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A Catch and Trade Policy for Labor Costs

The headline sounded so detached: “Murder of China steel exec shows privatisation risks.”  At stake in the killing of the steel exec was fear of a massive job cut.  30,000 workers at the state-owned Tonghua Steel plant calculated that a takeover by a corporation from Beijing would result in the loss of 25,000 jobs.

The workers were likely justified in their calculations of job cuts.  From the point of view of American experience it just seems like common sense to worry that a capital enterprise is going to eventually fire half or more of its workers.  Why would privatization behave any differently in China than it does here?

There are exceptions of course.  Jim Cramer recently introduced his television audience to the CEO of USA steel producer Nucor who has cut capacity in half without laying-off any workers.  At Nucor workers have been kept on payroll, but hours have been drastically cut.  Nucor is a remarkable exception to the rule of private capital.

Shifting our point of view to Chinese workers, we can read statements by Communist Party officials exhorting the people to imitate methods of efficiency that are studied by every B-School MBA: mergers, capacity cuts, new “efficiencies” of technology.  Now that the Communist Party has primed the pump of capital development, there are certain objective laws that must be obeyed.

I don’t recall reading where a Communist Party official called for layoffs outright, but anyone who has studied Capital Volume One can figure out what results from mergers, downsizing, and technology upgrades.  Marx snidely called the beneficiaries “free workers” which is exactly what the workers of Tonghua steel decided not to be.

In the USA we have some rules about layoffs and shutdowns which require some employers to give proper notice in the form of time or money.  Despite these rules, a half million workers per month are being “set free.”  In many cases the employers express genuine regret as they appeal to objective laws of sustainable business plans.

On both sides of the Pacific, capital is undergoing development in ways that workers well understand.  The Tonghua steel workers simply did the math.

What appears to be missing on both sides of the Pacific is some sort of regulation of the labor market such that jobs lost at one site are correlated in real time to jobs created at another.  Or to put the question more carefully, when capital development in one place subtracts a labor cost, what coordinates the addition of an equal labor cost somewhere else?

We are hearing so much these days about the heroic expansion of monetary and sovereign balance sheets.  Where is the heroic balance sheet for labor costs, whether in America or the People’s Republic?

Taking a cue from the logic of cap and trade, such a balance sheet for labor might be called catch and trade.  Get a license to carry capital only if you take out an obligation to return a portion of labor costs.  This is only fair, since capital is no good to anyone without the jobs that will be needed to employ it.  You just promise to pay for those jobs so long as your capital permit shall last.  If your business plan later calls for capital development to eliminate jobs, then you either keep paying the labor costs you agreed to earlier or you trade that labor cost off to some other capital carrier.

This system would not necessarily transfer the worker, but it would seek to keep the total labor costs of the capital-carrying marketplace at a level that would enable workers to enter a robust labor market at any time.

As it stands in conception so far, a catch and trade system would be indifferent to whether an employer is private or not.  What difference does it make to a worker whether the capital that he brings to life is financed by private or sovereign credit?

In the crisis we face today, it is still an open question whether capital will be better managed by capitalists or communists.  At the Tonghua Steel plant, the question was not academic.  25,000 precious jobs were at stake.  The Chinese steel workers were saying something important for all of us.  They were saying that employment should be taken much more seriously by the folks who would carry capital around these days.  They saw a jobless recovery in their future and they said hell no.

The same general logic applies to credit and debt.  Our current crisis of labor and capital in the USA was produced by a wealth implosion that followed from certain objective laws of credit.  Individuals and corporations helped to overheat the credit structure from below, happily assisted by financiers whose business it should have been to more responsibly coordinate the total credit picture.

In many cases, the debt load is still sustainable and credit scores are good.  But many other individuals and corporations got caught “under water.”  I don’t think of all the victims as a foolish class.  There was a zeit-geist which had so many people thinking that they were part of a system that could keep going. What was more difficult to see, although it was pointed out plenty of times, was how the sum of our actions added up to a toxic level of credit and debt.

The helpful thing about cap-and-trade logic is that it recognizes some system-wide quantity that is a matter of public concern and provides some real-time market pressure on that basis.  A cap on system-wide credit might have helped to keep development sustainable.

From China the daily news brings us a headline that expresses the collective fear of labor markets around the globe.  Joblessness is not the road to recovery.  How else can we say it loud and clear?

GREG MOSES is editor of the Texas Civil Rights Review and author of Revolution of Conscience: Martin Luther King, Jr. and the Philosophy of Nonviolence. He is a contributor to Red State Rebels: Tales of Grassroots Resistance in the Heartland, published by AK Press. He can be reached at: gmosesx@gmail.com