The Black Market: Traffic and The Shawshank Redemption
The main economic feature of any black market or market for illegal substances is that there is profit in the illegality of the substance, enormous profit. It is this principal upon which both the movies “Traffic” and “The Shawshank Redemption” are built. Anything which is illegal immediately becomes valuable, simply by the rules of “supply and demand”. Something illegal would normally be in short supply. While the product must have some value on its own, making it illegal can increase the value geometrically.
One case in point is the value of cocaine as demonstrated in Traffic. The whole economic cycle is quite complicated, but the simplest concept is that in a country where poverty is rife, the temptation to grow drugs is enormous, in fact, irresistible. Hunger is a powerful motivating force, especially when it is one’s children who are suffering from it. The fact that the US has spent a billion dollars on eradicating drugs in Columbia has only made the crops which mature more valuable. One crop in Columbia from a small plot yields about a kilo of cocaine, worth $3000 to the farmer, more than three times what he can make working. That kilo is worth $40,000 in the US and $60,000 in Europe. So the only effect the drug eradication program is having in Columbia is making 30,000 hectares of land unusable from the chemicals and driving nearly 10,000 from their homes as a result. Drug barons and guerillas are getting rich from the trade worth more than 100 billion worldwide by very conservative estimates. Of course, the Columbians are only raking in part of that amount, but the worth of their profits is huge in Columbia. Sadly, if the US were to invest that same billion in helping Columbia rebuild their economy, it would have a more positive effect.
The other end of this economic chain is the addiction problem. Because the cost of drugs is so high, supporting a habit in the US or Europe is the impetus for the creation of more addicts. Since the addict must have more and more of the drug as time passes, this can escalate to a $300 per day habit. One of the few ways to support such a habit is to sell drugs to others. Of course the need to support this habit also accounts for a high portion of crime in our cities.
Drug traffic moves money around. Unfortunately, the high profits for the traffickers are matched by a huge economic and social cost. Those incarcerated and those unable to work because of addiction represent a lost productivity and the economic cost of maintaining them in prisons, treatment centers and hospitals. Their families incur costs of support from social services. The rising crime rate caused by the need to pay for drugs creates cost for insurance and for law enforcement. Just the processes of apprehension and prosecution are a substantial outlay for society. We all know this, but the power to change any of it lies with those who have money and influence, and some of those are the traffickers and those who benefit from them. It is woven all through our society at all levels, so it is not an easy task. The two most difficult factions with which to deal are those who have little choice, such as the farmers in Columbia and those who are unwilling to give up money or power.
When considered, this more than 100 billion dollar business is currently also a prime driver of economics. After all, that is a substantial amount. The money follows a chain from the farmer to the end user, and includes all the suppliers, the agents and task force workers assigned to the problem, administrators of responses programs and even the health care workers who finally care for the addicts. If we eliminated this trade tomorrow it would have an impact across a wide area. That is not a reason to give up on eliminating drug addiction, but it is a consideration which would have to be dealt with if it should happen. However, because drugs are such high profit the only realistic way to eliminate the traffic in illegal drugs would be to legalize them. This may never happen, because too many people have vested interests in keeping the drugs illegal. This is shown in the film Traffic, as the Drug Czar, played by Michael Douglas, is informed that he is not in his new position to win the war on drugs. It is really all just a show for the public. The war on drugs is not winnable, because too many people profit from it. They all profit from the status quo, and will put considerable resources toward keeping it.
The economics of lesser contraband, as in The Shawshank Redemption is still based on the illegality. However, the structure of the system inside of American prisons is more dangerous even than in the Columbian drug trade, and this story deals more with an individual case, of which there are like cases, but no organized network. When the Warden Norton thinks that his profits will stop, because Andy might get out of prison if he gets a new trial, he makes sure that this cannot happen, and Andy is put on notice that if he stops cooking the books for the warden, his life will be worthless. Again, in this film, the lowest on the ranking, the prisoners, are the ones which are actually supplying this wealth, for very little for themselves. The major money is being made by the warden. The same problem is currently occurring on a lesser scale in Clark County, Nevada, as prisoners are allowed to work under prison contracts, and those who control the hours and the allocation of jobs wield power over the inmates.
The value of lives within a prison is even lower than the lives of the peasants in Columbia. They are only of value to those in power who have a use for them. The prisoners who work earn income for the warden and for the contractors. So they get slightly better treatment. The key figure in the whole enterprise is Andy, who can hide the income. His life is valuable as long as he continues to serve the warden. All of this has echoes all through our society, and they have been proven time and again. The prison system is in sore need of better oversight and reform, not because the inmates deserve it, but because society deserves it. Maltreatment of prisoners inhibits or completely prevents rehabilitation.
The way to fight against a black market is to make the products unprofitable and the cost of doing business too high for the risk. Prison reforms which allow the prisoners to earn money and to educate themselves will help not only to make prison life more humane, but also to lower the population in the prisons. As it is, crime and punishment are profitable to a huge portion of the population. Were a substantial portion of that be removed, that also would have to be addressed somehow. Wherever any source of income is removed or reassigned, some other must replace it or there will be consequences to pay. Social services will carry some of the burden, and the most impact will be felt at the lower and middle income levels, as usual.
Though a great many people would really like to see economic reforms which would help to eliminate the causes of a great deal of both drug trafficking and crime, there are simply a few powerful people who want things to stay the way they are, because they reap benefits from the current system. There have been many attempts at reorganizing wealth and power by a number of socio-political groups, but capitalism is the only one which has consistently worked to do that. However, due to the nature of the democratic systems, change in the current system will not come either soon or easily.
Development Economics: Modern Times and Thunder Bay
These are two films that center on development economics. In addition, they delineate the cost of progress to certain sectors of the population. Progress generally benefits somebody, but that usually comes at a cost to somebody else. The automobile business pretty much destroyed the market for horse tack, livery stables, blacksmiths and even the lowly stable cleaners. It seems that no matter what, some portion of the population will have to adjust to the change that progress brings, and the biggest adjustments seem to be always at the lowest levels, the workers, especially low income workers.
The old Charlie Chaplin film, Modern Times, shows us what happens when progress and the companies which seek it have no controls over their actions. Without skills or education, the worker on an assembly line, for example, is dependent upon the market for whatever that assembly line produces. In the movie, the worker is pushed to produce more in less time, which equals more profit, causing Chaplin to have a breakdown. After spending some time in prison, Chaplin is released for stopping a riot while he was under the influence of accidentally ingested drugs. He finds it impossible to get a decent job and decides to get himself arrested, so he will have shelter and food. He is in and out of jail, along with a young woman he tries to rescue. He goes through several jobs, but the only thing which improves for him during this entire film is that he acquires a friend with whom to share his misfortune.
The cost of unbridled power in the hands of the employer to these workers is loss of their jobs. Until government and unions mandated work rules, proper work environment and equitable treatment, these workers were simply out of luck. Companies could not see the economic benefits of treating their workers well, so the workers were simply disposable. When workers cannot find more work, they may lose their shelter and then become either a social burden through a welfare department, which did not exist in the time of Chaplin’s movie, or they turn to crime, and possibly wind up a burden on the corrections system.
The least trained workers are the easiest to replace and the most difficult to move to other jobs. These workers, when displaced also find it difficult to secure other employment, especially as progress creates more jobs requiring training and eliminates those which do not.
One very visible historic occurrence in the US was the case of migrant workers in California. The first problems began during the early part of the 20th century, when the dust bowl was ruining the farmers in the Midwestern states. These farm families lost their homes and were forced to move. Many went to California to start again. However, they had no money and no power, and there were more workers than there was work. Some turned to crime, creating that endless cycle of low paying jobs, crime and jail, then back to low paying jobs. The lower the income of any family or individual, the less tolerance there is for loss of any kind. People are generally poor, because they have less education or fewer marketable skills. With the loss of one job, those skills they do have may not transfer to other work. With each cycle of loss and recovery the individual or family has less than before, making them that much more vulnerable in case of any kind of loss. A middle class family may have to cut out some meat and other things if someone in the household loses a wallet. If someone in the lower income group loses a wallet, it could mean they have no food, or no money to pay for utilities or shelter. Each loss knocks people down just a little bit more than before, and it can become a downward spiral into a poverty laden nomadic existence.
Social welfare, in most cases, is not enough to help these people pull themselves up. It is subsistence and begins an endless cycle of welfare families. There are families in the US which are fifth generation welfare, because it simply keeps them alive, but does not provide the means or impetus for them to rise above the need for welfare. For example, in most jurisdictions, acquiring a job will eliminate the recipient from the welfare rolls, so getting a low paying job will actually put them worse off than on welfare, since they will lose medical benefits, extra food from surplus supplies and school programs for the children. It does not make sense to try to find work.
In the movie Thunder Bay, we have another instance of progress and its cost. At the beginning of the movie, the two partners, Martin and Gambi borrow money to drill for oil in the Gulf of Mexico. This was a new kind of venture at that time, so it was bound to meet with resistance somewhere by somebody. In this case it was the Gulf shrimpers who believed that this progressive development was going to cost them their livelihood. It is one thing when progress in the same field displaces workers, but quite another when development threatens those in an entirely different industry.
That the method which they were using to catch the shrimp, drag-netting, was destroying the bottom of the Gulf was not mentioned in the movie. When you add the practice of sons following their fathers into the profession, there would, eventually, have been too many shrimp fishermen for the area to support, and this would have been exacerbated by the destruction of the gulf bottom, which would eventually destroy the crop. The fishermen would have been resistant to the idea that their own practices were destroying their livelihood, but they did believe that the oil rigs would destroy their livelihood. They were not willing to be part of the cost of progress.
Another point made in the film is the cost of risk when embarking on new business or production practices. The hurricane at the end of the film has the power to totally destroy their business. Aside from the danger to life and property, the delay in striking oil could kill the project. Any delay would eat up development money, and too much time would simply bankrupt the men. There is more development now than ever before in all areas, and in each case, there is a sector which stands to bear the cost. The sector which stands to bear the cost is generally unable to make adjustments to allow for the progress.
The expansion of factories in some places is destroying agricultural land. Some examples are the computer industry in California and textile and other factories in China. Land that was agricultural has been covered over by factory buildings, which raised the price of the land. Farmers who found themselves incorporated into the local government paid higher taxes as the value of their land grew. Eventually it was simply not economically feasible to keep the land, because it was worth far too much. In China, the government owns all land, but it dictates the use of it. If it issues a permit for a factory, then nearby agricultural land is generally affected by water shortages, road construction and traffic. Farmers who were raising rice find themselves without enough water to grow it. Traffic may disturb dairy cows and drive milk production down. Pollution from the factories is also a factor in China where regulation and enforcement is lax.
Another area badly impacted by industrial development was the North Slope in Alaska. The oil pipeline disturbed migration of reindeer, and Inuit hunters who depended upon the herds for their livelihood were unable to hunt the number of animal needed. The pipeline disrupted the reproduction of the animals, thus diminishing the herds. This was finally addressed somewhat with adjustment to the pipeline itself.
Labor Economics: Roger and Me and Norma Rae
These two movies showed the major flaws of our current system of labor economics. In both cases, factory workers are the ones who bear the brunt of the actions of the company. The cost borne by the factory workers in poor working condition in Norma Rae results in lower production for the company and higher cost for the county to help families and to supply health care. The wages are so low that workers are barely surviving, making them non-contributing members of the local community. In Roger and Me, the workers are already unionized, but the factory closes, eliminating all the workers. Flint, Michigan practically died as a result.
In Norma Rae, the workers were not unionized, and they worked for extremely low pay in poor and dangerous conditions with no benefits. If a worker was sick they stood a good chance of losing their job, so they often came to work sick. This lowered the productivity of the entire group, since more got sick from the exposure. Workers were paid by piecework, and often the supervisor would refuse to credit them for some of the work, saying it was inferior, but still putting it in the assembly or distribution cart.
The situation, once again, is the poor being exploited, and they just keep getting poorer. The working conditions were inhumane and unhealthy. Eventually, Norma Rae felt compelled to help her fellow workers to unionize. It is at this juncture that unions are beneficial, when employers are exploiting the workers. The power that unionization gives to the workers to slow or stop production is a power tool. However, while unions are beneficial in the beginning, and have an ongoing place to be watchdogs and to represent workers who have problems. However, over time, after victories are won for the workers there is less and less for unions to do. Rather than downsize, unions have become profit centers on their own. They collect substantial dues from the workers and they have to justify those dues.
The case in Flint, Michigan is one where the unions had already won substantial benefits for the workers. In fact, in the documentary a great deal of history of the auto workers union and GM was not covered. One benefit won by negotiation earlier was the job definition for the workers. The worker had a particular description of his or her job and could not be required to do any work outside his or her job description. This created tremendous problems for GM, since they were forced to keep the worker unless they were fired for cause. So when any factory needs to retool and take a different contract for a different product, because of lack of demand for what they made, the workers whose job descriptions were not required were paid anyway and did not work. This was so costly that in 1991, at one plant, GM and the union struck a deal to cross-train workers if they would keep the plant open and keep all workers on. Since that was the only way the factory could survive, the workers agreed, Sadly, this epic cooperation did not last, since the same manager who managed to make this work with both the union and the workers was not as brilliant in handling his middle managers. Morale among them was very low and they became uncooperative. Without being able to reorganize the entire factory as one team, the plans for recovery was doomed to failure.
The negotiations with workers, managers and unions was not so well managed at other factories, like Flint. GM had reorganized its management and some key people were gone. The replacements could not manage the problems and could not inspire the cooperation of either workers or management. It simply became too expensive to keep the plant open. As a result, the plant was closed. One of the contributing problems was the growth and power of the union. Unions which have a long history are making money, especially good wages for the management, and they are running out of things to do to justify their existence and the due they collect. Union dues keep rising with inflation and no union so far has reorganized when fewer services were needed and lowered the dues. So the unions then begin to push too far. They push for things which will cut too far into company profits, and companies simply decide it is not worth the fight and close the factories. One of the prime factors in these closings were the requirement that workers on temporary layoffs still be paid their regular wages. GM simply was losing too much money, $15 million a day in 1991, and there were many other agreements which made it too costly to keep all their plants open. Some closures were inevitable.
The situations in Norma Rae show why unions are needed, but the situation in Roger and Me shows why there needs to be some restraint on the unions also. They should not be allowed to become too powerful. Economically we have three actors in this relationship: the workers, the company and the unions. Each of these wants something and supplies something which creates the wealth they share (not necessarily equitably). The workers supply the labor and skills to make the products, and this includes the managers, who may also suffer if plants close, but who benefit if the company makes money. The company supplies the investment in materials, machinery, design, location and marketing efforts to provide the product which the workers make. The unions supply protection for the workers, who might otherwise be abused and exploited by the company in the interest of higher profits. The workers want good wages and benefits, fair treatment and good working conditions. The company wants quality production, low cost and high productivity which result in high profits. The unions want success for the workers and profits for themselves. When any of these needs or contributions get out of balance, there is trouble. Many solutions have been sought, but the only successes so far have happened when the employees became vested in the company, such as certain airlines, like Westjet. Unions also need to rethink their strategies and their reason for being, and stop trying to cripple the golden goose. Companies need to see workers as an asset worth developing.
There are many companies which had learned this lesson, such as HP and Ernst & Young. Wal-mart fills a different niche. They pay low wages and do not allow unions, but they develop their employees and their communities. What we need is to create a culture where people actually care about their company and the companies care and everyone cares about the community, but it probably will not happen before something drastic forces the change.
Of course this is so for many of our modern problems. Change is coming top many companies who have seen the economic benefits of taking care of workers, community and planet. Other companies are simply too short sighted to see that change must come and the sooner it does the better the future will be for all.
Agricultural and Environmental Economics: Enrin Brockovich and The River
The economics of these two films are centered in the value of land. Land is finite, so it is, and has been historically, a form of currency. Included in the land are its resources, subterranean rights for oil, ore or water. These can be bought and sold separately, though it is more common to lease the rights instead. In Erin Brockovich, the economics are quite complicated, but a simplified description would be to say that compliance with environmental regulations is sometimes so expensive that companies are willing to risk getting caught not complying. Anyone who is hurt in the process can usually be paid off and the company saves money. That this can be at the cost of people’s lives is not an economic consideration. In The River, the family farm is in the way of a plan by the Tennessee Valley Authority to create a dam for more power. The family struggles with poor crops, crooked bankers and engineers and natural disasters to keep their family farm. The TVA wants to buy all the farms which will be flooded for a bargain price.
The situation in these two movies is similar, because in each, the “company” which stands to gain does not really care about the people which will be hurt. Also, though the story in The River was fiction, it represented real cases that really happened. Erin Brockovich, on the other hand, was a true story about real people, including the lady, herself. She says on her website, “What PG&E did was real. Don’t be fooled by other things that you have read. As early as 1965 this company knew that the facility in Hinkley, California was contaminating the ground water with high levels of hexavalent chromium and they chose to cover it up.” (Brockovich, Erin, 2008).
PG&E is the major supplier of power in California, and they have very deep pockets. Therefore, in the face of very costly waste management, the company chose to dump the waste illegally. When people began to get sick nearby, because the water table had been contaminated, the company denied any fault. It took years on the part of MS. Brockovich to get the first settlement. Many people, when faced with the long wait, and unable to either sell their contaminated property and move away or simply leave, took a much lower settlement offered by the company to make them go away. Of course, this is the economics of this kind of problem. In a class action, nobody gets paid until it is settled. Many times, the victims simply have no time to wait. In this film some victims faced death if they stayed. In this case, all the residents of the small California town of Hinkley were affected and some of them died before the first court case was even heard. Of course, the company depends on the vulnerability of its victims and the slowness of the courts.
Companies, when incorporated, as utilities normally are, have special rights, just as if the company were a person, by virtue of the legislation governing incorporation. This makes them very difficult to sue. Because they also have a great deal of money behind them, anyone going after them is David fighting Goliath. In addition, utility companies also have a special relationship with the governments, since they are considered necessities, and they enjoy special protections.
When companies do get caught improperly disposing of waste, contaminating land etc, the fine is often much less than the cost of proper disposal of waste. So the company ignores regulations and expects now and then to pay a fine. What happens sometimes, though, is that the company manages to not get caught for a number of years, and their practices have created an environmental disaster over the years. It is simply a good bet for the companies. They may even get aways with it long enough to get rid of the waste disposal site, as happened in East LA, when a school was found to have been built on contaminated land (Digoxin and PCBs). A serious attempt was made to track through all past owners, but there was no proof against any of them, Obviously, the landowner had been paid to allow the dumping on the land. Cleanup of that school site will cost 30 million dollars.
Fighting the TVA in Tennessee is a long historic epic. The company has been hated by generation of farmers and even ordinary consumers are not fond of them. They have a terrible reputation for abusing clients, exploiting workers and making secret deals for their own benefit. They did get the government to condemn a great deal of land in the past, allowing them to buy up farms at bargain prices I order to flood the land for a series of Dams on several Rivers. These dams were claimed to be necessary for flood control. However, in reality they were built to generate electricity.
Any company which supplies a product or service which is absolutely necessary for public welfare generally gets whatever it wants. These companies are in business to make money, regardless of our belief that necessities should be guaranteed to all. In most places in the US, utilities are a major home expense. The companies are barely regulated, even now, and most regulations are aimed at public health, not fair marketing practices.
The operation of the small family farm is also much as pictures in the movie, The River. Large conglomerates can afford the machinery, and most farmers cannot any more. Many areas have coops for the machinery, because the cost of these machines is enormous and they are only used a small pert of the time. It makes sense for families to share tillers, harvesters, balers and such. The farm depends upon nature for its income, so a few small disasters can totally destroy the economic base of small farms. Everything about farming has become big business, even selling the crops, yet families are not well suited to dealing with these problems. The fact is that family farms barely make enough to keep going. Yes the families may have enough for a few luxuries and enough to send children to college, but there is usually a debt load that can literally wipe out all the earnings for a year or more if one crop falls short. The profit margin on the family farm is just too narrow for much tolerance.
Conclusions
All of these economic situations have similarities, because economics cannot exist in a vacuum. It is a global dynamic network, and any part of the economy of any country will eventually have impacet everywhere else. This is true of both good and bad impacts. Currently the housing situation and the economic downturn in the US is having influence all around the world. So it is not surprising that all of these cases seem related. They are in a way, because they all operate under the rules of current economics, though certain details will be different. True, the farming economy in The River seems not very close to the economy is Flint, Michigan, but there is a connection, because any trouble in Flint which causes grave economic upheaval, as it did will have echoes down the line. Some people moved to Tennessee from Flint. Some have relatives there who need or give assistance. Auto prices impact other prices etc etc. All the small economies of the world, as in families impact the local economies, which impact regional economies which impact national economies and finally impact part of the world economy.