Posts Tagged ‘democracy’

Class War by Other Means

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One of the great merits of Thomas Piketty’s blockbuster book, Capital in the Twenty-First Century, is to have shifted our focus not just to the issue of inequality, but to Capital.

My own view, for what it’s worth, is that Piketty inappropriately combines different forms of wealth—land, financial investments, physical equipment, and real estate—into a single term he refers to as capital. The problem, as I see it, is that Piketty’s capital obscures what we mean when we refer to the capital share within contemporary economies.

The real issue is the share of net income that is appropriated by Capital, some of which is retained within enterprises as profits while the rest is distributed to other claimants, such as the owners of equity capital (in the form of dividends), executive officers of corporations (as salaries), financial institutions (as interest payments), and so on.

In any case, we are now focusing our attention on Capital, which we simply weren’t doing before.

We can see this shift in Tony Atkinson’s presentation of twelve policy proposals [pdf] “that could bring about a genuine shift in the distribution of income towards less inequality.” He makes a key point about technology: the capital share depends in part on technology (as neoclassical economists see it) but technology can’t be taken as given (as neoclassical economists generally assume). Atkinson then offers an alternative view:

Not only the extent of technological progress, but also its direction, is endogenously determined. . .This brings us to a crucial issue of positional power and control over economic decision-making.

What this means is, the next time someone invokes the Solow growth model and the Cobb-Douglas production function, the appropriate question is: to what extent does Capital control the technology and thus the returns to capital and labor?

A similar concern appears in another response to Piketty: Shi-Ling Hs’s “The Rise and Rise of the One Percent: Considering Legal Causes of Wealth Inequality.” His view is that the “capital-friendly bias in legal rules and institutions”—such as financial deregulation, oil and gas subsidies, and “grandfathering” (that is, regulations that exempt existing regulatory targets)—”have inflated returns to private capital and driven it well above the rate of economic growth, exacerbating economic inequality.”

Piketty, his supporters, and his critics are all missing a huge piece of the puzzle: the role of law in distributing wealth. . .

That something is a system of lawmaking that, with good economic intentions, is biased towards the formation of certain forms of capital. This capital bias has produced a set of legal rules and institutions that has increased returns on certain forms of private capital without inducing a concomitant increase in economic growth, and in some cases retarded economic growth. In the parlance of Piketty’s r > g relation, the law has been much more effective in boosting r than it has been in boosting g. This is understandable, because inflating and propping up r is easy—government subsidies, favorable tax treatment, and legal protections from regulatory interference are just a few of many ways that lawmakers have boosted or propped up returns to certain owners of private capital—the ones powerful enough to ask for them. It is not nearly as easy to figure out how to make economic growth keep pace. Inducing economic growth is a matter on which leading economists differ sharply, to say nothing of an ideologically divided Congress. The world is an extremely complicated place, made more so by globalization, and ensuring economic growth has been much more art than science. Moreover, in modern times, the political salience of “trickle-down” theories of economics have held enormous influence over American policymaking, such that many lawmakers are strongly inclined to believe that boosting private returns to capital (Piketty’s r) is tantamount to boosting economic growth generally (Piketty’s g). Taken together, these factors have caused lawmakers to mostly take comfort in boosting returns to private capital and rationalize their indifference to economic growth by throwing up their hands and just hoping that private wealth will somehow also stimulate economic growth.

The problem, of course, is that while both Atkinson and Hs both direct our attention to worrying about processes that favor Capital (for example, in terms of the direction of technological change and the making of new laws), neither actually suggests taking the obvious next step: to eliminate the role of Capital in our current economic institutions.

That’s why Chris Dillow’s discussion of democratic Keynesianism is so useful. Relying on Michal Kalecki (which I, too, have done, on many occasions), Dillow argues that

“Democratic” policy-making cannot serve the public interest, because it is subverted by capitalists’ interests. This represents a challenge to naive social democracy, which thinks that governments can do the right thing if only they have the will and courage.

More generally, what Dillow clearly understands, and what many sympathetic commentators on Piketty seem to miss, is that the state and civil society are not separate entities. If they were, then of course, it would be possible to suggest the state could adopt policies and laws that serve to lessen or eliminate the grotesque inequalities that have arisen within contemporary civil society. However, that well-intentioned project of addressing inequality becomes difficult—if not impossible—when capitalists’ interests are paramount within both the civil society and the state.

And that idea is as valid for Capital in the twenty-first century as it was in previous centuries.

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If the recent Greek election was a test for austerity, which was rejected by a landslide, the current negotiations about Greek debt represents a test for democracy itself.

And the initial signs of the test for democracy are not particularly good.

A vice president of the European Commission, Jyrki Katainen, said on Wednesday that Brussels was eager to start talks with Greece. But noting that he saw no majority in favor of writing off any Greek debt, he added: “We expect them to fulfill everything that they have promised to fulfill.”

He emphasized that Brussels could not simply look at the popular anti-austerity excitement surrounding the Greek elections, but that he had to take into account the wishes of people in other countries, including Finns and Germans who were not inclined to give Greece a penny more. “We don’t change our policy according to elections,” he said.

Apparently, according to Katainen, former Prime Minister of Finland (from 2011 to June 2014) and chairperson of the National Coalition Party (from 2004 to 2014), the results of democratic elections don’t matter. Not, at least, when it comes to renegotiating Greece’s outstanding debt.

And, of course, unless Greece is able to renegotiate its debt, the vote to elect Syriza and to formulate a new set of anti-austerity policies simply won’t matter.

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As readers know, I have no particular nostalgia for industry. Or for the supposedly good manufacturing jobs that were the mainstay of the American Dream in the postwar period.

That’s why I agree (in part) with Dietz Vollrath in his response to Nouriel Roubini’s dire warnings about the risk to blue-collar manufacturing jobs posed by the introduction of robotics and automation. Not that I think the risks for workers are not dire, just that the problem is not solved by attempting to restore manufacturing jobs in the United States and other advanced nations.

While Vollrath dismisses too quickly the real possibility that software and machines will continue to destroy jobs and displace workers (displaced workers may indeed, after a fashion, find jobs in other sectors but at what wages?), he does correctly challenge the idea that producing goods (as against services) is a necessary condition for creating “good jobs.”

So let’s ignore the phantom worry that tens of millions workers suddenly find themselves completely at a loss to find work. The economy is going to find something for these people to do. The question is what kind of jobs these will be.

Will they be “bad jobs”? McJobs at retail outlets, wearing a nametag? These aren’t “good jobs”, real jobs. Making “stuff” is a real job, not some made-up bullshit service job.

We can worry about the quality of jobs, but the mistake here is to confound “good jobs” with manufacturing or goods-producing jobs. Manufacturing jobs are not inherently “good jobs”. There is nothing magic about repetitively assembling parts together. You think the people at Foxconn have good jobs? There is no greater dignity to manufacturing than to providing a service. Cops produce no goods. Nurses produce no goods. Teachers produce no goods.

Manufacturing jobs were historically “good jobs” because they came with benefits that were not found in other industries. Those benefits – job security, health care, regular raises – have nothing to do with the dignity of “real work” and lots to do with manufacturing being an industry that is conducive to unionization. The same scale economies that make gigantic factories productive also make them relatively easy places to organize. They have lots of workers collected in a single place, with definitive safety issues to address, and an ownership that can be hurt deeply by shutting down the cash flow they need to pay off debt. To beat home the point, consider that what we consider “good” service jobs – teacher, cop – are also heavily unionized. Public employees, no less.

That’s right: to the extent that manufacturing jobs were “good jobs” (and, in my view, we do need to dispute that idea that they really were “good jobs”), it wasn’t because workers produced real, tangible goods; it’s because the workers were unionized and were able (with the aid of higher real minimum wages, better-financed government supervision of worker safety, and so on) to bargain over their pay and working conditions. They aren’t able to do that now in most of the private-sector service-producing industries. In other words, it’s not what workers produce but under what conditions they produce.

So, if we’re going to move beyond the nostalgia for industry, what do we need to do? Nourbini suggests education; Vollrath goes a bit further: “reverse the loss of labor’s negotiating power relative to ownership” (by raising minimum wages and making it easier for service-workers to unionize), extend social insurance, and provide more support for training and education.

What neither Roubini nor Vollrath can imagine is a change in the way the enterprises themselves are organized. If workers had a real say in the places where they work—if they could choose the software and machines with which they produce goods and services, if they could set their wage levels, if they could decide how many jobs are created, and so on—then automation would not pose a threat to their livelihoods or to the communities within which they live and work.

As I wrote above, it’s not what workers produce but how they produce that matters. The fact that the decisions about automation remain in the hands of a tiny minority of directors and managers (supported, in turn, by a financial machine that shares in the rewards)—that’s the real problem. Solving that problem, by making enterprises more democratic, is the only way to meet Roubini’s challenge: “The gains from technology must be channeled to a broader base of the population than has benefited so far.”

Clay Bennett editorial cartoon

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