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The Crisis for American Labor

by ROB URIE

American labor is in crisis. This is no news to people who have been paying attention—the passage of Michigan’s ‘right to work’ bill last week makes it the 24th state to join the race to the bottom. What appears to be less well understood is how poorly the broad workforce is doing relative to the corporate economy. Private employers—corporations, are seeing rapidly rising profits and the share of corporate revenues that shows up as profits is the highest in history. This is coincident with labor seeing its lowest share in history. As the Economic Policy Institute (EPI) illustrates, this trend dates back to the 1970s.

To be clear, there is no shortage of corporate revenues behind the decline in labor’s share. Corporations and the plutocrats who own them are taking the profits for themselves. The richest 1% of Americans own 40% of the stock market and the richest 10% owns 80%. The same concentration can be seen in the ownership of ‘non-public’ corporations (those that don’t issue stock). Federal, state and local policies that have benefited corporations and diminished the economic power of labor, such as ‘right to work’ laws, are redistributing wealth from labor to capital. This has been bi-partisan political practice in the U.S. since the 1970s.

Western mythology has it that capitalism works because entrepreneurs take economic risk to build corporations from nothing. The second order mythology is that highly educated managers keep business competitive through innovation—the development and adoption of new processes and technologies, while keeping labor at the minimum levels consistent with maximum productivity. The facts are that large, connected corporations that have existed for decades earn most of the profits in dispute. And corporate executives—paid managers, have helped themselves to ownership in these corporations through the granting of stock options. Contrary to both mythology and capitalist theory, labor now takes nearly all of the economic risk while benefits accrue to executives.

The question making the rounds in the economic mainstream at present—Robots or Robber Barons?, requires strict adherence to the utterly irrelevant for some decades now to even be a question—is technology or the diminishment of labors’ power responsible for rising corporate profits and wealth concentration? And while I do have some sympathy for the complexities, one ‘model’ I put forward is the unrelenting, systematic effort by connected capitalists and their servants in Federal, state and local government to boost the power of capital while diminishing that of labor, broadly defined. If one were to begin with this set of facts and infer the likely consequences they might be—rapidly rising corporate profits, increasing concentration of wealth, rising insecurity amongst workers and increasing corporate / plutocrat control of government.

But simply asserting these outcomes is isn’t enough. The explanation circling official Washington, and coincidentally the party line of the Mergers and Acquisitions (M&A) folks on Wall Street for the last thirty years, is that the miserable state of American labor is due to workers being replaced with technology—either allowing fewer workers to do work formerly done by many or through ‘robotics’ that replaces human beings in manufacturing with machines. Evidence of this trend is provided in the difference between ‘productivity,’ total output divided by the quantity of labor that went into producing it, and what labor is paid. Since the 1970s productivity has increased in a near straight line (see EPI graphs, link above), while the compensation paid to labor has stagnated.

Attributing increases in productivity to technology has the added benefit of providing the rationale (to capitalists) for all of the benefits of modern capitalism accruing to capital—capitalists invested in the technology that has replaced labor and therefore the results in corporate profits and concentrated wealth rightly belong to capital (goes the argument). But what technology lacks as an explanation is the broader context of economic relations that was systematically rearranged to facilitate the migration of wealth from labor to capital. Finance capital, whether through M&A (Mergers and Acquisitions) or private equity, sells the pieces of acquired companies, so called ‘asset-stripping,’ for more than the companies cost by removing the economic relations that built them and overlaying changes in government policy specifically designed to make these companies worth more dead than alive. Inserting technology into the picture comes fairly late in this process.

It is no accident that the effort to diminish the power of labor unions and labor more broadly has been coincident with the systematic de-funding of public and private pension and health care plans. These benefits were negotiated in exchange for wage concessions and constitute a set of economic relations that bound labor to industry and vice versa. Buying companies and leveraging them with debt, as private equity firms like Bain Capital do, has been used to force them into bankruptcy where they pay cents on the dollar of pension and health care obligations and emerge from bankruptcy ‘free’ from encumbrances at the expense of labor. Were this not part of the process of concentrating wealth in the hands of capital, it would be just as economically rational to put company executives in prison and divide their former paychecks and wealth amongst labor. And the West is thirty years into these practices—they are fundamental to the existing economy, not marginal.

Technology has undoubtedly played a role in the way that capitalist (and ‘public’) enterprises operate—computers and robotics have dramatically reorganized how everyday operations and processes are undertaken. But again, the technologies used to justify the shift in the share of output from labor to capital are a relatively minor part of the economic relations in which ‘the economy’ exists. The stock options that corrupt Directors have granted executives are worth what they are in large measure because of Federal Reserve policies to boost stock prices in recent decades.

Furthermore, fat Wall Street paychecks derive from Western institutional arrangements. The private debt based money system grants banks (Wall Street) the right to create money and the bank bailouts and Federal Reserve purchases of bad bank ‘assets’ saved Wall Street from disappearing in a puff of smoke in 2008. These aren’t accidents of history, they are political / economic artifacts.

To be clear, even if you agree with the process of granting ownership rights to corporate executives through stock options, those options would be worth significantly less was it not for the Federal government providing unlimited public funds to keep the financial system intact in 2008. Furthermore, the Federal Reserve has spent upwards of $4 trillion through its Quantitative Easing programs to raise the value of financial assets owned by corporate and financial executives. A significant proportion of the wealth of America’s plutocracy would not exist if the S&P 500 were still at 666 as it was in early 2009. And the record corporate profits would not exist were it not for forty years of government policies specifically designed to shift economic power from labor to capital.

The larger question for labor is: what to do about both current circumstance and the historical trajectory? In the first place, the mainstream economic explanations given for the diminishment of labor power seek to ‘naturalize’ the effects of specific policies under the guise of capitalist ‘competition.’ Take a look at the data (begin with EPI data, link above) and what you see at work are the specific mechanisms of finance capitalism facilitated by government policies. The predatory finance of recent decades is no more ‘natural’ than the guillotine. It is the result of place and history– the struggle is between labor and capital, and not between labor and ‘nature.’

As antiquated as this may read, the attitudes and strategies of finance capital, the ‘perceived wisdom’ in Western capitols and on Wall Street, are positively Victorian, as are the economics used to naturalize the class struggle currently being inflicted from above. Centrist economists decry that ‘austerity’ economics currently in vogue ignore the last eighty years of economic understanding but they really go back two hundred years. To the extent that it is, technology is economically inert—what derives from it is the result of human decisions. When Wall Street and corporate executives have everything in their own pockets and none of it is in ours, it is a fool who wastes time debating how it got there. The class war was re-declared against Western labor forty years ago and it is the choice of labor, broadly defined, to respond. Or not.

Rob Urie is an artist and political economist in New York.

Rob Urie is an artist and political economist. His book Zen Economics will be published by CounterPunch later this month.

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