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News of Amazon workers unionizing to use their collective power and demand humane labor conditions has been one of the bright spots of the last few months. Unfortunately, as Columbia Law School professor Kathryn Judge explores in her latest book, “Direct: The Rise of the Middleman Economy and the Power of Going to the Source,” appalling conditions at the online retail giant’s warehouses are only one example of the labor abuses that occur throughout the supply chains that fuel our consumerist American economy. On this week’s “Scheer Intelligence,” Judge discusses her book and explains that while she’s cheered by the unionization news closer to home, more work needs to be done around the globe to address labor abuses throughout the entire global labor market.
She brings to the subject her experience as a financial markets and regulation researcher as well as a busy mother of two who would like to make ethical consumer choices but instead is lured—as are so many of us—by the cheap convenience of Target, Walmart, and Amazon, among others. These middlemen, she argues, are at the core of what’s rotten in the state of American capitalism, raking in huge profits while blinding consumers to the human and environmental costs of the products we’re buying. Often information regarding these costs is difficult if not impossible to find, leaving consumers unable to make decisions based on their own moral compasses.
While these are large, systemic issues that will need to be addressed at local, state, federal and ultimately global levels, on an individual scale, Judge argues there are also things to be done. The “Direct” author advocates for a more direct, local-based economy that not only fosters community relationships and growth, but allows people to understand the processes and true costs of their purchases. Listen to the full discussion between Judge and Scheer as they trace this current toxic economic model to the 2008 financial crisis and delve into the broad-ranging impacts of this modern economy.
Hi, this is Robert Scheer with another edition of Scheer Intelligence, and I always hasten to say, the intelligence comes not from me, but the people that I interview. In this case, Kathryn Judge, a law professor at Columbia University, an expert on financial regulation, has written a really important book, but fortunately for a reviewer like myself, it’s also extremely well written. And even though it’s published by Harper Business, it sounds like something you wouldn’t read unless it’s assigned, it’s actually a joy to read. The reason it should interest everyone, it deals with our everyday life.
I just cut myself, I shouldn’t say, accidentally using a Harry’s razor that I bought at Target this morning. Harry’s was one of those companies that in your book, Kathryn Judge, you mentioned as sort of an independent company, trying to find its own relation to the consumer directly. The title of this book is Direct, a notion of direct from the farmer to the consumer, and the book centers on these middlemen. Well, unfortunately I don’t want to give away the discussion at the end, but even an independent company like Harry’s, which was going to change the whole razor business and challenge Gillette and so forth, I bought mine at Target, and Target, Walmart, Amazon, those are the middlemen. So why don’t you take it from there and explain the thesis of the book and discuss what you refer to as the dark side of this middleman economy?
Yeah. There’s a lot there. I’ll start with some of the basics, and that is the very notion of the middleman economy. We all are very familiar with middlemen. They are the connectors. They are Target, but they’re also your local bank. They are the middlemen through whom money flows from people who have it to those who need it, through whom good flows from those who create them to those who want to buy them. As a practical matter, they are the backbone of our modern economy, and we’re probably not getting away from that.
What the book explores, though, is that the intermediation structures, which is a kind of scary way of just saying the design through which middlemen help to facilitate the creation and flow of goods and money, have changed in recent decades in some really important ways. Traditionally, my fields has been banking and financial regulation. I was very interested after the financial crisis at the incredible disruption on the US economy and the lasting pain it inflicted on actually those most vulnerable and least positioned to endure those types of challenges, to understand what went wrong.
What we’ve seen in finance, particularly leading up to 2006, are two connected trends. First, there was a transformation from community banks that were really small institutions, they operated in a given geographical area, and they really used relationships to determine who to loan money to and filtered money within the local communities, to having a small number of banks, really the top six, play an outsized role in the entire financial system. And then in the process, they use a lot of data and standardized models for determining who should get a loan, and that feeds into these securitization vehicles, because once everything’s standardized, you can do some fancy footwork to suddenly create these models that allow investors in Japan and in Europe to suddenly provide financing for homes in the United States.
And there were real advantages at times. The growth of larger banks and to longer securitization chains, it seemed to make housing easier to afford, and we had a rise in home ownership. But of course, in 2007, 2008, the other foot dropped, and we saw that there was incredible fragility and also a meaningful lack of accountability with these structures. And what Direct documents is how the exact same phenomenon of really, really large middlemen that are so powerful they’re actually shaping the rules of the game and the markets where they operate, and really long and complex supply chains that are both fed and help to feed these long middlemen, have really taken control over multiple different sectors of our economy.
You can look at retail, starting with Target and Amazon and Walmart. We could look at food. You can look at healthcare. And what we see are not just middleman being helpful, but middleman after they start out being helpful, developing outsize power that they then use in some self-serving ways and ways that introduce new sources of fragility, a lack of accountability. And what the book documents is how this is helping to contribute, it’s certainly not the only cause, but it’s a significant contributing factor to a lot of the challenges that we’re facing today in terms of inequality and the exploitation of the planet and workers.
Yeah, but one of the strengths of your book, and I really recommend it, because I know as a teacher myself and as a journalist, it’s hard to get people to think about the economy. And what your book does, it opens with your joining basically a collective in New Jersey to get fresh vegetables directly from the farm. And there’s a subtext about what we’ve lost, that we are alienated from the people who produce the food, produce our clothing and so forth. That is a great strength of the book.
But you also, it’s honest journalism, the book, and you can see that these middlemen have succeeded, because they have actually offered an attractive mechanism for distribution of goods. Walmart is the key example, the most prosperous, powerful company in the country, which in fact figured out how, they started in Arkansas, how can we get cheaper products to ordinary people? Costco is a manifestation of getting a somewhat higher quality, but also to ordinary people. Amazon is the ultimate fulfillment of that, which you discuss in your book.
And so what we are really talking about are ways of distributing products and so forth that have been celebrated by lowering price, making more people accessible. And in the example you use of banking, which is a strong chapter in your book, let’s not forget, banking deregulation came about when Bill Clinton was president, and it was Bill Clinton who decided, got a lot enough Republican support and sufficient Democratic, to deregulate Wall Street and allow the securitization of these loans, the destruction of Glass-Steagall and so forth. These developments have been cheered basically by progressive liberal people as an improvement of the market.
And the one issue I’d like to address in the time we have here, which I think your book should address more, is what can you do about it? Joining a farming collective is a nice idea, but this goes back to an argument about capitalism since its inception. In your book, you discuss the dark side being the alienation of the worker, the shopper, the consumer from the product. These massive corporations, we don’t have control. They’re unregulated. “Alienation” is a strong word. Ironically, alienation was sort of central to Marx’s critique of capitalism. And one answer that he would’ve advocated and social Democrats have advocated and so forth are labor unions, or empowering the workers.
Just today, as we’re recording this, Starbucks has taken a challenge to the National Labor Relations Board to attack unions that are trying to organize Starbucks workers. So what about something as old fashioned as, and including in China, where they don’t have the right to these kind of independent labor unions, maybe the answer is not in friendly collective food purchasing, but in a vigorous labor movement that could challenge Amazon, that could challenge Walmart. Is that not a way to think about it?
I think that’s another critical component when we’re trying to figure out of how we tackle the myriad challenges that we’re facing today. But as you noted, one of the aspects of the way the structure currently works, that motivated this, was not just all this work I had done as an academic, but my own life. I had two little kids, I was suddenly incredibly busy, and I was suddenly very aware of the fact that in trying to quickly buy them the leggings that they kept outgrowing and the Cheerios that they kept consuming, I was actually helping to support labor practices that I would’ve found incredibly, incredibly troubling if I had to pay attention to them, but that I was purchasing these goods in environments that systematically blinded me to the effect on planets and to the effect on workers.
And so there was this way of, I suddenly saw this parallel in what I had studied as an academic in banking and in all these other markets, where what we don’t see is so critical to shaping the decisions that we make and where there’s particular actors that are really benefiting from blinding us to those effects.
And so when I talk about the virtues of direct as the cornerstone for the solution, it really is that. Cornerstone is a very small piece of a much bigger edifice. It requires a lot of work, but one of the reasons that it’s so key, that connects to your question on labor unions, is it helps to remind us that for all of the food we’re eating, all of the clothes that we are putting on our bodies, there are workers around the world, most often, who are playing a huge role in the creation of those goods. And generally speaking, we don’t see those workers, and so we end up not thinking that much about them. And what’s weird is, even when we want to learn more, it’s incredibly difficult to learn more. We’ve had this proliferation of things like fair trade, but when you start to look at a lot of these labels, the reality is, you actually don’t learn nearly as much as you would like to learn from such labels. The research really reveals that there’s actually incredible problems that still underlie labor practices despite such certification schemes.
So one of the interesting challenges that we face in a globalized environment is that companies, apart from services and apart from that final step of fulfillment, the Amazon warehouses, a lot of what can happen and has happened is that as labor starts to grow stronger, the production capacity moves to places where people aren’t organized and cannot easily organize. I could not agree more that labor and strengthening labor has to be a part of strengthening the overall economy and rectifying the incredible imbalances that we currently see, but part of what’s striking is I like everybody else has been very supportive and really excited to see the efforts at unionization in Amazon warehouses, which are still very small, but slowly growing in strength, but we’re getting incredible attention to what’s going on in those warehouses, the way that the people who work there are treated, often in ways that seem dehumanizing and that don’t provide the opportunities for growth that many of them want.
And yet, what they are paid, the safety of their environs, the limits on the hours that they have to work and the requirements of overtime pay, and the other protections that they enjoy are so much greater than a lot of the workers that are actually involved in the production of the goods that we’re buying on Amazon. And so part of the aim is to say, if we want to try to address these problems, yes, we need labor unions, but we also need to start off with a much more realistic picture of the whole chain, including all of the people that we’re not seeing, but who as a practical matter are oftentimes suffering in the process of making our daily lives possible.
Yeah. But now we live in a country where our major news organizations are more often than not there, particularly print, because some billionaire who has exploited this middleman economy. I mean, you could have no more glaring example. The company that really you attack most fiercely in your book is Amazon, and there’s Jeff Bezos, who controls the one newspaper, he owns it as a personal possession, not even Amazon with pocket change, I guess. He buys it, and that’s the major newspaper that covers, reports on regulation, on what’s being passed in Congress, what it means. So we’re really up against it here.
I’d like to single out one example, because what you’re raising now is yes, it’s workers’ condition, it’s fairness and so forth, but it’s also the future of the planet. The example you offer of cotton, where yes, a lot of these goods have become cheap, and so now you could go in the store and by design, because they’ve invaded your privacy and they know what you’re going to do when you go down one aisle and not the other aisle, and you didn’t plan to buy any clothing for your kids, but eh, I’ll buy five of these and three of those and so forth. And then you have a compelling discussion in your book about the growing of cotton and the cheapness now of both food, of something like cotton clothing. People can even buy them and throw them away sometimes when they’re traveling, and yet the environmental consequences. I thought your section on cotton was one of the best I’ve read as an example of why we have global warming, of the global warming crisis.
That’s so good to hear, because I did spend actually a lot of time really trying to unpack that area. One of the things that’s striking when you get to cotton, first of all, is we spend so much time grappling with a history in this country of forced labor. And yet it was shocking to me to realize that the majority of the top 10 countries that are cotton exporters still use various forms of forced labor. We oftentimes don’t know it, and it’s in products and in brands that we think about as having really good supply chain policies and are conscientious producers. And yet you look closer and it’s not just the workers, but the amount of water and fertilizer that goes into cotton is mind-blowing, if you care about the health of the planet.
And part of what’s so striking is that we’ve suddenly had a shift in consumption. By having clothing be more cheap, less expensive than it used to be, people basically buy three times the amount of clothing. Per item, the typical American buys three times the amount of clothing that their grandparents did. And so what we’re doing is we’re buying more, we’re wearing it less, and we’re throwing it away much more quickly. And a huge proportion of it is not getting recycled. It’s not getting resold or reused. It’s ending up in landfills.
So we’ve suddenly built a cycle that’s not making us better off, it’s hurting the planet and really hurting us in the process. But it’s feeding the overall middleman economy or the system that we’re talking about.
Well, give us the statistics that you have on the cost to the planet of all this mindless growing and consumption of cotton. I don’t know if you have them on your fingertips.
I was going to say, you know what? I don’t have them on my fingertips. I certainly should, specifically because I certain spent a lot of time looking at it.
It’s another reason to buy the book, because the documentation is in the book. The book is called Direct. And yes, I’m being a bit wonky here, but as I recall, the massive production of cotton, first of all, a horrible activity to have to work in, and that’s why there is so much forced and exploitive labor in cotton, we’ve had a whole folklore about the growing of cotton and its relation to slavery and everything, but it’s wasteful of the environment. You offer a lot of examples of people doing what they think is the right thing, like fair trade. I have to say, your book is interesting to read, but it does not give me a path out, because it seems to me just about every example you have…
One that succeeds. I happen to the same wine. I don’t drink anymore, but I get their non-alcohol, Navarro Winery here in California. When I used to drink, I thought their wines were great, and you hold them up as an example of a family-owned wine business that markets directly to consumers and so forth. I’ll back you on that. They’re getting pretty old, that couple that own it. But every other example in your book of Direct gets absorbed by the big companies, and they use things like fair trade.
Let’s talk about fair trade. They make us feel good. I’m in Costco or I’m in Target and Walmart, and oh, this is fair trade. I can buy it. But in your book I find out, and I did a podcast with Marion Nestle, who teaches at NYU, and Marion’s a professor who has written very convincingly on this. Fair trade turns out largely to be a hoax.
Yeah. No, it was actually one of the really heartbreaking things for me. And the reality is, I still sometimes get fair trade, I oftentimes still buy organic, even though I know that oftentimes the money is not actually going to the workers. The interesting thing about fair trade is, there had been some research suggesting there were some benefits, but it tended to be funded by the very companies that wanted to fund it. And so you actually then had UK effectively funding a study where they worked with a group of academics to try to do a closer evaluation. It was much more rigorous in terms of structure, comparing like goods that are built in fair trade regions and non-fair trade regions, but otherwise similar parts of Africa.
And what they really found were that there were some workers that were better off under fair trade, but the median worker, the average worker, actually wasn’t any better off. There was no statistical sign that they enjoyed better wages, better protections for health or safety, or any of the other indicators that they’re actually well treated. And again, I think there are areas where fair trade has been helpful. If you look at coffee, again, you see somewhat of a mixed picture, but there are certain areas where premium coffee growers have used fair trade in conjunction with a bunch of other decisions to try to create a premium product that ended up being sustainable.
But the reality is, and this is part of why I spent so much time on the structure, these long, complex supply chains, once the consumer is completely blinded to the underlying sources of the good, there’s just incredible room for gamesmanship, because we’re not actually seeing the impact. And that’s where, again, direct is the extreme, but shorter and more accountable supply chains that allow if not perfect, but better degrees of transparency are a part of it.
And going back to your point about cotton, you do have groups then like Better Cotton Initiative that does some certification, but really says, apart from these certification schemes, what we actually just need is money to train farmers in how to do better. And so they’re trying to move away from certifications schemes, which really can be gamed all too often, and we know that there’s more organic cotton on the market than actually is ever grown, and instead just say, look, if you’re going to be selling cotton products, you also should be making investments in NGOs that are working on the ground to try to make this more sustainable.
And again, it’s never going to be completely sustainable, going back to your point about cotton. Some of the statistics are, it’s responsible for 8% to 10% of the global carbon emissions and 20% of global waste water. It takes 2,000 gallons of water, roughly what one person consumes in seven years, to make just a pair of jeans. It’s responsible for 24% of insecticides, 11% of pesticides worldwide. And there’s the possibility if we don’t see shifts that it could account for up to 50% of greenhouse gas emissions by 2030, because again, the cotton production has largely shifted to regions where you have lower cost workers, which also tend to engage in farming in ways that involve more energy expenditure. So the environmental impact is pretty mind-blowing.
That’s impressive. You just got that out of your own book, didn’t you?
I did, I have to admit.
But it’s a tribute to the book. That’s what I was after. When I read those statistics, and I don’t have them at my fingertips either, I thought, wait a minute, we’re talking about the destruction of the planet, because among other reasons, we’re buying 10 times the amount of clothing that we need in the more affluent societies, and throw things away. And the whole fashion industry wants to get us to change styles every three weeks or something, fast clothing, as well as fast food. We’ve got about six minutes. I’ve made a commitment to myself to get these podcasts down to 28, 29 minutes so they could fit into a half hour radio program, if people choose to broadcast them around the country.
And I want to end with your area of expertise. You are at one of the leading law schools in America, Columbia University. You’re an expert on financial regulation. And it seems to me where your book runs up against a wall, and it’s not your fault, it’s where society runs up against a wall. We could have good intentions. We could know we have a big problem. We do, whenever we get these terrible climate crisis moments and so forth. But the reason that the good people end up being part of the problem, as we saw with supposedly good people, the Clinton administration, that advanced the whole radical deregulation of Wall Street, that when it comes to policy, to regulation, the people with the money have the power. They get to talk, and they get to make the rules, whether they’re Walmart, whether they’re Amazon, even more so than the old steel and coal and auto companies of the past, the Henry Fords and Carnegies and what have you.
And they do it in the name of progress. They claim to be good people. They claim to be for the green revolution. They claim to have virtual, we have virtual cleansing all over the bloody place. And I want to ask you, as a law professor, how do we get enlightened policies in a society where the rich get richer by corrupting the law and by preventing regulation and by basically lying with PR and advertising? Where is the source of optimism that we can do anything about this?
Well, first we should be honest. It’s going to be hard, and partly because the money is married with information. So we clearly are in an unusual state of the world, where we see corporations as not only people in the sense that they can hold property, but people in the sense that they actually have First Amendment rights to give money to politicians, and that in the process of giving that money, they’re exercising protected speech. So we could start with that. And we do see the flow of funds as really a challenge.
But I think in focusing so much on just the money that is given, we actually sometimes missed that the way middlemen in particular exercise such outsized influence on both state and federal politics, and we should recognize that states are a big problem, part of the problem and part of the solution, and the federal government’s both part of the problem and part of the solution, is by the expertise that they have. Just one small example with banking, going back to your point, is we had a rise as we know of predatory lending in the 2000s. There was so much demand for home loans to stuff in these securitization vehicles that we saw really abusive practices on the ground.
And a number of states came in, like Georgia was one of the first, and said, look, we actually see abusive lending practices here. We want to adopt more robust consumer financial protection measures to look out for homeowners in our state so they are not taken advantage of. And then what happened was the federal regulators actually came in and preempted enforcement of those laws against all the large national banks. But the reason was not, certainly like you said, we’re not saying, oh look, we’re against consumers.
What happened is the big banks went in and they said, look, the problem is these little state regulators, they don’t understand securitization is good for the people in their states. They don’t understand that if we have to comply with Georgia laws and they look different than laws elsewhere, then we’re not going to be able to standardize this product, and suddenly Georgia borrowers who want to go out and get that first home are going to have a harder time getting a loan. And so really, securitization is how we get more home ownership. And they had stats to support them. They could show that actually we’ve always had a racial housing gap, but it was smaller than it ever had been in the mid-2000s, and home ownership rates were going up. So they said, look, in trying to protect consumers, they’re really hurting consumers. And that’s consistently middleman [inaudible 00:28:16].
But that was why. Okay. We only have two minutes to go. I’m going to stick to this. But let me just say, Lawrence Summers, who became the President of Harvard, was the treasury secretary who, after Robert Rubin, another great liberal Democrat who went off to work for one of the big banks that was made legal, Citibank, by this, they told us you could trust the companies. And it was under the Obama administration that they decided, oh, we’re going to bail out Wall Street and bail out all the banks, because we can’t go after them. And as you point out in your book, there was no accountability.
So what we’re really talking about, I’ll give you the last word on this, but where is accountability? Your book is really about people who can talk a good game, promise us the world. Whether it’s Sam from Walmart, whether it’s Bezos from Amazon, they tell us they’re on the side of enlightenment, of decency, of cheap prices and all that, and they’ve helped. Helped? My God, they’ve mobilized the world for destruction. And that’s what happened with the banking, and that’s what happened with all of this. It’s a system, it seems to me reading your book, a system that is out of control. I’ll let you respond to that. And the book is called Direct, so let’s be direct about it. How are we going to fix something in which these powerful well-financed people really don’t seem to care about the destruction of human existence on this planet?
I think it’s about, one of the things we have to add to the picture as we’re thinking about globalization and inequality and all these other challenges that we spend so much time thinking about, is thinking about middleman design, because part of what the book documents in banking and in fair trade and all these other spaces is the complexity of today’s supply chains really makes it way too easy for nobody at all along the chain to take responsibility. And for consumers and investors who really want to look out for workers and who want to look out for the planet, it’s too hard for them to do. So it’s saying, if we actually want to make change, among the many things that are already happening that are good, and the many other things that we could be doing, we need to think about how to create shorter, more resilient supply chains that actually promote the accountability and enable the accountability that we want to see.
Well, that’s the hope. I want to thank you, Professor, lawyer Kathryn Judge, Columbia University. The book is called Direct, published by Harper Business and Harper Collins, but it’s not at all like a business textbook, which among other things would ignore all the important issues, the typical ones, and just tell you how to get part of the system and get rich. But Direct. And really, you won’t shop the same way. I went into a Walmart after reading your book, and it was really a very disturbing experience. I used to enjoy going there.
So I’ll end on that. I want to thank Christopher Ho and Laura Kondourajian at KCRW for posting these shows on that great NPR station; Joshua Scheer, our executive producer who puts all this together and insisted that I cover this book; Natasha Hakimi Zapata, who does the introduction and general editing; and the JKW Foundation in the name and in memory of Jean Stein, a terrific journalist, who provides some funding. See you next week with another edition of Scheer Intelligence.