Trotman

Bob Trotman, “Business as Usual” (2009)

Is anyone else struck by the contradiction between what is actually going on in the world and the fact that, for those in charge, it’s just business as usual?

Consider, for example, the decision to drop the charges against the three remaining officers facing trial in connection with the April 2015 death in policy custody of Freddie Gray. In fact, according to Mapping Police Violence, “only 10 of the 102 cases in 2015 where an unarmed black person was killed by police resulted in officer(s) being charged with a crime, and only 2 of these deaths (Matthew Ajibade and Eric Harris) resulted in convictions of officers involved.” Charles Blow, for one, is appropriately “incandescent with rage”:

Bill Clinton, who I found more beguiling than many, apparently, took the stage and shifted the burden of dismantling oppression from the shoulders of the oppressors to the shoulders of the oppressed, saying: “If you’re a young African-American disillusioned and afraid, we saw in Dallas how great our police officers can be. Help us build a future where nobody is afraid to walk outside, including the people that wear blue to protect our future.”

How are the people without the power, the people against whom the power is being exercised, supposed to alter the perversion of that power if the abusers are not held accountable?

I am exhausted. I am repulsed. I am over all the circular dialogue. But I don’t know precisely where that leaves me other than in a hurt and festering place. America is edging ever closer to telling people like me that the eye of justice isn’t blind but jaundiced, and I say back to America, that is incredibly dangerous.

And during that same convention, as broad swathes of Americans continue to suffer from the Wall Street-engineered crash of 2007-08 (not just, as Barack Obama put it, “pockets of America that never recovered from factory closures”), hordes of financial industry executives (as well as drug companies, health insurers, and others) descended on Philadelphia.

While protesters marched in the streets and blocked traffic, Democratic donors congregated in a few reserved hotels and shuttled between private receptions with A-list elected officials. If the talk onstage at the Wells Fargo Center was about reducing inequality and breaking down barriers, downtown Philadelphia evoked the world as it still often is: a stratified society with privilege and access determined by wealth.

In fact, as Thomas Frank warns, Donald Trump might end up stealing the voters Hillary Clinton and the Democratic Party are taking for granted.

Let’s see: trade agreements, outreach to hawks, “bipartisanship”, Wall Street. All that’s missing is a “Grand Bargain” otherwise it’s the exact same game plan as last time, and the time before that, and the time before that. Democrats seem to be endlessly beguiled by the prospect of campaign of national unity, a coming-together of all the quality people and all the affluent people and all the right-thinking, credentialed, high-achieving people. The middle class is crumbling, the country is seething with anger, and Hillary Clinton wants to chair a meeting of the executive committee of the righteous.

When Democrats sold out their own rank and file in the past it constituted betrayal, but at least it sometimes got them elected. Specifically, the strategy succeeded back in the 1990s when Republicans were market purists and working people truly had “nowhere else to go”. As our modern Clintonists of 2016 move instinctively to dismiss the concerns of working people, however, they should keep this in mind: those people may have finally found somewhere else to go.

Meanwhile, the European Union is disintegrating and the euro zone continues to impose Draconian austerity measures. As Joseph Stiglitz explains in a recent interview, banks and corporate interests generally have been the only beneficiaries.

Q. In your telling, Germany has imposed austerity across Europe out of faith in a discredited economic idea, the notion that if policy makers concentrate solely on preventing budget deficits and inflation, the markets can be counted on to deliver prosperity. A lot of your book is devoted to demolishing this idea. Does the German elite still really believe in this philosophy, or is something else at play?

A. I’ve visited Germany often, and I’m shocked about how strong the belief is in this view that has been totally discredited elsewhere.

But the policies are mixed together with interests. When the Greek crisis broke out in 2010, what was really at risk were German and to some extent French banks. And there was an enormous bailout that was called a bailout of Greece but was really a bailout of German and French banks. Most of the money went to Greece and then right away went back to Germany and France. . .

Q. You argue that some European leaders secretly welcomed mass unemployment as a means of adjusting to the crisis because this was the only way they could see to spur investment — lowering wages. The strictures of the euro took other options off the table: Crisis countries could not let their currency fall or lower interest rates or expand government spending. Was unemployment really embraced as a fix?

A. They wanted to break the back of workers. Their view was that workers needed to accept a wage cut and we are going to change the bargaining rules to make it more difficult for them to resist. And if we need to add on a little dose of unemployment, well, that’s unfortunate.

Q. Doesn’t that goal predate the crisis?

A. It’s very clear that the euro was a neo-liberal project in its construction. Employers like low wages. They have broken the back of the unions in many of the countries of Europe. They would view that as a great achievement.

However ironically, it has fallen to the Boston Consulting Group [ht: sm] to sound the alarm about attempting to conduct business as usual:

Societies in the United States and Europe are being fundamentally challenged in ways we have not seen for decades—with nationalistic rhetoric and agendas from the far right and a deep distrust of business, globalization, and technology from the far left. Many worry that such a polarization of public opinion and policy making could introduce new risks and uncertainties that would deter investment (which is already far too low, judging by current interest rates) and undermine the basis for future prosperity.

Why this polarization? While there are many causes, and they vary from country to country, it reflects in large part widespread and growing dissatisfaction with entrenched economic and social inequality and greater personal uncertainty in a fast-changing global economy. It also reflects people’s mistrust of political and corporate elites, who are seen as the architects of this state of affairs. Economic inequality within our societies is a byproduct of the way we have managed the past three and a half decades of global economic integration. At the same time, technology—in particular, recent advances in robotics, machine intelligence, and distributed ledgers (blockchain)—could replace human labor in many areas, further compounding dislocation, inequality, and discontent.

Brexit was a watershed. The British vote to leave the European Union was motivated in large part by frustration with economic stagnation and inequality, and it has created fertile ground for nationalistic, anti-immigrant sentiment. The English West Midlands, the region with highest “leave” vote, has experienced stagnating median household incomes for nearly two decades.

The division between those who have captured the vast majority of the benefits from global integration and technological progress and those who haven’t runs between major cities and smaller communities, between young and old, and between people with different levels of education. And it’s not just Great Britain—70% of the US workforce has experienced no real wage increase in the past four decades. Similar patterns can be observed in Canada, Germany, and other European countries. Wealth concentration has also increased globally, with around 1% of people controlling 50% of the world’s assets.

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Special mention

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Free trade - 5

Every once in a while, a reader sends me the link to an article and asks me what I think of it.

The most recent one is Geoff Gilbert’s [ht: db] piece, “Who Plans the Economy? Imagining Fair and Free Trade.”

Clearly, at least in terms of U.S. presidential politics (but also, I think, in the United Kingdom and across Europe), the issue of international trade is “hot.” Donald Trump has certainly focused on the downside of U.S. trade details (such as NAFTA, which he has promised to “immediately renegotiate. . .to get a better deal for our workers”), as has Bernie Sanders (who eventually succeeded in pulling Hillary Clinton in that direction).

Gilbert, for his part, argues that

The way we talk about trade is all wrong. We’re told we have two options: the “free” trade status quo or protectionism. But many other possibilities exist, if we are willing to entertain different rules for owning and controlling capital both within and between countries.

I think he’s right. The free trade versus protectionism argument is exactly the way the debate has been framed across the history of capitalism and within mainstream economics. Capitalists and mainstream economists have been mostly in favor of free trade, which they then counterpose to protectionism, that is, one or another regulation of or barrier to free trade (such as national content legislation, tariffs, and so forth).

That’s it? Those are the limits within which we can discuss international economics? It’s just like the debate between markets and planning or export-led and import-substitution development—a false, narrowly circumscribed debate, and often a pitfall, especially for critics of free trade. Many times (as with Trump, Sanders, and now Clinton), they end up criticizing free-trade agreements because of their negative impact on workers but then moving in the direction of one or another kind of protectionism, as if that’s the only alternative.

And while Gilbert is correct in arguing that free trade is “corporate-managed trade for corporate interests,” he fails to recognize that protectionism is, too. Both Alexander Hamilton and Friedrich List sought to protect “infant industries” from foreign competition just as the U.S. steel and sugar industries did a couple of centuries later—and there many examples in between. They were all defending”corporate-managed trade for corporate interests,” but in the form of protectionism.

In fact, as I argued back in 2011 (in criticizing Harvard economist Greg Mankiw), the whole idea of international trade as trade between individuals (from which we all benefit, at least on aggregate) is profoundly misleading.

What Mankiw and other neoclassical economists refuse to understand is that, when international trade takes place, it has nothing to do with an individual in one country (say, the United States) buying a scarf from an individual in another country (say, China) as if they were just equal neighbors engaging in a mutually beneficial transaction. There are other economic processes involved. The consumers in the United States sell their ability to work to a corporation, and then use their wage or salary to purchase goods, some of which are produced in other countries. Some of those corporations have decided to produce goods in other countries, and thus to export jobs, while other corporations have decided to purchase the goods they sell either from their own subsidiaries in other countries or from corporations located in other countries. And in those other countries, the workers are not deciding to sell their goods to consumers in the United States; the corporations they work for are making those decisions.

Simply put, international trade doesn’t take place either between individual consumers and producers or between countries. International trade takes place between and, increasingly, within corporations located within different nations. They make the decisions about where and how goods will be produced, and where and how people will be employed.

What people who actually work for a living understand all too well is that both the much-vaunted freedom in free trade and the supposed unfreedom of protectionism are merely different ways corporations and their representatives have, at different times and places, chosen to structure international trade to advance their own interests.*

That’s certainly what Karl Marx and Friedrich Engels understood in the mid-nineteenth century, when free trade was also being hotly contested.

The question of Free Trade or Protection moves entirely within the bounds of the present system of capitalist production, and has, therefore, no direct interest for us socialists who want to do away with that system.

But if we refuse the narrow and misleading terms of free-trade-versus-protectionism debate (as both Gilbert and I believe we need to), does that mean we have nothing else to say or propose?**

Fair trade is one such alternative. Starting in the mid-1990s, George DeMartino has suggested one possibility: a fair-trade policy based on a Social Index Tariff Structure.*** The basic idea is as follows:

SITS is a multilateral trade regime that would promote benevolent means by which countries seek to improve their trade performance and growth while at the same time punishing countries that pursue export-promoting strategies that undermine human development, equality or sustainability. It does this through a multilateral system of social tariffs.

It can be thought of as a leveling-up, rather than a race-to-the-bottom, approach to international trade—a way of taking areas of economic and social life out of competition, rather than subjecting them to the competitive pressures entailed in both free-trade and the usual protectionist approaches.

Gilbert, in invoking the Mondragón Cooperative and targeted tariffs, makes a similar argument (although, to correct one point, that’s not what Raúl Prebisch and UNCTAD were attempting to do in the 1940s and 1950s) :

The idea is to use tariffs to favor goods produced by democratically owned and controlled capital at home and throughout the world.

Any systemic solution to inequality and mass economic deprivation will need to expand the amount and types of people who get to make the investment decisions that determine where industry and jobs will exist and at what pay.

One can make exactly the same argument about free trade—to expand trade (either within or across national boundaries) by democratically owned and controlled enterprises.

What are we left with then? To my mind, we can refuse the terms of the existing debate between free trade and protectionism and, at the same time, speak out in favor of either free-trade or protectionist policies as long as the goal is to build and expand institutions and spaces “capable of actually placing investment decision-making in the hands of the people.”

 

*Perhaps less understood is the fact that, as I argued three years ago, “much of the international trade that takes place these days does not occur through market transactions.” Instead, a great deal of trade occurs within corporations; it is intra-firm trade, transactions among and between different parts of giant multinational corporations, that is planned by the corporate directors.

**Marx’s own famous option was to speak in favor of free trade because, as Engels explains,

To him, Free Trade is the normal condition of modern capitalist production. Only under Free Trade can the immense productive powers of steam, of electricity, of machinery, be full developed; and the quicker the pace of this development, the sooner and the more fully will be realized its inevitable results; society splits up into two classes, capitalists here, wage-laborers there; hereditary wealth on one side, hereditary poverty on the other; supply outstripping demand, the markets being unable to absorb the ever growing mass of the production of industry; an ever recurring cycle of prosperity, glut, crisis, panic, chronic depression, and gradual revival of trade, the harbinger not of permanent improvement but of renewed overproduction and crisis; in short, productive forces expanding to such a degree that they rebel, as against unbearable fetters, against the social institutions under which they are put in motion; the only possible solution: a social revolution, freeing the social productive forces from the fetters of an antiquated social order, and the actual producers, the great mass of the people, from wage slavery. And because Free Trade is the natural, the normal atmosphere for this historical evolution, the economic medium in which the conditions for the inevitable social revolution will be the soonest created — for this reason, and for this alone, did Marx declare in favor of Free Trade.

***DeMartino has outlined that policy in a series of articles, including “The Social Index Tariff Structure: An Internationalist Response to Economic Integration (with Stephen Cullenberg), in the Review of Radical Political Economics (1994, vol. 26, no. 3, pp. 76-85) and “Achieving Fair Trade Through a Social Tariff Regime: A Policy Thought Experiment” (with Jonathan D. Moyer and Kate M. Watkins), in the Cambridge Journal of Economics (2016, vol. 40, pp. 69-92) (unfortunately, behind paywalls).

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Special mention

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Almost five years ago, I suggested we start calling things by their correct names.

Take the working-class—people who are forced to have the freedom to sell their labor power for a wage. We refer to them as members of the middle-class (which needs to be “rebuilt“) and working families (who need to be helped) or, now as workers’ wages stagnate and the real value of the minimum wage declines, as the “feral underclass” (especially in theUK, in the aftermath of the riots) or the working-age poor (as in the recent AP report on the demographic composition of those living in poverty [ht: ja]).*

What’s the problem with calling it as it is? What are we afraid of? It’s the working-class, and its member are becoming increasingly impoverished. People who work for a living, or want a full-time job but can’t find one (whether or not they’re actively looking for one, since it’s getting increasingly difficult to find a decent job), represent nearly 3 out of 5 poor people. . .

So, from now on, in political and economic discourse, let’s call things by their correct names. The vast majority of people in the United States are members of the working-class. And they’re getting shafted.

Well, it seems, Americans are still struggling with the notion of the working-class (and of class more generally).

The best Donald Trump was able to come up with were “the great miners and steel workers of our country.” (Really? Trump wants to send American workers back into the mines and steel mills? Those jobs are mostly gone, and that’s a good thing.) Even Elizabeth Warren and Bernie Sanders weren’t able to refer to the working-class, preferring instead to use terms like “working people,” “hard-working families,” “workers,” and “working families”—although, in their case, when counterposed to corporate profits and CEOs, it was pretty clear they were referring to the growing class divide in the United States.

As Tamara Draut [ht: ja] explains, the American working-class is in fact changing.

the blue-collar, hard-hat, mostly male archetype of the great post-war prosperity — is long gone. In its place is a new working class whose jobs are in the now massive sectors of our serving and caring economy. And so far, neither Trump nor Clinton have talked about this new working class, which is much more female and racially diverse than the one of my dad’s generation. With Trump’s racially charged and nativistic rhetoric, he’s offering red meat to a group of Americans who have every right to be angry — but not at the villains Trump has served up.

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“Long gone” may be an exaggeration. There are still more than 12 million workers employed in manufacturing in the United States (out of a total of 150 million employed people). And, according to the Economic Policy Institute (pdf), the American working class (which they define as people with less than a bachelor’s degree) is still a majority non-Hispanic white.* (It is projected to become majority people of color in 2032.)

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What we have, then, is an increasingly diverse working-class that together, “regardless of race, ethnicity, or gender,” has been receiving wages that fall far short of increases in productivity for more than three decades.

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The result, as I showed earlier this month, is that

the average income of the bottom 90 percent fell between 1979 and 2015 (from $34.6 thousand to $33.2 thousand), while the average income of the top 10 percent rose (from $149.1 thousand to $273.8 thousand) and that of the top 1 percent soared (from $370.2 thousand to over $1 million).

That dramatic rise in inequality—along with, as Dustin Guastella explains, “the rise of precarious labor, the proletarianization of white-collar work, the rise in real unemployment, [and] the persistence of underemployment—are what have propelled class issues back into the public debate.

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That combination is certainly what has convinced Millenials, the members of Generation Y, to see themselves less as middle-class and more as working-class. They may be better educated than their predecessors and for the most part they’re not working in traditional working-class jobs (like manufacturing or other blue-collar tasks) but their low wages and precarious employment make them identify with the working-class—”a feat in and of itself considering the narrow American cultural understanding for who qualifies as working class.”

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The fact is, as many Americans self-identify as working-class as they do middle-class, which is “striking given how uncommon the term working class seems to be in both the media and political speech these days.”

As I argued a year and a half ago,

Our political language has served to ignore the working-class status of most so-called middle-class Americans and, as a result, to confine the working-class (understood as workers without a college education), when it is mentioned at all, to a relatively small segment of the population. In other words, the working-class has come to be defined as the working-poor and the middle-class as something else.

As I see it, we’ll get a more accurate representation of our economic and political landscape if we redefine what we mean by the working-class. The fact is, what others understand to be working-class and middle-class actually have a lot in common. They may have different levels of education (high school, a year or two of college, and a four-year college degree), different color collars (blue, pink, and white), and work in different sectors (manufacturing and services, private and public) but they’re all pretty much in the same boat: they are forced to sell their ability to work to someone else in order to make enough money to support themselves and their families. That’s a very large part of the population. It basically excludes two relatively small groups: the capitalists at the top (who get the profits) and managers and supervisors (who manage the labor of others and get a cut of the profits).

So, we’re talking about 80 or so percent of Americans who, in one way or another, are members of the working-class.

They know it and we know it—even as mainstream economists, politicians (both liberal and conservative), and social surveys downplay or deny the existence of a large and increasingly distressed American working-class.

The next question then is, what kind of language are we going to use to characterize the not-working-class, the class that takes and otherwise lives off the surplus produced by the working-class? Right now, we have the “upper class” and, more recently, the “1 percent” and the “billionaire class.” Clearly, we need something better, a term that describes not just the rung at the top of the income ladder but a place in relation to that of the working-class, thus giving us a pair of positions that define the central relationship within the current economic system.

It’s going to take more than a bit of struggle. But, once we have that term, we’ll be well on our way to calling things by their correct (class) names.

 

*And that’s one of the reasons the presidential race right now is so close. Trump leads among white registered voters without a college degree, a significant portion of the working-class, by a margin of 58 percent to 30 percent.

automation

Jason Furman (pdf), Chairman of the U.S. Council of Economic Advisors, gave a speech a couple of weeks highlighting the potential for automation to displace many of today’s workers, even as he insists we need more investment in artificial intelligence.

What they did on the Council is take the numbers produced by Carl Benedikt Frey and Michael A. Osborne, who argue that 47 percent of U.S. jobs are at risk of being replaced by automation (a study I discussed here) and then rank them by wages. What they found is that

83 percent of jobs making less than $20 per hour would come under pressure from automation, as compared to 31 percent of jobs making between $20 and $40 per hour and 4 percent of jobs making above $40 per hour

In other words, automation—which, of course, is deployed by private employers to increase profits—threatens to destroy a massive number of jobs currently done by the American working-class. Displaced workers will be jettisoned from the labor force and join the Reserve Army of the Unemployed and Underemployed.

It is true, over the long run (as long as capitalism continues to grow), new jobs will be created, and some of the displaced workers (and their children) will be forced to have the freedom to take them. But only some of them. In the short run (and, remember, the long run is merely made up of a series of short-runs), as Furman argues, “the process of turnover. . .could lead to sustained periods of time with a large fraction of people not working.”

Within the existing economic institutions, automated technologies are therefore likely to decrease the labor force participation rate, expand the ranks of the unemployed and underemployed, and increase already-high levels of inequality (as workers’ wages continue to stagnate and technology-induced profits soar).

To be clear, that’s not an argument against artificial intelligence and automation. Under other circumstances we might welcome them. It is a caution about the effects of deploying new technologies within the current economy—in which workers and their wages are mostly dependent on private employers, who hire them if and only if it is profitable.

“Is this time different?” Not really, outside of the mythical long-run, full-employment equilibrium offered by mainstream economists. Now as in the past, existing workers—on farms and in factories and offices, especially those who make the average wage or less—are forced to endure the consequences of the decisions their employers take to adopt new technologies.

As even Furman admits,

I see little reason to believe that the economic impact of AI will be very different from previous technological advances. But unlike many of the optimists, I do not find that similarity fully comforting, as technological advances in recent decades have brought tremendous benefits but have also contributed to increasing inequality and falling labor force participation.

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Special mention

182570_600 July 26, 2016