of the rapidly growing New Economy Movement are ecological balance, shared prosperity, and real democracy. If we can’t find a way to build all three, then the only economy worth measuring is the number of days we have left.

Thankfully, the New Economy Movement is seriously considering the four-fold systemic crisis—ecological, economic, social, and political—to identify a just transition to the next system. Piketty can show us part of the problem, but he can’t show us how to solve it on his own.

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