Financial Crisis: The Final Harbinger of Bucolic Demise?

Antigo, WI—“I don’t know what its like to be clean,” farmer David Wilson of Grass Point Farms Cooperative chuckles, takes off his American Farm Cooperative cap, shakes and scratches his balding head before replacing it. Not twenty minutes earlier he had gallantly stepped in front of a stream of cow urine in the milking room. The sharp stench of urine dissipates a bit but lingers out of doors. “I’m beginning to think I’m crazy,” he sighs, "because I’d rather do this than earn $10 an hour and come home clean everyday, workin’ some job in town.” David works nearly 20 hours a day, 7 days per week on his family farm of 80 head herd of cross-Jersey cows for an income of less than $20,000—less than he’d make if he worked that $10 an hour job.[1]

The Wilsons are a rare breed of American: debt averse. Their farm is strictly family run: David, his wife Pam, and their 13 year old daughter Michaela. “We’ve never really struggled because we live the life that we live,” Pam shrugs and grins; she’s a jolly countrywoman with eyes that radiate warmth and confidence, “We’re awfully frugal.” Wilson explains that they have been debt free three times, the last for one month this August. For years they used short term debt to finance their operation, for example, to buy feed if there isn’t enough rain during the growing season, or the cost of commodity prices sky-rocket—both conditions Wilson has had to work with the past five years.

But in the contracting financial climate the Wilson family’s debt situation is likely to change. The Wilson’s position isn’t unusual for a small family dairy farm in Wisconsin, according to Dr. Paul Mitchell at the University of Wisconsin Madison Agricultural Economics department. In the past agriculture has been one of the few borrowing sectors where the borrower-lender relationship has remained tight. And agricultural banks like M&I and Wells Fargo, he explains have not had the exposure to bad loans that other banks have had, “The overall access to credit shouldn’t change. There might be a little more paperwork and demonstrations of credit worthiness than you had in years past—they’ll just have to do a little more work to get credit.”[2]

Dr. Costas Lapavitsas at the School for Oriental and African Studies in London disagrees. He explains that as the credit crisis deepens, the first casualties of the distressed credit market will be small and medium sized enterprises.[3]

“Big business can use open markets to obtain finance, it has been. Therefore banks as consumers have turned to individuals and to making money out of derivatives and other financial transactions of the type. Small and medium businesses across the world are facing problems with obtaining finance as a result.” If interbank lending doesn’t pick up soon, no matter how strong a position agriculture banks are in, it won’t matter and credit lines to families like the Wilsons will dry up.

But there is another dimension to the financial crisis that Wilson will have to be concerned about: futures prices. Farmers like Wilsons have been able to turn to derivatives in the form of futures and options to secure prices for their output. Dr. Mitchell explained that farmers have turned increasingly to these markets as prices have become more volatile since the 1990’s. Dr. Lapavitsas associated the rise of the derivatives market with overall price volatility in the market.

He explains that derivatives are “an outgrowth…of what has been happening in finance for the last two to three decades… It’s come out of the instability that has been created in the world of finance because of liberalization…. If you repressed finance… then all that world of financial innovation, derivatives, and everything that goes with it, will have much less reason to exist. There won’t be the price instability, for a start, upon which these things thrive.” Indeed, according to the “Dairy Situation and Outlook” from the University of Wisconsin Cooperative Extension, futures prices for milk and cheese are at historic lows and expected to decline.[4]

In other words, in the future small dairy farms in Wisconsin will continue to dwindle but at an accelerating rate. Small independent farms make up the bulk of the farming sector in Wisconsin, 86% according to the Wisconsin Farm Bureau association. But they also have the least collective dollar output relative to agricultural corporations.[5] It is not just credit constriction that works against small farms, but the nature of the financial market itself which doesn’t allow much room for survival. There are regulatory changes to be made to ensure that families like the Wilsons can continue to live the way they choose.

David looks dreamily out over his green fields in the late afternoon sun. In the distance there is a grove of Pine trees. He leans closer to tell me that this year he is finally going to build his wife and daughter the home “they deserve.” The Wilsons currently live in a wooden version of a double-wide. David planted those pines when he and Pam married, with plans to use them for a house one day. His ability to do so will depend heavily upon the next steps a so far inept Congress and Treasury Department take to reform financial markets.

[1] Interview, David Wilson, Aug 2008.
[2] Phone Interview, Dr. Paul D. Mitchell, 17 December 2008.
[3] Interview, Dr. Costas Lapavitsas, 17 December 2008.
[4] Bob Cropp. “Dairy Situation and Outlook.” 18 December 2008. University of Wisconsin Cooperative Extension.
[5] “Wisconsin Agriculture Farm Facts,”

Pardon Me Sir, But You’ve Missed the Bear.

“For most Asians modernity is associated with very simple things… at the age of ten when we went from [a metal bin] to a flush toilette I felt my life had improved by 100% at least.” The former Singaporean ambassador the UN, Keyshore Mahbubani, recently appeared on KQED’s “Forum.” The host David Iverson, taken aback responded, “Not to be facetious about this but, in a sense, are you making the argument that the greatest thing we could do to promote world peace would be to have more flush toilettes?”

Indeed he was, as I am now about to advocate the installation of such contraptions as the singular most pressing foreign and domestic policy priority for the incoming President of the United States. Now seriously, hang in there. Flush toilettes are a singular manifestation of a larger necessity: Infrastructure. Americans do not suffer a shortage of flush toilettes, but those living in the developing world do. This short paper is meant as a response to Senator Barack Obama’s address to the Chicago Council on Foreign Relations, where he outlined “Five Ways America Will Begin to Lead Again.” In his speech the Senator outlined his foreign policy agenda; and while the policies he put forth can be described as spraying enough buck-shot for the future of American foreign policy, metaphorically speaking, he still managed to “Miss the Bear.”

First, what is meant by infrastructure? defines infrastructure as, “The basic facilities, services, and installations needed for the functioning of a society or community.” Arguably the most important classification of infrastructure is the type exemplified by the edifices that make up physical infrastructure; the roads that we drive on, bridges, ports, etc. that facilitate the basic every day functioning of society: the movement of people, goods, and services that drive our economy.

Foreign Policy

In his speech, Senator Obama’s second and forth ways America will begin to lead again are “to alleviate poverty” and “spread American goodwill around the world.” Building infrastructure in lesser developed countries will facilitate the meeting of these goals through what economists call a multiplier effect-- if it’s done right that is. If economic development is facilitated at the “grass roots level,” based on a population’s self-described needs, in a self-prescribed manner, using indigenous intellectual and material resources, then that development will be sustainable, providing community investment in the development process that will last into the future. The logic of the multiplier is this: by pumping money into infrastructure projects (paving roads, building bridges and schools), it helps people to provide themselves with the economic means of survival (access to resources), people gain a sense of self-accomplishment and stake in the economic present and future of their country. Why not just let Mr. Obama’s policy proposals alone if they will be achieved via the means of building infrastructure? Misdirection, lack of specificity; the obligatory nature of “alleviating poverty” and “spreading American goodwill” have the potential to give way to ambiguous action plans with equally ambiguous measures that will not in the end achieve the stated goal. However, building X number of bridges or paving Z kilometers of roads is a clearly defined goal, the success of which can be measured in a simplistic binary fashion.
While there is a lot to criticize in the argument made by eminent economist and foreign aid advocate Jeffrey Sachs that simply providing more money to the developing world will alleviate poverty and lead to economic development, his analysis of infrastructure necessity in the developing world is spot on. In a recent column for The Scientific American, Mr. Sachs wrote,
Investments in infrastructure can also break economic isolation. Such improvements include all-weather roads, wider cellular phone coverage, the extension of power grids to rural areas (like the New Deal program of rural electrification in the U.S.) and the extension of broadband Internet services through fiber-optic cables and satellite connections. Connecting formerly remote villages to regional and world markets enables them to earn much more cash income through sales of agricultural commodities, processed goods (such as textiles) and services (such as tourism or even IT-based rural services).
If the basic means to provide economic enfranchisement are present in a society, the overall functioning of that society’s economy will improve. Another key part of Mr. Sach’s point is that the diffusion of information is key to developing a society. Building information technology infrastructure will make this process quicker by decreasing the information monopoly that the enfranchised hold over the disenfranchised. The organization One Laptop Per Child provides a useful example about how this process can work: Their aim is to provide children in classrooms in developing countries with access to the internet, the dearth of information available on the internet as a substitute for textbooks. The organization’s premise is that equal access to education is inhibited by lack of access to information where Western publishing companies hold an intellectual property monopoly on textbooks and education systems in the developing world cannot afford to buy textbooks (lacking a domestic textbook publishing industry) of a magnitude sufficient to keep the children of their countries learning competitively on par with children of the developed world. The implication being that the human resources infrastructure in the developing world has been stunted. The multiplier is this: those children will take the computers home and their families will learn to use them as well, the ability to use a computer becomes a transferable skill that older men and women can use to get a job, get better jobs and improve the overall welfare of their families.

Indeed, in general there is a reason that almost every single humanitarian aid report lists “lack of infrastructure” in varying terms as the reason that development aid is relatively less effective than it could be. According to recent studies by The World Bank, economic development in Latin America is inhibited by lack of infrastructure. Lack of logistical infrastructure costs domestic exporters throughout Latin America 15-34% more than their counter parts in comparable developed economies. The UN Office for the Coordination of Humanitarian Affairs report on Sudan’s economy concludes that the biggest challenge for Sudan’s economy is lack of transportation and irrigation infrastructure. There is no point in throwing more money at international development schemes with out making a conscious effort to first improve the basis upon which developing countries function: the means by which they can move goods, services, information, and labour from one place to another. One might wonder that the disaster recovery in Indonesia may have been “quicker” had infrastructure been better to begin with. Burma, after Cyclone Nargis, faces the same consideration.

Populations that have a sense of enfranchisement and equitable access to their society, via economic and political means are arguably more socially “stable” societies. A key assumption of this argument is made by Amaryta Sen: poverty implies unequal access to resources, both material and economic in nature, and indeed that economic development is a universal human right. As Mr. Mahbubani explained, when his family was able to install a flush toilette in their home, his sense of well-being improved. Saying nothing about the broader economic status of his country, income gaps between rich and poor, he simply felt better about his situation in life. It has become accepted theory that the strong base of Islamic extremism and outbreaks of inter-ethnic violence, for example, are highly correlative to relatively more impoverished societies with large income gaps between groups. The Multiplier: If the United States assists in providing enfranchisement to the global economic system by facilitating the installation of flush toilettes (a manifestation of improving urban infrastructure), it will be a step further to achieving the goals that Mr. Obama outlined: “allievating poverty” and “spreading American goodwill around the world,” thus enabling the reduction of political instability and “Islamic extremism,” another long term American foreign policy goal. And thus, wrapped up prettily with a tiny bow on top: building flush- toilettes is the basis for solving all the world’s little problems.

Domestic Policy
Infrastructure Abroad and At Home: Rebuilding Domestic Infrastructure will improve the US Economy
Last year saw the collapse of a bridge in Minnesota, exploding drain pipes in New York City, and flooding in Fernley, Nevada due to a failed levee. These episodes are indicative of a larger and much ignored problem not only in America itself but all over the developed world: Infrastructure decay. The American Society of Civil Engineers estimates that it will cost $1.6 trillion dollars invested over a five year period in order to rebuild American infrastructure to “good condition.” At least 13 State Governors have recently agreed that the decayed state of American infrastructure qualifies as a national emergency.

There are more examples: Florida’s infrastructure alone needs $200 billion in investment; San Francisco’s crumbling highway infrastructure annually costs the economy $7.4 billion dollars. Shipping containers received in American ports face an average of seven days delay, which costs both shippers and receivers. But the ocean ports aren’t the only ones that need modernizing: Inland American waterways utilize lock and dam systems for keeping goods moving across the country, according to the American Society of Civil Engineers, half of these need replacing. The American economy is no longer producing the bountiful growth it did in the last decade, it is declining and becoming less competitive. It isn’t just the lag in re-education of American workers from jobs that have been outsourced, the basic infrastructure by which the economy functions is making the American economy less competitive and is likely contributing to the lag time from outsourcing loss turnover.

Rebuilding American infrastructure will support job growth and keep America competitive while re-instill in Americans a sense of unified national purpose in a confusing time. The American economy is beginning a downward trend with many pundits predicting “recession.” The American economy has lost ground to cheaper labour and production processes abroad. According to the Pew Research Center this April, Middle-Class Americans have given the US Economy “the most downbeat short-term assessment of personal progress in nearly half a century.” Judging their performance over the last five years, 31% of Americans say they have “fallen backwards,” while 25% say they are no better off than they were. Americans are no longer confident in the American economy. A Pew poll from May also finds that only 37% of Americans feel “favorable” about Federal Government performance, again the lowest rating for the last decade.

As previously discussed, economic infrastructure is vital for economic growth and recovery and American infrastructure, like the American consciousness, is in a dismal state. In a recent article in The American Prospect Damon Silvers links the decay in American Infrastructure directly to the downward trend of wages by way of tax cuts and free trade agreements. He writes that “In the public sector, starting in the 1980’s, tax cuts that overwhelmingly benefited the rich robbed government of revenues necessary to fund public investment, both at the state and federal level.” He explains that as American business drove the opening up of the American economy to globalization, this put downward pressure on wages, which in turn undermined the ability of the American middle class to save—meanwhile government policy encouraged borrowing in order to keep consumption levels high, thus driving the economic growth. The end result, however, was “the first postwar economic expansion in which wages did not rise.” While tax cuts prohibited proper government investment in human resources and infrastructure; Silvers calls for re-investment in infrastructure and new investment in alternative energy technology with “a wartime sense of urgency” because he explains, while our education systems have declined, America still has the capitalist know-how and physical resources to lead the world in the development of new, clean energy technology.

Thus, the state of American infrastructure, for the purpose of national policy, can be made into a physical manifestation of the American psychological state. If the national infrastructure reconstruction is made a national priority and the American public can be enlisted to provide energetic dynamic support for such a policy, then the policy will provide Americans with a sense of purpose and hope in a manner that invigorates national identity. As Mr. Mahbubani felt that his family’s prospects had improved with the installation of a flush toilette, Americans will recover their confidence in the strength of their national entity, its prospects for the future with the re-building of infrastructure and restoration of American economic-competitiveness. And as American self-confidence recovers, it is possible that it might also have the effect of recovering America’s image abroad.

The question remains: how can America be invigorated by domestic infrastructure policy? There are two possible but not necessarily mutually exclusive responses to this question: While the Economics of FDR’s “New Deal” policy proved false, the image of a new “New Deal” will harken back to grand old days of a growing American economy providing a positive image for the economic outlook of the country. As with some economic concepts, positive imagery can provide a self fulfilling prophecy.

Second, if we take Mr. Silvers’ “wartime sense of urgency” and run with it-- rebuilding American infrastructure can be used to revive enrollment numbers in the armed forces (specifically in the Army Reserve and National Guard corps, whose task it normally is to respond to domestic natural disasters like those made worse by decaying infrastructure: e.g. flooding due to levys bursting) and provide employment and means of re-integration for Iraq war veterans struggling with issues of re-adjustment and post-traumatic stress disorder. The National Guard needs enough personnel to retain the ability to alleviate domestic crisis, the Army Reserve needs enough personnel so that those Reservists called up for duty can at the very least retain the full length of rest periods between service, periods that have steadily declined in length since the beginning of the Iraq War.

It would be up to the President to issue an executive order that the domestic task of the Army Reserve and/or National Guard make it their top domestic priority to upgrade and restore American infrastructure to globally competitive levels. The bulk of military, war-time recruits, according to the Heritage Foundation, are largely made up of those that come from middle class income brackets: $35,000 to $79,999 totaling just over 60% of the total with more recruits coming from the mid to lower end of that range, 43.8% from rural areas. It is precisely this socio-economic class of Americans that have felt, according to Mr. Silvers and others, the brunt of real wage stagnation. While military recruits are often 18 to 24 year olds, it is their economic future that is at stake. Military recruiters could go to high schools and colleges with a message of domestic servitude within American communities, the long term result of which is the probability of a brighter future after military service; the same Heritage Foundation report also notes that most recruits join for tertiary educational benefits—thus the passage of a new and improved GI Bill (like the one currently making its way through congress) is vital to this strategy as well.

In order to actively and dynamically co-opt the civilian American population to the rebuilding effort, the Overseas Development Institute guidelines for “Mainstreaming Public Participation in Economic Infrastructure Projects” are instructive. The basic premise is that no matter what organization or agency is charged with building economic infrastructure projects, those projects will be less relatively less efficient (efficiency as the ultimate goal for economic policy) unless the local community is actively involved in every part of the process.

The report states that the purpose of public participation, “At its most effective, it is about empowering all those parties influential in and/or affected by a project, in defining and realizing the project’s objectives, and ensuring sustainable benefits.” In communities that have seen economic decline due to globalization, outsourcing, and the mortgage crisis, being actively involved in reclaiming their “American Dream” (the raison d’etre for Middle America) by participating in rebuilding America’s economic life force, will provide a unifying sense of purpose amongst Americans. In using the rebuilding of Economic Infrastructure as a military recruiting strategy, the same sense of unified American Purpose will have strong, dynamic psychological effects on the current generation and hopefully next generation of American youth. In as far as constructing something with one’s hands is found to be psychologically satisfying—thus as a possible therapy and in exchange for meals and housing, maybe even a moderate salary, Iraq and Afghanistan War veterans might psychologically benefit from participation in rebuilding the American economy. As rebuilding infrastructure seeks to co-opt local communities into the process, involvement with their local communities may aid veterans in reintegration into civilian life.


The purpose of Infrastructure is not just the functionality of the edifices themselves, but also the psychological multiplier mentioned by Mr. Mahbubani: simply “feeling better.” Americans have had a rough time of late and the foreign and economic prospects don’t look good. The good opinion of America abroad is declining, for the short-run domestic economic prospects look grim. Abroad, the developing world does have a few major stars: Brazil, China, India, and Russia—but even the most successful developing countries have masses of poor. If Senator Obama, as President, hopes to “spread American goodwill” around the world by “allievating poverty,” the most effective means of doing so is by clearly specifying policy: building infrastructure will achieve these goals. Or, if you like, paving X number of highways, and installing T number of flush toilettes provide a precise, measurable means of success that will translate into a more positive image of America abroad in a way that using abstract strategies cannot: providing a functional tactile outcome.

Early Failures...

Housing Promises Alleviate Harsh Living Conditions but Not Poverty
July 2005
By J. Daniels

Cape Town, South Africa—Driving along the highway outside Cape Town the tour bus grinds to halt; protestors block the way. They are demonstrating for the houses the government has promised them will replace their dilapidated squatter shacks.

At first glance, the surrounding area seems an endless wasteland, with randomly discarded items strewn over an indeterminate surface. Upon closer examination, the upside-down wheel barrows, concrete blocks, makeshift sandbags hold down a sea of corrugated tin roofs against the wind that blows over the Cape Flats. Wooden poles stretch into the air with so many cables coming off of them: electrical sail rigging.

These are the temporary structures that make up the squatter camps that stretch eastward from Cape Town for miles along the N2, a major national highway. They constitute a sprawling mini-metropolis made up entirely of such improvised shelters, and they typify squatter camps that have arisen outside most major cities here since the nullification of apartheid-era laws.

The post-apartheid government is under increasing pressure to respond to its promise to build 1 million houses every five years, a pledge the African National Congress (ANC) made when it came to power in 1994. So far, it has only built 2 million houses under its highly touted Reconstruction and Development Program.

Government officials say that are responding to the housing crisis as quickly as they can, but they argue that competition for scarce resources limits their ability to expand the program. Meanwhile, the houses they do build are often far from the cities and available employment opportunities. The lack of affordable public transport means that even the government’s successes actually have a negative multiplier effect on the poor: lack of access to resources necessary to survive.
“The 2 million RDP houses, a not negligible roll-out, has exacerbated many problems,” says Jeremy Cronin, the Deputy Secretary of the South African Communist Party (SACP) and a leading ANC Member of Parliament. “In the course of this housing program we became too obsessed with a numerical target, and there was too little attention paid to integrated spatial and developmental planning.”

At another point along the N2 highway, one finds hundreds of small, brightly-colored concrete houses. They, too, are topped with corrugated tin roofs, but have proper window and door frames. They are the government-built houses for which the residents of the squatter camps wait. But there are not nearly enough to go round, and they lack many basic utility services.

“The new housing localities are often rows and rows of ‘match-box’ houses, arguably better than un-safe, fire-prone shacks, but they are not part of sustainable communities in their own right,” says Cronin. “There are few if any parks, amenities and space. They remain absolutely dependent on distant localities for most shopping, for work.”

“In order to meet numerical housing unit targets the temptation was to go for lowest cost land, typically far away from city centers, businesses, work places, amenities,” he says.

Today in the townships people find novel ways to earn a living. On street corners women sit in front of low wooden tables or blankets displaying produce. Many have small gardens to provide food for their families and supplement their income. Others produce traditional crafts.

Winding down dirt streets between the tiny houses and shacks, a sign for a small business reads: “Martin’s funerals you can afford.” Further down are metal machine parts piled in front of one shack, a mechanic’s shop. Further still, a man stands at a lopsided wooden stand, covered in blood and surrounded by animal carcasses. He is a neighborhood butcher.

A large concrete building looms in the distance: the Pick N’ Save grocery store. Smaller stalls ring the parking lot. This is the commercial center where vendors sell produce, candies and chips, clothing, shoes, simple housewares.

Adjacent to the vendor area stand a fleet of white minibuses, their side doors thrown open to collect passengers. These are
special taxis that run a specified route from one place to another. They are one of the three main ways people from townships make their way into the cities to work.

Fatima sits at the back of a stall covered by a blue tarp at the Green Point Flea Market in Cape Town. She is a plump and reserved woman. She wears a light purple head scarf, blue flower patterned shirt, and long denim skirt. She is selling carved wooden bowls, statues, and masks.

“A taxi from Khaylitsha to Cape Town is 20 rand per day; that is expensive, yeah, because most people aren’t working,” she says. “ I can sit at market all day and not make anything.”
Fatima says that while public transportation from the townships is convenient, it is expensive. The train is the cheapest way to come to town, but it is not always on time. The best way is to come by taxi, but that can take a while because there is always a long cue.

Beverly, a young shop girl at the Victoria and Alfred Waterfront Mall in Cape Town waits for a mini-bus. She has to wake up early, at about 7 a.m. in order to get to work on time. She says that in the morning when she leaves and when she comes home in the evening, it is dark outside and not safe. From Beverly’s township a one-way bus to the waterfront costs 15 to 16 Rand and takes one hour and 45 minutes. A one-way taxi costs 7.50 Rand and the train costs 5.50 Rand, both take about 45 minutes to reach the Waterfront. According to parliamentary estimates, 64 percent of all commuters use the minibus/taxis.

“The public transport systems have gotten worse, not better. Poor households are spending an unacceptable amount of their income on transport. Others are simply stranded,” says Cronin.

“Some of these petty-entrepreneurial activities are actually extremely critical to our whole society—the minibus industry being the most obvious example,” says Cronin, “If we are to make townships more habitable and sustainable in their own right, we need to help link them up with the main industrial and retail centers.”

“We are looking at helping to build cooperative forms of organization, at connecting government spending with local productive activities, e.g., local women’s baking coops, or food garden initiatives,” says Cronin.

South Africa currently spends R4 billion per year subsidizing the commuter rail and bus services, transport that Beverly and people like her depend upon to get to work every day. However, trying to control transportation costs is not easy. Buses are owned by municipalities or private companies, the trains are run by public companies, and the minibuses and taxis are run as private businesses within the townships. Each receives subsidies from different levels of government. Cronin says he hopes that the Parliament can act to reform the transport system to make it more affordable, to help improve quality of life in the townships.

“We want to move towards an alignment of spatial planning and transport subsides by bringing them both into the same sphere of government. Secondly, we want to move to subsidizing integrated, multi-modal public transport systems—so that trains, buses, minibuses, etcetera, work together in a single system, rather than competing as is presently the case,” says Cronin. In terms of future housing, Cronin says the government hopes to build closer to cities, providing “medium density housing.” The government also wants to place commercial and industrial centers closer to townships, so that more people can find gainful employment. But there is a rather substantial distinction to be made between hope and ability.
Ann is a freelance new media journalist, educated in Finance Economics. She considers herself to be a citizen of the world, though she is American by nationality, and a legal resident of the state of Wisconsin (yeah, go ahead and chuckle). See her other blog: Missing The Bear.
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