Cyclopedia Of Economics 3rd edition

War - especially coupled with a globally sluggish economy - has a contradictory effect on the consumption of entertainment. Disposable incomes plummet curtailing the sales of medium to big ticket items such as cruises and resort vacations. But people - besieged by anxiety and bad news - also wish to be diverted. As the conflict rages, they stay indoors and tune in. Home entertainment booms. But once physical insecurity abates, consumers go out in full force mobbing movie theatres and theme parks, making up for lost time and frayed nerves.

A Solomon Smith Barney report, published in December last year, concluded that large cap entertainment stocks plunged by 32 percent during the previous skirmish in the Gulf. Stocks of destination travel sites and cruise lines took an even harsher beating, plummeting by 52 percent - this despite the counterintuitive resilience of amusement parks to military and political unrest.

In anticipation of the next round of fighting, these stocks are trading at valuations below even the traumatic tail of 2001. Though quicker than other types of equity to recover postbellum, this holds true only for short and decisive conflicts.

Analysts often monitor the performance of theme and amusement parks to divine trends in the industry as a whole. This would prove impossible in Europe where the culture of theme and entertainment grounds is still in its infancy.

Denmark has Legoland and Tivoli. France boasts the recently recovering Disneyland, Vulcania and Futuroscope. Germany has Phantasialand. Italy sports Gardaland. Spain joins the continent's minimal offerings with Port Aventura and Terra Mitica. The Dutch De Efteling spent the last decade "Americanizing" its facilities.

Only the United Kingdom has more than a smattering "pleasure beaches" and "worlds of adventure". A recently mooted Dracula theme park in Romania was shot down by irate citizens and an overweening bureaucracy. "New Europe" is no better than "Old Europe" when it comes to entrepreneurship.

In both market penetration and spending per visitor, Europe is at least a decade behind the USA. Indeed, the eerie paucity of theme parks is symptomatic of the generally moribund, rigid and hyper-regulated economies of the European Union. The continent has less than half America's number of parks per 10 million denizens and one third its visits per head per year.

Only 20 major European attractions garner more than 1 million in annual attendance. Another 50 or so attract less than 1 million patrons. With revenues of c. $2 billion, Europe's parks combined amount to one third the sector in the USA and underperform many parks in Asia as well.

European firms are still woefully primitive when it comes to marketing and educating their public. According to the Economic Research Associates, a consultancy, venture capital is rare and usually squandered by developers on wages and other "soft", non-productive costs. Management is inexperienced and peripatetic.

In Asia, theme parks are considered the magic pill. Japan has Disney World and the Tokyo DisneySea Park. Disney is slated to open a giant franchise in Hong Kong in 2005. Mainland China is eyeing the experiment favorably. Universal Studios countered by inaugurating a themed playground in Osaka in 2001 and by embarking on three feasibility studies in China.

From Jakarta, Indonesia (the Taman Ria amusement park) to Vietnam - everyone is climbing on the bandwagon. There seems to be a dearth of American interest in Europe despite its far higher purchasing power and the existence of a single business address - the European Commission.

Theme parks are multifarious businesses. They provide work to thousand of small suppliers in a virtuous ripple effect. Hosting and gaming experts, marketers, managers, on-site employees, suppliers of logistics, food retailers and caterers, entertainers - all benefit mightily from the presence of such grounds. The park's brand is often parlayed into trinkets, toys, clothes and souvenirs sold by locals to tourists, both domestic and foreign.

Destination travel is a growth sector.

The International Association of Amusement Parks and Attractions, a trade group, reported that worldwide park attendance was up one quarter between 1991-2001 to 319 million people. During this decade, revenues perked up by 50 percent to almost $10 billion annually. This was largely due to a rise in per capita spending within the grounds from $23 to $30. Returns on - usually massive - investments are impressive even in saturated markets such as the United States.

The profitability of theme parks frequently balances losses spawned by more glamorous bits of entertainment groups. Amusement grounds - themed or not - are astoundingly immune to geopolitical upheavals. Attendance in Disney's US parks declined by only c. 5 percent during the 1991 Gulf War. Even September 11 failed to dent it measurably.

EuroDisney is partly to blame for the scarcity of themed parks in Europe. For many years it was perceived, quite correctly, as an insatiable white elephant gulping rivers of red ink. Reality moved on but impressions - fostered by smug pundits - lasted. Wary investors and governments throughout the Old Continent confined themselves to the mostly family-operated "garden parks" and "carnival grounds" built during the 1960s and 1970s.

The truth is that Disney's Parisian adventure is flourishing. The entertainment behemoth is planning to invest c. $540 million in Walt Disney Studios, an annex of the French outfit. This is projected to add 5 million visitors to the current 12.

Another satisfied investor is Six Flags. The operator recently expanded to Mexico and Europe where it runs the six sites of the former Walibi Parks and Movie world, an erstwhile Warner Bros. property in Germany. It soon added a Spanish Movie World to its portfolio. Non-US operations already account for 15 percent of its sales.

But these are the exceptions that prove the rule. Europe is staid and serious. It prefers indigenous high-brow culture to American low-brow imports. Or so the French would have us all believe.

On January 16, 2003, the European Court of Human Rights agreed - more than two years after the applications have been filed - to hear six cases filed by Chechens against Russia. The claimants accuse the Russian military of torture and indiscriminate killings. The Court has ruled in the past against the Russian Federation and awarded assorted plaintiffs thousands of euros per case in compensation.

As awareness of human rights increased, as their definition expanded and as new, often authoritarian polities, resorted to torture and repression - human rights advocates and non-governmental organizations proliferated. It has become a business in its own right: lawyers, consultants, psychologists, therapists, law enforcement agencies, scholars and pundits tirelessly peddle books, seminars, conferences, therapy sessions for victims, court appearances and other services.

Human rights activists target mainly countries and multinationals.

In June 2001, the International Labor Rights Fund filed a lawsuit on behalf of 11 villagers against the American oil behemoth, ExxonMobile, for "abetting" abuses in Aceh, Indonesia. They alleged that the company provided the army with equipment for digging mass graves and helped in the construction of interrogation and torture centers.

In November 2002, the law firm of Cohen, Milstein, Hausfeld & Toll joined other American and South African law firms in filing a complaint that "seeks to hold businesses responsible for aiding and abetting the apartheid regime in South Africa ... forced labor, genocide, extrajudicial killing, torture, sexual assault, and unlawful detention".

Among the accused: "IBM and ICL which provided the computers that enabled South Africa to ... control the black South African population. Car manufacturers provided the armored vehicles that were used to patrol the townships. Arms manufacturers violated the embargoes on sales to South Africa, as did the oil companies. The banks provided the funding that enabled South Africa to expand its police and security apparatus."

Charges were leveled against Unocal in Myanmar and dozens of other multinationals. In September 2002, Berger & Montague filed a class action complaint against Royal Dutch Petroleum and Shell Transport. The oil giants are charged with "purchasing ammunition and using ... helicopters and boats and providing logistical support for 'Operation Restore Order in Ogoniland'" which was designed, according to the law firm, to "terrorize the civilian population into ending peaceful protests against Shell's environmentally unsound oil exploration and extraction activities".

The defendants in all these court cases strongly deny any wrongdoing.

But this is merely one facet of the torture business.

Torture implements are produced - mostly in the West - and sold openly, frequently to nasty regimes in developing countries and even through the Internet. Hi-tech devices abound: sophisticated electroconvulsive stun guns, painful restraints, truth serums, chemicals such as pepper gas. Export licensing is universally minimal and non-intrusive and completely ignores the technical specifications of the goods (for instance, whether they could be lethal, or merely inflict pain).

Amnesty International and the UK-based Omega Foundation, found more than 150 manufacturers of stun guns in the USA alone. They face tough competition from Germany (30 companies), Taiwan (19), France (14), South Korea (13), China (12), South Africa (nine), Israel (eight), Mexico (six), Poland (four), Russia (four), Brazil (three), Spain (three) and the Czech Republic (two).

Many torture implements pass through "off-shore" supply networks in Austria, Canada, Indonesia, Kuwait, Lebanon, Lithuania, Macedonia, Albania, Russia, Israel, the Philippines, Romania and Turkey. This helps European Union based companies circumvent legal bans at home. The US government has traditionally turned a blind eye to the international trading of such gadgets.

American high-voltage electro-shock stun shields turned up in Turkey, stun guns in Indonesia, and electro-shock batons and shields, and dart-firing taser guns in torture-prone Saudi Arabia. American firms are the dominant manufacturers of stun belts. Explains Dennis Kaufman, President of Stun Tech Inc, a US manufacturer of this innovation: ''Electricity speaks every language known to man. No translation necessary. Everybody is afraid of electricity, and rightfully so.'' (Quoted by Amnesty International).

The Omega Foundation and Amnesty claim that 49 US companies are also major suppliers of mechanical restraints, including leg-irons and thumbcuffs. But they are not alone. Other suppliers are found in Germany (8), France (5), China (3), Taiwan (3), South Africa (2), Spain (2), the UK (2) and South Korea (1).

Not surprisingly, the Commerce Department doesn't keep tab on this category of exports.

Nor is the money sloshing around negligible. Records kept under the export control commodity number A985 show that Saudi Arabia alone spent in the United States more than $1 million a year between 1997-2000 merely on stun guns. Venezuela's bill for shock batons and such reached $3.7 million in the same period. Other clients included Hong Kong, Taiwan, Mexico and - surprisingly - Bulgaria. Egypt's notoriously brutal services - already well-equipped - spent a mere $40,000.

The United States is not the only culprit. The European Commission, according to an Amnesty International report titled "Stopping the Torture Trade" and published in 2001:

"Gave a quality award to a Taiwanese electro-shock baton, but when challenged could not cite evidence as to independent safety tests for such a baton or whether member states of the European Union (EU) had been consulted. Most EU states have banned the use of such weapons at home, but French and German companies are still allowed to supply them to other countries."

Torture expertise is widely proffered by former soldiers, agents of the security services made redundant, retired policemen and even rogue medical doctors. China, Israel, South Africa, France, Russia, the United kingdom and the United States are founts of such useful knowledge and its propagators.

How rooted torture is was revealed in September 1996 when the US Department of Defense admitted that ''intelligence training manuals'' were used in the Federally sponsored School of the Americas - one of 150 such facilities - between 1982 and 1991.The manuals, written in Spanish and used to train thousands of Latin American security agents, "advocated execution, torture, beatings and blackmail", says Amnesty International.

Where there is demand there is supply. Rather than ignore the discomfiting subject, governments would do well to legalize and supervise it. Alan Dershowitz, a prominent American criminal defense attorney, proposed, in an op-ed article in the Los Angeles Times, published November 8, 2001, to legalize torture in extreme cases and to have judges issue "torture warrants". This may be a radical departure from the human rights tradition of the civilized world. But dispensing export carefully reviewed licenses for dual-use implements is a different matter altogether - and long overdue.

In August 2002, the WTO sided with the EU against the US and authorized the former to impose 100 percent duties on a list of American products. This would cost American manufacturers more than $4 billion - ten times the the highest punitive award ever granted by the WTO.

The Europeans seek to abolish an American export subsidy known as the "foreign sales corporation". They are unlikely to impose the sanctions any time soon, though. The US has already tentatively acted to remove the illegal subvention.

As the EU sees it, the US administration seems to have taken a sharp U-turn from free trade rhetoric to unprecedented protectionism - and back to free trade with the Trade Promotion Authority the President was granted last month. America imposed quotas on steel imports - and then exempted many European mills. It passed a huge farm support bill - but pursues the phasing out of agricultural subsidies worldwide. It applied timber and lumber quotas while signing a flurry of bilateral free trade agreements and participating in the the Doha round of multilateral trade negotiations. This inconsistency may be at the root of trans-Atlantic trade frictions.

Dan Horovitz is a partner in the City (of London) law-firm Theodore Goddard, established a century ago. He is responsible for the firm's Brussels office and leads its international - EU and WTO - trade and competition practice. He represents international clientele - governments and business - before the EU administration and its courts in Brussels and Luxembourg, as well as the dispute settlement body (DSB) of the WTO in Geneva.

He says:

First, the leading global, 'sole superpower', role played by the US which enables it to pursue its self-interest while being largely oblivious to other constraints. Second, since the US economy is much more dependent on its own 'home market' than on exports, the US is less sensitive to what other players in other markets think of its positions.

The EU is far more 'outward looking' and largely dependant on export markets. Moreover, because of economic, political and historical reasons, the EU is traditionally perceived as more caring and responsive to foreign interests. Yet, the EU, much like the US, can sometimes be cynical about its WTO obligations, although the practice shows that in such instances the EU often resorts to one-sided interpretation of the existing rules rather to their violation.

In realpolitik terms, disregarding the interests of US partners would not facilitate the US Administration's task to safeguard the interests of US businesses abroad. Consider steel. US steel companies have important interests in certain central and east European steel enterprises. Thus, US Steel, for instance, controls the successful Slovak Kosice mill and is also reportedly eyeing Polish and Czech mills. Slovak steel exports are in fact American exports."

The Doha round of multilateral trade negotiations is supposed to tackle hypersensitive issues - such as agricultural subsidies and textiles - massively promoted by domestic lobbies in both the US and the EU. Traditional trade remedies, such as anti-dumping measures - regularly deployed by the USA and, increasingly, by other governments - are also on the table. A lot depends on collaboration between the EU and the USA.

The Uruguay round, which led to the establishment of the WTO, is considered by many governments and activists in developing countries to have been skewed to reflect the interests of the rich, industrialized, West. Horovitz predicts that "the negotiations would require much more time to complete than officially anticipated. The unfortunate example of Seattle comes into mind. The fiasco there did not alter the agenda of the global trading community. It only delayed the agreement on its terms."

The Doha round is different, he avers.

"Developing countries already account for a majority of WTO membership. (In) the new round, the votes of the developing countries will be decisive. They will thus have a golden opportunity to translate their votes into tangible advantages.

Moreover, China, which recently acceded to the WTO, is likely to defend the cause of the developing world. China already accounts for about one fifth of world trade and the developed world is expected to listen carefully to its views."

Still, it seems that trade policy on both shores of the pond is reactive, not proactive. It is shaped by the need to placate special interest groups, especially in election years. Horovitz disagrees:

"One must make a clear distinction between those EU measures (policy and legislation) which form part of its first-priority areas (e.g. enlargement, institutional aspects, global trade interests) and those which are of a 'routine' or day-to-day caretaking importance (certain trade remedy cases, minor health concerns).

With regards to the former, decisions follow a careful examination with results which are typically well-balanced and responsible. The latter may indeed seem sometimes to be haphazard or ill-considered. The worst examples are certain anti-dumping measures.

Still, important EU legislation cannot be truly described as haphazard. On the contrary, the preparations and consultations among the member states and within them - and then also amongst interest groups across different member states - are rather thorough. Important new legislation is taken very seriously by all involved."

Opponents of Brussels often point to its butter mountains and rivers of milk - the outcomes, they claim, of the misguided Common Agricultural Policy, the madcap CAP. Farmers across the European Union needlessly receive billions of dollars annually in subsidies. EU Countries like France, with a large - and politically influential - agricultural sector, have traditionally obstructed all attempts to reform the CAP.

The EU's enlargement to the east - encompassing at the very least Poland, Hungary, and the Czech Republic - would usher in millions of additional farmers. Even under the current phase-in schedules, CAP stands to apply to these newcomers within a decade. The cost to the EU could prove ruinous.

Horovitz: "I believe that the moment of truth is fast approaching. Initiatives to liberalise the CAP have been aired. Moreover, EU decision makers understand that, come enlargement, the EU would not be able to keep the same level of protection.

Furthermore, particularly in view of WTO priorities and the need to satisfy developing countries who must find outlets for their agricultural products in order to undertake the liberalisation of their less-developed industrial sector, the EU (as well as the US and others) realise that they have to tackle this problem head-on. Agriculture will clearly be one of the toughest issues of the new round."

In the meantime, trade wars proliferate. While the Americans often resort to classic trade barriers - such as quotas - the Europeans hamper imports more subtly. They tend to apply non-quantitative trade barriers.

The refusal to admit American genetically modified food into Europe - though it reflects real concerns of European consumers and health authorities - may well be merely a protectionist ploy. The French erected barriers against American culture products, especially films, citing concerns for their domestic culture industries and the preservation of their language and heritage.

Horovitz admits that "both real concern and real protectionism play a role. As a lawyer dealing with such cases, I can sometimes see that the EU regulator seriously believes that he is protecting EU consumers".

"Luckily, in today's WTO world, regulators cannot hide behind health or technical reasons and get away with a trade restriction, however genuine their intentions are. In many cases, the WTO's 'sanitary and phytosanitary' or 'technical barriers' provisions require WTO Members to base their restrictions on objectively established norms. Failure to respect such norms can lead to a WTO violation and risk retaliatory measures. Problems arise when clear-cut objective norms cannot be easily obtained. These are the cases you tend to hear about most."

Bilateral trade often serves as either carrot or stick in international relations. Trade sanctions, trade preferences, and trade concessions are liberally employed by both the USA and the EU.

Horovitz: "Trade concessions indeed form part of the 'carrot and stick' political game. These are often very welcome by their beneficiaries even if, at times, they refuse to pay the political price. EU - Israel trade relations are a typical example.

Israel was the first (and so far the only) Middle Eastern country to enjoy full free trade for its industrial products with the EU. Its first free trade agreement was concluded in 1975. It is a well documented fact that the opportunity given to Israeli industry to reach economies of scale through free access to the large European market was the most important factor in allowing certain industry sectors to attain the dominant market share they enjoy today.

The Europeans sought political leverage through this agreement. They always wanted to have a better say in Middle East politics, which requires Israeli consent."

Trade Unions

The AFL-CIO (the result of a merger, exactly 50 years ago, between the American Federation of Labour and the Congress of Industrial Organizations) is America's largest trade unions umbrella organization. When it splintered in July 2005, it merited barely a mention in the international media. Thus far have fallen the fortunes of organized labor.

The rebels include the 3.1 million members of the Service Employees International Union (SEIU) and the International Brotherhood of Teamsters. Another 2 million, in smaller syndicates, may join them soon - practically halving the AFL-CIO's strength of 13 million.

Add to that the decline in membership - 800,000 in the last decade alone - and the picture is grim indeed. A mere 8% of workers in private firms and one eighth of the overall labor force in the USA are unionized - a whopping drop of two thirds since the 1950s.

The malcontents complain that the bulk of members' dues - the AFL-CIO's annual budget is $125 million - is being wasted on lobbying politicians and schmoozing with the powers that be, rather than on member recruitment and support of industrial action (read: strikes).

The picture is equally dismal elsewhere.

Self Defense started as a Polish farmers' trade union a decade ago. It leveraged its populist and activist message to capture 20 percent of the electorate. But in June 2002 it failed to bring Poland to a halt in protest against liberals in the central bank and iniquitous bureaucrats in Brussels. In the last elections in Poland it won 10 percent of the votes and 53 seats.

When the Belarusian Federation of Trade Unions convoked a rally against the government's bungled economic policies at the end of March 2002, less than 1000 people turned up. Restrictions imposed by the often violent authorities coupled with sabotage by pro-government unions assured the dismal flop.

Public sector trade unions in Macedonia have been more successful in extracting concessions from the government in election years, though, usually, not before they embark on a nation-wide strikes timed to coincide with ill-fated visits of the IMF mission. Despite strident warnings from the itinerant delegates of global finance, the minimum wage is then raised heftily as are salaries in the public sector. The unions are about to strike again in an effort to extend the settlement to other state functionaries.

Romanian union members took the streets on May 30, 2002 threatening to emulate Argentina's mass protests and shouting ominous anti-government and anti-IMF slogans. The government buckled under and agreed to raise the minimum wage by 70 percent within 12 months - as an opening gambit in the forthcoming round of bargaining. Industrial action in Romania in the past often ended in bloodshed and its governments are mindful of it. An agreement was signed with the prime minister on June 11, 2002.

On June 20, 2002 Spain's trade unions went on a general strike, contesting the prime minister's advanced plans to reform both hiring and firing laws and unemployment benefits. With both job protection and social safety nets threatened, the unions' success was less than striking. Only socialist dominated regions and cities responded and demonstrations flared up in only a couple of places.

The murder of a - second - government advisor on labor legislation in March 2002 has stiffened the Italian authorities' resolve to amend, however marginally, provisions pertaining to the reinstatement of "unfairly sacked" employees. Two small trade unions - CISL and UIL - have signed an agreement with the government in June 2002, ditching a common front with CGIL, by far the largest syndicate with 5.4 million members. CGIL called for regional strikes through July 11, 2002 followed by a general strike in September and October 2002. It also challenged the amendments to the law in the Constitutional Court. All these initiatives petered out.

In mid 2002, Solidarity called upon the Polish administration to withdraw its amendments to the labor code and to allow it to negotiate with employers the voluntary expunging of anti-labor clauses. In what they called a "historic manifestation", Solidarity teamed up with erstwhile rival left-wing union to demonstrate in front of the Ministry of Labor. About 400 people showed up.

The one country bucking the trend may be Tony Blair's United Kingdom. It has adopted a minimum wage and forces employers to bargain collectively with unions if most of their employees want them to. The number of such "recognition" agreements, according to "The Economist", tripled between 2000 and 2001, to 470. Union membership in the service sector and among women is rising.

Working days lost to strikes in Britain doubled from 1997, to almost 500,000 in 2000 and 2001. Although a far cry from the likes of Ireland, Spain, France, and Italy - it is a worrisome trend. Interesting to note that many of the strikes are the result of performance-related wage gaps opening up among workers following botched privatizations (e.g., the railways, the post office). Bellicose, fogeyish, trade unions leverage the discontent bred by mismanagement to their advantage.

Failure to mobilize workers, half-hearted activism, acquiescence with policies implemented by right-wing governments, transformation into political parties, growing populism and anti-Europeanism - these are the hallmarks of these social movements in search of a cause.

As more and more workers join the ranks of the middle class, own shares and real estate, participate in management through stakeholder councils, go entrepreneurial or self-employed, join the mostly non-unionized service sector, compete with non-unionized and thus more competitive workers in their own country or globally, become temporary and contract workers, or lose their jobs - union membership plummets.

Outsourcing and off-shoring of jobs to non-unionized countries doesn't help either. Companies now openly resort to discriminatory practices last seen in the 1920s - refusing to hire and firing union activists. Politicians ride the wave: two recently elected Republican governors, in Missouri and Indiana, scrapped long-standing collective bargaining deals the minute they settled into office (2004).

The ignominious implosion of Communism and socialism throughout Europe tainted the trade union movement, often linked to both. Membership was halved in Britain in the lat two decades. Union membership among the young in heavily unionized Sweden slumped to 47 percent in 2001 - from 62 percent in 1995.

The failure of trade unions the world over to modernize only exacerbates this inexorable decline. The structure of a traditional trade union often reflected the configuration of the enterprise it had to tackle - hierarchical, centralized, top-down. But rigorously stratified corporations went the way of central planning.

Business resembles self-assembling ad-hoc networks, or a guerilla force - rather than the bottom heavy and elephantine organization of the early 20th century, when most unions were formed. Individual workers adapted to the ever-changing requirements of ever-shifting markets by increasing their mobility and adaptability and by immersing themselves in life-long education and training.

Consider the two ends of the spectrum: agency, freelance, and fixed-term contract employees (or even illegal aliens) and executives. Both are peripatetic. Workplace-orientated trade unionism cannot cater to their needs because they rarely stay put and because their skills are transferable.

The UK's Economic and Social research Council Future of Work Programme, launched in 1998, studied the role of trade unions in the rapidly changing landscape of labor. In Working Paper no. 7 titled "Beyond the Enterprise? Trade Unions and the Representation of Contingent Workers" published in 2001 by the Cardiff Business School, the authors say: