The opening up of Gulf economies promises a range of new financing opportunities, and even some potentially hectic merger activity as Gulf Co-operation Council banks prime themselves to survive in a more competitive environment.
An opening to private investment in key sectors of the Saudi Arabian economy is exciting considerable interest across the Gulf Co-operation Council (GCC) region. Speculation that investment in the Saudi gas sector could require some $25bn in the next few years alone is just the sort of talk Gulf bankers and their international rivals and associates like to hear.
Opening up the world’s biggest oil exporter could have considerable impact on Bahrain, whose financial services sector, just across the causeway from Saudi Arabia’s Eastern Province, houses nearly 200 financial institutions with a $100bn-plus consolidated balance sheet — a significant part of which is sourced from Saudi Arabia.
But the impact of any real Saudi opening will be felt across the wider Gulf region, where project financing, new Islamic products and other instruments are fast becoming commonplace in one of the world’s most conservative markets.
One obvious consequence of market liberalization in Saudi Arabia would be for major mergers involving Saudi banks, says a senior Arab banker in Manama. Across the region, over-banked domestic markets are coming to understand they must consolidate their resources to survive and in some cases they are being pushed into mergers. Efforts to clear up past debt problems in Saudi Arabia have seen banks’ asset quality improve; consolidation started with the 1999 merger of Saudi American Bank (Samba) and United Saudi Bank.
Strict controls on lending imposed by the Bahrain Monetary Agency (BMA), the islands’ central bank, are forcing banks to look at ways to expand their turnover beyond their traditional deposit business. In 1998, the BMA raised its requirement for an 8 per cent Basel capital ratio to 12 per cent.
The need to build its business in an increasingly constrained domestic environment was one reason why Bahrain’s Al-Ahli Commercial Bank (ACB) is merging with the London-based United Bank of Kuwait (UBK), according to ACB deputy chief executive Abdul Rahman Fakhroo. The new Bahrain-incorporated Ahli United Bank (AUB), under ACB head Mohammed Jalal, has $323.5m capital and a range of synergies to work on, based on ACB’s commercial base and UBK’s investment banking, asset management and Islamic products.
Mergers are also starting in the region’s current boom sector, Islamic banking. A recent one in Bahrain involves Faysal Islamic Bank of Bahrain (FIBB) and Islamic Investment Company of the Gulf (Bahrain), now joined under the name Shamil Bank of Bahrain, with total assets of $2.9bn and more than $230m equity.
Even with oil prices high — usually a cue in the Gulf for economic reform measures to slow down — Saudi Arabia and other GCC states are pushing ahead with reforms which could transform state-led economies that offer cradle-to-grave social support. However, the pace of this change will be dictated by social pressures; the imposition of taxes, essential to cleaning up public budgets, and subsidy cuts are deeply unpopular in polities where rulers govern by a degree of consent. The pace of change will also be affected by the vested interests who have traditionally dominated business life in Gulf monarchies.
According to a senior Western diplomat, the gradual transition to rule by Crown Prince Abdullah in Saudi Arabia is being felt at a number of levels, from the settlement of long-standing border disputes to policies to better control economic balances. Budget and spending controls are needed, with domestic debt now around 115 per cent of gross domestic product. Crown Prince Abdullah is also expected to lean more heavily on corruption and middlemen — a key demand of many Saudis, as well as foreign business — but the Saudi system’s structure makes it unlikely he will be able to eradicate abuses which can make doing business in the kingdom so difficult.
A more prudent economic policy, which includes cutting a range of subsidies, must be complemented by projects which help to break Saudi Arabia’s oil export dependence and create jobs for a potentially fractious youthful population. “Crown Prince Abdullah is no economist but he is aware of the problems and has decided to act on them,” says the Western diplomat.
Other GCC states have already moved along the same lines, with differing, and sometimes indifferent, results. But slowly, a new business environment is being created where GCC nationals play a much bigger hands-on role in management, and Gulf banks and businesses structure themselves to cope with the challenges of globalisation.
In Bahrain, still the region’s financial powerhouse, a blend of aggressive pricing and efficient regulation combines to suck in money from around the world — a status which has placed it in category two of the Organisation for Economic Co-operation & Development’s (OECD) recent, controversial classification of tax havens.
According to the BMA, Bahrain’s offshore banking units (OBUs) draw 28 per cent of their assets from CCC countries (excluding Bahrain). Western Europe accounts for 33.4 per cent, the Americas 15.3 per cent and Asia 14.3 per cent.
The BMA has borrowed experience in large measure from the British system and the Bank of England, although Bahraini regulators also look closely at the US, Luxembourg and other international examples. The BMA’s stern attitude to regulation is widely recognised by international financial institutions and is perceived to be fundamental to the country’s continued role as a regional banking centre. As one BMA official put it: “The foreign banks understand the rules.”
A new law to tackle money laundering is going through the works; it was drawn up in consultation with the OECD’s Financial Action Task Force on Money Laundering. Although Bahrain is not widely noted as a problem area, no explicit code exists to counter the practice. Existing legislation coupled with tight banking supervision, including the forced closure of suspect accounts, have helped Bahrain crack down on offenders in the past, however.
The new Bahraini law creates the specific crime of money laundering and also includes obligations on persons to report suspicions of money laundering, more extensive powers to freeze property and greater exchange of information with foreign financial authorities.
For BMA governor Abdulla bin Khalifa AlKhalifa, it is important not only to join in the fight against money laundering operations, but also to be seen to have joined. BMA officials argue that the defence of Bahrain’s reputation and the continuing long-term success of the financial sector depend on attracting and retaining legitimate funds and reputable individuals to manage the financial operations.
Implicit in their comments — and sometimes, in not so-guarded whispers — there is criticism of rival centres, above all Dubai. No centre has worked so hard as the booming city-state to challenge Bahrain’s dominance as a regional banking centre. These aspirations have been met by many institutions moving to the United Arab Emirates’ (UAE) commercial hub.
In a cut-throat battle for market share, issues like regulation are playing a key role. Following a highly publicised affair in which a British passport-holder, Madhav Bhaghubhai Patel, fled the UAE with an estimated Dh1bn ($272m), taken from clients with whom he had long cultivated a relationship of trust, the UAE Central Bank has moved to tighten conditions in the sector. This includes raising the capital reserve ratio to 14 per cent on a variety of accounts.
To stimulate banks’ interest in the UAE, Dubai’s partner and sometime rival for influence and business, Abu Dhabi, has been promoting an offshore banking zone at Saadiyat island. Banks here will be under Abu Dhabi Free Trade Zone Authority, not the UAE Central Bank, and they will not be taxed.
This year should see whether the Saadiyat free zone works — a senior UAE-based diplomat recently said the project “has not moved ahead quite so smoothly as had been hoped”. An initial public offering to be led by Nomura did not take place, leaving the Abu Dhabi authorities to produce the $400m initial funding. There is speculation in the Emirates that the project might now become more real estate and e-commerce focused than being a purely financial play.
Islamic banking has truly arrived when conservative European private banks offer Islamic savings funds and major players, such as Citibank and Arab Banking Corporation, emphasise their Islamic operations’ roles in complement to project financing and other conventional structures. This trend reflects popular demand for products which can perform efficiently but also meet religious criteria — products which, in bankers’ terms, can please both the credit committee and the Sharia (Islamic law) board — and which can channel the undoubted liquidity this investor base provides into longer term instruments.
One of Bahrain’s senior bankers, Citibank Middle East regional director Mohammed Al-Shroogi, says the market is driving the Islamic banking boom, with a solid, older investor core and a new generation of investors: “kids in the Gulf and Asia who want a clean way of doing investing”. This sentiment has led other market leaders, such as Bank of Bahrain & Kuwait, which is also among those taking a lead in Internet banking and other online operations, to establish Islamic arms. By tapping Islamic liquidity, funds could be channelled into other growth sectors, such as project financing.
To harness this growth, the BMA has been pioneering a new regulatory approach to Islamic banking, working with the Accounting & Auditing Organisation for Islamic Financial Institutions to produce a globally recognised Islamic banking capital adequacy standard equivalent to the Basel Capital Accord. Draft regulation on the issue, which requires maintaining a delicate consensus between the supervisors, the Islamic banks and the accounting profession on a set of criteria covering key areas of risk, is now being discussed.
Most Islamic banks welcome greater regulation. Although some hardliners argue that regulation by a non-Sharia body is, in itself, un-Islamic, a proper regulatory framework would allow them to compete overseas with conventional rivals.
Niche Islamic banks in the Gulf are preparing themselves for globalisation. Al Baraka Banking Group is the reorganised version of Shaikh Saleh Kamel’s business empire, now Bahrain-based with authorised capital of $1.5bn. Underlining the rationalisation of the sector now under way, nine Al Baraka subsidiaries are being brought into the new structure, regulated by the BMA. Arthur Andersen, the external auditor, is expected to produce the group’s first ever consolidated balance sheet by the end of 2000. Behind the move, executives say, is a recognition that Al Baraka must come into the age of globalised banking.
Shamil Bank, too, is looking to compete on a global stage. Announcing its creation, chairman Prince Mohamed Al Faisal Al Saud said: “With its increased capital base and operations, Shamil Bank will be able to play a more effective and dominant role in the Islamic-banking sector.”
Another sector exciting Gulf bankers is project finance. All agree that the opening up of Saudi Arabia and the potentials offered by other GCC states create big opportunities. Citibank’s Bahrain operation has brought the group mandates to work on big ticket schemes such as Oman LNG, Bahrain’s Hidd power and water project and Kuwait’s massive Equate petrochemicals schemes, along with financings for Saudi Aramco, Sabic and other major regional corporates. A major operation now going through the works is for Bahrain Petroleum Company’s estimated $600m Sitra refinery rehabilitation and upgrade financing.
Others are competing hard for this business, including Chase Manhattan, which has carved out a substantial aircraft financing business. Among regional banks, Gulf Investment Bank has a big project financing department, which took key arranging and underwriting roles in deals such as Oman LNG, Qatargas, Yanbet, Taweelah A2 and Q-Chem.
Arab Banking Corporation (ABC), meanwhile, is boosting its project finance team, including recently poaching sector specialist Mark Yassin from GIB. Developments at ABC say much for what is going on across the region: it, too, has been busy in Oman, with arranger mandates in high-profile schemes such as the Oman-India fertiliser project and Oman LNG.
This is part of a strategy developed since late 1997, focusing on niche business where ABC can add a “differentiating edge” and leverage business.
The policy shift is intended to take ABC beyond its traditional core trade finance business and towards project finance and other value-added operations. In the past two years, it has increased its controlling stake in ABC Jordan and opened an Algerian subsidiary; this year it has bought Egypt Arab African Bank and is opening a Tunisian domestic subsidiary and an Egyptian securities company. It is also looking at a Lebanese opportunity.
Once that deal is in place, executives believe the bank will have a solid platform across the Arab world, although more activity in the Gulf region itself is expected. Gulf states’ recent liberalisation suggests further developments, leading to the tantalising thought that ABC might involve itself in a merger, potentially with a Saudi or other major Arab partner.
Meanwhile, some banks are harnessing technology to cross borders. This includes the slow development of a GCC-wide ATM network. Such developments are to be welcomed by regular travellers but so far have been little used.
This points to the reality that, although Gulf institutions are coming closer together, the region’s markets — exceptions like Bahrain and Dubai apart — remain very much national entities.
In the decades of occupation, the futility of the occupation became more and more evident to more and more Israelis. They wanted a normal life, not an imperial life. In 1978, Menachem Begin and Anwar Sadat invited Yasir Arafat to join them in their peace. Arafat refused. In 1993, he shook Yitzhak Rabin’s hand and agreed to live with Israel, in return for which the way to a Palestinian state was made ready. The PLO became the Palestine Authority, and Israel’s withdrawal from the West Bank and Gaza was begun. In 2000, Ehud Barak agreed that the time for “final status” had finally arrived, that there was no point in deferring the two-state solution to the conflict any longer. He agreed to the creation of Palestine, and in return he wanted a clear Palestinian declaration that the conflict was over. Arafat refused.
The particulars of the deal that fell apart on July 25 are still shrouded in secrecy; but here are the central points of the deal that the United States proposed before Clinton left for a few days of brandy and cigars on Okinawa, as they were reported in Ha’aretz on July 21:
the creation of a Palestinian state, with its borders established by mutual agreement with Israel;
the postponement of any declaration that the conflict was over;
Israeli withdrawal from 95 percent of the West Bank;
Israeli annexation of the remaining 5 percent of the West Bank, in exchange for other territory now under Israeli rule;
a secure highway between the West Bank and Gaza, and a road from Bethlehem to Ramallah that Palestinians could travel freely, without interference;
Israeli annexation of the large settlements of Maaleh Adumim and Givat Zeev near Jerusalem, in exchange for Arab neighborhoods in the northern environs of the city;
broad civil and administrative autonomy for Palestinians in the Old City of Jerusalem and in the neighborhoods adjoining it;
a separate Palestinian road to the Temple Mount;
free movement by Israelis along the arteries leading to Israeli settlements;
religious administration of all the holy places;
the creation of a Palestinian army, but without heavy weapons or an air force;
the right of Israel to deploy troops along the Jordan Valley in the event of a military threat from the east;
Israeli acknowledgment of “the suffering of the refugees,” and the absorption of tens of thousands of Palestinian refugees into Israel, under the rubric of family reunification;
the creation of an international fund for the compensation and the restitution of Palestinians in their places of abode, to which Israel will contribute.
When the Americans made this “bridge proposal,” Barak agreed to it. In doing so, he exceeded his political mandate for compromise (his plan amounted virtually to a withdrawal to the 1967 borders), and he scandalized a significant number of Israelis back home. Away from home, the prime minister seems to have confused the spirit of Rabin with the spirit of Peres, though he was elected because he insisted upon the distinction. But Arafat, in a voice of rejectionism that was supposed to have disappeared into the mists of time, said no. And when Clinton returned to Camp David, Arafat again said no.
The reason was Jerusalem. Arafat explained to the crestfallen American president, and to the sympathetic American diplomats whom he embarrassed with his intransigence, that he could not concede Israeli sovereignty over Jerusalem. If the city is not divided, he said, then Palestine can wait. According to one report, Arafat told Clinton that he speaks on behalf of a billion Muslims. It also transpired that President Hosni Mubarak of Egypt and Crown Prince Abdullah of Saudi Arabia (in the words of The New York Times’ reporter in Cairo) “all but threatened Mr. Arafat with political excommunication if he accepted Prime Minister Ehud Barak’s proposals” on Jerusalem.
The prospect of dividing Jerusalem really is intolerable, and this, too, is a lesson of history. For the city was divided–as a consequence of Arab aggression–for almost two decades, between 1949 and 1967, and in those years it was a very unpleasant place. Arab snipers fired on Israelis in the streets. Jews were denied access to their sacred sites, many of which were systematically desecrated. It was not until the city was unified under Israeli rule that religious pluralism became a reality. Anyway, there is no such thing as partial sovereignty. Sovereignty is a big, coarse, strong dispensation, which is why it makes some people feel safe and other people feel unsafe.
It takes a certain temerity, moreover, to insist that a city is your third-holiest place when it is your interlocutor’s first-holiest place. But the really important point, the point upon which the sweet reason of the Oslo process has been shipwrecked, is that the Palestinian leadership has chosen symbols and sentiments over the welfare of the Palestinian people. Israeli doves, who now include the prime minister of Israel, were betting on the opposite choice, the compassionate choice, the moral choice–the choice that the Zionist leadership made in 1947, when it accepted a state that excluded Jerusalem from Jewish sovereignty. If I forget thee, o Jerusalem, the Psalmist sang, may my right hand lose its cunning; but the founders of the Jewish state were prepared to forget, at least politically. Their reason was clear: there were thousands of Jews in refugee camps, and this misery they would not countenance. Indeed, it was precisely because they chose collective rescue over collective memory that their right hand found its cunning, and the harsh, anomalous existence of the Jews was brilliantly transformed. It is this link between compromise and justice that is tragically and tiresomely missing from Palestinian politics.
Moreover, Ehud Barak did not travel to Camp David to negotiate with a billion Muslims. He went there to negotiate with the Palestinian people, who are the only people in the world who share a claim upon the land. Does Arafat understand the damage that he does to the prospect of Israeli-Palestinian reconciliation when he presents himself as the representative of the Islamic world? If that is so, then the Israeli- Palestinian conflict is not a political conflict; it is a cultural conflict, even a religious conflict. And if that is so, then Israeli magnanimity is foolish, and founded on an illusion, and all that remains for Israel is to ready itself, militarily and psychologically, for war without end. But here is Arafat, hailed as a hero throughout the Arab world for standing up to Israel and the United States on theological grounds. And there are his people, going nowhere fast. Arafat is also said to have complained to Clinton that he would be assassinated if he budged on Jerusalem; so perhaps the obstacle was not only his theology, but also his cowardice.
Barak, by contrast, is fearless. And his consecration to the cause of peace was plain for all the world to see, and preempted the blame game- -more precisely, the recrimination against Israel–that usually follows such fiascoes. But Barak’s impatience with incrementalism, and his decision to wager everything on a single summit, may have been a monumental mistake. Military efficiency has no place in politics, which is what incrementalists from Begin to Rabin understood. Barak’s gamble has gained his country only anger and disillusion. Moreover, his generosity at Camp David has set a standard for Israeli diplomacy at any future negotiation, unless Barak says otherwise; but then he will owe his people a larger explanation. Indeed, Camp David was not the first instance of Barak’s historical impulsiveness. His desperate desire to find a way to return the Golan Heights to Syria defied a powerful and proper Israeli consensus that little was to be gained and much was to be lost from such a deal. It may also have encouraged the Palestinians in their foolish belief that here was an Israeli government that would provide complete satisfaction. For Arafat did not come to Camp David to negotiate, he came to receive.
And now? A reckoning with some of the premises of the peace process, perhaps. Violence, perhaps. Sobriety, for sure; and in Israel, political confusion. There remains the decency of ordinary Israelis and Palestinians who coexist with each other all the time, summits or no summits. And it is always good to be disabused.
The economy of southern Ohio has been devastated for years. Coal mining jobs that once paid $40,000 a year have been replaced by minimum wage service jobs–or nothing at all. Oil and gas hit bottom. And while loggers still work the forests, the timber is shipped directly to Japan and Germany, with no secondary wood processing jobs in the region. While the rest of the state has a 4 percent unemployment rate, the 1 1 counties in the Appalachian part of Ohio average as high as 17 percent.
“If you don’t have a job at Ohio University, you’re poor,” says June Holley, president of the Appalachian Center for Economic Networks (ACEnet).
But when ACEnet sought ways to invigorate the economy, the group realized that the area had one unrecognized asset: hundreds of tiny manufacturing firms. “We did a lot of research and were inspired by northern Italy, where hundreds of thousands of very small manufacturing firms were created in 15 years,” explains Holley. The secret was targeting markets, then working in collaborative ways to meet the needs of those markets. What one firm could not produce alone, several could produce by working together. At the same time, economic development organizations, banks and training centers were all geared toward helping the small manufacturer.
“We’ve been trying to explore how that strategy could work here,” says Holley. The strategy, called flexible marketing networks,” is bringing concrete results to the impoverished region. The first market pursued was accessible furniture for people in wheelchairs, products such as motorized counters, cabinets and sinks. Five companies banded together to make each product.
“These were existing, little teeny firms,” says Holley. “They couldn’t afford the $150,000 it takes for product development, so we borrowed that for them and set up a for-profit subsidiary to coordinate these joint efforts. ”
The next target was the high-end food market. With help from the local technical college, ACEnet is completing work on a kitchen “incubator,” a space with licensed kitchen equipment that budding food entrepreneurs can share. “We’re working with start-up businesses and small farmers who want to get into value-adding their products,” says Holley. “We provide space to prototype your business, without having to make a big investment.”
One family has a line of hot pepper products that is advertised in 11 catalogues. Another worker-owned Mexican restaurant that ACEnet helped launch has a line of salsas, which it hopes to market, together with other small local businesses making Mexican food products.
“Part of our strategy is to find partners out there in the market who want to have different kinds of relationships between producers and consumers,” says Holley. “We think we’ll see a whole shift from buying massive amounts of homogeneous goods to people buying less, but higher quality, wonderfully and locally made goods that are much more satisfying.”
One of ACEnet’s major emphases is community involvement, so that everyone from welfare recipients to bank officers participates in building the local economy. “When the firms started expanding, we brought together 16 people from low-income community groups, the vocational school and the welfare department and had them design an entry-level training program for the business,” she says. “One reason why these programs can be effective is everyone’s at the table. You’re not just guessing about what keeps low-income people involved in a training program, because theyre there, saying that it’s a major problem that you don’t have emergency child care,” Holley says.
Called a joint-design process, Holley says it’s “the most revolutionary kind of activity you can do.” ACEnet has used the same process for gaining access to capital, for settling up targeted loan funds and for using telecommunications. The idea is to include as many players as possible, enlist input from each participant and unleash a spirit of experimentation and risk-taking.
ACEnet has also inspired other community groups in the region. In western Virginia and eastern Tennessee, the Clinch Powell Sustainable Development Forum has crafted a three-pronged strategy for economic renewal that includes flexible manufacturing networks, as well as micro-enterprise and incubators, similar to the commercial kitchen being established by ACEnet. The Forum was launched at a gathering that included representatives from small businesses, universities, chambers of commerce, local mayors, state legislators and grassroots environmentalists.
Like southern Ohio, the area has been hard hit as natural resources have been depleted. “People are still geared up to think a corporation is going to come and give them a job, which is ironic to me because we have this stereotype of Americans being very independent,” says Eileen McIlvane, coordinator of the Coalition for jobs and the Environment (CJE), an active participant in the development effort. “Our long-range education program is designed to make people think how they might be employed in small businesses in their communities.”
Among the new businesses are horse-drawn logging operations that protect the forest from the damage typically caused by large-wheeled vehicles. The original horse-drawn logger, Jason Rutledge, of Copper Hill, Virginia, is training others in the system, and now 20 people are employed in this way. Because of the selective cutting done, each tree brings a high price to the logger. “Some of these people are unemployed loggers who were frustrated,” says Mcllvane. “They didn’t like to log the way they were asked to in the past, but that was the only job available.”
Another new forest product enterprise is a solar kiln, used to dry the wood after it is harvested. Local construction companies are also being surveyed to see if flooring and other materials might be supplied locally. Other economic ventures being explored include nature tourism, diversified, chemical-free agriculture and commercial recycling.
CJE and other groups are now raising money to produce a video and workbook to take to small communities. “To establish these sustainable development concepts, it has to be done by the local people,” says McIlvane. “I can’t imagine a multinational corporation doing it. People need to brainstorm, develop their own criteria, see what resources they have, what their local skills are, and see what they can do to produce jobs. It can be started as individuals or as a community, but the local level is where it has to be done.”
Community groups in Toledo, Ohio are also beginning to model their efforts after ACEnet’s. At the Urban Affairs Center, an outreach unit of the University of Toledo, the staff hopes to use flexible network manufacturing to boost the city’s urban core.
While the city has retained some of its industry, a significant number of plants have been boarded up and new ones built in the suburbs. Unemployment in the surrounding neighborhoods is high, and continued business migration is anticipated. To reverse this trend, the Urban Affairs Center hopes to rekindle a sense of the importance of urban neighborhoods as a place to do business by linking industry to community development corporations.
“Obviously job creation will be one measure of our success,” says Sue Wuest, flexible manufacturing network project manager for the Center. “We’re hoping this will happen and that the new jobs will go to folks in the neighborhoods.”
Using community development corporation (CDC) neighborhood volunteers, local firms will be surveyed this summer to find out how many employees each has, how many are locally hired, and what are the problems in training and gaps in skills that the applicants may have. One idea is to create a training network that would provide specialized training for specific firms or for groups of firms in the central city. To create the flexible manufacturing networks, the Center began meeting with a group of local manufacturers who had been identified as innovators.
Some of the new market ideas are inspired by the expected changes stemming from a shift from fossil-fuels. With its proximity to Detroit, automotive supplies have always been an important part of Toledo industry. One of the networks will explore ways to tap into the alternative-fuel and lightweight vehicle markets. “Rather than devoting all this energy trying to get around or delay environmental regulations, we’re trying to come up with solutions to the problems that drive the regulations in the first place,” says Wuest.
The other area of focus is medical equipment. One firm saves outmoded equipment from the landfill by reconditioning it. Alone, the firm is too small to take part in international markets. But by working with a network of other companies, the firms together will try to sell the equipment to places like China and Eastern Europe. By translating manuals, adapting the electrical systems and other refurbishing, out-of-date dialysis or xray machines may find markets in hospitals around the globe.
“What we’re doing is a big, ambitious project and it gets bigger every day, the more we learn. But there’s something missing from these communities,” says Wuest. “We have to find a way to reweave these neighborhoods to include all the important elements. Hopefully a strategy of flexible manufacturing networks can help to do that.”
In Whiting, Indiana, 1,650 people depend on the Amoco oil refinery for their livelihood. The future is tenuous for those hanging on to well-paying jobs in this industrial region. Another local refinery has already closed its doors, and the once-mighty steel industry is down from 20,000 workers to fewer than 8,000.
“Twenty years ago if you lost your job, you could just walk down the street and find another one,” says Bob Lofton, a board member of Local 7-1 of the Oil, Chemical and Atomic Workers, who works at the refinery. “Today it’s tough.”
While Lofton and his co-workers see Amoco as their lifeline, many local environmentalists view the refinery with suspicion. Fires and explosions are not uncommon. The groundwater has been contaminated from oil leaks. And Amoco routinely discharges high levels of chlorides that end up in Lake Michigan, as well as toxic metals such as selenium, arsenic and lead. “This can’t be good for the water or for the animals and people,” says Doreen Carey, executive director of the Grand Calumet Task Force, a grassroots environmental organization.
When Amoco threatened to close the refinery if the state forced it to abide by a new environmental protection law designed to protect the lake, the workers grew increasingly nervous about their jobs.
“The stereotype for labor is that environmentalists want to shut down the facilities and put everybody out of work, without taking into consideration the impact that would have on the community,” says Lofton. “We felt there was a big need to bring the workers, the community and environmentalists into one room to have them look at some issues together and do some problem solving.”
The Grand Cal Task Force was a natural ally for the union to approach. The Task Force has roots in the labor movement and was originally founded by steelworkers worried about contamination of Lake Michigan. Carey says her group, despite its concerns about environmental degradation, does not want to close the refinery down. Currently Amoco has no plans to do so, but is fighting state environmental laws in court.
Together OCAW Local 7-1 and the Grand Cal Task Force decided to host a series of Jobs and the Environment Workshops, using a process developed by the Public Health Institute and the Labor Institute in New York City. The day-long workshops are held in the union hall, and participants equally represent both labor and the environmental community. More than 30 similar workshops have been held around the country.
“We want to sensitize environmentalists about the severe nature of the job crisis and vice versa,” says Les Leopold, director of the Public Health Institute. “The workshops are designed to get people to explore the tensions between them. It gets them to look at the bigger picture and to see they have more in common than they have differences.”
“Unless environmentalists work in a facility, they don’t understand how the plant or how the union operates,” says Lofton. “And the same for union folks who have never been in a grassroots organization. The biggest thing we find through the workshops is a new understanding of each other.”
Participants break up into small groups and are given tasks, such as analyzing the toxic-dependent economy or discussing whether environmental progress is profitable. To aid in these discussions, $N fact sheets are provided so that everyone is drawing on the same information. Each small group must then reach some sort of consensus and report back to the full body.
“People who come with possibly divergent views, through this method, have great discussions about issues that concern all of us,” says Carey, who, along with Lofton, has been trained as a workshop leader. “You’re not just sitting there listening to a lecture. The process requires that everyone participate.”
In some cities, tensions run so high between the two sides, that even getting them to agree to hold a workshop involves delicate negotiations. In May, a workshop held in the San Francisco Bay area between OCAW members working for Chevron and Citizens for a Better Environment took 18 months to set up. “The refinery has been accused of polluting the whole bay and there have been struggles there for a long time,” says Leopold. “There’s a lot of suspicion, but we’ve moved it in a very positive direction.”
The ultimate goal is to find a common economic agenda that will deal realistically with both the massive job and wage loss workers face and serious environmental degradation. “In general, the middle-income, blue-collar working class jobs are being destroyed. That’s the problem we have to address,” says Leopold. “Environmental [regulation] will accelerate that process. We have to face up to it.”
Workshop participants learn that too often new jobs in the “green” economy, such as recycling or pollution control, pay far less than unionized jobs in the toxic-dependent industries. So too does work resulting from the Job Training Partnership Act and other programs proposed to solve unemployment caused by environmental laws such as the Ancient Forest Protection Act.
“This is not an easy discussion to have,” says Leopold. “Many have Pollyanna solutions, not because their intentions are bad, but because they fail to see how deep the economic crisis is.”
“We’ll never agree on everything,” adds Lofton. “But we’ll get a lot more accomplished by working together.”
When Congress passed the Clean Air Act in 1990, the lobbying group the Business Roundtable predicted catastrophe in the workplace, with 200,000 to 2 million workers laid off. In the Pacific Northwest, 20,000 loggers lost their jobs between 1990 and 1992, and the forestry industry forecasts that 100,000 jobs in all will be slashed due to logging restrictions. Four years ago, Amoco closed down its oil refinery in Casper, Wyoming, citing a $150 million investment needed for environmental projects as a major contributor to its financial woes. The shutdown left more than 200 workers unemployed.
Stories like these, of workers losing their livelihoods to protect a small brown-and-white owl or to fulfill some faceless bureaucrat’s alleged regulatory whimsy, pit jobs versus the environment in a trade-off with enormous stakes. In fact, a third of those responding to a 1990 Wall Street Journal poll thought it likely or somewhat likely that their own jobs were threatened by environmental regulation. The loss of over 3 million blue-collar jobs during the last 15 years has been blamed on environmental regulation, according to a recent report by the Economic Policy Institute.
But the real story lurks beneath the headlines that scapegoat the environment in the changing landscape of the workplace. Not only does environmental or safety regulation lead to less than one-tenth of one percent of all large-scale layoffs, according to U.S. Department of Labor figures, but environmental protection is creating far more jobs than it destroys.
Substituting software for humans, downsizing for increased profits and competitiveness, and export of jobs to countries where no minimum wage exists are the continuing culprits in U.S. unemployment woes. In town after town, thousands of people can lose their jobs virtually overnight. If they are able to find new work, their wages are typically a fraction of what they once earned. Areas that have managed to hang on to their jobs are insecure and fearful that environmental regulations will cause their local plants or resource-dependent industries to close down or move.
“It’s often the environmental elements of job elimination that grab attention. You see these inflated figures again and again. But the underlying shift in the way we work has gotten far less scrutiny,” says Eban Goodstein, an economics professor at Skidmore College and a research associate at the Economic Policy Institute. “For example, IBM laid off 18,000 workers in 1990. That was more than six times the total of all environmentally related layoffs across the nation over a four-year period.”
Indeed, if the Clean Air Act has decimated the livelihoods of hundreds of thousands of workers, few have come to the federal government to complain. Only 2,300 workers over the last four years have applied for aid from a $50 million annual fund set up to help those displaced by the legislation. Amoco not only ended up spending $75 million to clean up its abandoned Wyoming site after the shutdown, but went on to eliminate at least 2,800 other jobs across the country by closing businesses deemed “non-strategic.” And despite losing 15,000 forest products jobs in the last five years, Oregon has gained 20,000 jobs in high-tech fields and recently posted its lowest unemployment rate in a generation, just 5 percent.
Revenues and sales of products from the environmental industry directly supported about 1.1 million jobs in 1993 and will grow to 1.3 million jobs by 1998, according to Environmental Business International. A study by Management Information Services, Inc. estimates that environmental protection expenditures supported a total of 4 million jobs in 1992, about 3.4 percent of the total employment in that year.
In the short-term, environmental technologies have the potential to offset some of the job losses. A report released in April by the Labor Department’s National Commission on Employment Policy outlines the promise of job creation. A combination of investment in waste reduction technologies and lower production costs could lead to a net gain of 1.1 million jobs per year from 1996 to 2010. And energy efficiency improvements could create another 1.1 million jobs.
Skip Laitner, a co-author of the environmental technology report and a principal of the Economic Research Association, says high-tech jobs will provide employment for ten to 12 years, but cautioned that continued automation will overshadow employment gains after that.
“If we’re smart, we’ll use this bubble of time when we’re bringing in more high-tech jobs for creating a new way to look at work for the future,” Laitner says. “We talk about automation replacing human labor. It’s time that we look at jobs that help replace the resources lost by this rush to automation, jobs that sustain the environment. ” Some are looking ahead to that time as an opportunity to reshape the values that underlie work.
“The wholesale substitution of machines for workers is going to force every nation to rethink the role of human beings in the social process,” writes Jeremy Rifkin in his book The End of Work. “Redefining opportunities and responsibilities for millions of people in a society absent of mass formal employment is likely to be the single most pressing social issue of the coming century.”
Though not all prognosticators agree with Rifkin’s assessment of the end of the workplace as we know it, suggestions abound for retooling labor–both in the United States and abroad. Germany is moving toward a reduced work week of 30 hours that will open up hundreds of thousands of jobs for the unemployed. Sweden recently faced its first brush with mass unemployment. But rather than invest in welfare, they gave money to small businesses with the directive to create jobs. Street people have been hired to help salvage junked electronics equipment, and recycling businesses are booming.
Communities across the United States are now exploring ways in which the shift from blue-collar manufacturing jobs to high-tech automation can be cushioned by creating sustainable enterprises that nurture both the economy and the environment. The solutions vary considerably, from finding and processing wild herbs to manufacturing pavement material from asphalt roofing debris to making movable cabinets for people with disabilities.
While the end products may differ, several common strategies emerge. For one, small is once again beautiful. Many communities have given up on attracting a big plant that will employ hundreds of local people. Instead, very small enterprises are working together either to create products that are too complex for any single business to manufacture alone or to market products jointly. Cooperation is the overriding ethic. The new economy fosters collaboration and the sharing of mistakes and successes. From Virginia to California, people are reaching out to a broad mix of allies to work for the common good. Environmentalists, trade unionists, welfare recipients, banks, small businesses, and community development corporations are all being invited to share their ideas and energy to strengthen local economies.
Although these small-scale enterprises aren’t the panacea for massive unemployment, they provide a toehold for mapping out a future in which harvesting and using natural resources can be designed with the idea that employment can be healthy for workers, the community and the ecosystem.