31th August 1997


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Heading toward worker backlash in America

EAST HAMPTON, New York — The just resolved United Parcel Service strike was a shot across the bow of the inflationless 1990s. American workers are now beginning to challenge the very forces that have led to a spectacular resurgence in corporate profitability and competitiveness in the United States.

They are saying "no" to years of corporate cost cutting that has been directed primarily at the labour force.

The strike and the settlement, which was largely on the union's terms, question the wisdom of a Federal Reserve that, by leaving monetary policy steady, seems content to ignore the danger of renewed inflation. And the settlement underscores the potential for a sharp decline in the ever frothy stock and bond markets.

These concerns are certainly at odds with today's conventional wisdom. Many believe that the American economy has entered a new era.

According to this tale, the post-Cold War forces of globalization, deregulation and a technology-led Information Age have combined to produce a rare and powerful recovery, led by increased worker productivity.

In such a scenario, wage increases are largely offset by increased worker productivity. As a result, costs are held in check, inflation remains quiescent and corporate profit margins widen inexorably. The financial markets enjoy the best of all worlds: low interest rates that underpin a strong bond market, and healthy corporate earnings that nourish an ever rising stock market.

The productivity-led recovery offers ample rewards for shareholders and workers alike. Labour can reap higher wages as productivity increases, while investors can reap handsome returns.

It is quite possible, however, that a very different scenario has been responsible for the good news on inflation and corporate profits in recent years. Call it a labour-crunch recovery — one that flourishes only because corporate America puts unrelenting pressure on its work force.

That is a much tougher and more pessimistic vision of the U.S. economy in the 1990s. Pressured by intense global competition and frustrated by efforts to boost productivity in information or service industries, businesses become fixated on slashing labour costs, which account for close to 70 percent of all corporate expenses in America.

Intimidated by the ultimate threat of job insecurity, labour initially complies with corporate America's demands.

Companies hire more temporary and part-time workers, and full-time workers are made to stretch their work schedules as never before.

At the same time, employees begin to bear more of the cost of their benefits, including health insurance. And then there is the clincher: Wages, adjusted for inflation, are squeezed, leading to a near stagnation that has persisted for more than two decades.

Unlike the productivity-led recovery, the labour-crunch recovery is not sustainable. It is a recipe for mounting tensions, in which a raw power struggle occurs between capital and labour. Investors are initially rewarded beyond their wildest dreams, but those rewards could eventually be wiped out by a worker backlash.

Investors are quick to repudiate the case for worker backlash and defend the miracles of the productivity-led recovery. And why shouldn't they? The latter promises no end in sight to the glorious bull markets of the 1990s.

But there is one small problem with this grand vision of the brave new world. There is not a shred of credible evidence in the macro-economy that supports the notion of a meaningful improvement in America's productivity.

In the Commerce Department's just completed comprehensive revision of the national economic accounts, the poor productivity performance of the 1990s was left essentially unaltered. It found that the United States experienced average annual gains of slightly less than I percent over the past six years, little different from the disappointing performance of the 1980s and less than half the gains of the 1950s and 1960s.

It is at this point that productivity revivalists claim foul. They argue that the data must simply be wrong. Even Alan Greenspan, chairman of the Federal Reserve, has embraced this point of view, and it seems to have had a major impact on the Fed's recent decisions to leave monetary policy unchanged.

But the weight of evidence is increasingly in favour of the labour-crunch scenario. And it is not just the official statistics on productivity that favour this argument.

There has also been a dramatic realignment of the nation's economic pie, with a much larger slice going to capital and a smaller one going to labour. Corporate profits surged to 9.6 percent of gross domestic product in 1996, the highest share in 28 years, and labour compensation stood at 58 percent of gross domestic product in 1996, well below the high of 59 percent hit in the late 1980s.

Which takes us back to the recently settled UPS strike. One strike hardly makes a trend, but there can. be no mistaking the message from the nation's most significant work stoppage since 1983. Today, with the unemployment rate at a 24-year low, labour unions are emboldened to take action.

And with corporate profitability at its highest in a generation, management has decided that it can afford to give workers a raise. For UPS, the cost of settlement is hardly trivial. By some estimates, it will eventually cost as much as $1 billion a year, and that comes right out of the company's bottom line.

In the end that is what worker backlash is all about. It speaks of a labour force that challenges the very notion of cost cutting, which has been central to America's economic recovery in the 1990s.

Whether future labour battles are fought over wages, part-time work, mandatory overtime, temporary workers or pension and medical benefits, the message will be the same: Gone are the days of a docile American labour force that once acquiesced to slash-and-burn corporate restructuring.


Malaysia debates Islam after beauty contest row

KUALA LAMPUR Three Moslem women, who were rounded up by Islamic authorities in Malaysia's Selangor state for parading in bathing suits in a beauty contest, await their fate outside an Islamic court in Kuala Lampur. (L-R) Noni Mohammad 19, Fahyu Hanim Ahmad 18, and Shalina Shaari 23 , if convicted are liable for a maximum fine of 1000 ringgit ($200) or sixmonths jail or both. Selangor state said it was cracking down on Moslem women and men " who go beyond the limit" in their clothing in public.

The arrest in Malaysia of three Moslem beauty contestants who paraded in swimsuits has touched a sensitive nerve in a country whose official religion is Islam but whose laws are secular.

The move occurred against the backdrop of a controversial government ruling that a course on Islamic civilisation would be made mandatory in universities.

The fact the incidents took place when Deputy Prime Minister Anwar Ibrahim was running the country while Prime Minister Mahathir Mohamad was on leave, added fuel to the fire.

Non-Moslems have long been suspicious of Anwar, who launched his career as a firebrand Islamic youth leader and who chaired the Islamic affairs meeting which issued the ruling on the university course.

"Miss Malaysia Petite" contest raided

The beauty competition row erupted when religious officials raided the finals of the Miss Malaysia Petite contest in central Selangor state in June, and arrested the trio in front of television cameras and a gasping audience.

Part-time models Fahyu Hanim Ahmad, 18, Noni Mohamed, 19, and Shalina Shaari, 23, were fined 400 ringgit ($143) each for breaking a state law.

The law against "indecent" dressing in public was passed by the Selangor state assembly in 1995 but was not widely known. It had not been acted upon until the June arrests in the ballroom of a leading hotel.

The move was hailed by religious authorities as a triumph over what they see as growing moral decay among Moslem youths in Malaysia, where nearly 60 percent of the 20 million population is Moslem.

Recently, religious authorities in Malaysia's Borneo state of Sarawak ruled that Moslem men may not take part in body building contests, because of body exposure.

By then, Moslems themselves were already split over the beauty contest ruling.

"Moslems should support the action as a way to guard the purity of Islam and a step to stop social ills. Why should we sympathise with those who break the law?" university student Haziyah Hussain was quoted as saying in Harakah, the newspaper of the opposition Islamic party PAS.

Others, including the prime minister's outspoken daughter, were livid.

"What worries me most of all is, what next? What constitutes indecency in Muslim women? Not covering our heads? Wearing skirts? Short sleeves?...

"Excuse me, but did the Taliban infiltrate our country?," Marina Mahathir wrote in a July 9 column in The Star newspaper, referring to Afghanistan's purist Islamic movement.

Government leaders red faced

Certain Malaysian government leaders were embarrassed at what they saw as a setback to years of hard work convincing people at home and abroad that Islam is a moderate religion.

"That is not the Islamic way," the prime minister said of the beauty contest raid. "It does not strengthen the people's belief. We can take other methods of action which are more effective."

Mahathir then drew fire, with some Moslem leaders calling him an apostate for his remarks. Later, a government official spoke of a misunderstanding, saying the prime minister had not been accused of being un-Islamic.

Meanwhile, the controversy over the university course bubbled for a couple of weeks until the cabinet ruled the subject would cover both Islamic and Asian civilisations.

Mahathir promoting Moslem prosperity

Mahathir, who has promoted a moderate face of Islam since taking office 16 years ago, frequently says Moslems should focus on building up their wealth and power to break the cycle of oppressive poverty found in many Islamic nations.

He has engineered the rise of a breed of Malay Moslem entrepreneurs through large-scale privatisation of former government assets, to show that given the chance, the country's Moslems can succeed. But Malaysia's rapid economic growth, which created a thriving middle class of Moslem Malays, has brought with it a host of social ills.

Newspapers are filled with stories of narcotics raids on youth hangouts, dumping of illegitimate babies in public toilets, child-custody battles, incest and rape. What worries government leaders is that much of it seems to be happening in the Moslem Malay community.

Mahathir said in July that state chief ministers "would like to ensure that the focus (of action) is on people who rape their children, rape other people, beat their wives and take drugs rather than focusing on people's dresses."

Thousands more flee Kenya's Indian Ocean coast

MOMBASA, Kenya, Saturday - Thousands of people fled from south of Kenya's Indian Ocean city of Mombasa for a second straight day on Friday, ignoring government assurances of their safety.

The government meanwhile agreed with the International Monetary Fund (IMF) to crack down on corruption and rampant tax evasion but won no immediate pledge for resumed IMF assistance.

The IMF said it will only review its decision last month to shelve a $205 million loan to the East African country after the tough measures agreed with President Daniel Arap Moi were enacted.

Throughout the night, men, women and children clutching a few belongings left homes just south of Mombasa and trekked to bus and railway stations in the city or pushed farther south.

Those leaving said they were frightened both of being attacked and of being caught up in a sweep by the security forces, which have arrested more than 450 people this month.

"There was no point in waiting for the security forces to arrive since most of us already tasted their brutality," said Max Okwaro as he waited to catch a ferry. He said he was leaving the coast region and would never return.

Local residents estimated at least 40,000 people out of a total population of 60,000 had left Kwale district since the start of ethnic attacks by well-organised gangs on August 13.

The civilians, both coast natives and "upcountry" Kenyans originally from other areas, left despite assurances by Mombasa District Commissioner Paul Olando that security forces would protect them from violence which has killed at least 47 people.

President Moi, 73 and in power for 19 years, threatened tough action after only a few of the 44 guns stolen from police were handed over before a deadline expired on Thursday.

"The government is doing all it can to stop the exodus," said police spokesman Peter Kimanthi. Police in Mombasa said they recovered a stolen G-3 rifle, bringing the total recovered since an August 13 raid on a police station to five.

Moi accuses the opposition of fuelling tribal tensions before a general election this year. But many "upcountry" people leaving the coast say the government wants them out because they would only vote for the opposition. At a Nairobi news conference, IMF Deputy Director Goodall Gondwe made it clear there would be no more Fund money under its Enhanced Structural Adjustment Facility (ESAF) if the government went back on its word.

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