Posts Tagged ‘corporations’

The phrase, which was used in the early nineteenth century to describe the the spoils system of appointing government workers, accurately describes the American economy today.* And it’s pretty clear who the victor is, and it’s not the working-class.

Instead, a small group at the top have come out as the victor—and that’s been true for decades now.

How do we know?

Well, all we have to do is look at the growing gap between the amount produced by American workers and what they received in their wages. Gross Domestic Product (the green line in the chart above) grew by a factor of almost 16 from 1973 onward while workers’ wages increased by a bit more than 5 before the COVID Depression.

So, American workers only received back in the form of wages a small percentage of the increased amount they produced. The rest went to their employers.

The result has been an enormous rise in U.S. corporate profits (before tax, without inventory valuation and capital consumption adjustments)—particularly evident in the trendline fitted to the data in the chart above.

The employers, in turn, transferred a portion of those profits to the Chief Executive Officers of their corporations.

According to the latest report from the Economic Policy Institute, in 2019, a CEO at one of the top 350 firms in the United States was paid $21.3 million on average (using a “realized” measure of CEO pay that counts stock awards when vested and stock options when cashed in rather than when granted). The ratio of CEO-to-typical-worker compensation was therefore 320-to-1 (222.8-to-1 using a different, “granted” measure of CEO pay). That is up from 293-to-1 in 2018 and a gigantic increase from 61.4-to-1 in 1989 and, even more, 21.1-to-1 in 1965.

Exorbitant CEO pay is a major contributor to rising inequality that we could safely do away with. CEOs are getting more because of their power to set pay—and because so much of their pay (about three-fourths) is stock-related, not because they are increasing productivity or possess specific, high-demand skills. This escalation of CEO compensation, and of executive compensation more generally, has fueled the growth of top 1.0% and top 0.1% incomes, leaving less of the fruits of economic growth for ordinary workers and widening the gap between very high earners and the bottom 90%. The economy would suffer no harm if CEOs were paid less (or were taxed more).

An even large—and growing—distribution of the surplus that is the basis of corporate profits has taken the form of dividends, paid to owners of corporate equities. In 1965, dividends were about 26 (25.8) percent of corporate profits; by the beginning of this year they were almost 70 (69.2) percent.

And according to my calculations, the top 1 percent in the United States owns (as of 2014, the last year for which data are available) 62 percent of corporate equities, which has been climbing since the late 1970s. Meanwhile, the share of the entire bottom 90 percent has been falling, and is now only 11 percent.

So, it’s really only the small group at the top that is in a position to “share in the booty” by receiving a cut of corporate profits in the form of CEO pay and stock dividends. They’ve occupied the position of victor for decades now, and to them belong the economic spoils.**

Everyone else is forced to have the freedom to try to get by on their slowly rising wages—and to watch with both fascination and horror the ongoing spectacles in corporate boardrooms and the stock market.

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*”To the victor belong the spoils” is attributed to Senator William Learned Marcy of New York who, in 1832, defended Andrew Jackson, whose campaign against President John Quincy Adams was seen partly as a vendetta against Adams, and whose conduct and remarks when taking office seemed to justify the association of Jackson with the spoils system.

**Just yesterday, in the midst of the pandemic and the worst economic downturn since the Great Depression of the 1930s, the U.S. stock market reached a new high (according to the Standard & Poor’s 500 index).

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Capitalism’s crises are clearly becoming deeper and more severe. After the crash of 2007-08, the United States (and much of the rest of the world) was subjected to the Second Great Depression, the worst economic downturn since the depression of the 1930s. Now, in the midst of the novel coronavirus pandemic, business activity has ground to a halt and unemployment has soared to levels reminiscent of the first Great Depression.

Not surprisingly, both Main Street and Wall Street firms have once again turned to the U.S. government to be bailed out through a series of programs that dwarf anything the world has seen before. The Federal Reserve and the Treasury Department have stepped in with a broad array of actions to keep capitalist enterprises afloat, including up to $2.3 trillion in direct lending to support employers and financial markets (including loans to 24 large financial institutions known as primary dealers), lower interest-rates (along with a promise to keep them low for the foreseeable future), a resumption of the purchasing of massive amounts of securities, relaxing regulatory requirements on financial institutions, direct lending to banks (to encourage them to lend to their corporate clients), and the list goes on. They’ve also supported direct payments to workers, through so-called stimulus checks to households and extra payments to unemployed workers, so they’ll be available to employers when business activity resumes.

corporate debt

The result has been an explosion of the debt (securities plus loans) owed by nonfinancial corporations, which is now close to 80 percent of Gross Domestic Product. That debt (which has been subsidized and encouraged by the federal bailout) has become the mainstay of economic activity in the United States. It’s what’s keeping American businesses—including Apple, Walmart, AT&T, Disney, Nike, and Berkshire Hathaway—afloat.

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And, as businesses take on increasing amounts of debt, the percentage of “zombie firms“—corporations whose debt servicing costs are higher than their profits but are kept alive by relentless borrowing—is now close to 20 percent.

This growth of zombie capitalism is not new. Capitalism’s most ruthless critic saw the trend emerging already in the middle of the nineteenth century:

The last illusion of the capitalist system, that capital is the fruit of one’s own labour and savings, is thereby destroyed. Not only does profit consist in the appropriation of other people’s labour, but the capital, with which this labour of others is set in motion and exploited, consists of other people’s property, which the money-capitalist places at the disposal of the industrial capitalists, and for which he in turn exploits the latter.

As it turns out, the Wall Street Journal is well aware that the combination of massive government bailouts and widespread corporate indebtedness has cast doubt on contemporary capitalism, since

easy money has juiced up the value of stocks, bonds and other financial assets, which benefits mainly the rich, inflaming social resentment over growing inequalities in income and wealth. It should not be surprising that millennials and Gen Z are growing disillusioned with this distorted form of capitalism and say that they prefer socialism. The irony is that the rising culture of government dependence is, in fact, a form of socialism—for the rich and powerful.

It should come as no surprise that the Journal sees this as a “distorted” form of capitalism, which has the effect of “creating more zombies and monopolies, widening inequality, undermining productivity and slowing growth”—thereby undermining the premise and promise of “just deserts” and an expanding economic pie. To which their only response is, if only U.S. capitalism could return to the natural law of “economic risk and loss”. . .

But zombie capitalism is real capitalism. Corporations and banks, supported by their political and media representatives, presume that in both good times and bad they are entitled to turn to assistance from a shifting combination of public and private entities, which will allow them to continue and expand their operations, even as the legitimacy of their enterprise as a whole is called into question. They’re only worried about their own profits (or at least their own less-then-profitable survival), confident that the risks and losses will be successfully passed on to others.

A time when capitalism did not involve the shifting of costs from capital onto others is a pure illusion, a fairytale that is trotted out when corporations and banks appear to violate the natural laws of economics and to increasingly call for and rely on cheap money and government bailouts.

The problem is, capital is the one that has kept the zombie story alive, since it has long treated its workers as will-less and speechless bodies, interested only in shirking effort and relying on handouts. That’s why now employers want to cut back on unemployment efforts, to force them back to work.

But capital itself has become the real zombie, a set of corpses that are only reanimated by the supernatural efforts of governments and banks. So, as befitting the genre (according to Simon Pegg), they have become increasingly “slow and steady in their approach, weak, clumsy, often absurd” in their activities.

The Journal clearly wants to eliminate the association of contemporary capitalism with death, preferring a world populated by entities that obey the laws of economic risk and loss. But, as we all know, that world is animated by another undead creature, the vampire, which “lives only by sucking living labor, and lives the more, the more labor it sucks.”

Contemporary zombies or a return to vampires—that’s the only choice offered by those who defend capitalism in the midst of the current pandemic. Better, it seems to me, to protect our brains and life-blood from all the undead creatures that haunt the capitalist imaginary and devise a radically different way of organizing economic and social life.

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The existing alphabet soup of possible recoveries—V, U, W, and so on (which I discussed back in April)—is clearly inadequate to describe what has been taking place in the United States in recent months.

That’s because there’s no single path of recovery for everyone. For some, the recovery from the pandemic crisis has been just fine, while for many others there has been no recovery at all. Instead, things are going from bad to worse. In other words, there’s a growing gap between the haves and have-nots—or, as Peter Atwater has put it, “there have been two vastly divergent experiences.”

That’s why Atwater invented the idea of a K-shaped recovery.

I think he’s right, although I don’t divide the world up in quite the same way.

The stem of the K illustrates the quick and deep crash that almost everyone experienced as the pandemic spread and large parts of the U.S. economy were shut down. Then, as time went on, with massive federal bailouts and businesses reopening, the arm and leg of the K have moved in very different directions.

For the small group at the top—including large corporations and wealthy individuals—there has in fact been a real recovery from the pandemic crisis. The downturn has turned out to be nothing more than a bump in the road. Businesses that were declared essential were able to purchase the labor power of workers and continue their operations, while others have been free to get rid of whatever workers they deemed unnecessary to making profits. And, in both cases, corporations on both Main Street and Wall Street were showered with support from an extraordinary array of government programs—from low interest-rates and Fed purchases of private bonds to forgivable loans and tax breaks—with little accountability or oversight.

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The best illustration of their path to recovery is the rebound in the stock market, which by any measure (such as the Standard & Poor’s 500 or Dow Jones Industrial Average indices, in the chart above) has regained most of the ground lost in the crash earlier this year. The S&P, which stood at 3368.68 in mid-February, and fell to 2405.55 in mid-March, ended yesterday at 3251.52. Similarly, the DJIA, fell from a peak of 28996.11 to a low of 20117.20 and yesterday reached 26680.87. This rebounds both signals that investors are betting on a continued recovery in corporate profits and represents a growing claim on the surplus produced by workers.

The small group at the top of the U.S. economy is quickly climbing the arm of the K-shaped recovery.

Meanwhile, everyone else is headed in the opposite direction. They’re the “essential” workers who have been forced to have the freedom to continue to sell their ability to work to their employers and to either labor at home with little control over their working conditions or with the threat of spreading infections in their existing workplaces, or the tens of millions of other workers who have been laid off, had their hours shortened, or suffered pay cuts. We know how different their own experience has been from those at the top because initial claims for unemployment benefits are now more than 50 million, hunger and food insecurity are spreading, and they’re having difficulty paying their rent and mortgages.

employment income

The extent of the economic and social disaster for those at the bottom is perhaps best represented by the loss of employment income for households making up to $100 thousand a year (and therefore about half of American households). According to data assembled in the the Census Bureau’s weekly Household Pulse Survey, the share of households in those income groups has grown from just under 50 percent (for 23 April to 5 May, the first week when the survey was conducted) to 53.44 percent (for the latest week, 2 to 7 July).

The situation of American workers is clearly the leg at the bottom of the K, which represents no recovery at all.

The fact that the United States is currently undergoing a K-shaped recovery from the pandemic crisis should come as no surprise, and not just because the administration of Donald Trump and his allies in Congress have promoted and adopted policies that have both worsened the pandemic and shifted the burdens of the economic crisis to those who can least afford it. It’s also because the American economy and society were already characterized by grotesque levels of inequality stretching back at least four decades, which were in turn reinforced by the uneven recovery from the Second Great Depression under the previous administration. Trump and the “hacks and grifters” around him have only nudged things along in the same direction, creating even more powerlessness and hopelessness for the majority of the population.

The problem is, the majority of Americans at the bottom haven’t been heard for too many years, from long before the pandemic started to ravage the country. In the late 1960s, shortly before he was assassinated, Martin Luther King Jr. called their protests “the language of the unheard.”

Even earlier, the late John Lewis wrote (but was never allowed to deliver) a frank description of the situation in the United States that is eerily prescient of the current predicament:

This nation is still a place of cheap political leaders who build their careers on immoral compromises and ally themselves with open forms of political, economic and social exploitation.

That’s why, he wanted to tell those who participated in the 1963 March on Washington, “if any radical social, political and economic changes are to take place in our society, the people, the masses, must bring them about.”

The K-shaped form of the current recovery is both a testament to the compromises of the latest generation of “cheap political leaders” and a reminder that the “the people, the masses” are the ones who must bring about the necessary changes in American society to create a more equal social, political, and economic recovery.

 

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