Howard Karger, Shortchanged: Life and Debt in the Fringe Economy (Berrett~Koehler Publishing, 2005), 252 pages, cloth $24.95.
The Fruits of Contemporary Capitalism
The widening and deepening of capitalism, which many economists misname globalization, has had traumatic impacts on workers. Sped up by what has been called neoliberalism (basically, the political program of modern global capital), the growing penetration of capitalist production and consumption relationships around the globe has literally pitched workers from pillar to post. For example, the North American Free Trade Agreement (NAFTA) has forced hundreds of thousands of Mexican peasants and wage workers to abandon their home country and migrate to the United States. Similarly, government austerity and “free market” programs—curbing food and health subsidies to the poor, closing and selling state enterprises, suppression of worker and peasant protests, and the like—in countries like India and China have deprived many workers of what security they had attained and pushed peasants from their land into cities.
In the world’s rich nations, neoliberalism has dictated an assault on workers, with massive cutbacks in social welfare spending, legal protections, health care, and pensions. At the same time, production has been rapidly transformed in such a way that many workplaces can function profitably with only a small core of full-time workers. The remaining workforce consists of part-time and full-time workers laboring as independent contractors or employees of firms to which work has been outsourced. To make this system function effectively, there has to be a large pool of easily exploited men and women seeking employment. Newly arrived immigrants and displaced domestic workers fit the bill exactly. They supply the labor demanded by the radically restructured workplaces.
In the United States—poster child for the neoliberal model—there now exists an enormous class of poor workers, left to their own devices and made up both of immigrants and native-born. They are desperate for work and willing to accept low wages, long hours, and abhorrent working conditions. They are chronically short of money and are typically without access to things more well-off people take for granted, one of the most important of which is the services of banks, especially credit. Without such access, they may be unable to cash a paycheck, obtain phone service, have utilities connected, buy furniture, purchase a car, and rent or own housing. But just as a reserve army of labor sets employers to licking their chops and brings forth entirely new groups of exploiting “entrepreneurs,” so too the considerable sums of money in the hands of the entire class of poor workers create new groups of predatory lenders, salivating at the opportunity to steal this money.
The two books under review examine twin aspects of being poor in the twenty-first century U.S. economy: exploitation in the labor market and victimization in the consumer market. The first book, Immigrants, Unions, and the New U.S. Labor Movement, looks at work and union organization in three low-wage labor markets in New York City dominated by specific sets of immigrants: Mexican workers in Korean-owned greengrocers, West Africans laboring as grocery store delivery workers, and South Asian limousine (black car) drivers. The second book, Shortchanged: Life and Debt in the Fringe Economy, describes the usurious debt economy faced by poor people in the United States, an important subgroup of which is the immigrant workers whose story is told in the first book. Though the two books have different subjects, there is, as we will see, much that links them together. Let us look at each book in turn.
At the Bottom of the Labor Market
In 2002, there were, by a very conservative estimate, 185,000,000 people living outside their country of birth, an increase of 65,000,000 from 1990. This amounted to about 3 percent of the world’s population. Both the total migration and the percentage of world population figures have continued to grow, and there is no end in sight. Certainly no matter where you go in the rich capitalist world, you will find immigrants everywhere and especially you will find them doing society’s most onerous and least paid labor.
In the United States in 2003, there were some 33.5 million foreign-born residents, comprising 11.7 percent of the population. More than half of these arrived in the country since 1990. Several million of the foreign-born are here without documents. More than half are from Latin America, and one-quarter are from Asia. On average, the foreign-born are younger, have larger families, have less formal education, are more likely to live in a central city, have lower wages, are more likely to be poor, have higher unemployment rates, are more likely to work in the service-producing sector of the economy, and are more likely to be male than the native-born population. Employers are increasingly dependent upon immigrant labor, and it makes up a growing fraction of the growth of employment.
As Immanuel Ness tells us, New York City has always been a haven for immigrants, both because it is such a large city with many and diverse employment opportunities but also because at least until September 11, 2001, it was one of the country’s most immigrant-tolerant cities. Successive waves of immigrants have filled the city’s many neighborhoods for at least 150 years. With the implementation of neoliberal politics, large numbers of immigrants have once again come to the city. Between 1992 and 2002, nearly a million immigrants were legally admitted to New York City, mostly from Latin America and South Asia. Overall, there are about three million foreign-born residents, comprising 36 percent of the population. However, they represent 47 percent of the city’s workforce and 62 percent of the low-wage workforce (earning $5.15 to $7.10 an hour). Immigrants are concentrated in “private transportation, hotel and restaurant, delivery, security, building maintenance and other low-wage services.”
Much of this work is “informal.” The unionized manufacturing work previously done in New York City has moved away, and the once powerful labor movement has been severely weakened. There are still pockets of relatively well-paid union workers, in construction and in the public sector, but immigrants do not have a strong presence in these unionized segments, and these sectors are themselves under neoliberal attack. Changes in technology along with a large and pliable immigrant labor supply have allowed employers in these union strongholds, as well as in the private service, to subcontract work—often several layers deep—or to declare workers to be independent contractors. The weakening of unions has permitted the state, at the behest of employers, to weaken protective labor laws and to abandon enforcement, and this has given the green light to employers to continue to expand their exploitation of immigrant workers. Today, 73 percent of workers in eating and drinking establishments, 62 percent of construction workers, 64 percent of grocery employees, 89 percent of workers in garment and apparel manufacture, and 85 percent of private household workers are immigrants. In New York City, immigrants lay the bricks, demolish the buildings, remove the asbestos, cook the food, wash the dishes, bus the tables, drive the taxis, deliver the food, take care of the children, and clean the apartments.
The three groups of workers studied by Ness—greengrocery workers, grocery deliverers, and black car drivers—are typical of laborers in the big-city informal economy. They work long hours (twelve hours a day and more, seven days a week); they earn less than the minimum wage, sometimes less than one-third of the minimum; they have no benefits, including vacations and holidays; they have often illegally been declared independent contractors, so they have to bear all of the expenses of working (car leases, gasoline, and insurance, in the case of the black car drivers); they live in ethnic ghettoes, often several families or many single individuals to a residence; and they still have strong ties to their countries of origin. In 2000, I visited the Chinese Staff and Workers Association in Manhattan’s Chinatown. Wing Lam, the director, told me that restaurant and garment sweatshop workers toiled 100 hours per week for $2.00 an hour and might live fifteen persons to a one-bedroom apartment. I was shocked, but Ness informs us that such conditions are standard, still today. Readers should imagine what it would be like to do this. How there would be no time to sleep, to socialize, even to think. What wear and tear your body would endure. How you would be headed for an early grave.
What gives Ness’s book its drama is the description and analysis of what these workers did. Despite their miserable conditions, they organized. They formed organizations and they struck their employers. And by doing so, they improved their circumstances and gained some control over their lives. Most important, they gave us a glimpse of what a rejuvenated labor movement could look like and what, despite bad labor laws, hostile and powerful employers, and an indifferent or antagonistic government, can be done, right now.
Ness interviewed many of the workers and their leaders, and the quotes he includes from them deepen and enliven his book. A black car driver from Pakistan says emotionally:
I feel like I am living like a slave. I borrow everything from the owner and he now owns me. Right now, I don’t even have enough to live and cannot send any money back home. I drive all day and night and all my money I earn goes back to the company to pay for the right to drive rich customers. They tell me I will be making money, but when? Because I owe so much, I have no choice but to keep driving.
A grocery deliverer and organizer from Mali says:
They made us feel inferior because of the color of our skin. [Scott Weinstein] said he only employs Africans because we do whatever he will say without complaining. I was not a slave in Africa, and I refuse to be one here. Though I need this job to survive, I also believe that my dignity is important. Scott makes derogatory comments toward workers in English while shaking their hands. Since many of the delivery workers do not speak English, they think he is complimenting their work. That made me angry, and when I told Scott to stop doing that, he tells me to lighten up and continues to ridicule workers in English. It got to the point that I began telling workers to use their days off to go to schools to study English.
Through interviews and from his extensive knowledge of labor history, Ness draws some interesting conclusions as to why these workers organized and what such organization might mean to the labor movement. He asks, why, for example, these extremely vulnerable workers (they are desperate for money; many are in the country without documents; they are easily replaced) organized when exploited workers at companies like Wal-Mart did not? Several factors come into play. These workers for the most part share a common national origin, for example, the greengrocery workers are all from Mexico, many from the same places in Mexico. They get leads on places to live and jobs from relatives and friends already settled in the United States. Once hired, they recommend fellow countrymen to employers who are only too happy to not have to recruit employees. In this way, once a group begins employment at a particular job, these jobs tend to become ethnically homogeneous. (How the first workers are hired at a certain type of job is sometimes accidental, sometimes due to a special quality of the workers, as when Indians and Pakistanis are hired as black car drivers because they usually speak good English.) Once here, they have an already functioning social network to which they can adhere. Religion is another source of unity; it is not only that they share a similar religion but religious teachings and religious clergy are often sources of potential solidarity. Where workers might have had ethnic differences at home, in the United States they often come to see themselves as more homogeneous. The Mexicans are treated by whites in the United States as people of color—often in a racist manner—so they soon come to think of themselves as such. Workers from Mali and Nigeria might not have much in common ethnically, but here they are all Africans and discriminated against as are native black men and women.
Ness stresses the social isolation of these workers; they are outside the mainstream consumer culture. They are thrown together for long hours at work and then go home to be thrown together again. Work is a constant subject of discussion in both places. They are exploited; they are alone among themselves; they are ignored and seen as outsiders; their religion and their social networks reinforce these feelings. They cannot escape by moving back home or leaving New York City or even finding a new job. Ultimately they begin to feel as one. If leaders arise—special people with perhaps more fluency in English or with more education or with organizing experience at home—and if there is a triggering event, such as a refusal by the employer to pay wages, organization can begin and spread like wildfire from workplace to workplace, building worker consciousness and confidence. What might have seemed unthinkable, like a strike, suddenly appears possible. If there are support organizations, such as a community group that will begin a store boycott or a union that will provide money and staff, a kind of miraculous militancy can develop and concrete gains can be won.
Once we understand what happened in each of Ness’s case studies, we can see why the Wal-Mart workers seldom do what these immigrant workers did. The Wal-Mart workers are isolated not as a group but as individuals in their suburban and rural homes. The company they face has enormous economic and political power, far greater than the Korean greengrocers, and it is less susceptible to any kind of pressure workers might bring to bear. In addition, the Wal-Mart workers might be able to find other, albeit poor, jobs, exiting from their workplace instead of demanding a voice. They are also much more integrated into the individualistic, consumer culture; even their religion is based upon the notion of an individual salvation through a personal relationship with God.
What role did traditional labor unions play in the three New York City organizing drives? In the main, not a good one. The city’s unions are, for the most part, mired in an undemocratic bureaucracy, willing to undermine other unions to protect their traditional turf, and willing to cut sweetheart deals with employers without any sort of consultation with the workers. Outright corruption is not uncommon. Where unions are committed to organizing, they tend to focus on workplaces with large workforces and show no interest in the small work sites where the immigrants often labor. Where workers have formed their own independent organizations, unions are not usually willing to allow these grassroots associations to maintain their independence. In the cases of the Mexican greengrocery workers and the West African deliverers, unions actually dealt crippling blows to the workers’ efforts. Only the black car drivers found a union willing to provide critical resources and accept worker control of their own union. And only for these workers could the end result be called a true success.
Ness’s book gives us much to think about. He devotes a chapter to the harm done to immigrant organizing by the events of September 11, 2001, and the subsequent draconian and racist government crackdown on immigrants. He sharply and critically examines the shortcomings of organized labor in New York City and in the country as a whole. He makes sound recommendations to labor leaders if they want to rebuild the labor movement. He states correctly and in no uncertain terms that organized labor must confront head-on racism, corruption, bureaucracy, nationalism, and war—and its own extreme timidity in terms of laying out a set of principles worth fighting for. Only down this track is there hope not just for refilling the membership roles of the unions but for countering the neoliberal globalization that continues to undermine the lives of working people everywhere.
Life in the Fringe Economy
When I was a boy growing up in a Pennsylvania factory town, pawnshops only existed in the cities and in towns near military bases. There were no such things as title pawnshops, check-cashing outlets, payday loans, stored-value credit cards, tax refund advances, rent-to-own furniture stores, furniture lease backs, phone cards promising low rates to call home in faraway countries, reverse mortgages, shared appreciation mortgages, and many other predatory schemes. Today these things are commonplace; drive through any small and not overly prosperous town and you will see them everywhere. In South Central Los Angeles, for example, in “a low-income community of 400,000 [there are] 133 check-cashing outlets….” What is more, they are not confined to criminal enterprises but are a substantial part of or the sole business of billion-dollar corporations. All of them cater to the poor and near-poor, the latter being that sector of middle-income households that have accumulated too much debt and are a small disaster away from being poor.
Here are some revealing facts about what Howard Karger classifies as the “fringe economy” in his fine book, Shortchanged: Life and Debt in the Fringe Economy:
In the United States there are more than 22,000 payday lenders (making more than $25 billion in short-term loans). There are more than 11,000 check-cashing stores (180 million checks and $55 billion). There are more than 14,000 pawnshops. The three largest pawnshop chains do more than $1 billion a year in business. The rent-to-own furniture and appliance industry does over $6 billion in business with more than 3 million customers. More than 12 million people receive tax refund anticipation loans. More than 332,000 “subprime” (read extremely high interest rate) mortgages are taken out each year, amounting to more than $300 billion.
The players in the fringe economy are no longer mom-and-pop operations. New corporate giants have been built, and old “mainline” companies are deeply involved in taking poor people’s money. How many readers know about ACE Cash Express (serving more than 38 million customers a year—more than 11,000 a minute—in more than 1,230 stores and doing $8 billion worth of transactions); or Advance America, Cash Advance Centers, Inc. (more than 2,800 stores, 5,300 employees, and at least $500 million in sales); or Cash America International, EZ Pawn, and First Cash (the pawn industry’s big three, each with revenues of more than $15 million); or Rent-A-Center (with worldwide operations employing more than 15,000 workers, 3,000 stores, and $2.3 billion in sales). Of course, we have all heard of H&R Block, Wells Fargo, JP Morgan Chase, Morgan Stanley, Bank of America, Wachovia, Well Fargo, Citigroup, and Lehman Brothers, all blue chip corporations, and all either doing business independently in the fringe economy or partnered up with the fringe operators just mentioned.
The fringe debt economy is extremely profitable, belying the notion that the poor must be charged usurious interest rates and made to pay outrageous and usually hidden fees because they are such high-risk borrowers. Business start-up costs are low, and few employees are needed to run a store. Consumer defaults are also low. Borrowers typically have to put up some collateral to get a loan. A tax anticipation loan is a sure thing, since the loan is never for more than the expected tax refund, which the lender keeps. Pawnshops keep the goods if they are not redeemed, and they never pay more than a fraction of the retail value of an item. Subprime mortgages are backed by the property, which goes to the lender in cases of default. Even where there is no collateral, as in a check-cashing operation, the price is so high that it more than makes up for any defaults. Karger tells us that “ACE Cash Express assesses the risk of each check-cashing transaction and reports losses of less than 1%.” And “…only 5% of subprime car loans are charged off as unrecoverable debt, a low number given the problematic credit histories of some borrowers.” These numbers hardly justify the interest rates charged to the poor, rates which, in the case of subprime car loans can reach 35 percent. The profitability of selling products and lending money to the poor is also demonstrated by the explosive growth of the fringe debt economy. Profitability is also shown by the high salaries, bonuses, and stock options of the corporate CEOs. The chairman of EZ Pawn took home $1.26 million in 2004; the CEO of Cash America “earned” $2.2 million and had $9 million in stock options. Advance America’s CEO made a paltry $650,000 in 2003 but held stock worth $101 million.
Without question, the fringe debt economy targets the poor, including especially immigrants, and those who are not poor but living from paycheck to paycheck. Many of these people are the “unbanked,” those without bank accounts of any kind. Most of them have yearly incomes below $25,000. Karger notes that “as many as 56 million adult Americans—about 28% of all adults—don’t have a bank account. Almost 12 million U.S. households (one-fourth of all low-income families) have no relationship with a bank, saving institution, credit union, or other mainstream financial provider.” The customers in the fringe debt economy are the same people who do the types of work described by Ness in his book: “nursing home aides, poultry processors, pharmacy assistants, child-care workers, data-entry keyers, janitors, and other employees of the secondary and tertiary labor markets.” As Ness makes clear, and Karger seconds, the customers of our check-cashing stores and rent-to-own outlets are growing in number, and for reasons intimately tied to the way in which the national and global economies have changed: falling median wages, a frozen minimum wage, declining health care coverage, the dismantling of the welfare system, the destruction of the means of livelihood in poor countries and the attendant rise in immigration, the denial of basic welfare benefits to immigrants, and the radical transformation of workplaces that can now utilize millions of contingent workers.
Economic changes have forced the poor and near-poor to assume larger amounts of debt, and the inability to pay this debt fuels the fringe economy, leading to what amounts to a system of debt peonage. Karger notes that “…family debt has increased a whopping 500% since 1957.” And, “[a]ccording to Elizabeth Warren and Amelia Tyagi, today’s two-income family earns 75% more than its single-income counterpart did a generation ago but has less discretionary income after fixed monthly bills are paid.”
The bulk of Karger’s book consists of a detailed examination of the major types of debt enterprises that prey on the poor and near-poor. Individual chapters are devoted to the credit card industry, storefront loans (pawnshops, payday loans, and tax refund lenders), alternative services (check-cashers, rent-to-own, and telecommunications), fringe housing, real-estate speculation and foreclosure, the fringe automobile industry, and the getting-out-of-debt industry. Heartrending personal stories are interspersed with the mechanics of each operation, and each chapter contains copious and useful data.
In each case we see that predatory lenders offer services the poor need but would not otherwise get. But they have to pay a high price to get them, and once in the debt economy there is no easy way out. The system is structured to keep the poor in debt. Like criminal loan sharks and bookmakers, the idea is not to kill the goose that lays the golden eggs but to keep it laying eggs, bleeding the poor slowly and for as long as possible. As long as you keep paying, they’ll keep lending. For example, poor people with credit problems or without any connection to a bank cannot get a loan for a new car or for a good used car from a reputable dealer. So they go to a “buy here, pay here (BHPH)” used car lot. There are some 19,000 of these in the United States, accounting for nearly a quarter of all used car sales. This is big business, and consolidation is now taking place, with a few large firms dominating the market and saturating mainstream local media with ads. DriveTime operates seventy-six dealerships in eight states; Car-Mart—located in Bentonville, Arkansas, headquarters of Wal-Mart—controls seventy-six dealerships in seven states. Big banks typically buy at a discount the loans issued by the BHPH dealers, making a nice safe profit without the bad publicity such shady operations might involve.
Here there are no credit checks. The seller works out a weekly payment the buyer thinks she or he can afford, and a deal is struck. There is a significant down payment, lots of hidden charges, an interest rate on the loan that may be as high as 35 percent, and an aggressive repossession policy (as soon as one day after a missed payment). But the buyer leaves with a badly-needed car. If it needs repairs, the BHPH dealer will do them and roll the repair costs into the loan. If the repairs are too costly, the dealer will offer a better trade-in than anyone else so that the buyer can get a more expensive car. And a new loan. And so on. Seldom do buyers keep a car for more than a year. Instead they return again and again to the same dealer and soon find themselves in a never-ending cycle of debt. Making regular payments does not improve their credit rating, since no credit reporting is done. They end up paying many times more than the price of a good used car. Their only reward, if they are Car-Mart customers, is to get their name on a plaque as a frequent buyer. Fifteen purchases put them in the Platinum Club. In this market it is even possible to rent tires, often a necessity for passing state car inspections.
The fringe debt economy also undermines public policies aimed at helping poor people. Tax time produces a feeding frenzy among tax refund anticipation lenders. Poor households depend heavily upon money from the Earned Income Tax Credit (EITC); the EITC check might be the largest single sum of money they receive in a year. However, they often need the money immediately. They can get it, for a price. Karger tells us that in 2001, tax preparation fees, tax-anticipation loan fees, check-cashing fees, and the like cost the poor $1.8 billion, 6 percent of the EITC program. One of the worst abusers of all of this is the giant corporation, H&R Block.
Karger proposes a variety of public policy changes for each fringe sector he examines. These include caps on interest rates, the outlawing of certain types of loans, full disclosure of loan conditions to customers, free publicly-funded tax return services to the poor, adequate enforcement of existing laws, limits on credit card spending maximums, adequate minimum payments on credit card balances to avoid balances that never diminish, longer grace periods before late fees are charged, extending the minimum payback time for payday loans (often this is as little as two weeks), not permitting credit card companies to raise interest rates because customers have been late paying another company, strict rules for setting exchange rates in international money transfers, expanded coverage of consumer credit laws to include rent-to-own transactions, limitations on fees charged for prepaid phone and credit cards, prohibition of many of the bogus fees charged to poor home buyers as well as pre-payment penalty fees, housing price controls, federal housing loans, and an increase in the stock of public housing and public transportation.
A Golden Opportunity
Karger does not offer us a strategy for achieving his many reform proposals. Here, however, we can learn much from Ness’s book. Ness’s immigrant workers are a significant component of Karger’s fringe debt consumers. Ness tells us that the organization of the workers began autonomously, the result of their extreme exploitation and social isolation, the latter a partial consequence of their ethnic homogeneity. They had only themselves to turn to, and this is what they eventually did. Solidarity and class consciousness flowed out of their circumstances.
It is unlikely that autonomous organization among the poor will arise to challenge the fringe debt economy. Incurring debt is a private matter, and the debtors do not usually live in close proximity to one another outside of the big city ethnic enclaves. Yet, the horrible work lives of the poor are so closely connected to their need for credit that some kind of movement ought to be possible. We all live lives of many connected parts. One of the problems of the U.S. labor movement has been to forget this and to assume that if a union provided some insurance at work this was enough.
In the cases of the workers studied by Immanuel Ness, labor organizations were in a position to give critical support to the immigrants. Wouldn’t it be possible for unions to finance, along with poor working people themselves, a network of workers’ centers in every city and medium-sized town and suburb in the country? These centers could be sponsored not just by unions but by sympathetic progressive organizations. Members would have to pay small dues and agree to participate in a certain number of actions each year (informational picketing, class action suits, letter-writing campaigns, and the like). The centers would have headquarters where working people could socialize and exchange information about work, organizing unions, confronting predatory lenders, and anything else of interest to them. The centers could, as some now do, offer instruction in English and provide an array of other services. For example, the centers could fight for some of the proposals Karger makes. The most likely ones would be those that would make poor workers less reliant upon fringe lenders and at the same time, not quite so reliant upon their employers. These would include more public housing, more and better public transportation, public tax services, community-based automobile dealers, and, even, as a friend of mine, John Mage, suggested, public pawnshops, which actually existed in fifteenth-century Italy. The connections between exploitation at work and in the consumer marketplace could be a key one made by the centers’ leaders, among whom would be as many poor workers as possible. They could be places where cross-racial, cross-ethnic, and cross-gender understanding and solidarity could be built.
Unions and union leaders are always complaining about the labor laws, the National Labor Relations Board, the Bush administration, Wal-Mart, China, and a host of other demons. If only this were true or that would happen. Well, Ness’s immigrant workers organized against great odds. Others could do the same. The labor movement could make a difference. Now.