Multinational Monitor

MAR/APR 2009
VOL 30 No. 2


A New Life for the IMF: Capitalizing on Crisis
by Robert Weissman


Burden of Proof: The Precautionary Principle
an interview with Peter Montague

A Carbon-Free Future
an interview with Arjun Makhijani

Green Stimulus
an interview with Robert Pollin

The Green Chemistry Revolution
an interview with Paul Anastas

A Bias to the Local: The Subsidiarity Principle
an interview with Jerry Mander


Behind the Lines

Big Ideas to Save the Planet

The Front
Global Job Meltdown - Prosecution Prognosis

The Lawrence Summers Memorial Award

Greed At a Glance

Commercial Alert

Names In the News


The Front

Global Job Meltdown

The global economic crisis is expected to lead to a dramatic increase in the number of people joining the ranks of the unemployed, working poor and those in vulnerable employment, the International Labor Organization (ILO) warned in a report issued in January.

In its report "Global Employment Trends 2009," the ILO said that based on new developments in the labor market and depending on the timeliness and effectiveness of recovery efforts, global unemployment in 2009 could increase by a range of 18 million to 30 million workers in comparison with 2007, and more than 50 million if the situation continues to deteriorate.

ILO's Director-General Juan Somavia said this assessment "is realistic, not alarmist ... but we have to assume clearly that we are now facing a global jobs crisis."

"Many governments are aware and acting, but we feel that much more decisive and coordinated international action is needed to avert a global social recession. We are seeing progress in poverty reduction unraveling and [the] middle-class worldwide weakening. The political and security implications of this are daunting," he said.

The report said that the labor market outlook for 2009 depends on the effectiveness of coordinated government measures, and the time it will take for the global economy to find a path toward sustainable and socially equitable growth.

Given these uncertainties, the report presents three scenarios for labor markets in developed and developing economies.

According to the report, the first scenario projects unemployment using the revised economic outlook published by the International Monetary Fund (IMF) in November 2008 and based on the relationship between economic growth and unemployment during 1991-2008.

According to the IMF's late 2008 projections, global economic growth will slow down to 2.2 percent in 2009. In the rich countries, economic growth is projected to be negative, and all other regions are also expected to slow down considerably.

Based on current labor market trends, the first scenario would mean that the global unemployment rate may rise to 6.1 percent in 2009, and 198 million people will be unemployed. This is an increase of 18 million over the estimated number of unemployed in 2007. (These numbers refer to workers in the formal sector.)

In January 2009, the IMF revised its global forecast for 2009 sharply downward, predicting instead a global growth rate of 0.5 percent.

The ILO report said that the second scenario is based on the historical relationship between economic growth and unemployment at times of economic crises. In this scenario, the negative impact on unemployment is taken in each country at the time of the largest year-on-year drop in GDP, and this relationship is used to project global and regional unemployment for 2009.

According to the second scenario, the global unemployment rate would rise to 6.5 percent, an increase of 0.8 percentage points over 2007. This would correspond to an increase of the global number of unemployed by 30 million people in comparison with 2007.

The largest negative impact on the unemployment rate is seen in the rich countries, where the unemployment rate would rise to 7.1 percent. This rate translates into an additional seven million people in 2009 over 2007 in this group of economies, two million more than in the first scenario.

According to the ILO, in the third scenario, the unemployment rate is projected in each country as the rate in 2008 plus the largest change in unemployment since 1991 in the rich countries and half of the largest increase in economies in other regions. The intervening months may have made even this scenario now appear optimistic.

According to the third scenario, the global unemployment rate would rise to 7.1 percent, an increase by 1.4 percentage points over 2007. In the rich countries, the unemployment rate would rise to 7.9 percent. This would correspond to an increase in the global number of unemployed of 51 million people in comparison with 2007.

The report also made projections for the working poor (people who are unable to earn enough to lift themselves and their families above the $1.25 or $2 per person, per day, poverty line) and people in vulnerable employment (either contributing family workers or own-account workers who are less likely to benefit from safety nets that guard against loss of incomes during economic hardship).

It said that in the worst case scenario, the extreme working poverty rate would rise by 6.1 percent in 2009 as compared to 2007. This would translate into 203 million people living just above the poverty line. The report also highlighted recent developments in the global labor market. It noted that after four consecutive years of decreases, the global unemployment rate increased from 5.7 percent in 2007 to 6 percent in 2008, rising for men to 5.8 percent and for women to 6.3 percent. The ranks of the unemployed increased by 10.7 million people between 2007 and 2008, which is the largest year-on-year increase since 1998. The global number of unemployed in 2008 is estimated at 190 million, out of which 109 million are men and 81 million are women.

The global number of unemployed youth increased to 76 million, and the youth unemployment rate has increased by 0.4 percentage points in 2008. Given the current economic downturn, the youth labor market situation is all the more worrisome in view of the lack of progress in addressing youth labor market issues during more prosperous years, said the report.

In 2008, roughly 3 billion people around the world were employed, a growth rate of about 1.3 percent over the previous year.

The distribution of employment creation by region shows that the three Asian regions - South Asia, South-East Asia and the Pacific, and East Asia - account for 57 percent of global employment creation in 2008.

Region-wise, the report noted that in 2008, North Africa and the Middle East still had the highest unemployment rates at 10.3 percent and 9.4 percent respectively, followed by Central and South Eastern Europe (non-EU) and the former Soviet Union at 8.8 percent, sub-Saharan Africa at 7.9 percent and Latin America at 7.3 percent.

The lowest unemployment rate was once again observed in East Asia at 3.8 percent, followed by South Asia and Southeast Asia and the Pacific, where respectively 5.4 percent and 5.7 percent of the labor force was unemployed in 2008.

In conclusion, the report said that the unprecedented economic stimulus packages announced by governments will take time to have an effect on economic growth and employment.

- Kanaga Raja is a researcher with the Third World Network
TWN Features/South-North Development Monitor

Prosecution Prognosis

The corporate crime defense bar has no doubt: more corporate crime prosecutions are on the way.

In a February Corporate Crime Reporter survey of more than 200 leaders of the American Bar Association's White Collar Crime Committee, the view was almost unanimous.

"In response to a major financial crisis, the public and our elected officials are demanding accountability," says Jacob Frenkel of the law firm Shulman Rogers in Rockville, Maryland. "That means increased enforcement. Particularly in the financial services sector, enforcement will appear similar to the running of the bulls in Pamplona."

Ross Garber of Shipman & Goodwin in Hartford, Connecticut says that the government "must answer calls for accountability for past white-collar misdeeds."

"I don't think it will be just a matter of shifting priorities," Garber says. "Instead, I think we should expect an overall expansion of the Department of Justice."

Lance Cassak of Baker & Botts in New York sees "fewer pre-trial settlements and deferred prosecution until there have been enough successful prosecutions to have the desired deterrent effect and to let the public know that the Department is trying to address the problem. ... Then you may well see more pre-trial settlements."

Thomas Hanusik of Crowell & Moring in Washington, D.C. says that while tougher enforcement is undoubtedly in the offing, "a decrease in the use of deferred or non-prosecution agreements for institutional defendants seems unlikely."

"The government now has a stake in many of the institutions under scrutiny and it is not going to impose a corporate death penalty on entities that it just spent billions bailing out," Hanusik says. "Look for higher fines, stricter settlement terms and a continued increase in the use of corporate monitors."

Benjamin Gluck of Bird Marella in Los Angeles sees fewer soft deals with the Department.

"The news is filled with reports of executives who made millions of dollars while their companies wound up hollow shells," Gluck says. "Prosecuting them and being seen to prosecute them is a no-lose political proposition for the new administration. Thus, expect high-profile financial cases and fewer 'sweet' settlements."

David Douglass of Shook Hardy in Washington, D.C. sees a possible backlash coming against the use of monitors. "I think there will more emphasis on ensuring that compliance programs are 'effective' in fact and operation."

Brian Heberlig of Steptoe & Johnson in Washington, D.C. sees a "continued focus on public corruption and Foreign Corrupt Practices Act [FCPA, the statute addressing overseas bribery] violations and a greater emphasis on antitrust and environmental matters than during the last administration."

"It also seems inevitable that the current economic crisis and public outrage over the conduct of certain corporate executives will lead to a reallocation of FBI resources from counter-intelligence and terrorism to more traditional criminal investigations," Heberlig says.

Matthew Herrington, also of Steptoe & Johnson, sees the Justice Department under Eric Holder looking to export its success in prosecuting foreign bribery to other areas.

"Arguably, however, what makes Foreign Corrupt Practices Act work is its centralization and exclusive subject matter jurisdiction within the Department," Herrington says. "By the same token, what has stymied enforcement initiatives in other fields is the balkanization among the various U.S. Attorneys' offices. This structural problem will be a major challenge for Attorney General Holder and his team."

Linda Imes of Spears & Imes in New York sees "an uptick in tax prosecutions in an attempt to generate tax revenues, an increase in antitrust prosecutions - an area neglected by the Bush administration - and, given the political climate, an increase in corporate governance criminal prosecutions, including TARP-related crimes."

Scott Michel of Caplin & Drysdale in Washington, D.C. also anticipates an increase in corporate criminal tax cases. "I look for a particular focus in multinational companies, with the IRS looking into the bona fides of offshore structures used to defer tax and similar international issues," Michel says. "I would also expect the Service to seek a role in the broader corporate fraud enforcement, looking for tax issues where they might appear."

Many of the white collar attorneys surveyed see Attorney General Holder rehabilitating the Department after years of scandal and demoralization.

Wendy Wysong of Clifford Chance in Washington, D.C. was at the Justice Department during the Clinton Administration and she worked with Holder on the prosecution of Congressman Dan Rostenkowski.

"Talented attorneys and investigators who may have hesitated to join the Department or left in recent years will be attracted to public service to work with the outstanding folks who have joined Eric at the Department," Wysong says.

Not all the respondents were jumping on the bandwagon.

David Axelrod of Deloitte Financial Advisory Services in Columbus, Ohio says that while "there certainly appears to be a lot of saber-rattling by both Congress and the administration, significant white collar investigations can be labor intensive and time consuming, and law enforcement efforts seem to have been plagued by a chronic shortage of agents in some key areas."

"A substantial increase in white collar enforcement may depend on passage of the Schumer-Shelby bill, now pending in the Senate, which could add hundreds of new prosecutors and agents to conduct financial investigations," Axelrod says.

"I don't know that there will be dramatic changes," says Aitan Goelman of Zuckerman Spaeder in Washington, D.C. "Certainly a continued focus on FCPA enforcement. Increased attention to export control compliance. Because so few people really understood mortgage-backed securities and related derivatives, it will be hard for the government to prove fraud in many of the most devastating losses, at least absent e-mails or other evidence showing the banks saying one thing internally and another externally. I do expect an uptick in good, old-fashioned insider trading investigations, particularly as it relates to the hedge fund industry."

Joel Androphy of Berg & Androphy in Houston, Texas sees an "aggressive attack" by the Obama administration on healthcare fraud.

"There was too much complacency under the prior administration," Androphy says. "The only healthcare cases previously pursued piggybacked qui tam cases [where private parties sue others for defrauding the federal government]. In other words, the civil plaintiffs' bar did much of the work. Good news for whistleblowers under the False Claims Act. Bad news for pharmaceutical companies and healthcare providers."

Contacting a number of federal prosecutors who have been active in the ABA's White Collar Crime Committee yielded a response from Justice Department Criminal Division spokesperson Laura Sweeney.

"The Attorney General was asked by reporters after his swearing-in ceremony a few weeks ago what he would do in the face of demand for people on Wall Street to pay for recent activities that may have caused the economic downturn," Sweeney says. "In response to that question specifically, the Attorney General said: 'We're not going to go out on any witch hunts yet. We'll drill down and see. ... To the extent that what this nation is facing is a result of fraud or misconduct, we'll find it and we'll hold people accountable.'"

- Russell Mokhiber


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