Work is inevitable but its organization is not

All human societies, from the most primitive to the most modern, have an important commonality — the need to work. Water, food, shelter and other basics of life don’t arrive as gifts. Work is required to secure them and to raise the next generation.

So fundamental is this basic principal of human life that generations of Marxist theorists have based analyses of social societies and structures on the economic base of a given society. The base-and-superstructure framework is controversial to most other schools of thought, although it ought to be obvious that capitalist organization of an economy puts strong parameters on how that capitalist country can organize itself politically and culturally. Nonetheless, can traditional Marxist understandings be stretched to wider interpretations?

Computer engineer Paul Cockshott, in his latest book, How the World Works: The Story of Human Labor From Prehistory to the Modern Era,* answers with an emphatic yes. His premise is that Western Marxism has been too dominated by “people with a training in the humanities or social studies” who have a “reluctance to use mathematical quantitative analysis.” He intends to infuse the term “mode of production” with a “much more technological interpretation.” In other words, a study of technology is a better basis for understanding the organization of labor in the various modes of production over the course of human history.

This stress on technology is a strength of the book, but also, at times, a weakness. This perspective does enable fresh thinking about subjects as disparate as why agriculture supplanted the hunting-gathering stage, the inefficiency of capitalism and the cause of the weaknesses of the Soviet Union that culminated in its collapse. How the World Works is a book full of interesting ideas — I took double the amount of notes I ordinarily take to review a book, a good measure of its content.

How the World Works takes the reader through all the basic modes of production of human history — lengthy chapters each on “pre-class society,” slave economy, peasant economy, capitalist economy and socialist economy, plus a final brief chapter on “future economy” that revolves around the impending exhaustion of fossil fuels and the decrease in available energy that post-fossil fuel societies will likely face. Crucially, the book argues that the “idea of abstract labor” applies to all economies, not only capitalist ones.

Transitions to agriculture despite the extra work

Professor Cockshott demonstrates that agriculture required more work hours than did hunting-gathering, and asks the question: Why was the transition made? He argues that hunters wiped out big game and the population of hunter-gatherers became too large for available land to support. Although agriculture required more work, more food per unit is also produced. This change came with a crucial development — there was now a surplus. Hunter-gatherers had no storage facilities and had to be mobile; what was taken was quickly eaten. These were often egalitarian societies (although not always, based on studies of isolated societies that survived into the 20th century).

With the new phenomenon of surplus, the ability and, given the cyclical nature of agriculture, the necessity, of storing food for future use enabled the rise of hierarchy and significantly deepened the subordination of women that had its roots in hunting-gatherer societies’ tendency for women to move to other settlements for marriage, putting those young women, cut off from their original community, in subordinate positions to their husbands and mothers-in-law. But although a surplus is necessary for a nonproductive elite to arise, the book argues that a surplus on its own is insufficient to develop the social stratification that would develop:

“A class society requires a surplus, but the converse does not hold. A food surplus does not necessitate an exploiting class. Establishing that seems to have required other misfortunes: war, patriarchy, and religion.” [page 45]

Authoritarian ideologies must be developed to justify unequal status, and human sacrifice fuels high social stratification. Ideologies of superior and inferior human beings justified slavery, but Professor Cockshott additionally argues that slave economies were dependent on transport and urban markets. Labor is the source of value in slave economies. The next stage, feudalism, also featured exploitation but in a different form. A lack of transport and limited circulation characterized feudalism. Lords did not have to engage in systematic trade and peasants were self-sufficient; coercion was the glue that kept this economy in place.

The shift from feudal farming to capitalist farming required that peasants “be deprived both of security of tenure and access to communal lands” [page 93]. And that brings the book to its longest chapter, the discussion of work in a capitalist economy. Here is where the author’s technological perspective more fully comes into play. The price of labor regulates product pricing and profitability, and, crucially, if workers were paid the full value of their work in a capitalist enterprise there would be no profit for the capitalist — “in a capitalist society, there will be a markup” [page 111].

Advance of mechanical energy under capitalism

Where capitalism differs from feudal and slave economies is far greater use of mechanical energy and scientific research. In contradiction to a commonly accepted theory that the use of slave labor in the Roman Empire prevented the primitive steam engine that was developed then from being introduced into production because using machines would have been much more expensive than continuing to use slave labor, Professor Cockshott argues that Hero’s turbine was vastly inefficient to be of any industrial use. Even the first steam engines of the 18th century were exponentially more powerful and could greatly expand industrial capacity. He argues that it was this new capacity that was the catalyst for industrial capitalism: “Existence of commodity relations and wage labor would not have been sufficient to generate the capitalist mode of production” [page 123].

Limitations on productive capacity were overcome with the rise of fossil fuels and in turn advances in technology arising from more efficient fossil fuels led to innovation and new products that beget more new products. In turn, the capital required to build and operate large industrial factories was beyond the reach of workers and previously independent artisans, forcing small independent producers out of business due to the scale of competition. “[T]he application of powered machines and fossil fuels allowed rising labor productivity that closed off whole branches of production from the self-employed artisan” [page 128].

An English watermill (photo by Martin Bodman)

The capitalist who innovates early reaps an increased profit, but such benefits are always temporary as competitors will soon adopt the innovation. Perpetual competition forces increased reliance on technology, although the author argues that innovation for a capitalist is only worthwhile when wages are high. An example not examined in the book that also serves as a partial explanation for why so much production has been shifted to low-wage, developing countries is the ability to pay drastically lower wages. That is an “innovation” that competition dictates be swiftly copied. The book argues that the ability of capitalists to innovate “shouldn’t be overrated,” but the continual shifting of production and the development of global supply chains is grim evidence of considerable capitalist innovation, one of course deeply negative for working people. Control of the means of production also gives capitalists control of the technology necessary to make these transformations in production possible — yet more innovation that is bad for working people.

The mathematical approach of How the World Works does serve the author well in his theory of why the wage gap between men and women persists: Professor Cockshott argues that it is because women work fewer hours then men and as a consequence are less likely then men to be the sole wage earner in a family; he believes the wage gap won’t be closed until it is equally likely that women will be the sole family wage earner as men. The level of such a wage earner can’t fall below starvation level for the basic reason that mortality rates would skyrocket; it is the ensuing shortage of workers that would occur rather than any morality that put an ultimate lower limit on wages.

That natural lower limit of course does not prevent wages from falling to deeply exploitative levels. On top of that, finance produces still more inequality — it is not only unproductive but a huge drain of money. “Since so little finance goes into increasing real production, these rents [windfall profits] can only be sustained by depressing the real living standards of much of the population” [page 196]. Concomitant to that is the ever increasing cost of housing, which is a product of inefficiency. Because housing is an asset subject to speculation, it appreciates in price and thus speculation becomes more profitable than engaging in productive activity, which in turns draws in more speculative capital, further fueling the process. Loans by banks in turn go disproportionally to real estate. Yet more exploitation.

Judging socialism by actual conditions, not ideals

The chapter on “socialist economies” is likely to be the most controversial for many readers; certainly is was for myself. The chapter opens by noting, quite correctly, that there is no uniform definition of socialism. How the World Works argues that “as social scientists, we cannot judge the real world by the standards of an ideal one. It is not the job of reality to materialize our ideals. Reality just is in all its glories, horrors, and contradictions” [page 209]. To that, there is nothing to do except agree. Material reality is what we have to go by.

Interpreting that reality, on the other hand, leaves room for debate. How the World Works shoots down various theories of why the Soviet Union and the model it imposed on Central European countries wasn’t socialist, including that is used money, you can’t have socialism in a single country and there was scarcity rather than the plenty that socialism is supposed to provide. So far so good, although these arguments are presented in a somewhat cartoonish fashion rather than in their full complexity. Having ably dispensed with these arguments, and reiterating that there was a “common understanding” that those countries were socialist, the author offers his concept of what socialism actually is, based on what did exist.

Although he writes that “What distinguishes them are the forms of property and the way in which the surplus product is determined,” he concludes that socialism is characterized by machine industry and agriculture, the same as capitalism. His definition rests on, inter alia, a mix of technical achievements such as “widespread use of electricity” and “widespread use of machinery and applied science” interspersed with social relations such as “the absence of a class of wealthy private proprietors” and “public or cooperative ownership of most of the economy” [pages 209-201].

German hydroelectric power plant

To be sure, claims that the Soviet Union was “capitalist” is ultra-left phrase-mongering that sheds little light. But is socialism simply expropriation and building industry? If so, then one would have to agree with Josef Stalin’s boast in the 1930s that socialism had been built and Nikita Khrushchev’s follow-up boast in the 1950s that the Soviet Union was in the process of building communism, the successor to socialism. But is that all there is? A fuller definition of socialism mandates that democracy be extended to economic matters and strengthened in political matters, beyond what is possible in capitalism. It would follow then that expropriating capitalists and establishing state or cooperative ownership of most of the economy is a precursor to socialism, not the actual content in itself.

An alternative theory, not discussed in the book, is that the Soviet model represented a post-capitalist economy (certainly not capitalist) in transition to socialism, a transition never completed. Perhaps this can be seen as edging toward idealism and in contradiction to the agreement above that those countries had to be judged based on their material reality, which obviously included the fact that they had to expend so much of their resources on defense against never-ending attacks from the capitalist world. But to put forth this position is not to dismiss those experiences but rather to lament what could have been. The grassroots movement in late 1960s Czechoslovakia to keep the economy in state hands but have it managed by the workers through councils and coordinating bodies in a system of democratic social accountability was the advancement to socialism that never developed because of the Warsaw Pact invasion. That invasion was a function of closed-minded ideological prescriptions that had become calcified in one particular form, which evolved in chaotic fashion in one country (the Soviet Union) that cannot be extricated from the specific absolutist cultural heritage of that country’s dominant nation (Russia).

Socialism should be not only industrial development and an end to private capital but a democratic system that grows, develops and changes with the rise in consciousness and development of a society’s members, not a rigid formula.

Fiscal imbalances through imbalanced taxation

The term “actually existing socialism” was often used for the Soviet bloc, and despite the clumsiness of the term, perhaps that is a reasonable compromise. Those countries have reverted to capitalism, and so a discussion of their economies inevitably moves toward determining the reasons for why. Professor Cockshott puts forth an original theory on this: the system of taxation. Specifically, he argues that reliance on sales taxes and taxes on enterprise revenue rather than assessing income tax on wages hid the cost of free social services, forced up the cost of machinery and thereby discouraged mechanization and made the relative cost of providing free services more expensive. As a result, managerial hoarding of labor was encouraged with concomitant overstaffing and lack of efficiency measures. This thesis is related to his belief that the Soviet use of money was a mistake; rather, people should have been paid in “labor hours.” To this last point, we will return.

Mathematics are used to explain this theory. The economy is divided into three parts — production of the means of production (or what are called producer goods), production of consumer goods and the provision of uncharged services, such as education, health care and public infrastructure. The money for the third category has to come from some revenue stream, and the need to pay for those and the necessity of the first category of producer goods constrains what is available for consumer goods. Assuming that what is available for consumer goods must be limited to the money-equivalent of the hours spent producing consumer goods, the author suggests there were three possible methods of taxation: an income tax on employees, a sales tax or VAT, or by pricing all goods at a markup or profit.

Blockupy 2013: Securing the European Central Bank (photo by Blogotron)

Because there was no income tax in the Soviet Union, revenue for social services was raised from taxes on enterprise revenue, those producing for consumer goods and those producing for producer goods, and from sales taxes. Because of that, the costs of machinery is much greater, thereby making the provision of social services far more expensive that it would have been. It was “short-term populism that hampered efficiency” [page 256] and made labor cheap and machinery expensive.

Concomitantly, the author argues that Soviet workers should have been paid in labor hours rather than rubles. This would have been a fairer way of paying people and would have made any imbalances easier for all to see; money was necessary to disguise that, for example, that collective farmers were underpaid relative to their labor. In essense, the argument is that one hour of work should have been compensated by one hour of labor credit. Doing so would have immediate egalitarian effect:

“The significance of labor tokens is that they establish the obligation on all to work by abolishing unearned incomes; they make the economic relations between people transparently obvious; and they are egalitarian, ensuring that all labor is counted as equal. Is it the last point that ensured labor tokens were never developed under the bureaucratic state socialisms of the twentieth century. What ruler or manager was willing to see his work as equal to that of a mere laborer?” [page 263]

This arrangement would also eliminate black markets because the labor credits could not be circulated or transferred to someone else; they could only be used at communal stores. But “it is absolutely essential” that prices reflect the work value put into them to avoid imbalances. This would in turn make planning more responsive because deviations of sales from actual production would send a signal that production levels should be adjusted to real demand.

What caused the Soviet Union to collapse?

The foregoing were serious weaknesses in the Soviet economy, Professor Cockshott argues, in addition to the most skilled technical and professional employees becoming dissatisfied because their gains were not comparable to elites in the capitalist West. That social group’s dissatisfaction mattered because it was disproportionally represented in the Communist Party. The structural changes made by Mikhail Gorbachev had the effect of disorganizing an economy in which enterprises were strongly interlinked and enabling the rise of black-market criminals as state revenues plunged because declines in production resulted in less revenue due to the reliance on taxes on enterprises and sales taxes.

The author makes a strong case for his thesis that the taxation system underlaid Soviet economic crisis. I found much merit in it and considering it enriches our understanding of Soviet economics. But this is an instance where a heavy reliance on mathematics and technology leaves out some of what is a bigger picture. Left out is the over-centralization of the economy, the inability of central planners and the distribution system to have the knowledge necessary to ensure that raw materials and supplies were delivered properly and a rigid production quota system based on physical output. Base wages in the Soviet Union were low; workers counted on the bonus to be paid for fulfilling quotas. Managers and directors were responsible for fulfilling quotas handed down from ministries and their jobs were on the line if they didn’t. Thus both management and floor workers had incentives to hide capacity and keep quotas as low as possible, and keep extra materials and personnel on hand to “storm the plan” if they had fallen behind.

Surpluses of material somewhere meant shortages somewhere else; the difficulties in distributing sufficient supplies enhanced these tendencies. And because quantity and not quality was what mattered, shoddy products could be produced without real penalty. A full description of the Soviet economy can’t exclude these factors. Although the author dates the start of the imposition of capitalism to 1986, which should properly be dated to 1990, when General Secretary Gorbachev rammed through the legislature a series of measures that introduced elements of capitalism, including laws that ended working peoples’ limited ability to defend themselves and mechanisms to enable privatizations, that is a minor technical point. Reforms instituted from 1986 did place the burdens squarely on workers because of their one-sided implementation, and Professor Cockshott is entirely correct in writing that Gorbachev’s reforms ultimately disorganized the economy, precipitating a collapse.

Ultimately, the measure of a book isn’t whether we agree on all points; disagreement with some points of a book with such a large volume of interesting theories and analyses is inevitable. What is pertinent is stimulation of thought and the challenge of worthy ideas. A book that intends nothing less than to reveal the workings of the world from the earliest prehistory to the present day and beyond has set itself a sweeping goal. How the World Works succeeds marvelously.

* Paul Cockshott, How the World Works: The Story of Human Labor From Prehistory to the Modern Era [Monthly Review Press, New York, 2019]

If neoliberalism is crumbling, what will follow?

The biggest problem with the future is that you can’t know what it will be. When Ronald Reagan was elected United States president in 1980, we did not at the time realize a new era of capitalism had begun; that the ascension of Reagan in the U.S. and Margaret Thatcher in Britain a year earlier definitively brought the end of the Keynesian period. Less than a decade earlier Richard Nixon had said, “We’re all Keynesians now.”

The very election of Reagan was a shock — I truly thought that United Statesians would at the last moment recoil at the thought of an extremist who endlessly spouted lies and nonsense getting into the White House. Perhaps I simply overestimated the general public but the 1970s did introduce considerable economic uncertainty, enough for people to vote for a bad actor who told them what they wanted to hear.

And so neoliberalism was born, although the term wasn’t yet in use; back then we usually referred to “Reaganism” and “Thatcherism.” Their policies didn’t go away when their terms in office were up. A new, more vicious era was firmly upon the world. I can’t help but think about the parallels with the past four years. A bad reality television host and con man told United Statesians what they wanted to hear and despite his obvious mendacity, enough bought it so that another candidate who I was sure couldn’t possibly be elected was elevated into the White House.

A garment factory (photo by Fahad Faisal)

One parallel perhaps begets another. The 1970s stagnation of Keynesianism brought something much worse, the neoliberal era of capitalism, alas a much more representative specimen of the global economic system — Keynesianism was an outlier and a product of intense activism that forced significant concessions out of capitalists. Let’s not romanticize the Keynesian era — the benefits to working people were confined to White men with steady jobs and in the U.S. there was plenty of political repression to go around. Not to mention that capitalist exploitation of working people continued unabated; there simply were some extra crumbs given out.

Back to today: Given the crumbing economy, with its low-paid, precarious jobs, unsustainable and onerous student and consumer debt and inability to tackle global warming as features of a global race to the bottom, the ability of industrialists and financiers to keep neoliberalism going is increasingly in question. So if the start of the 1980s was the dawn of a new economic era, will the start of the 2020s be the dawn of another new era? And, if so, of what?

What’s old becomes new again

Post-Industrial Revolution capitalism can be roughly divided into three eras. First, the era of laissez faire, which came under strong pressure in the Great Depression and was ultimately followed by the Keynesianism of the mid-20th century. Laissez faire is an ideology that opposes government interference in economic affairs beyond the minimum necessary for the maintenance of property rights. (That ideology lives on — neoliberal godfather Milton Friedman insisted that the only proper role of government is to enforce contracts and provide for military defense.) The onset of the Great Depression served to discredit laissez faire, opening the space for alternative theories.

Keynesianism, simply put, is the belief that capitalism is unstable and requires government intervention in the economy when private enterprise is unable or unwilling to spend enough to lift it out of a slump. Mid-20th century Keynesianism depended on an industrial base and market expansion. A repeat of history isn’t possible because the industrial base of the advanced capitalist countries has been hollowed out, transferred to low-wage developing countries, and there is almost no place remaining to which capitalism can expand. Because profits were high and there were many new markets to conquer — and because they were fearful of having their system swept away by the dramatic rise in social organizing — capitalists tolerated wage gains after World War II.

Ship-breaking in Chittagong, Bangladesh (photo by Naquib Hossain)

As Keynesianism broke down over the course of the 1970s — or more accurately, as capitalists no long tolerated paying better wages and conceding better working conditions in the face of declining profits in a world of more intensive competition on an international level — industrialists and financiers brought on the era of neoliberalism in an effort to boost profitability. There were no effective counter-forces: The movements of the 1960s had vanished. Reagan and Thatcher were products, not the causes, of the new era. It took time to understand that. And when “the end of history” was proclaimed upon the crumbling of the Soviet Union, the process of smashing working people’s ability to defend themselves was only accelerated.

And here we are today. With ever fewer jobs that provide a living wage, housing and education costs rising far faster than inflation or wages, the ability of capital to effortlessly move production to wherever wages and regulations are the lowest, and a political system wholly captured by the biggest industrialists and financiers, it is no surprise that anger is rising around the world. Neoliberalism has reached its logical conclusion.

So what follows neoliberalism? And how much longer can capitalism survive?

There won’t be any return to Keynesianism, even if it were possible for that to be the cure to what ails the world. The specific circumstances of the mid-20th century no longer exist. We do not have to stretch our imaginations to know what the world’s corporate masters would be willing to do to keep themselves in power and money. Suspending constitutions and implementing outright fascism is possible if industrialists and financiers see no other alternative to keep their party going if conditions deteriorate to the point that large numbers of people begin to withdraw their consent to the formal-democratic version of corporate rule.

The future is unwritten

But even that would a temporary fix. You can’t have infinite growth on a finite planet, nor can you destroy the environment without limit. A collapse in civilization induced by unchecked capitalism is very unlikely to happen suddenly; without a global mass movement intervening, modern industrial civilization is likely to slowly fall apart over decades and thus capitalism, in this scenario, would also linger for decades. Whatever follows in the rubble left behind would not likely be pleasant; much would depend on the ability of our descendants to organize a cooperative economy in an era of scarcity and defeat the inevitable attempts at imposing dictatorial regimes that would offer simplistic solutions to complicated problems.

Technology is not likely to solve all our future problems for ourselves. The Star Trek universe, where decades of nuclear war is followed by the era of plenty for all (how else could Earth and the Federation afford all those starships?) isn’t realistic. Months, never mind decades, of nuclear war would be enough to reduce humanity to a primitive state, assuming humans even survived the wars. And the uses of technology are based on the relations of power. Technology today could be used to reduce the workday and reduce drudge work, for example, but instead it is used to intensify work and surveil employees. Because we live in a drastically unequal society, technology is a tool of those who possess power and capital instead of a being the liberating tool it could be in a better world.

Although we can’t know what the expiration date of capitalism will be, it is likely to be sometime in the current century. If we are in the beginning stages of the end of neoliberalism, that does not mean we are in the beginning stages of the end of capitalism. Given capitalism’s ability to absorb dissent and its elasticity, it is quite conceivable that some new form of capitalism could replace neoliberalism. Given a powerful enough movement coordinating on an international basis, a new version of capitalism could be something better, temporarily. Such a movement aiming at reforms within capitalism would eventually be disappointed — once movements stand down, the hard-won reforms begin to be taken away. An international movement for a better world has no choice but to work toward abolishing capitalism and instituting a system of economic democracy.

The rise of right-wing authoritarians with aspirations to become fascist dictators — people such as Donald Trump, Jair Bolsonaro, Recep Tayyip Erdoğan and Viktor Orbán — does not have to be a harbinger of the future as were Reagan and Thatcher. With enough people around the world organizing, it won’t be.

The world was once run by monarchs who sat on thrones due to divine will — God selected one family to rule in perpetuity. Most of the world’s people once believed that. Today, it would be laughable to promote such an idea. Not long ago in human history, millions of people were held in slavery — a human being could be owned by another human being and have no rights whatsoever. People believed that not only were certain people inferior and properly enslaved but that the economy would collapse without slavery. Today, not even the most vulgar racist would suggest such a thing in public.

Capitalism is not the end of history. It is nothing more than one more system of repression, one more system of organization. It is no more permanent than slavery, feudalism, absolute monarchy or any other system of the past. If this were not so, there would not be so much frenetic activity put into convincing us that “there is no alternative.” We’ll be deciding the next system in the coming years. If we don’t, it’ll be decided for us.

Look to U.S. executive suites, not Beijing, for why production is moved

The ongoing trade war between the United States and China, and the rhetoric surrounding it coming out of the White House, has served to reinforce the idea that China is “stealing” jobs from the United States. The reality, however, is that if we are seeking the responsible party, our attention should be directed toward U.S. corporate boardrooms.

The internal logic of capitalist development is driving the manic drive to move production to the locations with the most exploitable labor, not any single company, industry or country. For a long time, that location was China, although some production, particularly in textiles, is in the process of relocating to countries with still lower wages, such as Bangladesh, Cambodia and Vietnam. (The last of those is already a long-time source of highly exploited cheap labor for Nike.) It could be said that China is opportunistic in turning itself into the world’s sweatshop. And that it constitutes a colossal market is no small factor.

Beijing (photo by Picrazy2)

Low wages and the inability of Chinese workers to legally organize are crucial factors in the movement of production to China. The minimum wage in Shanghai is 2,420 renminbi per month, which equals US$349. Per month. And Shanghai’s minimum wage is the country’s highest rate and “roughly double the minimum wage in smaller cities” across China, reports the China Labour Bulletin. That does not translate into a living wage for Chinese workers. The Bulletin states:

“National government guidelines stipulate that the minimum wage should be at least 40 percent of the local average wage. In reality, the minimum wage is usually only between 20 and 35 percent of the average wage, barely enough to cover accommodation, transport and food costs. Workers on the minimum wage, including most production line workers, unskilled labourers, shop workers etc. have to rely on overtime, bonuses and subsidies in order to make a living wage. As a consequence, if the employer cancels or reduces overtime, bonuses and other benefits, low-paid workers will often demand immediate restoration.”

Even with such meager pay and the illegality of any unions other than the Communist Party-controlled and employer-friendly All-China Federation of Trade Unions, increasing numbers of employees are classified as “independent contractors,” making them even more precarious. Enforced overtime well in excess of the legal maximum, and employers demanding “flexible” working hours, are brutal on Chinese workers stuck in assembly jobs but lift corporate executives into ecstasy.

The leading culprit is headquartered in Arkansas

The single biggest culprit in the wholesale moving of jobs to China is to be found not in Beijing, but rather in Bentonville, Arkansas. Yep, Wal-Mart, the company that pays it employees so little that they skip meals and organize food drives; receives so many government subsidies that the public pays about $1 million per store in the United States; and is estimated to avoid $1 billion per year in U.S. taxes through its use of tax loopholes.

Other major United States retailers began procuring clothing items from Asian subcontractors before Wal-Mart, but the relentless drive to pay its suppliers as little as possible forced an acceleration in the shift of production to countries with the most exploitable populations. If a manufacturer wants to continue to have contracts to supply Wal-Mart, then it has no choice but to ship its operations overseas because it has no other way to meet Wal-Mart’s demands for ever lower prices.

By 2012, 80 percent of Wal-Mart’s suppliers were located in China. And because the company is so much bigger than any other retailer, it can dictate its terms. Gary Gereffi, a professor at Duke University, said in an interview broadcast on the PBS show Frontline that “No company has had the kind of economic power that Wal-Mart does, to be able to source products from around the world. … Wal-Mart is able to transfer whole U.S. industries to overseas economies.”

Beijing Opera House (photo by Petr Kraumann)

Because of its size and its innovation in computerizing its inventory and tightly managing its suppliers, coupled with its willingness to squeeze its suppliers to the exclusion of all other factors, Wal-Mart holds life or death power over manufacturers, Professor Gereffi said:

“Wal-Mart is telling its American suppliers that they have to meet lower price standards that Wal-Mart wants to impose. The implication of that in many cases is if you’re going to be able to supply Wal-Mart at the prices Wal-Mart wants, you have to go to China or other offshore locations that would permit you to produce at lower cost. … Wal-Mart’s giving them the clear signal that you can’t be a Wal-Mart supplier if you can’t produce at substantially lower prices. … You can go to China, or, in many cases, many U.S. suppliers can’t make that move, and they just go out of business, because Wal-Mart is the dominant company for many U.S. suppliers. If they can’t go offshore, those suppliers end up going out of business.”

Wal-Mart alone cost U.S. workers more than 400,000 jobs between 2001 and 2013, according to the Economic Policy Institute. That is a sizable fraction of the 3.2 million jobs that were lost in the U.S. due to trade relations with China.

To the best of my knowledge, however, no Chinese party or government official has ever walked into the headquarters of a U.S. corporation, pointed a gun at the CEO and demanded production be moved across the Pacific Ocean. Chinese business executives sometimes demand technology be shared in exchange for access to Chinese markets (a different matter), but executives from the U.S. or elsewhere do have the option of saying “no.” Even if we were to concede that there is some coercion in regards to technology transfers, there isn’t when it comes to moving production. That is a choice, a choice routinely made in executive suites.

It’s not a deficit for Apple

Competitors that wish to stay in business can be compelled by capitalist competition to make that choice, matching the “innovation” of the company that first finds moving production a way to cut costs and thus boost profitability. This applies to all industries, and not only low-tech ones. Apple, for example, accrues massive profits by contracting out its manufacturing to subcontractors. A 2010 paper by Yuqing Xing and Neal Detert found that Chinese workers are paid so little that they accounted for only $6.50 of the $168 total manufacturing cost of an iPhone. Of course iPhones cost a lot more than $168 — an extraordinary profit is generated for Apple executives and shareholders on the backs of Chinese workers.

A 2011 study led by Kenneth L. Kraemer calculated that $334 out of each iPhone sold at $549 went to the U.S. with almost the entire remainder distributed among component suppliers. Only $10 went to China as labor costs. Thus, despite the export of iPhones contributing heavily to the official U.S. trade deficit, the study said “the primary benefits go to the U.S. economy as Apple continues to keep most of its product design, software development, product management, marketing and other high-wage functions in the U.S.”

The profits flow to Apple headquarters (photo by Joe Ravi via license CC-BY-SA 3.0)

Chinese workers today likely account for somewhat more of the manufacturing cost as wages have risen in China over the past decade, but remain minuscule compared to wages in advanced capitalist countries. And the work endured is no vacation, as John Bellamy Foster and Robert W. McChesney noted in the February 2012 edition of Monthly Review:

“The eighty hour plus work weeks, the extreme pace of production, poor food and living conditions, etc., constitute working conditions and a level of compensation that cannot keep labor alive if continued for many years—it is therefore carried out by young workers who fall back on the land where they have use rights, the most important remaining legacy of the Chinese Revolution for the majority of the population. Yet, the sharp divergences between urban and rural incomes, the inability of most families to prosper simply by working the land, and the lack of sufficient commercial employment possibilities in the countryside all contribute to the constancy of the floating population, with the continual outflow of new migrants.”

The working conditions of China are not a secret; business-press commentaries can come close to celebrating such conditions. A 2018 commentary in Investopedia, for example, goes so far as to claim that manufacturing in the U.S. is “economically unfeasible” and then says this about Chinese conditions:

“Manufacturers in the West are expected to comply with certain basic guidelines with regards to child labor, involuntary labor, health and safety norms, wage and hour laws, and protection of the environment. Chinese factories are known for not following most of these laws and guidelines, even in a permissive regulatory environment. Chinese factories employ child labor, have long shift hours and the workers are not provided with compensation insurance. Some factories even have policies where the workers are paid once a year, a strategy to keep them from quitting before the year is out. Environmental protection laws are routinely ignored, thus Chinese factories cut down on waste management costs. According to a World Bank report in 2013, sixteen of the world’s top twenty most polluted cities are in China.”

The overall U.S.-China economic picture is more balanced

The components of the iPhone are sourced from several countries and are assembled in China. Because the final product is exported from China, Apple contributes to trade deficits, as conventionally calculated. But the lion’s share of the massive profits from this global supply chain are taken by Apple, a U.S.-based corporation. The profits from the actual assembly, outsourced to Foxconn, are accrued in Taiwan, Foxconn’s home. Apple’s arrangement is far from unique; the list of U.S. companies that manufacture in China is very long. If trade balances were calculated on the basis of where the profits are retained, the U.S. deficit with China would not be nearly so imposing.

As a commentary in the Financial Times points out, U.S. corporations sell far more goods and services in China than do Chinese companies in the U.S., but those sales are not counted toward trade balances. The commentary said:

In 2015, the last year for which official US statistics were available, US multinational subsidiaries based in China made a total of $221.9bn in sales to domestic consumers. The goods and services sold were produced by an army of 1.7m people employed by US subsidiaries in the country. By contrast, China’s corporate presence in the US remains small. Official figures on Chinese companies’ US subsidiary sales to American consumers do not exist, but analysts estimate they are hardly material when compared with China’s exports to the US. Thus, the US-China ‘aggregate economic relationship’ appears a lot more balanced than the trade deficit makes it look.”

A separate report, by VoxChina (which calls itself an independent, nonpartisan platform initiated by economists), calculates that although the official U.S. trade deficit with China for 2015 was $243 billion, when foreign direct investment (FDI) and sales by both countries’ companies in the other are included, the deficit was only $30 billion, and a U.S. surplus was forecast for following years. The U.S., incidentally, remains the world’s second-biggest exporter according to the latest World Trade Organization statistics.

The Trump administration continues to make a big show of blaming China for jobs being moved across the Pacific and for trade deficits, but although China is opportunistic, those vanishing jobs (and resulting deficits) are squarely the responsibility of the corporate executives who make the decision to shut down domestic operations. This dynamic is part of the larger trend toward so-called “free trade” — as technology and faster transportation make moving production around the world more feasible, the corporations taking advantage of these trends seek to eliminate any barriers to cross-border commerce.

And as the race to the bottom continues —  as relentless competition induces a never-ending search to find locations with ever lower wages and ever lower health, safety, labor and environmental standards — what regulations remain are targets to be eliminated. Thus we have the specter of “free trade” agreements that have little to do with trade and much to do with eliminating the ability of governments to regulate. And as the whip of financial markets demand ever bigger profits at any cost, no corporation, not even Wal-Mart, can go far enough.

Despite being a leader in cutting wages, ruthless behavior toward its employees and massive profitability, when Wal-Mart bowed to public pressure in 2015 and announced it would raise its minimum pay to $9 an hour, Wall Street financiers angrily drove down the stock price by a third. Wal-Mart reported net income of $61 billion over the past five years, so it does appear the retailer will remain a going concern. Apple reported net income of $246 billion over the past five years, so outsourcing production to China seems to have worked out for it as well.

The Trump administration’s trade wars are so much huffing and puffing. Empty public rhetoric aside, Trump administration policy on trade, consistent with its all-out war on working people, is to elevate corporate power. Nationalism is a convenient cover to obscure the most extreme anti-worker U.S. administration yet seen. Class war rages on, in the usual one-sided manner.

Revised NAFTA shows every sign of being another Trump scam

If the renegotiated North American Free Trade Agreement were good for working people, its content wouldn’t be hidden. Just what the Trump administration and the Mexican government of Enrique Peña Nieto have cooked up we do not know, but given the proclivities of both it is not likely to be good.

That the hurried-up deal appears to be intended to force Canada, which has the strongest regulations among the three NAFTA countries, into signing on disadvantageous terms, provides all the more reason to be skeptical. And, finally, a study of the United States Office of the Trade Representative’s “fact sheet” leaves no doubt that any new NAFTA will be a windfall for multi-national corporations, at our expense.

Let’s back up for a moment and remind ourselves that we should judge actions, not words. The contrast between Donald Trump’s empty campaign lies and his administration’s actual policies and actions are glaring, such as, for example, in infrastructure, where his plan is little more than a package of subsidies to connected corporations under the guise of “public-private partnerships,” which are scams to funnel public money into corporate pockets. So it is with so-called “free trade” agreements, especially NAFTA.

Jardin de la Conchita, Mexico City (photo by Percisco)

In July 2017, the Trump administration quietly published its “Summary of Objectives for the NAFTA Renegotiation.” The 18-page document contained almost nothing concrete but did feature boilerplate language that in some cases appears to be lifted word for word from the Trans-Pacific Partnership. The document purports to adopt standards for labor and for the environment, but the language used is very similar to the language proposed for the Trans-Pacific Partnership and in use in other “free trade” agreements. There is little at all in these stated goals that differs from the stated goals that Obama administration put forth for the Trans-Pacific Partnership. They are meaningless window dressing.

Lest we believe those objectives were some sort of aberration, the Trump administration followed up in April 2018 with its “National Trade Estimate Report on Foreign Trade Barriers,” in which it took direct aim at no less than 137 countries. In this document, “trade barriers” are defined as “government laws, regulations, policies, or practices that either protect domestic goods and services from foreign competition, artificially stimulate exports of particular domestic goods and services, or fail to provide adequate and effective protection of intellectual property rights.” Note the absence of labor, safety, health or environmental standards. Among the hundreds of pages of complaints, to provide one example, was that Norway expects food that it imports to be proven safe.

Quite clearly, the Trump administration, headed by a billionaire grifter who built his fortune on stiffing working people and stuffed with corporate raiders and Goldman Sachs executives, is wholly dedicated to furthering corporate plunder, as its tax “reform” amply demonstrates.

Corporate giveaways on financial services, IP

Although only corporate lobbyists have had access to the revised NAFTA text, the U.S. Office of the Trade Representative did provide some highlights of the agreement in its public “fact sheet.” These are not promising.

It appears that corporate wish lists for intellectual property, financial services and other areas were largely granted. New IP rules, if this agreement is passed into law, include stepped-up enforcement against “camcording of movies” and “cable signal theft,” as well as “Broad protection against trade secret theft.”

The IP rules would extend copyrights to 75 years, long a U.S. demand (and one opposed by the Canadian government); increase pressure on Internet service providers to take works alleged to infringe copyrights (in actuality a tool for censorship); and provide for “strong protection for pharmaceutical and agricultural innovators,” which can be presumed to be code for enabling further medicine price-gouging and crimping accessibility to generic and cheaper alternatives. The last of these was a prominent U.S. goal for the Trans-Pacific Partnership, which, inter alia, sought to eliminate the New Zealand government’s program to provide medicines in bulk at discounted prices at the behest of U.S. pharmaceutical companies. Related to this is a measure to include 10 years’ protection for biologic drugs and an expansion of products eligible for “protection.”

New York Stock Exchange (photo by Elisa Rolle)

Noting that the U.S. runs a surplus in financial services, the new NAFTA agreement would force Mexico wide open to U.S. financial companies. The agreement explicitly prohibits any regulations restricting foreign financial-services companies. This would be done under the guise of “national treatment,” and the Trade Office fact sheet flatly states that it is intended “to ensure that a Party does not discriminate against United States financial service suppliers.” That language is “trade speak” for allowing any predatory U.S. bank to run roughshod over other countries with no restrictions. And, as an added bonus, the IP rules also prohibit regulations against cross-border transfers of data. (Here U.S. negotiators likely have European Union privacy rules in their sights as this is a contentious point in the Transatlantic Trade and Partnership talks.)

There do appear, on paper, to be token gains for labor and the environment. But that assumes any such gains would be enforceable, which can not be taken for granted. A revised labor chapter calls on Mexico to commit to strengthening Mexican workers’ ability to collectively bargain, but this strongly clashes with the Trump administration’s unrelenting hostility to U.S. unions. In conjunction with raising the minimum North American content of automobiles, at least 40 percent of auto content must be made by workers earning at least US$16 per hour.

On the environment, the Trade Office claims there would be new protections for marine species including whales and sea turtles; “prohibitions on some of the most harmful fisheries subsidies”; and “articles to improve air quality.”

Don’t hold your breath for clean air

Unfortunately, such sentiments run 180 degrees opposite to the actual policies of the Trump administration. Nor is global warming even mentioned. Furthermore, it is necessary to pay close attention to the actual words used in various places of “free trade” agreements and, crucially, how those passages will be interpreted in the secret corporate tribunals that adjudicate disputes between governments and corporations. Those tribunals are held in secret, have no appeal process and hand down decisions by judges whose day jobs are as corporate lawyers for the corporations that bring these suits.

The U.S, Trade Office “fact sheet” makes no mention of the Investor-State Dispute Settlement (ISDS) provision. Inside US Trade reports that ISDS will remain intact for the oil and gas, infrastructure, energy generation and telecommunications industries, while for other industries, ISDS “will be limited to expropriation or failure to give national treatment or most-favored nation treatment.” Because suits by corporations against national governments seeking to eliminate regulations are almost always raised on just those issues, this “limitation” will likely prove to be of no consequence.

Spent shale from a Shale oil extraction process (photo by U.S. Argonne National Laboratory)

The announced tepid advances in labor and environmental rules aren’t likely to be enforceable. In the language of trade agreements, rules benefiting capital and erasing the ability of governments to regulate are implemented in trade-agreement texts with words like “shall” and “must” while the few rules that purport to protect labor, health, safety and environmental standards use words like “may” and “can.” It remains to be seen if there will be any change to that language, but it would be best not hold one’s breath. Promised breakthroughs in past “free trade” deals have consistently proven to be empty platitudes.

A Sierra Club analysis of the revised NAFTA text warns that environmental rules will be weakened. The analysis said:

“NAFTA negotiators have explicitly stated that they intend for NAFTA 2.0 to lock in the recent deregulation of oil and gas in Mexico, which has encouraged increased offshore drilling, fracking, and other fossil fuel extraction. A future Mexican government may want to restrict such activities to reduce climate, air, and water pollution. However, NAFTA 2.0 could bar such changes with a ‘standstill’ rule that requires the current oil and gas deregulation to persist indefinitely, even as the climate crisis worsens and demands for climate action crescendo.

NAFTA 2.0 includes expansive rules concerning ‘regulatory cooperation’ that could require Canada, the U.S., and Mexico to use burdensome and industry-dominated procedures for forming new regulations, which could delay, weaken, or halt new climate policies. These rules also could be used to pressure Canada and Mexico to adopt climate standards weakened by the Trump administration, making it harder to resume climate progress in the post-Trump era.”

Will the Canadian government allow itself to be bullied?

The Institute for Agriculture and Trade Policy, calling the rushed deal between Mexico and the U.S. a “transparent bullying tactic” intended to force Canada into a deal with unfavorable terms, also said that the deal would hurt family farmers in all three countries. The Institute said:

“Given the Trump administration’s lack of adherence to existing international agreements, a handshake deal can hardly be seen as credible. What little has been released on agriculture makes the dubious assertion that U.S. farmers have benefited from NAFTA and, even worse, promises new rules to lock in the spread of agricultural biotechnology, which would favor agribusiness interests over those of family farmers in each of the three countries.”

Food and Water Watch also threw cold water on the idea of an improved NAFTA, saying it had “no confidence” that the Trump administration would address NAFTA’s flaws. The group’s executive director, Wenonah Hauter, wrote:

“The devil resides in the details of these corporate-driven free trade deals, and we expect that the fine print will include the kind of pro-polluter, pro-fossil fuel industry, pro-Wall Street deregulation that has been a hallmark of Trump’s domestic agenda. These rumored trade provisions would codify the administration’s savage attacks on environmental protection, food safety and consumer rights into trade deals that enshrine and globalize deregulation, making it harder to restore U.S. environmental and consumer protections once this administration is shown the White House door.”

The Alberta tar sands (photo by Howl Arts Collective, Montréal)

The Canadian government has joined the NAFTA talks, although it is difficult to see how Canada can do other than concede, given that U.S. Treasury Secretary Steven Mnuchin has said that Canada has until August 31 — four days after the Mexico-U.S. agreement was announced — to come to terms or the White House will move to replace NAFTA with a Mexico-U.S. bilateral deal. On the other hand, President Trump does not have the authority to do that without congressional approval, and opinions expressed in the U.S. Senate have opposed a deal without Canada. And despite the many concessions made by Mexico, tariffs imposed on Mexico will remain in force until and unless further negotiations eliminate them.

The Council of Canadians, long a NAFTA critic, fears Canada will show weakness. The group’s honorary chair, Maude Barlow, wrote:

“Trump is threatening to push Canada out of the agreement, or making it a junior partner to the U.S. and Mexico. Our government must not give in to these tactics and hold the line on our public interest. When NAFTA was signed 30 years ago, we worried that Canada would be at the mercy of the U.S, and we were right. Now, Canada is going to have its auto workers and farmers pitted against each other.”

No reason for optimism in Mexico

There is no reason for optimism to the south, either. Mexican activist Manuel Pérez-Rocha, noting that it is “not surprising” that the NAFTA text is hidden from the public, wrote:

“Unfortunately, the public doesn’t have an idea of what the exact decisions on energy are, labor organizations have been kept completely aside from the negotiations and in terms of the settlement of disputes these mechanisms will only handcuff [President-elect Andrés Manuel López Obrador’s] government when it starts office on Dec. 1.”

Without question, NAFTA has been a disaster for working people in all three countries — a lose-lose-lose proposition that has gone on for more than two decades. Despite President Trump’s rhetoric, Mexican farmers have perhaps been hurt the most. Is an administration that is overturning every environmental regulation it can, that denies global warming, that puts industry executives in charge of regulatory agencies, that features cabinet officers such as Wilbur Ross, an investment banker who buys companies and then takes away pensions and medical benefits so he can flip his companies for a big short-term profit, really going to help working people?

Given the massive power imbalances of today, the policies of capitalist governments reflect the interests of the largest industrialists and financiers. The Trump administration is actually composed of large industrialists and financiers, to a degree perhaps unprecedented in modern times, so all the more are those interests promoted.

“Free trade” agreements are part of this process, which is why they have little to do with trade and much to do with bringing to life corporate wish lists. These agreements are an inevitable result of production being moved to places with the lowest wages and weakest regulation — with products assembled across oceans with parts delivered from yet more places, the multi-national corporations that benefit from these global production chains require ever more “free trade” deals to keep their cross-border profits coming and to maintain their sweatshop empires.

There remains no alternative to working people uniting across borders, in a broad movement, to reversing corporate agendas that accelerate races to the bottom. Opposing “free trade” deals on nationalist grounds is playing into the hands of corporate plunderers.

If the economy is so good, why are wages flat?

We are supposedly seven years into a “recovery” from the global economic collapse that commenced in 2008. The latest evidence offered to promote this oft-peddled mantra is that U.S. gross domestic product showed a strong uptick for the second quarter of 2018, an annualized rate of 4.1 percent, nearly double that of the first quarter.

Coupled with the ongoing decline in unemployment (although standard unemployment rates greatly underestimate the true rate of employment), orthodox economists, conservative propagandists and apologists for the Trump administration would have us believe happy days are here again.

So why aren’t our wages increasing?

In part, it is because the true unemployment rate is not nearly so low as the “official” unemployment rate used by governments around the world, and thus the ranks of unemployed and underemployed are sufficiently large that there is no upward pressure on wages. Orthodox economists, dedicated as they are to ignoring any evidence that doesn’t match their models designed to “prove” that all manners of capitalist excess are as natural as the tides of the ocean — and thus in practice the professional wing of conservative propagandists — have various excuses for stagnant wages and ever increasing inequality. A favorite among these is an alleged “skills mismatch” — too many unskilled workers and a shortage of skilled workers for the high-tech jobs of today.

Striking fast food workers were joined by university workers, students, janitors, retail workers and airport workers in an April 15 action in Minneapolis. (photo by Fibonacci Blue)

The data tells a different story, however. A 2014 report by the National Employment Law Project found that low-wage jobs were created at a faster pace than higher-paid jobs were lost in the first years to that point. The Project reported this breakdown:

  • Lower-wage industries ($9.48 per hour to $13.33) constituted 22 percent of the 2008-2010 losses, but 44 percent of jobs gained since then.
  • Mid-wage industries ($13.73 to $20.00) constituted 37 percent of the 2008-2010 losses, but 26 percent of jobs gained since then.
  • Higher-wage industries ($20.03 to $32.62) constituted 41 percent of the 2008-2010 losses, but 30 percent of jobs gained since then.

Moreover, an Economic Policy Institute study at the time found that those among the two categories of “some college” and holders of four-year college degrees showed the highest increases in long-term unemployment.

Imbalance in power forces down wages

The situation has not changed significantly since. A July 2018 commentary by the Economic Policy Institute, written by Heidi Shierholz and Elise Gould, notes that wages remain stagnant even though more recently middle- and high-wage jobs are being added at strong proportions than low-wage jobs. This development means that there is now upward pressure on wages, they write.

Yet wages clearly are not rising. How to account for this disparity? Dr. Shierholz and Dr. Gould argue that the increasing power of employers over employees is counteracting that upward pressure to instead depresses wages:

“What is most likely happening is that worker leverage and bargaining power have been so decimated by policy choices—policy choices that have, for example, led to the erosion of union coverage and labor standards like the minimum wage—that for tight labor markets to spark upward wage pressure the economy requires a much lower unemployment rate now than it did in the past.”

If there really were a shortage of skilled workers, the two economists wrote in a separate commentary, there would be faster wage growth because employers would need to offer higher wages to attract the limited pool of candidates. Therefore,

“Since we continue to see anemic average wage growth, not just slow wage growth for select groups of workers, it’s clear that there is not a widespread shortage of the types of workers (i.e., those with the right skills) that employers need.”

Compounding this situation is that the ongoing merger mania means that fewer corporations control the labor market. In other words, there are more industries in which a small number of companies have “monopsony power.” (A single or very limited number of sellers possess a monopoly; a single or very limited number of buyers constitutes a monopsony.) Dr. Shierholz and Dr. Gould explain that monopsony employers are able to pay less. They wrote:

“When firms have monopsony power, they are able to pay workers less than what their work is ‘worth,’ i.e. less than their marginal product. But a key dynamic of monopsony power is that even though monopsonists would like to hire more workers, the low wages they offer mean they can’t attract more workers unless they pay more. That is, it is a normal state of affairs for a firm with monopsony power to wish they could hire more workers at the wages they are offering, but to be unable to attract additional workers because their wages are too low. So when a firm with the power to set wages below a workers’ marginal product complains about not being able to find workers at the wages they are offering, it’s useful to remember that they are choosing to keep wages low in order to increase profits—which remain high as a share of corporate sector income—and could get more workers by simply raising wages. And importantly, when firms with monopsony power complain about not being able to find workers, it is not adequate evidence of a skills shortage.”

The inadequacy of gross domestic product

A look at numbers beyond gross domestic product reveal the true state of the economy. GDP, defined as “the sum of private consumption and investment and government spending (with account taken for foreign trade),” is increasingly seen as an inadequate measure. Even one of the leading voices of British finance capital, The Economist, criticizes GDP as a relic designed to measure economic output during World War II, terming it “A measure created when survival was at stake [that] took little notice of things such as depreciation of assets, or pollution of the environment, let alone finer human accomplishments.”

Similar criticisms have been offered by the International Monetary Fund, certainly no friend of working people. An IMF commentary admitted:

“The limit of GDP as a measure of economic welfare is that it records, largely, monetary transactions at their market prices. This measure does not include, for example, environmental externalities such as pollution or damage to species, since nobody pays a price for them. Nor does it incorporate changes in the value of assets, such as the depletion of resources or loss of biodiversity: GDP does not net these off the flow of transactions during the period it covers.”

Left unsaid by these standard-bearers of the establishment is that GDP pays no attention to inequality. If there is more wealth, but all that wealth is concentrated in a small number of hands while all others suffer declining living standards, then GDP will rise even though working people are worse off. And, as alluded to by The Economist and the IMF, a degradation in the environment could cause a spike in GDP because some corporation will make money from a government contract to clean up the mess (paid for by taxpayers) at the same time that the corporation that caused the mess can offload that cost onto society, and thus enhance its profitability.

A one-time boost to GDP, such as the United States reported for the second quarter of 2018, doesn’t necessarily signify anything. That boost is likely the product of factors that won’t repeat, some observers have already said. A July 27 commentary published by the online financial news service MarketWatch had no trouble debunking the nonsense spewed by Trump administration advisers Kevin Hassett and Larry Kudlow. For example, in countering the claim that the U.S. trade deficit has narrowed because Trump is “standing up for America,” the MarketWatch commentary noted:

“Exports of agricultural products like soybeans shot higher because farmers were racing to beat the imposition of Chinese tariffs. They already fell in June. There’s absolutely no evidence the U.S. is now trading on better terms than previously.”

It’s not only your wages that aren’t keeping up

If a better measure of economic well-being is wages, then there has been no improvement. Adjusted for inflation, the U.S. Bureau of Labor Statistics reports that the country’s average weekly wage was $930.81 for June 2018, a grand total of 47 cents better than June 2017. Considering that the rate of inflation was higher than the microscopic increase in wages over the past year, adjusted for inflation U.S. workers actually saw a slight decline over the past year. So happy days really aren’t here after all. It’s not only you.

This is a continuation of a decades-long pattern. Wages have been stagnant since the 1970s despite strong increases in worker productivity — the average U.S. household earns hundreds of dollars less than it would had wages kept pace with productivity. The same is true for Canadian households.

When adjusted for inflation, Statistics Canada reports that real wage growth for Canadian workers increased less than one percent per year from 2005 to 2015. That’s nothing new. “While Canada has undergone important economic, social and technological changes since the 1970s, the minimum wage and the average hourly wage are essentially unchanged,” Statistics Canada reports. Accounting for inflation, the Canadian minimum wage peaked in 1976 and average hourly earnings peaked in 1977. That is despite a consistent increase in Canadians earning degrees. So a “skills mismatch” would not seem to be a reality there, either.

The gap between labor productivity and median real hourly wages growth, 1986-2013 (percentage points per year)

Those trends are not limited to North America. British wages actually contracted between 2007 and 2015 despite a growing economy. Britain’s GDP is almost 10 percent higher now than at the bottom of the 2008 economic crash, yet wages have declined. Wages have not kept up with productivity across Europe, and in some countries haven’t kept up with inflation, meaning workers have seen de facto wage cuts. The most recent study on this topic, studying the balance between wages and productivity in 11 advanced-capitalist countries from 1986 to 2013, found that wages did not keep pace in eight of them, with the widest lag found in the United States. Germany was second.

Unfortunately these reports, although doing a fine job of quantifying how screwed we are, tend to conclude with pleas for better government policies. Surely there should be. But although positive reforms would be welcome, the problem is that reforms can, and are, taken away when mobilizations fade. The hyper-competitive nature of capitalism, under which our labor is a commodity, can’t be altered; at best through massive effort reforms can be achieved until the next wave of attacks commences. As long we continue to fail to question the world economic system, our conditions will only worsen.

World Bank solution for lack of jobs: Cut worker protections

The World Bank is in the process of completing its “World Development Report 2019: The Changing Nature of Work” and, surprisingly, the latest draft version opens with quotes from Karl Marx and John Maynard Keynes. Has the World Bank suddenly lost sight of its purpose and will now take up the cause of working people?

Well, you already know the answer to that question, didn’t you?

Only a few paragraphs down we begin to see where this paper is heading. After a bit of perfunctory hand-wringing over disruptions caused by robotics, we read the problem is “domestic bias towards state-owned or politically connected firms, the slow pace of technology adoption, or stifling regulation.” And although some jobs are disappearing, fear not because “the rise in the manufacturing sector in China has more than compensated for this loss.”

Oh, so we should all move to China to get new jobs.

Never mind that the highest minimum wage for Chinese workers, that mandated in Shanghai, is $382 per month. In some places the minimum wage is half that, if workers are fortunate enough to be paid regularly. And that millions of rural Chinese are being driven into cities to become sweatshop workers, so for now there won’t be enough work for the rest of the world. Then again, letting bosses have the upper hand is what the World Bank has in mind. No, its economists haven’t forgotten what the institution’s purpose is nor why it exists.

A Chinese-owned factory in Lesotho (photo by K. Kendall)

So what to do? The World Bank report does suggest not allowing corporations to dodge taxes to the degree that they do. Very well, but even if taxes were collected at the statutory rates, that would still leave corporations vastly under-taxed. No suggestion by the bank, of course, that corporations actually pay a fair tax rate. Corporations currently account for a paltry nine percent of U.S. tax receipts; in the 1950s, they accounted for 30 percent or more. Similarly, in Canada personal income taxes account for three and a half times more revenue than do corporate income taxes; these were equal in 1952.

There is much discussion of “investing in human capital,” a particularly favored mantra of the World Bank. What does that mean? Capitalists are likely to interpret such talk — rather common in NGO circles these days — to mean demanding more skills or degrees from prospective workers, but in the United States graduates with doctorate degrees are being forced to take jobs in academia as part-time adjuncts, and plenty of folks in other fields are “over-educated” already for the jobs they hold. This concept comes from the idea that the problem is that there aren’t enough skilled people for all those wonderful jobs that are out there, just over the rainbow. But in the real world, as opposed to Right-wing think tanks, that is not so.

A 2014 report issued by the National Employment Law Project found that higher-wage jobs were created at a much lower rate during the “recovery” from the 2007-08 economic collapse than had been lost; conversely, low-wage jobs (paying less than $13.33 per hour) were created twice as fast as they had been lost. In separate studies, the Economic Policy Institute found that long-term unemployment is elevated for workers at every education level (and was increasing at a somewhat higher rate for those with some college or a four-year college degree than the average), and that the so-called “skills mismatch” is a myth.

So we come to the real “solution” in the minds of World Bank officials: Cut worker-protection laws.

Aw, you really aren’t surprised, are you?

(Graphic by Real-World Economics Review)

Here’s a key passage in the report: “Rapid changes to the nature of work put a premium on flexibility for firms to adjust their workforce, but also for those workers who benefit from more dynamic labor markets.”

Dynamic for who? What we have here are code words meaning make it easier to fire people. And that’s the real takeaway message, no matter the lofty rhetoric about governments creating a new social contract. “Creating jobs” and “investing early in human capital” are two elements of the World Bank paper’s suggested new social contract. Unfortunately, there are no thoughts on how new jobs might be created when capitalists are in a frenzy of eliminating jobs to maintain their profit rates and survive relentless market competition. More schooling, which is what “investing early in human capital” amounts to, is fine by capitalists, as long as they don’t have to bear any of the costs. It’s up to students to take on more debt to create this new “human capital.”

Contrast this happy talk with the reality of the capitalist workplace. A report just issued by Democratic U.S. Representative Keith Ellison found the average ratio of CEO-to-median-worker pay is 339-to-1. That ratio among the 500 biggest U.S. corporations is as high as almost 5,000-to-1. Nope, I don’t think the boss works thousands of times harder than you do. At McDonalds, for example, the CEO’s annual salary could be used to pay the yearly wages of 3,101 workers making the chain’s median pay.

The sort of societal priorities and imbalances of power that enable such appalling inequality might be summed up by the uses to which money is put. In Los Angeles, a new football stadium is being built and the estimated cost of it is now estimated at $4.9 billion. That figure has risen considerably and likely will again. Given all the homelessness in Los Angeles, and all the other social problems, what could have been done with $4.9 billion?

The number of homeless people in California is estimated at 130,000. Doing something about that might be one way to “invest” in human development, and doing so might even save money. A Rand Corporation study carried out for Los Angeles County found that homeless people who are provided stable shelter make fewer trips to the emergency room and are arrested less frequently, to the extent that the cost of the housing is more than offset.

Oops, but that’s not profitable for the well-connected as throwing money at stadium boondoggles or cutting jobs. But if you earn enough degrees, perhaps you’ll fulfill the World Bank’s prophesy by landing a job at a Chinese sweatshop.

Tax cuts as a route to cutting Social Security

Conservatives are fond of saying that if you give a man a fish you can feed him for a day, but if you teach him how to fish you can feed him for a lifetime. This is supposed to tell us that social benefits, such as government programs, are bad for people. A much better example of conservative thought would be to say if I put a fence at the entrance to the pier and don’t let anyone else have access to the water, I can have all the fish for myself.

Let those peasants starve! Such a privatization of fish isn’t distant from the actual mechanics of class warfare as it is practiced, unfortunately.

Take the latest salvo in ongoing class warfare, United States edition: The coming assault on Social Security. Curious as to why the Republican Party’s mania for balanced budgets suddenly vanished? I mean, besides the mind-boggling hypocrisy we can expect from the Right. The immediate cause was to placate their billionaire donors who issued marching orders last June. A “donor retreat” at a Koch brothers’ compound in Colorado was attended by 400 people, and, as The Guardian reported, the “price for admission for most was a pledge to give at least $100,000 this year to the Kochs’ broad policy and political network. Donors decreed that Republicans must pass “tax reform” and reverse the Affordable Care Act (because health care is a socialist plot?) or their checkbooks would be shut.

That the Trump/Republican tax plan will be a bonanza for the wealthiest is well documented by this point, with the “Corker kickback” not only giving “dissident” Republican Senator Bob Corker a multimillion-dollar payday to ensure his vote but giving Donald Trump himself tens of millions of dollars thanks to the special rule benefiting real estate speculators. But lurking behind this devastating corporate offensive is the little matter of the extra $1.5 trillion to be added to the deficit. When Republicans (probably assisted by the more spineless among the Democrats) decide in the near future that deficits matter after all, social benefits will be in the cross hairs, with Social Security and Medicare likely to be the prime targets.

In advance of this, we will be treated to a rerun of horror stories designed to convince United Statesians that Social Security is unsustainable. The claim will once again be that either we’ll have to accept steep cuts to Social Security payments or privatize it, putting our retirements in the hands of Wall Street. This has been the wet dream of financiers for decades, and as an added bonus, Wall Street is another major beneficiary of the Trump tax cuts. “Heads I win, tails you lose” is always the way of Wall Street and here we have it again, pocketing untold millions from tax cuts and then taking away your Social Security when the ensuing deficit mounts.

One way of promoting privatization is to allege that there isn’t enough being paid into the system to cover future claims. It is true that in recent years Social Security has been paying out more than it is taking in, although it is far from broke. Concomitant with that argument is the claim that everybody takes out much more than they pay into it over their working lives. But that isn’t necessarily true — a Congressional Budget Office (CBO) report, issued in 2006, found that people earning near the median income get back about the same as they pay into the fund. Low-income earners do receive more than they pay, but conversely high earns get back less. But Social Security is supposed to be progressive. Indeed, the CBO’s report says, “The Social Security benefit formula is designed to provide beneficiaries who had lower life-time earnings with monthly benefits that are higher, as a percentage of their lifetime average earnings, than those received by higher-earning beneficiaries.”

The corporate interest in gutting Social Security

Those saddled with a lifetime of low or median earnings have spent a lifetime being exploited on the job, so whatever extras are received are pennies on the stacks of dollars extracted from them. Remember that profits come from the usually wide gap between what you are paid and the value of your work, and what financiers haul in is skimming off that pot collected by employers dealing in tangible services and products. There is a symbiotic relationship between financiers and industrialists and although there is much wrangling between them (which is why corporate press releases so often proclaim “enhancing shareholder value” as an important part of their mission), they have a mutual interest in exploiting employees.

That mutual interest extends to gutting Social Security, even if financiers have the more immediate interest. The challenge of funding Social Security isn’t a difficult one. An important reason why that is so is because Social Security taxes are only imposed on income up to $127,200. Anything above that is untouched. So why not raise the bar? Senator Bernie Sanders has introduced a bill that would apply this tax to all income above $250,000. This plan would eliminate 80 percent of the projected shortfall, according to an analysis from the Social Security office of the Chief Actuary. For whatever reason, Senator Sanders’ plan wouldn’t touch income in between. Taxing all income would raise still more money.

New York Stock Exchange (photo by Elisa Rolle)

Another method is suggested by Dean Baker of the Center for Economic and Policy Research. He argues that a payroll tax increase of four percent would be sufficient to fully fund Social Security and Medicare for another 75 years. He acknowledges that such an increase would be difficult for many workers, but he estimates that the loss of income from decades of upward distribution of income to be 40 percent — a loss ten times greater. That figures comes from the gap between the rate of earnings increases for working people and the rate of increases in productivity. He explains:

“[U]pward redistribution over this period has reduced wage growth by more than 40 percentage points. In short, our children are 40 percent poorer than they would otherwise be because of the money going to people like Bill Gates and Steve Zuckerberg rather than ordinary workers.

So by very conservative estimates, a typical person in their twenties or thirties has seen their income reduced by more than 40 percent because of all the money redistributed to those at the top. However, the generational warriors want young people to be upset about the possibility that a bit more than one-tenth of this amount could be used to pay for their parents’ and their own Social Security and Medicare. (This upward redistribution is also responsible for about half of the projected shortfall in Social Security, as more income going to profits and high-income workers escapes the Social Security tax.)

It is also important to understand that government action was at the center of this upward redistribution. Without government-granted patent monopolies for Windows and other Microsoft software, Bill Gates would probably still be working for a living.”

A trillion dollars for Wall Street

Privatizing Social Security would additionally cut benefits because financiers would take hefty cuts. The administrative costs of the retirement portion of Social Security (the bulk of the program) is 0.4 percent. In contrast, Dr. Baker reports, “even relatively well-run privatized systems, like those in Chile or the United Kingdom, are 10–15 percent of benefits.”

Such ratios were Social Security privatized would cost nearly $1 trillion in a decade, he calculates — $1 trillion taken from Social Security benefits and diverted into Wall Street’s bottomless pockets. Consider that the standard payment for hedge-fund managers is to receive an annual fee of two percent of the value of the total assets under management and 20 percent of any profits. The fee gets paid even when the fund loses money. In 2014, the top 25 hedge-fund managers hauled in $11.6 billion despite collectively underperforming the stock market.

Fees for ordinary money managers are not this high, and a privatized Social Security wouldn’t pay fees as exorbitant as those charged by hedge funds. But it would still be huge sums of money. That is why Wall Street has long lusted to get its hands on it.

U.S. Treasury Department under new management (photo by takomabibelot)

Then there is the matter of returns. Would gambling Social Security funds on the stock market really result in better results? Not necessarily. In studying the stock market’s long-term returns for an article I wrote a decade ago, not long after the 1990s bubble had burst, I found that you would have to time your retirement to the peaks of bubbles. When adjusted for inflation, the Dow Jones Industrial Average — the ultimate index of stock-market health and which has its components continually adjusted so as to replace low-performing stocks with high-performing ones — was below its 1929 peak as late as 1991. Here are some long-term results:

  • The Dow peaked at 995 in February 1965. Adjusted for inflation, that was 42 percent more than it was worth at its previous bubble peak in 1929, not so impressive when it took 36 years to get there.
  • The ensuring crash bottomed out in December 1974. At this point, the Dow, adjusted for inflation, was worth only half of what it was worth in 1929 and little more than one-third of its 1965 peak.
  • The most recent crash bottomed out in March 2009, at which point the Dow was three percent below its 1965 peak, adjusted for inflation.

The stock market is edging into bubble territory as we begin 2018, and stocks are priced high by historical standards. The basic measure of stock-price sustainability is the price/earnings ratio of the S&P 500, representing the largest companies on U.S. stock markets. The ratio’s average, calculated back to 1872, is 14. Prior to the 1990s bubble, the S&P 500 P/E ratio rose above 20 four times; each time it subsequently fell below 10. A standard measurement of the P/E ratio today is 26. One way to understand that number is that an investor is essentially paying $26 for each dollar of corporate profit, which is considered too high. It is true that the P/E ratio has been almost continually above the historic average since the 1990s bubble, but nonetheless this more recent rise indicates that a stock collapse is looming.

Goodbye retirement, goodbye disability payments

There aren’t any free lunches. A Center on Budget and Policy Priorities study notes that Social Security is not only a retirement program, but also an insurance program that could not be duplicated if privatized:

“Social Security is not only a retirement program but also an insurance program. About one-third of payroll taxes go to fund Social Security disability insurance and survivors insurance. Comparable insurance products would be extremely expensive to buy in the private insurance market, if one could even find such products. Social Security also provides an inflation-indexed annuity: Social Security benefits are adjusted each year for inflation and are paid until death, regardless of how long a beneficiary lives. These features of Social Security provide a valuable form of insurance against the risks of inflation and of outliving one’s savings.”

Nor would sinking funds into stock markets necessarily be a wise gamble, the Congressional Budget Office has said:

“Government investment in private securities does not offer a free lunch: although it would increase the expected value of budgetary resources, it would do so at the cost of exposing the government, future taxpayers, and beneficiaries of federal programs to greater risk. If that risk was taken into account, the returns on private securities would be no greater than the returns on government securities. … Using risky investment portfolios to finance spending by government agencies could weaken budgetary control of federal financial resources.”

That last item, however, is a lure of Republicans and their corporate masters. Create a larger deficit, cut social spending, repeat. This reduces lifespans, reducing payouts through Social Security and corporate retirement plans, for those lucky enough to still have one. Earlier deaths has already been declared a “silver lining” by U.S. corporations.

And let us not forget the sometimes bipartisan nature of Social Security cuts — Barack Obama had proposed a change to the way inflation is calculated for the determination of cost-of-living increases that would have resulted in lower adjustments for inflation, effectively a small yearly reduction. He did so as a bargaining chip in an effort to force Republicans in Congress to agree to modest tax increases. Ultimately, a Democratic Party revolt, spurred by grassroots opposition, forced an end to this plan, but this episode does serve as a reminder that social movements, not hoping for political office holders to do good, is the key to being able to retire some day.

In Chile, in 1998, the government actually asked workers not to retire because of a sustained economic downturn. (The Chilean retirement system was forcibly privatized under Pinochet). Think it can’t happen elsewhere? Keep in mind these words by Stephen Moore of the far right groups Club for Growth and Cato Institute: “Social Security is the soft underbelly of the welfare state. If you can jab your spear through that, you can undermine the whole welfare state.”

You’ll work until you drop, but Wall Street will profit.