Reports from the Economic Front

The following comes from Peter Coy at Business Week.  It describes the upcoming Chamber of Commerce public relations offensive aimed at getting you to defend capitalism and the rights of capitalists to freely make profits.  The problem for the Chamber (and the firms it represents) is that people now view “capitalism” critically.  So,  it is on to new words.

Capitalism, No. Free Enterprise, Yes

To combat what it views as rapid government growth and attacks on business, the U.S. Chamber of Commerce is launching a multiyear campaign to remind Americans of the virtues of a free market and free trade. But don’t expect the campaign, which could cost as much as $100 million, to praise “capitalism” or “risk taking.” Or to criticize “protectionism.”

It’s not that the Chamber, which represents 3 million organizations, has gone squishy on its core values. The group just wants its message to resonate with the public. And reactions to these terms by focus groups in Jacksonville, Fla., and Philadelphia suggest it would be best to omit them. ” ‘Capitalism’ was universally problematic,” says Chamber spokeswoman Tita Freeman. Adds Rich Thau, president of New York-based Presentation Testing, which ran the focus groups: “There were those who associated ‘capitalism’ with greed and with the powerful dominating the vulnerable.” But those negatives, he says, didn’t apply at all to “free enterprise.” (For now, the Chamber’s multimedia offensive, which starts officially in October, is called the Campaign for Free Enterprise.)

As for “risk-taking,” which has been promoted in the Chamber’s press materials, “it was at the bottom of the pile,” says Freeman. “We found the average American doesn’t like the idea of businesses taking risks. They think of a casino and someone throwing the dice.” And “protectionism,” which the Chamber opposes? In an earlier round of tests, people approvingly linked the word with a general sense of being “protected,” says Thomas Donohue, the Chamber’s president and CEO. (The campaign may instead inveigh against “isolationism.”)

To test the various terms, Thau convened separate focus groups of Obama voters, McCain voters, and small business owners. The responses were quite similar across all three categories, he says. What surprised him most? “The number of people who associated ‘capitalism’ with increased government involvement in business. I’m still puzzling over that one.”

There is a new attack on social security.  As you may remember, before the recent collapse of the economy, conservative forces claimed that the social security system was headed for crisis and offered privatization as the solution.

The truth was that there was never a real crisis; it was manufactured.  The health of social security is determined using models to predict economic trends over the next 75 years.  The social security crisis was the result of the assumptions used in the modeling—these assumptions assumed rates of growth that were lower than during the 1930s.  If one made growth assumptions that were more in keeping with historical trends, there was no crisis.  The aim of the conservatives was to push money into the stock market where private interests could make millions managing it.  Thank goodness this privatization push was resisted.

But the same forces are hard at work again.  The Associated Press recently ran a story calling social security a “giant federal Ponzi scheme” that will soon collapse because of a lack of money.  The Washington Post recently warned us that social security is one of “the primary drivers . . . of the nation’s financial problems.”

This is all silly.  Social Security is still running surpluses.  Moreover, even using its conservative assumptions, the social security administration is forced to admit that the current system will have plenty of money to meet all its obligations through 2037.  The Congressional Budget Office puts the date at 2043.

Would you give up a program working as intended because of predictions that SOME 30 YEARS FROM NOW it might not have sufficient money to cover all its promises?

Actually, even if the social security administration’s prediction is accurate, we still don’t face a crisis.   Right now social security taxes are paid on all labor income up to $106,800.  Earnings above that ceiling are not taxed.   Why is this important?  As the Wall Street Journal explained in a recent article titled “Pay of Top Earners Erodes Social Security”:

The data suggest that the payroll tax ceiling hasn’t kept up with the growth in executive pay. As executive pay has increased, the percentage of wages subject to payroll taxes has shrunk, to 83% from 90% in 1982. Compensation that isn’t subject to the portion of payroll tax that funds old-age benefits now represents foregone revenue of $115 billion a year. . . .

Lifting the earnings ceiling could result in higher Social Security benefits payments to higher-income individuals, since benefits are based on a worker’s highest 35 years of earnings. But the additional tax revenue would have decades to earn a return, thus offsetting the cost of the additional payments.

Social Security Administration actuaries estimate removing the earnings ceiling could eliminate the trust fund’s deficit altogether for the next 75 years, or nearly eliminate it if credit toward benefits was provided for the additional taxable earnings.

You are reading that right—even using the most conservative estimates about future economic trends, the social security system would remain fully operational if we just removed the earnings ceiling on the wealthy.

So, what is class power?  One measure of class power is the ability to shape public discussions in such a way that attention is focused on what you want to talk about and away from what you don’t want to talk about.  The rich want social security privatized, not saved.  So the media obligingly give us story after story about the crisis in social security and the need to drastically change the system.

The rich don’t want to talk about the growth in inequality and its negative social consequences.  Thus, simple reforms that would strengthen the system are never discussed (except by publications like the Wall Street Journal which are largely read by an audience that fully understands its class interests).

When will we recognize and promote our own class interest?

Economic conditions are bad; what should we do?  In many ways the problem is not a lack of ideas—if we had power we could strengthen labor laws making it easier for workers to defend their rights; implement a single payer health system; nationalize the banks and re-direct funds to priority areas like mass transit and green technology; raise taxes on corporations and the wealthy to fund vital social services and programs; change trade laws to undercut corporate power.  The list goes on.

No, the problem is more a lack of political power and will.  People feel isolated and discouraged.  How do we overcome that problem?  History offers some important examples that deserve serious study.  One is the experience of the 1930s Unemployed Councils.

By the end of 1931, Unemployed Councils in Portland had more than 3000 registered members.  When individual efforts to work within the system failed, the Councils often took direction action in defense of their member’s interests. For example, after some 400 unemployed stormed City Hall, the city agreed to provide housing and shelter for over 1000 unemployed working people.  [The picture below illustrates the work of the unemployed councils in Portland “reversing” an eviction]

If unemployed workers could come together in the midst of the depression and form a powerful national organization to fight for meaningful social changes for themselves and others,  why can’t we help today’s hungry, homeless, and unemployed (modern day victims of social forces beyond their control) organize and work with other movements to demand change?

Here are some places to learn more about the Unemployed Councils:

The Pacific Northwest Labor History Project

KBOO’s Labor Radio

“Organize among Yourselves”: Mary Gale on Unemployed Organizing in the Great Depression

“I’m Going to Fight Like Hell”: Anna Taffler and the Unemployed Councils of the 1930s

On Monday (August 10), Labor Radio–a weekly program that airs on KBOO radio (90.7 FM)–played an interview of me by hosts Deborah Schwartz and Al Bradbury.  We discussed a variety of topics, including the effectiveness of the stimulus, the outlook for the economy, the alleged social security crisis, and the need for structural change in our economy.

You can hear the interview (followed by another that was done by the hosts with Henry Huerta, Campaign Director of the CLEAN Car Wash Campaign, about the unionization efforts of more than ten thousand Los Angeles car washers) at:  http://kboo.fm/node/15826

You can hear an extended (and unaired) version of my interview at: http://kboo.fm/node/15788

The newspapers are full of reports suggesting that the worse may be over—perhaps they are right, but I put little store in reports that rely on economic projections made by the same people that denied we had a bubble economy right up to the moment it popped, and then have been busy ever since telling us that things aren’t too bad.

There is no doubt that the US economy came very close to a complete melt down and that government action has helped break and cushion the fall.  But here is the key point—our economy was not working well for the great majority even during the debt-driven speculative years before the collapse.  With speculative forces now spent and the economic structure unchanged the odds are great that conditions will continue to deteriorate even after our economy does stabilize.

What we have seen so far in terms of economic trends is a slowing of the decline, not a recovery.   We need a new round of stimulus spending to hurry along the recovery.  But even more we need real structural changes—we need changes that will promote livable wages, workplace democracy, full employment, well funded and accountable social programs, and a sustainable and responsive use of our productive resources to satisfy domestic needs not profits.

To appreciate how important the need for structural change is, consider the quality of our last expansion.   The Economic Policy Institute provides some good data for doing this in a very useful report,  “A Feeble Recovery, The Fundamental Economic Weaknesses of the 2001-07 Expansion.”  As the chart below (taken from the report) shows, the last expansion (and full business cycle) ranks among the weakest on almost all counts (the lower the number the better) except one: profits.  And that is why business is not eager to make any real changes.  But remember, our next expansion will not have the “benefit” of the stock and housing bubbles that underpinned our last expansion.   Is a future of worsening economic outcomes really the best we can do?

U.S.: Das Camp-ital – Kids Overthrow Bosses on ‘Capitalism Day’
By Ben Case

LIBERTY, New York, Jul 28 (IPS) - Workers at a munitions factory in Almosnino walked out last Wednesday, joining an anti-war protest nearby. The combined strikers and protesters later stormed the factory after a scuffle with police who were trying to arrest a crowd that was blocking a truck from leaving the factory.

Workers immediately held a meeting inside their occupied factory and unanimously voted to suspend production of weapons and switch to the production of solar panels.

Later that day, the people of Almosnino, reeling from economic woes and unable to pay for food, convinced the chief of police to cede power and allow a population without money to eat for free.

This was the culmination of a daylong social experiment, practiced once a year by Shomria summer camp.

Shomria, located outside the small town of Liberty, New York and open to children aged eight to 15, is run by Hashomer Hatzair, a Socialist Zionist youth movement in Israel, the U.S., and Canada.

Once per summer, the camp runs a ‘Yom Capitalism’ (Hebrew for ‘Capitalism Day’) in which the entire camp simulates a town with a free market economy. The remarkably realistic exercise comes complete with a bank, government offices, and printed money in a make-believe town named Almosnino.

“It might seem weird to think about a ‘capitalism day’ in a capitalist society. But what we normally do here at camp is live in a kibbutz-style socialist village,” explained Yotam Marom, head of continuing education for Hashomer Hatzair, and facilitator for the oldest age groups at Shomria.

“This day has meaning in contrast with the way we run things on a day-to-day basis. It gives us the ability to reflect on capitalism in a way that you don’t get just living in a capitalist society,” Marom told IPS.

Shomria is run according to egalitarian philosophies. Work is shared evenly, issues are discussed collectively, and everything is decided by consensus.

“We do all of our own work,” Marom told IPS. “Aside from a few support staff, the camp is run exclusively by youth.”

Central to the camp’s ideology is the concept of youth leading youth. The youngest camper is eight years old and the oldest counselor is 23. “Everyone is connected to each other, everyone is an educator and everyone learns,” Marom added.

When campers wake up on Capitalism Day, they are handed an envelope containing their starting financial situation. Most will start with both some money and some debt, a few will start with a lot of money, and even fewer will start with land and a business.

Throughout the day, kids are able to get jobs, acquire loans from the bank, and start businesses. Everything that goes on in the day, including eating, requires money, which is printed up the night before and available through the bank or through their labour.

Some counselors were also workers and business owners, but many were pre-set ‘characters’ such as the mayor, the factory owner, chamber of commerce and bank officials, and police officers.

Early in the day, a multitude of businesses opened, ranging from lemonade stands to massage parlors and salons to a sign shop, selling advertising materials to other businesses.

Most campers found jobs working in the factory, making ‘bombs’ out of plastic bottles, water, and food coloring. A truck picked up the finished products and delivered them to an imaginary military buyer.

“We used a munitions factory this year because we wanted to connect labour issues to the war,” said Adam Bresgi, a 20-year-old counselor who played the part of the mayor.

The day also included politics. An election pitted Bresgi, a socially liberal, fiscally conservative, pro-war incumbent, against a green, pro-worker’s rights, anti-war challenger, played by a 23-year-old counselor.

Throughout the day, two ‘TV anchors’ put on periodic live news shows to inform everyone about what was happening all over the camp, even holding a debate between mayoral candidates.

By the afternoon, when the bank began calling back loans, nearly all businesses defaulted and closed, leading to an economic crisis in Almosnino. The mayor proceeded to simulate a bailout, giving government money to the factory and several other businesses deemed ‘too big to fail’.

This, along with divisions that had been forming throughout the day, sparked protests and a strike that led to the eventual ‘revolution’.

As interesting as the outcome, though, was the social dynamics throughout the experiment. “The most educational part of Capitalism Day is watching relationships transform,” Marom told IPS.

“Normally everything is collective: They pool their candy and share. Their counselors care about their feelings. They work to understand each other and really try to provide for each other,” he said.

“But on Capitalism Day the relationships get flipped on their heads in a moment,” he continued. “Kids wake up and have money or don’t, and that creates class divisions on the spot that in turn create divisions between the kids in reality not in the game.” Indeed, many campers reported having serious feelings about what happened on Capitalism Day.

“It was much harder than I thought to get money,” Gal Gelbard, age 10, told IPS. “When you don’t have money today, you don’t have fun. You can work hard all day and still not have enough money.”

Nine-year-old Idan Cohen told IPS he enjoyed the experience even though it wasn’t easy. “Today taught you how to take care of yourself with no parents and just your own money,” he said. “It taught you how to be responsible.”

“If you have no money now you know how it feels, how it can be for our parents,” Cohen went on. “You are sometimes being a little spoiled to your mom, but now we get it and we know.”

Tamar Golan, at age 23 one of the oldest people at Shomria, said she distinctly remembered her first experience with Capitalism Day as a camper.

“I just remember walking around and having all of my interactions with other people be through money,” she told IPS. “That’s when it clicked for me what the social influence of capitalism is – isolating.”

Golan played the part of the opposition mayoral candidate, who beat the pro-business incumbent mayor by a landslide in a late afternoon election as the economy crumbled.

Despite not knowing Capitalism Day was happening until the morning of it, campers were astonishingly clever and resourceful. Prime examples were workers organising a class action lawsuit against the factory owner and police putting undercover agents in spontaneously forming organised crime gangs.

“People acted just like their roles, it was amazing,” Marom told IPS. “Cops acted like cops. Bosses acted like bosses. Workers acted like workers,” he said.

Perhaps the most important question raised by Yom Capitalism was: Why do people in society behave the ways that they do – are there certain roles because people are just different from one another or do power relationships inherently create such dynamics?

Shomria was founded in 1946, then serving as a training farm for people to learn how to live on kibbutzim before they would move to Israel, and later developed into a summer camp.

The national minimum wage rose by 70 cents to $7.25 an hour on July 24.  Set by Congress, the minimum wage was unchanged from 1997 to 2006, which meant that workers earning the national minimum suffered real and substantial declines in their standard of living.  Finally in 2006 Congress agreed to raise the wage by increments in each of the following three years; this is the final increase.

This increase, while welcome, is still limited.  For comparison purposes, in real terms the new minimum wage is still some 25% below what it was in the late 1960s.  Yes, that is right—in terms of purchasing power, the minimum wage now buys some 25% less than it did some 40 years ago.

The decline in the real value of the minimum wage means that full time workers earning the current minimum wage will find themselves living in poverty.  As the Center for Economic and Policy Research explains:

While significant, this month’s increase in the minimum wage will still leave a full-time worker receiving it with income far below what they need to make ends meet. Of course, what it takes to “make ends meet” is subject to much debate among experts, but regular Americans have a more definite opinion. Surveys conducted by Gallup over the last several decades have asked people to name the minimum amount of money that a family of four would need to “get along in your local community.” For much of the 1950s and 1960s, the typical response to this question was around $32,000 in today’s dollars. In 1969, a woman working in a minimum-wage job and supporting two children earned an amount not far below this basic “get-along” standard (adjusted for family size).

Today, such a worker would be nowhere near it. In 2007, the “get-along” amount was $45,000. Even after this week’s increase, a minimum wage worker will still earn less than $15,000 a year. Moreover, most will have no health insurance, no retirement plan, no paid vacation, or even sick days.

This increase, despite its limitations, couldn’t be more timely.  It means money in the hands of people who will spend it, thereby helping to stimulate our economy.  The Economic Policy Institute estimates that the 70-cent increase will boost consumer spending by $5.5 billion over the next year.

Sadly some economists dismiss the minimum wage as irrelevant, arguing that it only helps middle class teenagers working part-time for spending money.  In reality, 76% of all workers earning the national minimum wage are over 20 years of age.  And even teenagers need the money to help themselves and their families in this period.

Moreover, the gains extend significantly beyond the 2.2 million workers currently earning the minimum wage to include a large percentage of the almost 8 million workers who earn wages just slightly above it.  This happens because most companies have found it beneficial to maintain a wage scale and an increase in the minimum wage forces them to increase the wages of those who previously earned above the past minimum.

Seems all to the good right?  Well, not according to the logic of some.  According to these analysts, this increase is dreadful.  The reason: raising wages of those at the bottom will push up labor costs, hurt profits, and prolong the recession.  Interesting isn’t it—when the economy was going up, most of these people defended policies that produced a real decline in worker earnings.  They are doing the same now, even though the economy is going down.

Capitalism is often defended as the best means to a desirable end.  But in reality it has become the end itself.  We are now told what compromises we must make (in wages, working conditions, social services) in order to sustain profits.  Seems like it is time for us to pursue the creation of a system that can help us get to where we want to go.

From the Wall Street Journal, June 29, 2009:

British Workers Recover Jobs After Mass Protests
By ANGELA HENSHALL and LANANH NGUYEN

LONDON — Hundreds of laid-off U.K. workers got their jobs back this week after organizing mass protests at energy plants across the country, coordinated through text messages and social-networking Web sites.

The contractor companies at Total SA’s 200,000-barrels-a-day Lindsey oil refinery met nearly all the striking workers’ demands, which had become a rallying cry of sympathy strikes across the U.K.’s engineering-construction industry. More than 8% of the industry’s work force walked out, although the protests didn’t have an impact on production.

“Total are pleased the contractors and their work force were able to reach a positive conclusion,” a spokeswoman for the French oil major said. The strikes bypassed official trade-union channels as they weren’t called after a vote by members and didn’t go through the U.K.’s legal requirements for industrial action.

Employers agreed to reinstate the entire 647-strong work force at Lindsey and, on Monday, a full return to work on a £200 million ($331 million) construction project to build a refinery unit, according to a joint statement late Thursday.

The speed and scale of the wildcat strikes, unprecedented in the U.K., caught energy companies by surprise, with protests organized by assembling large groups of people at specific sites through mass text messages.

“The idea of spreading it by text messages was just instinctive, you get your mate on the phone,” said Alistair Tice, a regional secretary for the U.K. Socialist Party in the Yorkshire and Humberside region. The engineering-construction industry is largely composed of itinerant workers with networks all over the country, making it easier for strikers to mobilize, he said. For years, U.K. governments have taken a hands-off approach to industrial disputes. However, as the U.K. recession has deepened, the government has appeared more willing to assert its views.

“I’m sure the government was concerned and was closely monitoring the situation, but there was no direct pressure,” said Mike Hockey, managing director of the Engineering Construction Industry Association.

On Friday, Prime Minister Gordon Brown’s spokesman welcomed news of the deal. “It is a positive step forward,” he said. “We’ve made clear on a number of occasions over the last week or so that it’s important that talks do resume.”
—Laurence Norman contributed to this article.

It is getting harder to sell the “recovery right around the corner” story.  I have been stressing the structural nature of current problems because there is a lot riding on our understanding of what is happening.  If we remain passive, hoping that existing policy is sufficient to nurture the alleged “green shoots” of recovery, we are likely to end up with an economy largely unchanged from the past.  That outcome, while attractive to the few with power and wealth, largely guarantees a future of steadily worsening living and working conditions for the great majority.

So, how bad are things?  As the Financial Post describes:

The U.S. economy has lost the equivalent of every job created in the past nine years.  All job growth since the final year of the dot-com bubble, its recovery from the bust, and the ensuing six years of consumer-driven boom is now gone, leading some economists to fear an outright decline in wages will be next. Others believe the United States is on track for a painful “jobless recovery.”

“This is the only recession since the Great Depression to wipe out all jobs growth from the previous business cycle, a testament both to the enormity of the current crisis and to the extreme weakness of jobs growth over the business cycle from 2000 to 2007,” said Heidi Shierholz, an economist at Washington-based think tank The Economic Policy Institute. . . .

Since the recession began in December 2007, the jobs market has shrunk by 6.5 million positions, pushing the unemployment rate up 4.6 percentage points to 9.5% — the highest rate since 1981. Nine million part-time workers are in want of full-time jobs, and a record 29% of unemployed have been jobless for more than six months. . . .

The employment market’s problems do not end at job losses. Earnings are under pressure. Average hourly earnings rose an annualized 0.7% in the past three months — the smallest gain since records began in 1964. The annual change in hourly earnings slipped to a rise of 2.7% from 3% the previous month.  “Wages will soon be falling outright, a classic deflation signal,” said Ian Shepherdson, the chief U.S. economist at High Frequency Economics.

Compounding problems, average hours worked fell further in June to be down 0.8% to a cyclical low of 33 hours a week. The average workweek has shrunk 8.2% since the start of the recession, placing added pressure on household cash flows. It also means employers will be slow to hire because there is ample room to increase work hours.

The administration needs to be pushed to take much stronger action—its modest stimulus program is not enough to reverse downward pressures and, once its effects dissipate, those pressures are likely to intensify—this could be 1937 all over again.

We need real structural change—in how work is organized and compensated, in how social programs are financed and delivered, and in how the economy is organized and directed.

In a recent study of worker interest in unions, Harvard University professor Richard B. Freeman found that “The proportion of workers who want unions has risen substantially over the last 10 years.”  In fact, “if workers were provided the union representation they desired in 2005, then the overall unionization rate would have been about 58%.”

So how come the unionization rate is only about 12%?  One reason is that union busting efforts by employers have grown ever more intense and effective.  Cornell University professor Kate Bronfenbrenner recently examined employer responses to union organizing drives over the period 1999-2003.  Among other things, she found that:

* 63 percent interrogate workers in one-on-one meetings with their supervisors about support for the union.
* 54 percent threaten workers in such meetings.
* 57 percent threaten to close the worksite.
* 47 percent threaten to cut wages and benefits.
* 34 percent fire workers.

Moreover, worker problems are far from over even if they successfully form a union; more than half of new unions remain without a contract one year after winning election.

The Employee Free Choice Act was designed to address some of these issues—unfortunately, but not surprisingly, Congress and the President have largely walked away from their past commitments to support it.