Posts Tagged ‘industry’

MFG-US

No, as Steven Rattner explains, there hasn’t been any great renaissance of manufacturing in the United States in the last few years.

And what little onshoring of manufacturing that has taken place has depended on low wages, desperate union concessions, and generous subsidies.

When Volkswagen opened a plant in Chattanooga, Tenn., in 2011, the company was hailed for bringing around 2,000 fresh auto jobs to America. Little attention was paid to the fact that the beginning wage for assembly line workers was $14.50 per hour, about half of what traditional, unionized workers employed by General Motors or Ford received.

With benefits added in, those workers cost Volkswagen $27 per hour. Consider, though, that in Germany, the average autoworker earns $67 per hour. In effect, even factoring in future pay increases for the Chattanooga employees, Volkswagen has moved production from a high-wage country (Germany) to a low-wage country (the United States). . .

Low wages are not the only price that America pays for its manufacturing “renaissance.” Hefty subsidies from federal, state and local government agencies often are required. Tennessee provided an estimated $577 million for Volkswagen — $288,500 per position! To get 1,000 Airbus jobs, Alabama assembled a benefits package of $158 million.

Now Boeing has just used the threat of moving to a nonunion, low-wage state to win both a record subsidy package — $8.7 billion from Washington State — and labor concessions.

Over objections from their local leadership, union workers approved a new contract that would freeze pensions in favor of less generous 401(k) plans, reduce health care benefits and provide for raises totaling just 4 percent over the eight-year term. (Boeing’s stock price rose by over 80 percent last year.)

As for me, I have no particular nostalgia for industry in the hinterlands.

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The current situation—what I continue to refer to as the Second Great Depression—presents a real problem for mainstream economists. Corporate profits (and, with them, the stock market and salaries at the top end of the income distribution) continue to soar while workers’ wages stagnate (based on high levels of unemployment and a declining value of the federal minimum wage).

Clearly, the modeling tools of mainstream economics are useless in analyzing these trends. For example, the only way you can get involuntary unemployment in a neoclassical world is for wages to be too high (that is, above the equilibrium wage rate), such that the quantity supplied of labor is greater than the quantity demanded of labor.

This has forced an economist like Paul Krugman to look elsewhere and to stumble on a tradition that looks a lot more like Marx and Kalecki than traditional neoclassical (and, for that matter, Keynesian) economics. In this alternative tradition, there’s a fundamental conflict between labor and capital, the Reserve Army of labor regulates the level of wages, and corporations prevent the state from enacting the kinds of stimulus measures and social programs that would decrease the economy’s dependence on the “state of confidence” of private employers and investors.

The question is, how does one model fundamental features of the Second Great Depression in this alternative tradition? Krugman seems to think he can do it in with an efficiency-wage model. But, remember, that model was invented to make sense of situations in which employers offer wages above the equilibrium wage rate (in order to purchase worker loyalty, decrease “shirking,” and increase effort) and, by extension, employers choose not to decrease wages as much as they might in the face of massive unemployment.

But the problem, as I’ve explained before, is not downwardly rigid nominal wages but upwardly rigid real wages. That is, even as the economy recovers, firms are not willing to bid up the prevailing wage rate. As a result, real wages remain constant while, with increasing productivity and economic growth, corporate profits rise. The real coordination failure is exactly the opposite of the one posed in the efficiency-wage story: each employer actually wants to pay the lowest wages possible, while hoping that all other employers offer higher wages, in order to buy back the goods and services being produced. All you need to do is work through Nick Rowe’s attempt to use an efficiency-wage model to make sense of Krugman’s problem to realize it’s probably not going to get us very far.

So, if the efficiency-wage model is a nonstarter, where else might we look? One possibility, it seems to me, is the labor-surplus model first developed by W. Arthur Lewis. I understand, the purpose of that model was quite different: it was designed to make sense of “dual economies” in which peasant workers trapped by “disguised unemployment” and receiving a “subsistence” wage (equal to the average product of labor) in the “backward,” noncapitalist rural/agricultural sector could be induced via a higher “industrial” wage rate (equal to the marginal product of labor) to move to the “modern,” capitalist urban/manufacturing sector, which would absorb them as long as capital accumulation increased the demand for labor.

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That’s clearly not what we’re talking about today, certainly not in the United States and other advanced economies where agriculture employs a tiny fraction of the work force (and much of agriculture is organized along capitalist lines). But, in my view, a suitably modified labor-surplus model might be a better starting point than the efficiency-wage model for making sense of what is going on in the world today.

What I have in mind is redefining the subsistence wage as the federally mandated minimum wage, which regulates compensation to workers in the so-called service sector (especially retail and food services). That low wage-rate serves a couple of different functions: it’s a condition of high profitability in the service sector while keeping service-sector prices low, thereby cheapening both the value of labor power (for all workers who rely on the consumption of those goods and services) and making it possible for those at the top of the distribution of income to engage in conspicuous consumption (in the restaurants where they dine as well as in their homes). In turn, the higher average wage-rate of nonsupervisory workers is regulated in part by the minimum wage and in part by the Reserve Army of unemployed and underemployed workers. The threat to currently employed workers is that they might find themselves unemployed, underemployed, or working at a minimum-wage job.

In addition, the profits captured from both groups of workers are distributed to a wide variety of other activities, not just capital accumulation as presumed by Lewis. These include high CEO salaries, stock buybacks, idle cash, and financial-sector profits (with a declining share going to taxes). And, if the remaining portion that does flow into capital accumulation takes the form of labor-saving investments, we can have an economic recovery based on private investment and production with high unemployment, stagnant wages, and rising corporate profits.

Now, I can’t say the labor-surplus model is the only way to model some of the stylized facts of the Second Great Depression. But, to my mind, it’s certainly a better starting-point than the efficiency-wage model.

Portrait_of_a_Plump_Tomato

Yesterday, I spent a good part of the day preparing and freezing herbs and vegetables, including tomatoes (both red and green) from my garden.* But, like any good Italian-American, I use a lot of canned tomatoes over the course of a year.

So, I was pleased to see Mark Bittman’s latest, a defense of the industrial canned tomato. I’m all in favor of local, sustainable production and consumption of food but I’m also not against industrial food production. Appropriately done, industrial food not only can provide us the appropriate quantities of good, but it can also give us decent quality at affordable prices.** And the use of machinery can eliminate many kinds of back-breaking work.

Now Bittman’s defense of canned tomatoes is not wholesale. What he’d like to see is a leveling-up of pay and working conditions.

To see change, then, all workers, globally, must be paid better, so that the price of tomatoes goes up across the board.

How does this happen? Unionization, or an increase in the minimum wage, or both. No one would argue that canned tomatoes should be too expensive for poor people, but by increasing minimum wage in the fields and elsewhere, we raise standards of living and increase purchasing power.

The issue is paying enough for food so that everything involved in producing it — land, water, energy and labor — is treated well. And since sustainability is a journey, progress is essential. It would be foolish to assert that we’re anywhere near the destination, but there is progress — even in those areas appropriately called “industrial.”

That’s a start. But why not try something even most interesting: let the people who still do the work of growing, picking, and canning tomatoes actually have a say in how the tomatoes are grown, picked, and canned.

We have nothing to lose but capitalist canned tomatoes.

*And yes, I know, tomatoes are officially a fruit.

**According to the U.S. Department of Agriculture [pdf], Americans consumed a total of 23.3 pounds of canned tomatoes per person in 2008, which was 60 percent of the total of canned vegetables (more than 5 times that of the second-ranked canned vegetable, sweet corn). But that was down from 2005, as was the consumption of all canned vegetables, which are increasingly being replaced by fresh vegetables.

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Special mention

May 7, 2013 6a00d8341d417153ef017eeadae37d970d-800wi

Iron+Lady2

Special mention

Steve Bell 09.03.2013 and040913web

Should we be nostalgic for industry in the hinterlands?

Here are the opening paragraphs of my remarks during a very good session on that theme at the annual meetings of the American Anthropological Association in Montréal:

I hate nostalgia. And I especially hate the nostalgia for industry in the hinterland.

I live in, work in, and drive through that hinterland—from the South Side of Chicago through Gary and Michigan City to South Bend. And I find a shared nostalgia for industry, especially on the Left, particularly among left-wing activists and union members. A nostalgia for a previous period of manufacturing (located sometime, it’s never clear, in the 1950s, 1960s, or 1970s), which is connected (at least in their minds) with good working-class jobs and good working-class politics.

(Nostalgia isn’t, of course, a monopoly of the Left. The right-wing, in the United States, Western Europe, and elsewhere in the world today, is busy building a bridge to the 19th century. Their own fantasy of a better time and place, when robber barons ruled, taxes were low, government regulations were minimal.)

I hate both kinds of nostalgia. But certainly, for the purposes of our discussion today, the nostalgia for industry in the hinterland. Who in their right mind wants that industry back? The stockyards of Chicago, the steel mills of Gary and Michigan City, the Studebaker plant of South Bend. Not me.

I’m glad they’re closed (or, in the case of the steel mills, barely operating—mostly for specialty steel, since the bulk steel is all now imported). They were horrible jobs, under terrible work conditions and poor pay. Industries that first built and transformed and then devastated the entire hinterland between Chicago and South Bend.

Nope, I have absolutely no use for that kind of nostalgia. It romanticizes a time that never was, and remains mired in a vision of how things were, mourning the loss, unable to grasp the possibilities of moving in a new and different direction.