Bernanke calls for renminbi revaluation

 By Krishna Guha in Beijing Published: December 15 2006 06:06 | Last updated: December 15 2006 09:11

Ben Bernanke, chairman of US Federal Reserve, stepped into a political minefield on Friday when he released remarks branding China’s undervalued currency an “effective subsidy” for its exporters which was distorting patterns of production and trade. In what looked to be a last minute bid to avoid controversy, Mr Bernanke then dropped the phrase from his speech to the Chinese Academy of Social sciences, using the less inflammatory term “distortion” instead.

Mr Bernanke’s original text talked about “the effective subsidy that an undervalued currency provides for Chinese firms that focus on exporting rather than producing for the domestic market.” This phrase – even though not finally uttered by the Fed chief – is likely to be seized on by US manufacturers who have long pressed US government agencies to make the same determination in trade cases.

A Fed spokeswoman said Mr Bernanke’s decision to drop the word “subsidy” was “a spontaneous decision” aimed at enhancing the clarity of his remarks. She said the Fed had not been asked to drop the term by anyone in the US administration delegation in Beijing for the final day of the high-level strategic economic dialogue.

The Fed is standing by the language of the original text, which is posted on its website, and has not repudiated the view that the currency regime does amount to an “effective subsidy.”

As in the prepared text, Mr Bernanke called on China to embrace “further appreciation of the renminbi, combined with a wider trading band and with the ultimate goal of a market-determined exchange rate.”

He said this would “allow an effective and independent monetary policy” that would help promote “growth and stability.” The Fed chairman’s references to the currency were made in the context of a measured speech, in which he said that while currency appreciation would be “helpful”, the “most direct and probably the most effective way to reduce the external surpluses and increase the welfare of Chinese households” would be to reduce the incentive for households to save by improving the social safety net.

However, he insisted that a more flexible exchange rate was in China’s own national interest. Mr Bernanke said the ever-increasing amount of sterilisation bonds needed to mop up excess reserves would crowd out other financial assets.

But he suggested that the bigger danger is that China is channeling investment into export industries “whose economic viability depends on undervaluation of the exchange rate.” These projects could turn bad if and when the currency does appreciate, resulting in “an increase in non-performing loans.” In order for China to “enjoy the fruits of its growth” it would be necessary for the economy to shift more resources towards production for domestic consumption rather than export and investment.

“To create incentives for this you are going to need real effective exchange rate adjustment,” he said. Elsewere in his speech, Mr Bernanke warned that continued high levels of investment in industries such as steel which already showed “signs of excess capacity” suggested “capital misallocation” was currently taking place. He said greater competition in the financial sector would result in more efficient pricing of risks and “reduce the risk that uneconomic investments could exacerbate the problem of non-performing loans.”

Mr Bernanke said this misallocation of capital – “the result of an undervalued exchange rate and of capital markets that…remain distorted and underdeveloped” – was the “principal risk” to China’s prospects, and could lead to “slower growth and future financial stress.”

Copyright The Financial Times Limited 2006

Out to Maximize Social Gains, Not Profit

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December 10, 2006

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By Alan Beattie in London and Eoin Callan in Washington

Published: December 7 2006 22:00 | Last updated: December 7 2006 22:00

Thomas Palley

http://www.thomaspalley.com/?p=59

Milton Friedman died on November 16, 2006 at the age of 94. Without doubt, Friedman was one of the most influential (perhaps the most influential) economists of the second half of the twentieth century. Not only did he contribute to reviving belief in the economic efficacy of the market system, he also had a profound political impact by linking capitalism with freedom.

Friedman’s treatment of capitalism and freedom colored understandings so that many among America’s elite now see a simplistic identity between the two. However, the reality is a complicated tango whereby free markets promote certain dimensions of freedom but can also bruise others – including democracy, meritocracy, and equality of opportunity. To paraphrase George Orwell, in market systems we are all free but some are (a lot) freer than others.

In 1976 Friedman was awarded the Nobel Prize in economics for his contributions to scientific economics. These contributions are marked by two characteristics. First, they are imbued with an underlying conservative partisanship characterized by profound animus to government. Second, Friedman achieved public standing through his macroeconomic work, much of which has been discredited. In a sense, Friedman is the economist who lost the battle but ended up winning the war, convincing society to adopt his view of the world.

One of Friedman’s most widely recognized contributions is monetarism, which recommends that central banks target money supply growth. Monetarism flourished in the late 1960s and 1970s and was briefly adopted by central banks as a policy framework in the late 1970s and early 1980s. That experiment produced devastating interest rate volatility, prompting central banks to revert to their traditional practice of targeting interest rates.

Monetarism was supported by Friedman’s joint work with Anna Schwartz in which they argued that the Federal Reserve caused the Great Depression through mistaken monetary tightening. This was Friedman’s first major salvo in his crusade against government, implicitly blaming government for the Depression. Friedman’s claim has always smacked of the tail wagging the dog since the Fed’s tightening was modest and brief, suggesting an underlying instability of the 1929 economy. The 1929 stock market was characterized by feverish speculation, and the Fed would indeed have done better to provide easy liquidity when investors rushed to exit. However, that also proves the dangerous instability of financial markets and makes the case for an active government regulatory presence, the very opposite of Friedman’s philosophical perspective.

At the theoretical level, monetarism asserts that central banks control the money supply and should aim for steady money supply growth. Friedman even recommended replacing the Fed with a computer that would mechanically manage the money supply regardless of the economy’s state. Furthermore, he suggested the Fed aim for a zero nominal interest rate. If the equilibrium real interest rate is three percent, that policy implies steady deflation of three percent.

These monetarist propositions reflect a flawed understanding of money. Money is a form of credit - an IOU. If central banks try to control the narrow money supply, the private sector just moves to create other forms of credit. That is why the Fed was unsuccessful in targeting the money supply, and why predicating economic policy on the relationship between the money supply and economic activity is a will o’ the wisp. With regard to deflation, Japan’s recent experience has confirmed the lessons of the Great Depression. In a credit-money economy generalized deflation is catastrophic and should be avoided.

Monetarism’s most famous aphorism is that “inflation is always and everywhere a monetary phenomenon.” This saying reflects Friedman’s polemical powers, capturing for monetarists what all sensible economists already knew. Inflation is about rising prices, and prices are intrinsically a monetary phenomenon since they are denominated in money terms.

Sustained inflation requires that the money supply grow in order to finance transacting at higher prices. For Friedman, this made villainous central banks the exclusive cause of inflation because of his belief that they control the money supply. However, the reality is that the private sector can also inflate the money supply through its own credit creation activities. Additionally, central banks (viz. the Bernanke Fed) may be compelled to temporarily accommodate inflationary private sector pressures to avoid triggering costly recessions. The implication is that inflation can have different causes, something Friedman denied. Sometimes inflation is caused by excessively easy monetary policy or large budget deficits financed by central banks. Other times it is due to private sector forces, including speculative booms and conflicts over income distribution.

Monetarism asserts that monetary policy is all-powerful. Subsequently, Friedman changed his view and argued that monetary policy had no long-run real economic impacts. Friedman cleverly termed his later theory the natural rate of unemployment, thereby enlisting nature on his side.

His new theory supported an extreme conservative policy agenda that still lives. According to the theory, the minimum wage increases unemployment by driving up wages, and should therefore be done away with. The same holds for unions. No consideration is given to the possibility that these institutions create an income distribution that promotes mass consumption and full employment. Finally, since central banks supposedly have no long run effect on unemployment and wages, they are not responsible for labor market outcomes. Natural rate theory thereby allows the Fed and European Central Bank to take full employment policy off the table while protecting them from charges that their policies may contribute to wage suppression.

Close inspection reveals natural rate theory to be akin to a religious doctrine. This is because it is not possible to conceive of a test that can falsify the theory. When predictions of the natural rate turn out wrong (as they repeatedly have), proponents just assert that the natural rate has changed. That has led to the most recent incarnation of the theory in which the natural rate is basically the trend rate of unemployment. Whatever trend is observed is natural – case closed.

Since natural rate theory cannot be tested, a sensible thing would be to examine its assumptions for plausibility and reasonableness. However, Friedman’s early work on economic methodology blocks this route by asserting that realism and plausibility of assumptions have no place in economics. With most economists blindly accepting this position, the result is a church in which entry is conditional on accepting particular assumptions about the working of markets.

The theory of consumption is another area in which Friedman contributed. His permanent income theory of consumption sensibly argues that household consumption and saving decisions are made on the basis of households’ assessments of their long term sustainable income, and not just on the basis of today’s income. However, Friedman also asserted that all households save the same proportion of their sustainable income. This proposition is manifestly false, as shown by the behavior of the super-paid. It also has clear conservative implications. Since all save the same proportion, transferring income from higher paid to lower paid households generates no economic stimulus. Progressive taxes can still be justified on ethical grounds, but not on economic stimulus grounds.

Lastly, Friedman was an early proponent of flexible exchange rates. Whereas the argument that flexible exchange rates facilitate macroeconomic adjustment has worn well, Friedman’s arguments against the dangers of destabilizing speculation have not. In line with his ideological predisposition for markets and against government intervention, Friedman ruled out destabilizing speculation. His argument was there exists a fundamental equilibrium price, and if prices depart from this speculators see a profit opportunity and drive prices back. However, experience has shown that exchange rates and asset markets are prone to speculative bubbles, and it has been extremely difficult to find a relation between exchange rates and fundamentals – whatever they are.

While such findings do not support fixed exchange rates, they do support a case for sensible exchange rate management by well-informed officials who can do a better job than speculative casino markets. Yet, the triumph of Friedman’s anti-government economics means that this sensible policy approach has been ignored by U.S. policymakers.

In sum, Milton Friedman’s political economy helped provide a corrective to the excessive disregard of markets and the price system engendered by the Great Depression, and his advocacy of the power of economic incentives abides. However, Friedman was not a lone defender of markets. Keynes, himself, always held an enormous regard for the market system – what he termed the Manchester System. Leading American and British Keynesians also shared that regard. However, whereas these Keynesian economists understood the limits of the market and the importance of government in making capitalism work for ordinary people, Friedman did not. By all accounts, Milton Friedman was a considerate and compassionate person, and he was a revered teacher. However, his fame rests on his ideas, and those ideas suffer from an excess of conservative partisanship.

October 13, 2006

China Drafts Law to Boost Unions and End Abuse

By DAVID BARBOZA from New York Times

SHANGHAI, Oct. 12 — China is planning to adopt a new law that seeks to crack down on sweatshops and protect workers’ rights by giving labor unions real power for the first time since it introduced market forces in the 1980’s.

The move, which underscores the government’s growing concern about the widening income gap and threats of social unrest, is setting off a battle with American and other foreign corporations that have lobbied against it by hinting that they may build fewer factories here.

The proposed rules are being considered after the Chinese Communist Party endorsed a new doctrine that will put greater emphasis on tackling the severe side effects of the country’s remarkable growth.

Whether the foreign corporations will follow through on their warnings is unclear because of the many advantages of being in China — even with restrictions and higher costs that may stem from the new law. It could go into effect as early as next May.

It would apply to all companies in China, but its emphasis is on foreign-owned companies and the suppliers to those companies.

The conflict with the foreign corporations is significant partly because it comes at a time when labor, energy and land costs are rising in this country, all indications that doing business in China is likely to get much more expensive in the coming years.

But it is not clear how effectively such a new labor law would be carried out through this vast land because local officials have tended to ignore directives from the central government or seek ways around them.

China’s economy has become one of the most robust in the world since the emphasis on free markets in the 80’s encouraged millions of young workers to labor for low wages at companies that made cheap exports. As a result, foreign investment has poured into China.

Some of the world’s big companies have expressed concern that the new rules would revive some aspects of socialism and borrow too heavily from labor laws in union-friendly countries like France and Germany.

The Chinese government proposal, for example, would make it more difficult to lay off workers, a condition that some companies contend would be so onerous that they might slow their investments in China.

“This is really two steps backward after three steps forward,” said Kenneth Tung, Asia-Pacific director of legal affairs at the Goodyear Tire and Rubber Company in Hong Kong and a legal adviser to the American Chamber of Commerce here.

The proposed law is being debated after Wal-Mart Stores, the world’s biggest retailer, was forced to accept unions in its Chinese outlets.

State-controlled unions here have not wielded much power in the past, but after years of reports of worker abuse, the government seems determined to give its union new powers to negotiate worker contracts, safety protection and workplace ground rules.

Hoping to head off some of the rules, representatives of some American companies are waging an intense lobbying campaign to persuade the Chinese government to revise or abandon the proposed law.

The skirmish has pitted the American Chamber of Commerce — which represents corporations including Dell, Ford, General Electric, Microsoft and Nike — against labor activists and the All-China Federation of Trade Unions, the Communist Party’s official union organization.

The workers’ advocates say that the proposed labor rules — and more important, enforcement powers — are long overdue, and they accuse the American businesses of favoring a system that has led to widespread labor abuse.

On Friday, Global Labor Strategies, a group that supports labor rights policies, is expected to release a report in New York and Boston denouncing American corporations for opposing legislation that would give Chinese workers stronger rights.

“You have big corporations opposing basically modest reforms,” said Tim Costello, an official of the group and a longtime labor union advocate. “This flies in the face of the idea that globalization and corporations will raise standards around the world.”

China’s Labor Ministry declined to comment Thursday, saying the law is still in the drafting stages. Several American corporations also declined to comment on the case, saying it was a delicate matter and referring calls to the American Chamber of Commerce.

But Andreas Lauffs, a Hong Kong-based lawyer who runs the China employment-law practice at the international law firm of Baker & McKenzie, said some American companies considered the proposed rules too costly and restrictive.

Mr. Lauffs said the new rules would give unions collective-bargaining power and control over certain factory rules, and they would also make it difficult to fire employees for poor performance.

“You could hire a sales manager, give him a quota and he doesn’t sell anything, and you couldn’t get rid of him,” Mr. Lauffs said. “It’s not easy to get rid of someone now, but under these rules it would be impossible.”

It is not clear what the final law will look like, and only an updated draft is expected soon. But specialists say the trend suggests that there may be new challenges ahead for foreign companies doing business in this country.

Under China’s “iron rice bowl” system of the 1950’s and 60’s, all workers were protected by the government or by state-owned companies, which often supplied housing and local health coverage.

But by the 1980’s, when the old Maoist model had given way to economic restructuring and the beginning of an emphasis on market forces, China began eliminating many of those protections — giving rise to mass layoffs, unemployment, huge gaps in income and pervasive labor abuse.

The worst off have been migrant workers, most of them exiles from the poorest provinces who travel far from home to live in cramped company dormitories while working long hours under poor conditions.

Migrant workers in virtually every city complain about abuses like having their pay withheld or being forced to work without a contract.

“I don’t know about the labor law,” said Zhang Yin, an 18-year-old migrant who washes dishes in Shanghai. “During the three months I’ve been here, my boss has delayed the salary payment twice. I want to quit.”

Having grown increasingly concerned about the nation’s widening income gap and fearing social unrest, officials in Beijing now seem determined to improve worker protection. In recent years, more and more factory workers have gone to court or taken to the streets to protest poor working conditions and overdue pay.

“The government is concerned because social turmoil can happen at any moment,” says Liu Cheng, a professor of law at Shanghai Normal University and an adviser to the authorities on drafting the proposed law. “The government stresses social stability, so it needs to solve existing problems in the society.”

In a surprisingly democratic move, China asked for public comment on the draft law last spring and received more than 190,000 responses, mostly from labor activists. The American Chamber of Commerce sent in a lengthy response with objections to the proposals. The European Chamber of Commerce also responded.

The law would impose heavy fines on companies that do not comply. And the state-controlled union — the only legal union in China — would gain greater power through new collective-bargaining rights or pursuing worker grievances and establishing work rules. One provision in the proposed law reads, “Labor unions or employee representatives have the right, following bargaining conducted on an equal basis, to execute with employers collective contracts on such matters as labor compensation, working hours, rest, leave, work safety and hygiene, insurance, benefits, etc.”

If approved and strictly enforced, specialists say the new laws would strikingly alter the country’s vast labor market and significantly push up the wages of everyday workers.

“If you really abide by the Chinese labor laws,” said Anita Chan, an expert on labor issues in this country and a visiting fellow at the Australian National University, “migrant-worker wages would go up by 50 percent or more.”

Until now, though, existing Chinese labor laws have gone largely unenforced, which has further complicated the debate here. Opponents of the proposed law argue that enforcing existing labor laws would be enough to solve the country’s nagging problems. Advocates respond that adopting new laws would set the stage for stricter enforcement.

Even lawyers working for multinational corporations seem to agree that there is an epidemic of cheating.

Mr. Liu, the Shanghai lawyer who advised the government on the draft proposal, says many companies avoid existing laws by using employment agencies to hire workers. He says the new law will do more to protect workers from such abuse by holding companies accountable.

“The principle is not to raise the labor standard dramatically,” he said, “but to raise the cost of violating the law. The current labor law is a paper tiger and is a disadvantage to those who obey it. If you don’t obey the law, you won’t be punished.”

October 14, 2006

U.S. Hits Obstacle in Getting a Vote on North Korea

By WARREN HOGE from New York Times

UNITED NATIONS, Oct. 13 — The United States pressed for a Saturday vote on a Security Council resolution that would impose sanctions on North Korea for its reported nuclear test, but questions from China and Russia on Friday evening cast the timing and possibly the content of the document into doubt.

The terms of the resolution had already been softened three times this week to meet objections from China and Russia, and earlier Friday there appeared to be agreement on holding a vote Saturday morning.

John R. Bolton, the American ambassador to the United Nations, said the new problems appeared “technical” rather than “substantial,” but said they would require another conference of Japan and the five permanent Council members, Britain, China, France, Russia and the United States, Saturday before the full 15-member panel met later in the day.

While the wording of the resolution was still being worked out, American intelligence officials said on Friday evening that they had found radioactive material in air samples taken over the region, providing more evidence that North Korea did indeed detonate a nuclear bomb.

The new draft resolution dropped or softened several provisions to placate China and Russia. It eliminated explicit mention of military enforcement of the sanctions; placed more limits on the kinds of cargo that could be inspected going in and out of North Korea; and dropped a blanket embargo on conventional weapons.

Mr. Bolton indicated that one area of dispute remained the methods and legalities of how to inspect cargo. The new draft resolution limits the weapons ban to large-size arms, military systems and unconventional weapons.

The measure, drafted by the United States, still requires all countries to prevent the sale or transfer of material related to North Korea’s nuclear, ballistic missile and unconventional weapons programs, and maintains a ban on travel by persons associated with those programs.

It also bars North Korea from exporting such weapons, a provision aimed at the international concern over the possibility of unconventional arms from North Korea ending up with terrorist groups or rogue states.

Kenzo Oshima, the Japanese ambassador to the United Nations and president of the Security Council, announced the Council would gather at noon, but could not say whether there would be a vote.

“An overwhelming majority of the Council members want to vote as soon as possible,” Mr. Bolton said. “They still think it is important to send a swift and strong signal, and I’m confident we’re going to be able to do that.”

Wang Guangya, the Chinese ambassador, said, “It all depends on the final text, because we are not at the final text yet.”

The United States and Japan, the driving forces behind the resolution, had earlier thought they had surmounted the Chinese and Russian objections to the resolution when they submitted a revision Thursday night that softened some of the earlier provisions.

Mr. Bolton said the United States was “very satisfied” with the document as it stood Friday morning and was prepared to vote for it immediately.

But Mr. Wang, while asserting his country was happy with the progress that had been made, said his country was still studying the text before officially pronouncing on it. “With progress we are always satisfied, but if we work harder, we might make more progress,” he said.

Vitaly I. Churkin, the Russian ambassador, said, “I think we are on the right track, but we are not there yet.”

In Washington, officials, apparently confident of the imminent passage of the measure, announced that Secretary of State Condoleezza Rice would travel to Asia next week to discuss how to implement the resolution, as well as to discuss other efforts to deter North Korean proliferation of a nuclear bomb or bomb-making materials. Sean McCormack, the State Department spokesman, said Ms. Rice would travel to Tokyo, Seoul and Beijing.

The trip, he said, is “an opportunity for her in the region to reaffirm and talk about the strength of our existing alliances there, and also to have a bit more of a wider conversation with others in the region about the current situation, about the security situation, and also to talk broadly about nonproliferation efforts.”

Senior State Department officials portrayed the United Nations momentum toward a resolution as evidence of a united, multilateral front agreeing to punish North Korea.

“So the first issue we need to do is to make clear that the sense of outrage and condemnation by the international community to have a resolution in the Security Council, which will not only be a resolution condemning North Korea, but actually a resolution with some teeth to it,” said Christopher Hill, the assistant secretary of state for east Asian and Pacific affairs.

“North Korea needs to understand that this is indeed a very, very costly decision that will leave North Korea far worse off and far more isolated than ever before,” said Mr. Hill, speaking at a conference in Washington. “We need to give that message very clearly and make sure that North Korea cannot find any differences in our views. So I think so far, so good.”

The resolution condemns the test on Oct. 9 as a “flagrant disregard” of Security Council warnings, orders it not to conduct nuclear or missile tests, and urges the North to return to six-nation talks with South Korea, China, Japan, Russia and the United States.

It freezes funds overseas of people or businesses connected to the unconventional weapons programs and bans the sale of luxury goods to North Korea.

“I think the North Korean population has been losing height and weight over the years,” Mr. Bolton said. “Maybe this will be a little diet for Kim Jong-il,” he said, referring to the North Korean dictator.

Under the resolution, member states are to report to the Security Council within 30 days on steps they have taken to comply with the its demands.

The resolution still invokes Chapter VII of the United Nations Charter, which makes mandatory economic and diplomatic sanctions. China and Russia customarily resist the Chapter VII provision on the grounds that it sets a pretext for the use of military force, as many countries believe it did in Iraq.

But in a formulation used in July to obtain a unanimous vote on the resolution condemning the North Korean missile launches, the text added a reference to Article 41 of the chapter, which permits only “means not involving the use of military force.”

In another change designed to gain Chinese and Russian support, the resolution now says the inspection process will be “cooperative” with local authorities. Both countries were sensitive to such interdiction being done near their coasts and borders, but Mr. Bolton said that though the inspections covered air, sea and land shipments, he expected most actions would be performed in port.

As for the agreement struck to limit the arms embargo to specific weapons like missiles, tanks, attack helicopters, artillery systems, warships and combat aircraft, Mr. Bolton said, “That would place under embargo the most dangerous, most sophisticated, most lethal weapons, so that’s a substantial step forward, and, as I say, we’re happy to accept that as a compromise.”

For those who are interested in the history of the US labor party, the following article will be of help.

Labor Party Tenth Anniversary

Mark Dudzic, National Organizer

June 2006 exert from www.thelaborparty.org

Ten years ago this month, 1,400 delegates came together in Cleveland, Ohio to found the Labor Party. Fed up with four years of the Clinton administration and inspired by significant changes in the labor movement, we made history by calling for a decisive break with the two parties of the corporations. When we left Cleveland, many of us felt that finally the tide had shifted and working people were poised to regain the offensive.

Of course we all know today that 1996 was not the start of labor's great revival. And no one can claim that the Labor Party has achieved its full promise. But we all understand that an expansive project such as ours could not and cannot thrive while the labor movement is in broad retreat.

While there are many reasons for this retreat, the labor movement as a whole has yet to confront the consequences of its lock-step relationship with the Democratic Party. After the debacle of the 2004 elections, for a brief moment, the labor movement began to debate its future. The sheer volume as well as the passionate nature of the proposals and counter-proposals was encouraging. In this spirit, the Labor Party challenged the movement to embrace a new vision of politics. We do not have an effective labor party today, we asserted, because the labor movement has yet to take up the task of building one.

Unfortunately those debates only paid lip service to the issue of political independence. We now have two major labor federations whose most radical "new" political ideas range from endorsing the occasional Republican to cross-endorsing the same old party hacks on some minor party label. And still the fact remains: without a real party of our own, working people continue to be at the mercy of the two corporate parties.

As we reflect on the events of the past ten years, we have much to be proud of. We've understood that you can't just wish a party such as ours into existence; it must develop within a web of working class institutions and an expansive movement. We've stood by the position that electoral politics must be conducted from a position of strength and not out of desperation. And we've been a firm voice against the never-ending schemes to repackage the Democratic Party and its corporate agenda with some fake progressive window dressing.

We can also be proud of the depth of commitment and support of our core members and affiliate unions. Our activists and organizers have little interest in preserving the Labor Party as a nostalgic museum piece. Rather, we are all committed to building the kind of power that will allow working people to confront the corporations that rule our world.

With those principles in mind, and with the support of key labor and community leaders (including the state AFL-CIO and the Charleston local of the International Longshore Association) last December the Labor Party embarked on an exciting new project in South Carolina. Today, we are well on our way to certifying the first state Labor Party with the right to run candidates on our own ballot line.

We took up this challenge convinced that the Labor Party's message would resonate with the people of South Carolina. And now, six months later, after thousands of one-on-one conversations in union halls, public gatherings, people's homes and at the numerous flea markets where working people gather to buy life's necessities, we are proud to report that 15,000 South Carolinians have affirmed that it's time for another choice at the ballot box.

We are beginning to lay the plans for our statewide founding convention, aiming to create a state party which, from the very start, represents the working class in all its diversity. Consistent with the national party's values and principles, we expect this convention to plot a course towards running strategic electoral campaigns. As our Electoral Policy puts it, our candidates "will be accountable to the party membership and required to follow the positions outlined in the party platform." This is what distinguishes our effort from all other political organizing projects that claim to speak for working people.

We are confident that South Carolina will be the first state where we will field serious candidates who can promote a new vision of working class politics. That we can do so in a state like South Carolina shows what can happen when the labor movement and other activists make a serious commitment to political independence. This effort could well be the first concrete step out of the political wilderness.

It is that potential that spurred the Labor Party's Interim National Council to commit to our supporters in the state that we would raise the funds necessary to firmly establish a viable South Carolina Labor Party. This is not an insurmountable task. If we could raise as much as the labor movement will waste on re-electing just one of the many pro-CAFTA, pro-war Democratic senators in "safe" seats, we could transform the politics of South Carolina.

To that end, hundreds of individuals and numerous affiliate unions generously answered our call for funds. Committed Labor Party activists have opened their homes and union halls for fundraisers in Philadelphia, Chicago, Detroit, New Haven, San Francisco, Edison, Amherst, New York and Washington – with others scheduled for this Summer and Fall. In May, the International Longshore and Warehouse Union (ILWU) endorsed and pledged financial support to our South Carolina campaign. For more information on how you can help, click here.

When our founding brother Tony Mazzocchi traveled the country in the early 1990s to promote the idea of a labor party, he called it an investment in our future. It still is. If anything, the events of the past ten years reinforce a hundred-fold the need for a labor party.

Tony also had an abiding faith in the unpredictability of powerful social movements. No one, he told us, could have predicted the rise of the CIO out of the depths of the Great Depression. One year ago, no one was predicting that millions of immigrant workers would take to the streets this spring. And ten years ago no one would have predicted that the first statewide Labor Party electoral effort would be in South Carolina.

Social progress might be unpredictable. But, as long as we live in a world which ignores the needs and aspirations of the vast majority of people who work for a living, it is inevitable.