Cartoon of the day

Special mention

Iron fist economics

The economic policies of Margaret Thatcher were so brutal even attempts to be even-handed in remembering the Iron Lady, such as this by John Cassidy, have mostly avoided the hagiography that accompanied Ronald Reagan’s death.

When the votes were counted on election day, Mrs. Thatcher had scored the most decisive win since Labour’s historic victory in 1945.

The following year, she crushed Arthur Scargill’s National Union of Mineworkers, and her domestic triumph was complete. Studying down south, I didn’t witness any of the violent clashes that took place during the miners’ strike, but my father, who worked on building sites throughout Yorkshire, did. One day, he saw the police, decked out in full riot gear, chasing a group of miners down a slip road to the M1—a packed six-lane highway. With the miners ducking in and out of traffic, and the cops pursuing them with truncheons raised, it was about the most disturbing thing he’d seen, my father said.

And it wasn’t just Thatcher’s attack on the mineworkers. She and the rest of the Tories went on the offensive against workers and poor people—smashing the unions, engineering a recession, selling off assets owned by the British people, and deregulating the financial industry. Her unwillingness to turn actually resulted in a radical U-turn in the results of British economic policy.*

 

It’s clear there was nothing even-handed about Thatcher’s economic policies. Whether measured by the Gini index or top income shares, her policies led to a rapid and massive redistribution of income to those at the very top.

The term neoliberalism, as has become the fad, simply doesn’t do it justice. Thatcherism was iron first economics at its most unjust.

*The reference is to Thatcher’s speech to the Conservative Party Conference on 10 October 1980:

If our people feel that they are part of a great nation and they are prepared to will the means to keep it great, a great nation we shall be, and shall remain. So, what can stop us from achieving this? What then stands in our way? The prospect of another winter of discontent? I suppose it might.

But I prefer to believe that certain lessons have been learnt from experience, that we are coming, slowly, painfully, to an autumn of understanding. And I hope that it will be followed by a winter of common sense. If it is not, we shall not be—diverted from our course.

To those waiting with bated breath for that favourite media catchphrase, the ‘U-turn’, I have only one thing to say: “You turn [U-turn] if you want to. The lady’s not for turning.” I say that not only to you but to our friends overseas and also to those who are not our friends.

Update

[ht: rdw]

Chart of the day

As Colin Gordon [ht: gh] explains,

If pressed to reduce the last century of economic history into one graphic, I would go with something like this. The blue line traces the rise and decline of organized labor since the end of the First World War. The red line, in an uncanny reflection, traces the income share of the richest 10 percent of Americans. The drop-down menus, offering other union density and income-share metrics, serve up variations on the same theme: as union power has declined, so too has the share of national income going to wages and salaries, and to the bottom and middle of the income spectrum. . .

union decline is—for a number of reasons—a pretty good marker for the broader dismantling of the New Deal. First, the policies driving and shaping inequality across the last generation—steep cuts in social spending, the political abandonment of organized labor, deregulation and privatization, tax cuts, and punitive cycles of unemployment—shared a common goal: to redistribute income upward by eroding the hard-fought bargaining power of ordinary Americans. Union losses account for a large chunk of rising inequality, especially for men and especially in the 1970s and 1980s.

Second, union losses have also shaped the political environment. The “right-to-work” push of the 1940s, the business offensive of the 1970s (captured in Lewis Powell’s infamous 1971 memo to the Chamber of Commerce), and the attack on public sector unions in recent years all shared the conviction that union power needed to be checked at the bargaining table and at the ballot box. Representing a third of the private workforce, mid-century unions fought and won battles over trade, workplace safety, social policy, and civil rights. With union membership at 6.6 percent of the private labor force in 2012 and falling, those battles are no longer even taking place.

And third, union decline has fed broader inequality because, in the American context, so much is at stake at the bargaining table. In settings where workers (and employers) can count on a decent minimum wage, universal health care, and expansive public retirement accounts, the stakes of private employment (and collective bargaining) are not that high. In the United States, economic security remains shackled to private job-based benefits that are increasingly elusive (or expensive), and public policies are crafted and calibrated as supplements—or as reluctant and lean alternatives.

That’s one side of the equation. The other side, of course, is the growth in gross corporate profits, some of which are in turn distributed to the members of the top 10 percent.

Lemon socialism

Back in the day, we called it lemon socialism—when workers were allowed to take over or at least own some stake in enterprises that were failing. And we never thought it was a particularly good test of whether or not worker-owned enterprises were a viable alternative to capitalism.

I was thinking about this after I heard one of the exchanges between Bill Moyers and Richard Wolff last evening:

BILL MOYERS: But how do you answer this viewer? “In 1994 when United Airlines was on the brink of financial collapse a deal was made creating the biggest employee-owned company in the US. In 2002 the airline filed for bankruptcy.”

RICHARD WOLFF: My answer is the following and it’s very important. For workers to own something is one thing. For workers to become the directors of their own enterprise is something else. Worker ownership means for example, and we have lots of examples both in the United States and around the world, that the workers become in a sense shareholders. They are the technical owners.

But if the workers who become owners, and I’m not against that, but if the workers who become owners don’t change the way the enterprise is operated it remains a capitalist enterprise. It still has a board of directors, a handful of people who make all the decisions. It’s true that the workers may vote for who those people are, but they’ve left the structure of the enterprise in the old form, hierarchical, top-down. That’s what was done in United Airlines. I was involved in that. I actually know.

BILL MOYERS: How so?

RICHARD WOLFF: They called me in at a couple points to participate in some of the discussions, the International Association of Machinists, which was the union that was part of that. So they left the old capitalist structure, they weren’t willing to go beyond saying, “We, the workers, become owners, but we leave the running of the enterprise, the directing of it, the day to day decisions in the old form made by the old experts.” Part of a movement away from capitalism to a cooperative enterprise requires that the people of the United States stop believing that the folks at the top have some magical entitlement to give them that position.

To give a bit of history: United Airlines was losing a great deal of money in 1991 and 1992 (after taking over some of Pan Am’s operations during the 1980s and as a result of increased competition from low-cost carriers). So, in 1994, it created an Employee Stock Ownership Plan, through which United’s pilots, machinists, bag handlers, and non-contract employees came to own 55 percent of United’s stock in exchange for 15–25 percentage salary concessions, accompanied by a mountain of tax breaks. In May 2000 United went through a bitter contract dispute with its pilots’ union over pay cuts and concessions to fund the ESOP and overtime work. And it continued to lose money ($2.14 billion in 2001), leading to Chapter 11 bankruptcy in December 2002, when the ESOP itself was terminated.

Now, it’s probably true the unions could have done much more with their ownership share in United. But United created the ESOP not to make the transition to an employee-controlled enterprise but in order to raise capital to run the airline much as it had before, although on a lower-cost basis (because of employee concessions and the tax advantages associated with ESOPs). And, because of its finances, it was heading toward bankruptcy anyway. No employee decisions, at least in a short period of time, were going to overcome that.

So, in my view, United isn’t a particularly good example of the potential success but actual failure of democratic enterprises. It’s just an example of why the possibility of workers owning and controlling the places where they work needs to encompass much more than lemon socialism.

Cartoon of the day

Special mention

Overdetermination avant la lettre?

In the midst of the Second Great Depression, mainstream economists have discovered overdetermination.

Or so it seems from Mark Thoma’s comment [ht: br] on Henry Farrell’s post on Daron Acemoglu and James A. Robinson’s new essay, “Economics versus Politics: Pitfalls of Policy Advice” [pdf].

Economics affects politics, and vice versa. What an idea! Hell, my undergraduate students discovered the issue this week while discussing Dan Koeppel’s book, Bananas: The Fate of the Fruit that Changed the World. (Admittedly, El Pulpo’s activities in Central America make an easy target.)

I can’t but applaud the recognition (however belated) of the mutual constitutivity of economics and politics, especially the effects on inequality. But let me offer a few cautionary comments:

First, it is not the case that economists in general (technocratic or otherwise) have ignored political issues. In fact, contra Farrell, there is no single “economists’ way of thinking about policy problems.” The treatment of economics as separate from politics is a fault of mainstream economics. Nonmainstream or heterodox economists—Marxian, radical, old institutionalist, and so on—have been paying attention to the mutual effectivity of economics and politics (with the lines of causality running in both directions) for generations. That (and not the economics of Adam Smith) is why we called it political economy.

Second, why does the analysis seem always to focus on workers and unions (as in the Acemoglu and Robinson essay) and not on the political effects of capitalists banding together (as Jacob Hacker and Paul Pierson clearly explain in Winner-Take-All-Politics) to engage in “organized combat”? Yes, it’s time we recognize that workers have played an important role (through their unions and the political parties they supported) in creating and strengthening democracy—and, at the same time, we understand how the tiny elite now ruling society is doing everything it can to undermine those very same democratic processes and institutions (and, of course, to continue to prevent any kind of democratic decisionmaking in the enterprises they own and run.)

And, finally, if we’re interested in the complex and changing intersection of economics and politics, it’s not clear we’re going to get very far when the economics itself is conceived along neoclassical lines (with its emphasis on market failures and rent-seeking behavior). A different approach, one that traces the flows of surplus within and between economic and political institutions, is surely a better way of getting a handle on how economics and politics participate in constituting one another—and therefore in understanding the conditions and consequences of the grotesque inequalities that have accompanied (as both condition and consequence) the Second Great Depression.

So, yes, let’s focus on the “systematic forces that sometimes turn good economics into bad politics.” And then discuss what we mean by good economics, in order to create a better politics.

That’s how the rest of us have been using overdetermination for years now, without any help from or recognition by mainstream economists.

Protest of the day

Actually, a follow-up to two different protests of the day. . .

Port operators along the East Coast have reached a tentative deal on a new contract with the union for longshoremen, averting a possible strike that would have crippled operations at 15 ports.

South Africa has increased the basic daily wage of farm workers by 52 percent following a strike in the wine-producing Western Cape region.

Cartoon of the day

Special mention

 

Chart of the day

According to the Bureau of Labor Statistics,

In 2012, the union membership rate–the percent of wage and salary workers who were members of a union–was 11.3 percent, down from 11.8 percent in 2011. . .The number of wage and salary workers belonging to unions, at 14.4 million, also declined over the year. In 1983, the first year for which comparable union data are available, the union membership rate was 20.1 percent, and there were 17.7 million union workers.

In addition,

• Public-sector workers had a union membership rate (35.9 percent) more than five times higher than that of private-sector workers (6.6 percent).

• Black workers (13.4 percent) were more likely to be union members than were white (11.1 percent), Asian (9.6 percent), or Hispanic workers (9.8 percent).

• By age, older workers, those 25 years and over (13.7 percent) were much more likely to be union members than young workers, 16-24 years old (5 percent).

• Full-time workers were about twice as likely as part-time workers to be union members: 12.5 percent compared with 6.0 percent.

• Among states, New York continued to have the highest union membership rate (23.2 percent), and North Carolina again had the lowest rate (2.9 percent).

Not surprisingly, given the assault on organized labor, union membership showed sharp drops in two states: it fell by 13 percent in Wisconsin and by 18 percent in Indiana, both unusually large numbers for a single year.

Unionization rates have fallen across the OECD countries during the past decade. But it is still the case that most other countries (with the sole exceptions of Estonia, South Korea, and Turkey) have higher rates than the United States, from Australia (18 percent) to Sweden (67.7 percent).

Protest of the day

Contract negotiations with longshoremen across the nation have broken down in the past week. Federal mediators seeking to avoid a walkout of thousands of East Coast and Gulf Coast dockworkers, from Massachusetts to Texas, have called a meeting of them and shipping companies. Terminal owners in the Pacific Northwest are considering a lockout and have replacement workers standing by to ensure grain exports to Asia.