Between the mid-1930s and mid-1970s worker organizing and unrest created a degree of economic democracy not achieved since. It was quite an accomplishment. After several decades of increased standards of living for most US workers, corporate actors organized a counter-attack that aimed to reverse those gains.
The mid-20 century was no golden age. But, it does stand as a measure of just how much — and just how little — economic democracy the existing order will allow. Black and Brown workers, for example, saw the gains last and least but suffered from the austerity counter-attack first and foremost. While progressive reforms won during those four mid-century decades did help working people, the system still belonged to the bosses and they still called the shots.
Against the backdrop of Cold War anti-communism, the US Congress restricted workers’ rights while top labor “leaders” pledged their allegiance to the empire. New global institutions such as the IMF were the cutting edge of austerity protecting the rule of big money by pitting workers vs. workers worldwide.
The 1970’s: The Great Austerity Begins
The deep multi-faceted crisis of the late 60s and early 70s undermined the existing social contract. Feeling threatened, the elites shifted costs and risks to where they had historically been: the backs of everyday people. Better, they thought, that workers struggle to survive than begin to dream of democracy and organize themselves into political movements. The most effective corporate strategy was wage reduction. Over the next four decades, they cut wages in half for millions and redistributed at least $50 trillion upwards.
The ruling class vision was set out by soon-to-be Supreme Court justice Lewis Powell in his infamous 1971 memo for the Chamber of Commerce. For Lewis, corporate elites should see themselves as a ruling class and act accordingly. While Powell issued the call, the American Legislative Exchange Council (ALEC), founded in 1973, became the vanguard pushing legislative reforms to suit corporate interests.
The crackdown on workers included military reforms. In response to the Vietnam Era peace movement, the politicians and generals replaced mass conscription with the illusion of an “all-volunteer” army. Since 1973 the war machine has had a vested interest in austerity because poverty and insecurity pushed millions of young people into its ranks. They swapped an open form of coercion like the draft for a covert form of coercion: a poverty draft cloaked as “opportunity” for working-class kids.
Prison slavery has a long history. Although it was legalized by the 13th Amendment, unions successfully lobbied to restrict its use during the heyday of the New Deal. By 1979 however, Congress joined the corporate counteroffensive and passed the Justice System Improvement Act and other pet projects of ALEC.
New laws opened the door to the rapid expansion of prison labor to match the rapidly growing ranks of the incarcerated. These corporate reforms also cemented public-private partnerships. Congressional action impoverished families of the imprisoned and drove down wages for all of us by providing the cheapest possible labor for the government and corporations.
The military, penal system, Congress, the Democrats, and Republicans became the agents of austerity and the tools of corporate power.
The Corporate Two-Step
The mid-1970 were pivotal. Workers would face greater insecurity as corporations consolidated their position through a remarkable two-pronged strategy that was decades in the making.
On one hand, the corporations successfully gained political rights and personhood under the 14th and 1st Amendments — gutting the old Constitution and recasting it in their own image. Corporations became “We the People” instead of actual people and their vast wealth became “free speech.” Using the Bill of Rights as their shield, corporations claimed the protection of individuals against the heavy hand of the state. This legal fiction is now the “law of the land.”
At the same time corporations acted more and more like the tyrannical state itself — even while posing as protected persons. Without political power, they simply could not maximize profits. Maximum profits through maximum power became the true goal and true method of neoliberalism.
Two landmark Supreme Court decisions (Buckley v. Valeo 1976 and First Nat’l Bank of Boston v. Bellotti, 1978) set the stage for the “corporate domination of the electoral process” finally completed with the 2010 Citizens United decision.
In 1979, The Federal Reserve — long a bastion of corporate power — moved decisively to fight inflation, raising interest rates to historic heights, forcing recession, and boosting unemployment. The “reserve army” of unemployed workers undermined wages and concentrated power and profits in the hands of big capital just as Karl Marx had observed long ago.
Big Unions Retreat
By the late 1970s, attacks on workers were codified in labor contracts — most decisively in the 1979 Chrysler bailout. The United Auto Workers — the trendsetter for US Labor since the 30’s — buckled under by not just accepting the terms of the bailout but pitching it as good for workers.
The Carter Administration and the Democrats, (in control of Presidency, House, and Senate) led the way. They and their Republican allies worked with bankers, business, and union officials on a $1.5 billion bailout for Chrysler. In classic IMF style, the bankers demanded at least $462 million in cuts to wages and benefits. The joint Corporate/Carter/UAW move was an early “too big to fail” bailout and a sure sign that the merger of the corporation and the state was well underway.
What followed was the long disastrous era of “concession bargaining” as workers and union officials surrendered before the onslaught. By the mid-1980s the Teamsters and the United Food and Commercial Workers further undermined worker pay and solidarity by agreeing to multi-tiered wage systems. Multi-tiered labor systems were also pioneered in the liberal haven of higher education where low-paid contingent faculty now far exceed the tenured minority.
These multi-tiered agreements created new class divisions within unions (as if the racist, sexist and ageist divisions weren’t bad enough) and paid second-class workers with lower wages. The new lower classes were either new employees or the temporary and part-time workers that are now common everywhere. Needless to say, two-tiered labor systems undermined worker solidarity. They mask the conflict between workers and bosses behind the conflict between different classes of workers. It was classic divide and conquer.
As unions divided their own members and failed to deliver the goods, they simultaneously turned away from large-scale organizing efforts. The slow retreat of labor turned into a demoralizing rout with devastating long-term consequences for the working class.
The Reagan Revolution
It went from bad to worse when Ronald Reagan took office. He fired striking air traffic controllers and staffed the National Labor Relations Board with hacks hostile to workers’ rights. The Reagan Revolution enacted more structural reforms: Republicans and Democrats passed the new tax, budget, money, and debt policies that would complete the groundwork for the ongoing redistribution of wealth. Together, the major parties rigged the economy. Here are a few of their achievements.
+ Dramatic cuts to tax rates for corporations and the rich.
+ Tax on Social Security and Unemployment for the first time — never to be reversed
+ Continue shifting budget priorities toward the military
+ Debt and money policies to favor dividends, interest, and rent — the income sources of the wealthy
The “race to the bottom” and the “race to the top” would continue through the following decades as the US continued structural reforms such as replacing welfare for the poor with corporate welfare. When Clinton ended “welfare as we know it” he flooded the bottom of the labor market with easy to exploit low-wage workers.
The pandemic only accelerated extreme inequality. Congress propped up the rigged economy with the 2020 CARES Act. CARES was a power-play enforcing austerity and inequality for us while subsiding corporations with trillions. The US government also took the unprecedented step of directly purchasing corporate bonds (debt). The government can retire corporate debt alright, just not educational or medical debt.
Austerity was created by structural changes and can only be repealed the same way.
How We Take It Back
History follows a twisted and tangled path. By their relentless resistance to reform, the US ruling class is making revolutionary solutions possible if not inevitable. The ruler’s drive for total domination — at home and abroad — sows the seeds of their own defeat.
Austerity is a form of social control, not an economic necessity. Nothing reveals that more clearly than the simple fact that other wealthy capitalist countries took the path of reform.
We could have labor law reform like the repeal of the Taft-Hartley “slave labor” bill; the passage and enforcement of the PRO Act; a $25 minimum wage effective immediately; national universal healthcare; national month-long paid vacations; shorter workweeks; national sick time; parental leave, the dramatic expansion of social security; free public higher education and debt cancellation for all medical and educational debts. Prison labor could be abolished.
These universal benefits would limit the most predatory effects of US capitalism. Such reforms have long since been achieved by other capitalist countries but are out of reach for our corporate two-party system. For the rulers to call off the class war by eliminating poverty and economic anxiety is to risk losing control. That is the lesson they learned from the mid-twentieth century.
Even if halfway reforms are passed, the problem, as the history of austerity shows, is that any reforms that leave the corporate empire intact will be open to powerful counterattack and cancellation. Since the ruling class refuses real reform they put revolutionary change on the agenda.
True solutions must place people and planet first. How can we restore economic democracy without reverting to the twin environmental catastrophe of infinite economic growth and perpetual war? Industrial expansion and forever wars must come off the table if we want to avoid climate chaos and mass death.
In the end, expropriation and redistribution may be the only practical solution since that would limit the need to produce new wealth. That means we must retake the $50 trillion stolen by the 1% and spread it around equal.
Yes, expropriate the billionaires and convert the industries already deeply intertwined with government into public assets.
When fossil fuels, banking, the Military-Industrial Complex, Big Tech, and Big Pharma are converted into democratically controlled public utilities we will have true structural changes.
When subsidies and political support — similar in scale to that now granted corporations — are directed to worker-owned enterprises we would have workplace democracy as a structural feature. These deep changes are far beyond anything the existing corporate order could envision or deliver.
Big historic problems require big historic solutions.
Call it economic and workplace democracy, call it socialism or revolution, call it love or call it treason — I call it the only game in town. It’s democracy or catastrophe.
1/ Heather Ann Thompson/New Labor Forum, “The Prison Industrial Complex: A Growth Industry in a Shrinking Economy” Also see Mike Elk and Bob Sloan/The Nation, The Hidden History of ALEC and Prison Labor
2/ The quote is in Justice Steven’s dissenting opinion in Citizens United. Also, see Ciara Torres-Spelliscy/Brennan Center for a great short review of the judicial roots of corporate personhood.
3/See Lawrence Mishel/Economic Policy Institute, “The Enormous Impact of Eroded Collective Bargaining on Wages.“
4/ Kim Moody lays out concession bargaining in “Concession Bargaining and the Decline of Industrial Unionism in the 1980s.”
5/ The Democrats controlled the House for all eight years of the Reagan administration and had both House and Senate the last two years. Kevin Phillips’s old bestseller details the “Reagan Revolution.” The Politics of Rich and Poor: Wealth and Electorate in the Reagan Aftermath (1990)
6/ See Robert Brenner’s “Escalating Plunder” in New Left Review, for an excellent analysis of CARES.