Federal Reserve says your wages are too high

The Federal Reserve has declared that the reason for ongoing economic weakness is because wages have not fallen enough. Wages have been stagnant for four decades while productivity has soared, but nonetheless orthodox economists believe the collapse of 2008 has been a missed opportunity.

A paper prepared by two senior researchers with the San Francisco branch of the U.S. Federal Reserve Bank attempts to explain the lack of wage growth experienced as unemployment has fallen over the past couple of years this way:

“One explanation for this pattern is the hesitancy of employers to reduce wages and the reluctance of workers to accept wage cuts, even during recessions, a behavior known as downward nominal wage rigidity.”

The two Federal Reserve researchers, Mary Daly and Bart Hobijn, based their argument on the standard ideology of orthodox economists, writing:

“Downward rigidities prevent businesses from reducing wages as much as they would like following a negative shock to the economy. This keeps wages from falling, but it also further reduces the demand for workers, contributing to the rise in unemployment. Accordingly, the higher wages come with more unemployment than would occur if wages were flexible and could be fully reduced.”

A food line in Toronto in 1931; falling wages didn't work out during the Great Depression.

A food line in Toronto in 1931; falling wages didn’t work out during the Great Depression.

The “problem” of wages stubbornly refusing to drop as much as corporate executives and financiers would like is referred to as the “sticky wages” problem in orthodox economics. Simply put, this “problem” is one that orthodox economists, themselves not necessarily subject to the market forces they wish to impose on others, have long struggled to “solve.” You perhaps will not be surprised to hear that “government” is the problem. Consider this remarkable passage published on the web site of the Mises Institute, an advocate of the Austrian school of economics:

“Much of the alleged ‘stickiness’ of wages is due to government policies. … [T]he trouble stems from workers not being willing to take pay cuts. When the demand from employers drops, at the old wage rate there is now surplus labor — a.k.a. unemployment. Only when market wages drop to a lower level, so that demand once again matches supply, will equilibrium be restored in the labor market.”

Collapsing wages in the Great Depression didn’t help

According to this author, Robert P. Murphy, an “associated scholar” of the Mises Institute, failing to drive down wages is such a big mistake that it caused the Great Depression. He writes:

“After the 1929 crash, Herbert Hoover gathered the nation’s leading businessmen for a conference in Washington and urged them to allow profits and dividends to take the hit, but to spare workers’ paychecks. Rather than cut wages, businesses were supposed to implement spread-the-work schemes where workers would cut back their hours. The rationale for Hoover’s high-wage policy was that the worker supposedly needed to be paid ‘enough to buy back the product.’ … The idea was that wage cuts would just cause workers to cut their spending, which would in turn lead to another round of wage cuts in a vicious downward spiral.”

Herbert Hoover was not vicious enough! Although it was Hoover’s Treasury secretary, Andrew Mellon, who advocated the government “liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate” so as to “purge the rottenness out of the system,” and not Hoover himself, the president did take hard-line right-wing positions. Michael Parenti, in discussing Hoover in his book History as Mystery, wrote:

“Like so many conservatives then and now, Hoover preached the virtues of self-reliance, opposed the taxation of overseas corporate earnings, sought to reduce income taxes for the highest brackets, and was against a veterans’ bonus and aid to drought sufferers. He repeatedly warned that public assistance programs were the beginning of ‘state socialism.’ Toward business, however, he suffered from no such ‘inflexibility’ and could spend generously. He supported multimillion-dollar federal subsidies to shipping interests and agribusiness, and his Reconstruction Finance Corporation doled out about $2 billion to banks and corporations.” [page 261]

Hoover’s concern for working people was demonstrated when his troops fired on veterans demanding payments owed to them and burned their camps. His laissez-faire policies led to manufacturing wages falling 34 percent and unemployment rising to about 25 percent by 1933. That collapse in wages did not bring better times; only the massive government spending to wage World War II put an end to the Depression. Such wage declines, in the real world, actually make the economy worse, argues Keynesian economist Paul Krugman:

“[Y]ou could argue that a sufficiently large fall in wages could restore full employment now — but it would have to be a very large wage decline, and the positive effects would kick in only after deflation had first driven just about every debtor in the economy into bankruptcy.”

How many formulae can be written on the head of a pin?

Although orthodox economics is often nothing more than ideology in the service of capitalist elites, its practitioners like to believe themselves scientific because they base their theories on mathematical models. Unfortunately, these formulae are divorced from the real, physical world; the economy and the human behavior that animates it are not reducible to mathematics.

Robert Kuttner, a heterodox economist, explored these shortcomings in an article originally published in Atlantic Monthly. He wrote:

“The [prevailing] method of practicing economic science creates a professional ethic of studied myopia. Apprentice economists are relieved of the need to learn much about the complexities of human motivation, the messy universe of economic institutions, or the real dynamics of technological change. Those who have real empirical curiosity and insight about the workings of banks, corporations, production technologies, trade unions, economic history or individual behavior are dismissed as casual empiricists, literary historians or sociologists, and marginalized within the profession. In their place departments are graduating a generation of idiots savants, brilliant at esoteric mathematics yet innocent of  actual economic life.”

That was written in 1985; little if anything has changed since and arguably has gotten worse. Professor Kuttner points out that the very fact of persistent unemployment contradicts the basic theses of orthodox neoclassical economics. If the belief that markets automatically reach equilibrium were true, then wages would automatically fall until everybody had a job. Rather than acknowledge the real world, orthodox economists simply declare involuntary unemployment an “illusion,” or claim “government interference” with the market is the culprit. “Business cycles were around long before trade unions or big-spending governments were,” Professor Kuttner noted.

Wages are not as flexible as orthodox ideology suggests because within an enterprise preference is ordinarily given to existing workers to fill job openings, thereby buffering wages from external market forces, writes another heterodox economist, Herbert Gintis. In an essay originally appearing in Review of Radical Political Economics, he wrote:

“In particular, there is a tendency for the number of individuals qualified for a position to exceed the number of jobs available, in which case seniority and other administrative rules are used to determine promotion. Hardly do workers compete for the job by bidding down its wage.”

In almost all cases, employees do not even know what wages their co-workers are earning. This top-down secrecy facilitates the disparity in wages, whereby, for example, women earn less than men. If everybody earned what they were worth, there would no such wage disparity. The very fact of disparities between the genders or among races and ethnicities demonstrates the ideological basis of orthodox economics, which assumes that employees who do the work of production are in their jobs due to personal choice and wages are based only on individual achievement independent of race, gender and other differences.

You produce more but don’t earn more

Back in the real world, wages have significantly lagged productivity for four decades; thus, wages, examined against this benchmark, have significantly declined for those four decades. A study by the Economic Policy Institute, written by heterodox economist Elise Gould, reports:

“Between 1979 and 2013, productivity [in the U.S.] grew 64.9 percent, while hourly compensation of production and nonsupervisory workers, who comprise over 80 percent of the private-sector workforce, grew just 8.0 percent. Productivity thus grew eight times faster than typical worker compensation.” [page 4]

(Graphic by Economic Policy Institute)

(Graphic by Economic Policy Institute)

Middle-class U.S. households earn $18,000 less than they would had wages kept pace with productivity, Dr. Gould calculates. Nor is that unique to the U.S.: Wages in Canada, Europe and Japan have also fallen well short of productivity gains. Canadian workers, for example, are paid at least $15,000 per year less than they would be had their wages kept pace.

To circle back to the San Francisco Federal Reserve paper that began this discussion, the authors claim that wage stagnation will persist until markets “return to normal.” They assert:

“[T]he accumulated stockpile of pent-up wage cuts remains and must be worked off to put the labor market back in balance. In response, businesses hold back wage increases and wait for inflation and productivity growth to bring wages closer to their desired level.”

But as we can plainly see, and as those of us living in the real world experience, wages cuts have been the norm for a long time. The caveat at the end of the paper that it does not necessarily reflect the views of the Fed board of governors should be noted, but the paper was issued as part of a regular series by the San Francisco Fed and the authors are senior members of it, so it is not likely to be at variance with opinions there. It certainly does reflect orthodox economic ideology. Similarly, the argument by the Austrian School’s Mises Institute, stripped of its academic-sounding veneer, is a call to eliminate the minimum wage.

Stagnation, declining wages and the ability of capitalists to shift production around the globe in a search for the lowest wages and lowest safety standards — completely ignored in the orthodox hunt for economic scapegoats — are the norm. Our need to sell our labor, the resulting reduction of human beings’ labor power to a commodity, and the endless competitive pressures on capitalists to boost profits underlie the present economic difficulties.

Collective bargaining through unions and the needs of capitalists to retain their employees can be brakes against the race to the bottom — what the orthodox economists at the Fed and elsewhere are arguing is that these remaining brakes be removed and wages driven down to starvation levels. That is what global capitalism has to offer.

Sure billionaires deserve their money: Killing jobs is hard work

More is never enough. A few examples of the wrath of speculators illustrate the “whip” of finance capital as the world’s corporations announced their results in recent weeks.

Among the words that do not go together are “shareholder activist.” Whether a sign of the debasement of language, or that the corporate media’s myopia has degenerated to the point where speculators trying to extract every possible dollar out of a corporation is what constitutes “activism” to them, as if this was some sort of selfless activity, these are the words often used to describe wolf packs that grow ever hungrier. Not even one of the world’s biggest corporations, E.I. du Pont de Nemours & Company, is immune.

DuPont, a chemical multi-national that produces many products that dominate their market, has racked up about US$17.8 billion in profits over the past five years, including $3.6 billion in 2014. Its stock price increased by 20 percent last year, better than the benchmark S&P 500 Index. DuPont recently sold off its performance chemicals business, and will hand out $4 billion to shareholders from the proceeds of the sale. Surely enough you say? Nope.

A hedge-fund manager — yep, one those “shareholder activists” — has declared war on DuPont management. The hedge funder, Nelson Peltz, is demanding that DuPont be broken up into two companies, under the theory that more profit can be extracted, and he is demanding that four seats on the DuPont board be given to him. So far, at least, DuPont management is resisting the hedge funder, but did announce $1 billion in cuts in a bid to pacify Wall Street. That means that more employees will pay for heightened extraction of money with their jobs. Mr. Peltz’s hedge fund specializes in buying “undervalued stocks,” according to Bloomberg, which is code for corporate raiding. It must pay well, for he is worth $1.9 billion.

DuPont chemical plant on Houston Ship Channel (photo by Blair Pittman for the U.S. Environmental Protection Agency)

DuPont chemical plant on Houston Ship Channel (photo by Blair Pittman for the U.S. Environmental Protection Agency)

One company that has given into speculators by selling off its best asset is Yahoo Inc. Although widely attacked in the business press for having no coherent plan for growth, Yahoo did report net income of $1.3 billion on revenue of $4.7 billion for 2013, a hefty profit margin, and remained profitable in 2014. Nonetheless, Yahoo said it will spin off into a separate company its most valuable asset, its stake in the Chinese online merchant Alibaba. This is being done so that more of the profits can distributed to speculators.

If Yahoo were to simply sell its stake, it would have to pay taxes. By spinning off its holding into a separate company, there will be no taxes paid, and thus more money will be stuffed into financiers’ pockets. “The decision,” The New York Times reported, “cheered shareholders because they will directly reap all the remaining profit from Yahoo’s prescient investment.” Yahoo will also lose its most valuable asset, making the company weaker (and presumably more likely to get rid of some of its workforce), but speculators will make a windfall. That is all that matters in these calculations.

Even an Internet darling, Google Inc., is losing its Wall Street halo. Grumbling was heard when Google’s revenue for the fourth quarter of 2014 was “only” 10 percent higher than the fourth quarter of a year earlier, a slower rate of growth than in the past. For the full year 2014, Google reported net income of $14.4 billion on revenue of $66 billion. Based on these results, it looks as if Google will remain a going concern. Nonetheless, Google stock is down 12 percent since September, a sign of financiers’ displeasure.

But perhaps happier days are on their way. The Associated Press reports that a “pep talk” by the company’s chief financial officer “left open the possibility that the company might funnel some of its $64 billion in cash back to shareholders, especially if a law is passed to allow money stashed in overseas accounts to be brought to the U.S. at lower tax rates.”

Ah, yes, all would be well if only multi-national corporations did not have to pay taxes. But despite the ceaseless demands by the world’s financiers for more governmental austerity, more cuts to jobs, wages and benefits, more punishment, the world can afford a raise. An Al Jazeera report by David Cay Johnston concludes that U.S.-based corporations held almost $7.9 trillion of liquid assets worldwide. That is more than double the yearly budget of the U.S. government.

The results are those familiar to all who are paying attention: Rising inequality and persistent economic stagnation as working people can no longer spend what they don’t have. Almost all of the gains in income are going to the top: From 2009 to 2012, 95 percent of all gains in income went to the top one percent. The “efficiency” that financiers demand is that ever larger cascades of money flow upward. How long will we allow this to go on?

Earth is crossing multiple points of no return

The world is certainly at a point where action, rather than more studies telling us what we should already know, is necessary. But if you do need another warning of looming environmental collapse, a new research paper concludes that four of nine “planetary boundaries” have already been crossed.

Crossing any one of these nine boundaries risks driving the Earth “into a much less hospitable state,” according to the paper’s lead author, Will Steffen of the Australian National University in Canberra. Crossing four of these boundaries — specifically, climate change, loss of biosphere integrity, land-system change and altered biochemical cycles — is all the more alarming.

Eighteen scientists, representing universities in Australia, Canada, Denmark, Germany, India, Kenya, the Netherlands, South Africa, Sweden and the United States, prepared the report, “Planetary Boundaries: Guiding human development on a changing planet” under the auspices of the Stockholm Resilience Center in Sweden. The goal of the paper, and the center itself, is to signal that a tipping point is approaching so that humanity has some time to change course. These warning points are determined in this way:

“[T]he proposed planetary boundary is not placed at the position of the biophysical threshold but rather up-stream of it, i.e., well before reaching the threshold. This buffer between the boundary (the end of the safe operating space—the green zone in [the graphic below]) and the threshold accounts not only for uncertainty in the precise position of the threshold … but also allows society time to react to early warning signs that it may be approaching a threshold and consequent abrupt or risky change.”

The nine planetary boundaries (Stockholm Resilience Centre)

The nine planetary boundaries (Stockholm Resilience Centre)

Of the four boundaries that have already been crossed, two of them (climate change and biosphere integrity) have the potential on their own “to drive the Earth System into a new state should they be substantially and persistently transgressed.” The paper sets the “zone of uncertainty” for atmospheric carbon dioxide content at 350 to 450 parts per million (we are currently at the midpoint of that zone) and calculates that the “energy imbalance” — the “forcing” of atmospheric change through continued introduction of global-warming chemicals — is approximately double the safe limit. In other words, carbon dioxide is being pumped into the atmosphere much faster than it is removed.

To calculate “biosphere integrity,” the paper’s authors use the rate of species extinction and the populations of species, using pre-industrial rates as benchmarks. Although these are calculated imprecisely and with inadequate knowledge of what rate of extinctions can be tolerated, the current rate of extinctions is estimated to be at least 10 times higher than the proposed range of acceptability, although that proposed range in turn is far greater the authors’ “aspirational goal” of holding extinctions to the rate of “well-studied organisms over the past several million years.”

Thus this scientific paper is actually conservative in its benchmarks and nonetheless finds the Earth is in a whole lot of trouble.

Telling business titans to stop doing what benefits them

Many of you reading this may be thinking, “We already know we’re in trouble! We don’t need another paper telling us what we already know, and those in denial won’t be swayed by science and fact.” Quite so, but can there be a tipping point in research that finally sparks some real action? Perhaps the Stockholm Resilience Center believes there can be, releasing the paper just in time to present it to the World Economic Forum.

At least for public consumption, World Economic Forum attendees say they are taking the paper’s sober analysis seriously. Those attendees, the world’s titans of industry and finance, and the political office holders who are beholden to them, in their actual practice have shown little inclination to change course, to put it mildly.

One of the paper’s co-authors, Johan Rockström, posted an article on the Forum’s web site saying that, even if carbon dioxide concentration is held to the range of 350 to 450 parts per million, that is still an unacceptable risk. Drawing a vivid analogy, he wrote:

“But it is important to recognise that 450 ppm also holds a less likely, but significant 1.6% probability … of resulting in 6ºC warming, which is beyond any doubt a catastrophic outcome for humanity. … Is this an acceptable risk level? The answer is clearly no. It is the equivalent of accepting that 1,500 aircrafts crash, each day. … This is a risk level we simply would never accept for other sectors in society.”

The probability of runaway global warming at 450 parts per million would be set at much higher than 1.6 percent by many environmental scientists and activists, but Professor Rockström’s analogy is scary enough. Nonetheless, “business as usual” appears to be the outcome. A commentary in the Singaporean newspaper Straits Times lamented that “leaders are failing to lead but are giving in to populist pressures,” in the wake of continuing economic weakness. A rather ideological formulation, considering that the world’s governments continue to impose brutal austerity on their populations on behalf of their society’s wealthiest while ignoring popular discontent.

The same Straits Times commentary claimed that “Business leaders at the forum voiced a willingness to take steps to address this issue,” and quoted the head of a financial-services company as saying, “What I am taking from this meeting is a huge sense of urgency, especially from the business community.”

Moreover, the climate program director at World Resources Institute, Jennifer Morgan, wrote:

“First of all, there was no climate denial to be heard in Davos. … Second, there are a tremendous number of companies—whether bankers, soft drink manufacturers, sporting companies, or furniture makers—that are already taking action to make their businesses more climate-resilient and competitive in a low-carbon economy. These businesses and others are becoming leaders in climate action.”

Huh? Business leaders have profited enormously by moving production to all corners of the world, wherever the cheapest labor, harshest working conditions and fewest regulations are to be found, necessitating the shipping of components, raw materials and finished products around the world, adding significantly to global warming through all the transportation necessary to make that work. Making these long supply chains “more efficient,” as Ms. Morgan exalts, hardly is the road to climate stability.

That something so oblivious could be said becomes less of a mystery when we see that the World Resources Institute is a non-governmental organization with a board full of corporate executives. We have no more cause for optimism from the Planetary Boundaries paper itself, which offers no guidance on what to do. Critiquing the global economic system is outside the scope of such a paper, and reasonably so, but it is fair game to note the weak-tea ideas it does offer: A “stronger focus on green chemistry” and “learning from earlier mistakes.”

Infinite expansion on a finite planet

So here we are again: The chimera of “green capitalism.” The same world economic system that requires endless expansion on a finite planet, in which all incentives are for ever more frenzied extraction of natural resources and corporate externalization of the costs of pollution and global warming, which remorselessly and ceaselessly elevates private profit above all other human considerations, is magically going to save us.

The maximization of profit and environmentalism are broadly in conflict because the managers of corporations are answerable to private owners and shareholders, not to society. Moreover, putting an immediate halt to polluting industries would cause economic disruption and throw huge numbers of people out of work in a system that will not have new jobs waiting for them, a factor that is leveraged to buttress global-warming denialism.

Even reducing consumption is difficult because between 60 and 70 percent of the economies of the world’s advanced capitalist countries are accounted for by household buying; a capitalist economy that is not growing causes pain as capitalists scramble to maintain their profits by any means necessary.

“Green” consumption is still consumption, and not environmentally healthy, either. All the more is that so for the capitalist system as a whole. Fred Magdoff and John Bellamy Foster, in their book What Every Environmentalist Needs to Know About Capitalism, puts this in sobering perspective:

“ ‘Green capitalism,’ even if products are produced using the utmost environmental care and designed for easy reuse, offers no way out of a system that must expand exponentially and thus continue to ratchet up its use of natural resources, its chemical pollution, its contaminated sewage sludge, its garbage, and its many other toxic substances. Some of these ‘fixes’ will probably slow down the rate of environmental destruction, but the magnitude of the needed changes dwarfs these approaches.” [page 120]

If we are to be serious about reversing global warming and repairing the environment, we have to create an economic system based on human need, that is stable as a steady-state system and under democratic control, rather than our present authoritarian system that is designed to maximize private profit. The scientists who prepared the Planetary Boundaries paper no doubt have the highest sincerity, but they have much company in being unable to imagine a world without capitalism. Until we do live in such a world, we will continue to hurtle toward catastrophe regardless of good intentions and well-designed research reports.

We have no money so central banks give more money to banks

It’s unanimous! The European Central Bank confirms that the only possible solution to falling wages and depressed spending is to throw more money at the banks and inflate another stock-market bubble.

The ECB thus joins the world’s other most important central banks in the hope that “quantitative easing” — a form of “trickle-down” economics — will somehow work despite having never achieved anything other than the inflation of asset bubbles, a benefit primarily to the one percent. Then again, perhaps that might explain it.

Mario Draghi, the president of the ECB, last week committed €1.1 trillion to buying eurozone government bonds and, to a lesser degree, asset-backed securities and pools of mortgage loans known as “covered bonds.” Starting in March, the ECB will buy €60 billion of assets a month, with a commitment to continue this program until September 2016. The ECB’s stated goal is to boost inflation and prevent deflation, while also driving down the value of the euro.

The European Central Bank joins the Federal Reserve, the Bank of England and the Bank of Japan in flooding the financial system with money, and joins all those central banks and the Swiss National Bank in attempting to drive down the value of its currency. One problem is that all currencies can’t decline against one another, any more than all countries can simultaneously produce trade surpluses. At the moment, it is the euro that is declining in value, which theoretically will give a boost to exports from eurozone countries, but as eurozone countries conduct most of their trade with one another, the boost from a weakened euro will not necessary be significant.

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

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

But with declining wages, fewer people have enough to spend, and the super-wealthy already have more money than they can possibly use for productive investment. Nonetheless, the “market” has decreed that more austerity for working people and more speculation by the one percent is the magic elixir that will finally fix the economy.

Fix it for whom? Let’s start to answer that question by noting the supposed purpose of quantitative-easing programs: to stimulate the economy by encouraging investment. Under this theory, a reduction in long-term interests rates would encourage working people to buy or refinance homes; encourage businesses to invest because they could borrow cheaply; and push down the value of the currency, thereby boosting exports by making locally made products more competitive.

In actuality, quantitative-easing programs cause the interest rates on bonds to fall because a central bank buying bonds in bulk significantly increases demand for them, enabling bond sellers to offer lower interest rates. Seeking assets with a better potential payoff, speculators buy stock instead, driving up stock prices and inflating a stock-market bubble. Money not used in speculation ends up parked in bank coffers, boosting bank profits, or is borrowed by businesses to buy back more of their stock, another method of driving up stock prices without making any investments.

Trillions for asset buying sprees

We are not talking about small change here. In three rounds of quantitative easing, the Federal Reserve spent about $4.1 trillion. The Bank of England has spent £375 billion. The Bank of Japan, after boosting its QE program last October, will now spend ¥80 trillion (about US$680 billion) per year. This after 18 months of quantitative easing failed to revive the economy, as with an earlier QE program that ran from 2001 to 2006. In just the past 18 months, the Bank of Japan’s QE spending was ¥75 trillion ($640 billion).

Imagine what could have been done with these enormous sums of money had they been used for directly creating jobs, or simply by giving it directly to working people, who would have gone out and spent it. Or by putting the money to productive use, such as rebuilding crumbling infrastructure.

Instead, what is planned is more austerity — that is, more punishment. The other component of the European Central Bank’s January 22 announcement is that favorite term, “structural adjustment.” A euphemism used by the World Bank and International Monetary Fund when ordering an end to job security and social safety nets as a condition for granting loans to developing countries, this is now being applied to the global North. Near the end of his remarks announcing the quantitative easing, ECB President Draghi said:

“[I]n order to increase investment activity, boost job creation and raise productivity growth, other policy areas need to contribute decisively. In particular, the determined implementation of product and labour market reforms as well as actions to improve the business environment for firms needs to gain momentum in several countries. It is crucial that structural reforms be implemented swiftly, credibly and effectively as this will not only increase the future sustainable growth of the euro area, but will also raise expectations of higher incomes and encourage firms to increase investment today and bring forward the economic recovery.”

Labor “reforms” are necessary to “improve the business environment.” In plain language, that means more austerity in an effort to boost corporate profits. In the question-and-answer session after the announcement, President Draghi gave revealing answers to two different questions: “For investment you need confidence, and for confidence you need structural reforms” and “it would be a big mistake if countries were to consider that the presence of this programme might be an incentive to fiscal expansion. … This programme should increase the lending capacity of the banks.”

Firing workers and pushing wages lower will make capitalists feel better? Perhaps, but if there isn’t demand for their products, they still aren’t going to invest.

If consumers have no money, they aren’t buying

The ECB wishes to believe that further reducing job security and social safety nets will provide capitalists with the magic “confidence” that will prompt them to invest. But there is already plenty of industrial capacity sitting idle — E.U. manufacturing capacity utilization is only 80 percent while the E.U.-wide unemployment rate is 10 percent. The youth unemployment rate is 21.9 percent. More austerity isn’t going to reverse these effects of austerity.

The Bank of Japan boosted its quantitative easing program in October 2014 because it had not pulled the Japanese economy out of stagnation. Gross domestic product contracted in the second and third quarters of 2014. (zgourth-quarter statistics have yet to be reported.) Japanese wages have declined in the past year while profits have increased. Household spending in Japan had fallen for six consecutive months at the time of the Bank of Japan’s announcement, in part due to an increase in sales tax pushed through by Prime Minister Shinzo Abe.

The Federal Reserve’s quantitative easing has served to prop up a stock market that continues to rise despite ongoing stagnation. The standard measure of stock market valuation, the price/earnings ratio, remains high by historical standards. (This ratio is a company’s market value per share divided by earnings per share, or to put it another way, how many dollars a buyer pays for one dollar of profit.) The composite P/E ratio for the broadest measure of U.S. stocks, the S&P 500 Index, is 19.7. The rare times in history that ratio has risen above 20 has been followed by a crash.

Japan’s stock market has also risen during its quantitative easing; its benchmark Nikkei 225 Index has doubled since November 2012.

Trillions of dollars has been poured into programs that do little more than produce stock-market bubbles; more trillions have been poured directly into banks and other financial institutions for bailouts. The European Central Bank says more of the same, and European workers will continue to pay for it. The markets demand this, it is said. Capitalist markets, however, are nothing more than the aggregate interests of the largest industrialists and financiers — when we let “markets” make social decisions, that really means a dictatorship of big business and big banks. And supporting those banks is very expensive.

Goodbye privacy, hello censorship if secret TISA pact is approved

Internet privacy and net neutrality would become things of the past if the secret Trade In Services Agreement comes to fruition. And on this one, the secrecy exceeds even that shrouding the two better-known corporate giveaways, the Trans-Pacific and Transatlantic partnerships.

Yet another tentacle in the octopus of multi-national corporations’ attempt to achieve dictatorial control, the Trade In Services Agreement (TISA) is intended to eliminate government regulations in the “professional services” such as accounting and engineering but goes well beyond that, proposing sweeping de-regulation of the Internet and the financial industry.

Geneva Fountain (photo by Lional Rajappa

Geneva Fountain (photo by Lional Rajappa

Another snippet of TISA’s text has been leaked, this time by the freedom-of-information organization Associated Whistleblowing Press. Without this leak, and an earlier leak published by WikiLeaks in June 2014, we would know absolutely nothing about TISA and its various annexes. No matter what a negotiating government might claim about it, should one actually deign to discuss it, TISA is not about your right to hire your accountant of choice. Here is Article X.4 on “movement of information”:

“No Party may prevent a service supplier of another Party from transferring, accessing, processing or storing information, including personal information, within or outside the Party’s territory, where such activity is carried out in connection with the conduct of the service supplier’s business.”

What that proposal means is that any regulation safeguarding online privacy would be deemed illegal. (“Party” in the quoted text refers to national governments.) European rules on privacy, much stronger than those found in the United States, for example, would be eliminated. Further, any rule that in any way mandates local content (Article X.2) or provides any advantage to a local technology (Article X.3) would also be illegal. Thus the domination of U.S.-based Internet companies, such as Google or Facebook, would be locked in, along with their vacuuming of your personal data. A French anti-dumping law intended to help bookstores withstand predatory practices by Amazon.com is the type of law likely to come under attack.

What this has to do with the provision of “professional services” is not clear. TISA seems intended to be a catch-all to eliminate regulation and allow multi-national corporations to muscle their way into as many areas as possible unimpeded, and the benign-sounding surface purpose of liberalizing access to foreign engineers may be intended as a wedge to force open all barriers to corporate profiteering.

Taking aim at net neutrality

The text is written in sufficiently ambiguous language that net neutrality seems strongly at risk. A reference to “open networks” contains the caveat that Internet usage is “subject to reasonable network management.” An analysis prepared by Professor Jane Kelsey of the University of Auckland and Burcu Kilic of Public Citizen in Washington says:

“ ‘Reasonable network management’ is code for an exception to ‘net neutrality,’ whereby everything on the Internet is treated the same. There is no guidance on the meaning of ‘reasonable network management.’ The concept has been highly controversial when the US Federal Communications Commission (FCC) proposed it in the US. The FCC says it ‘consists of practices which are reasonable,’ which is a vague and circular meaning that could be a rubber stamp for anything the network operator wants to do.” [page 22]

U.S. telecommunications corporations bitterly oppose net neutrality because, under this principle, they can’t speed up or slow down online content according to who pays them, or doesn’t, for special treatment. And any dilution of net neutrality opens the floodgates to censorship of the Internet, whether government or corporate.

The analysis by Professor Kelsey and Dr. Kilic discerns three broad goals of TISA on the part of the U.S. government, which is pushing hardest for it, as it does with other “free trade” agreements:

  • To advance the commercial interests of its services industry that supplies services across the border. There would be particular gains to the information telecommunications and technology sector, but would protect U.S. competitive advantage and monopoly rights over intellectual property and technology.
  • To serve “a range of ‘national security’ and commercial purposes” by consolidating data repositories to the benefit of the U.S. government, transnational companies and third-party commercial interests.
  • To prevent or restrict government regulation that impedes the activities and profits of the major global services industries, and guarantees unrestricted cross-border movement of data.

A letter sent to TISA negotiators by 342 civil society groups based in Europe and elsewhere in 2013 asking that the negotiations be immediately halted, states:

“The proposed TISA is an assault on the public interest as it fails to ensure that foreign investments in service sectors actually promote public goals and sustainable economies. We are particularly wary of further undermining of essential services such as health care and insurance, water and energy provision, postal distribution, education, public transportation, sanitation, and others if they are handed over to private and foreign corporations motivated only by profits and available only to those who can pay market rates.”

Restrictions on the financial industry would be illegal

TISA, as revealed by WikiLeaks in June, also would require signatory governments to allow any corporation that offers a “financial service” — that includes insurance as well as all forms of trading and speculation — to expand operations at will and would prohibit new financial regulations. These offensives are incorporated in TISA’s Financial Services Annex, which would:

  • Require countries to change their laws to conform to the annex’s text (Annex Article 3).
  • Require countries to “eliminate … or reduce [the] scope” of state enterprises (Article 5).
  • Prohibit any “buy local” rules for government agencies (Article 6).
  • Prohibit any limitations on foreign financial firms’ activity (articles 7 and 10).
  • Prohibit restrictions on the transfer of any data collected, including across borders (articles 8 and 11).
  • Prohibit any restrictions on the size or expansion of financial companies and a ban on new regulations (Article 15).
  • Require any government that offers financial products through its postal service to lessen the quality of its products so that those are no better than what private corporations offer (Article 22).

The ninth, and most recent, round of TISA negotiations took place on December 1 to 5 in Australia. In a typically bland statement providing no actual information, the Australian government said:

“Good progress was made in advancing the enhanced disciplines (trade rules) for e-commerce and telecommunications, domestic regulation and transparency, financial services, temporary entry of business persons, professional services, maritime and air transport services and delivery services. There was also further discussion of proposals on government procurement, environmental and energy services, and the facilitation of patient mobility. Parties reported on progress in bilateral market access discussions held since the September Round and committed to advance these further in 2015.”

Canberra’s likely overstating of “progress” is nonetheless more than is offered by other governments. The office of the United States Trade Representative, for example, last issued a public update about TISA negotiations in November 2013, and then merely said that the then-latest round of talks “was positive and productive.”

Tightening secrecy of “free trade” agreements

The next round of TISA negotiations are scheduled for Geneva February 9 to 13, 2015. Fifty countries are negotiating TISA, including the 28 countries of the European Union, which are collectively represented by the unelected and unaccountable European Commission. Among other countries are Canada, the United States, Australia, New Zealand, Japan, Norway and Switzerland. The negotiating countries, with perhaps more transparency than intended, refer to themselves as the “Really Good Friends of Services.” Good friends of working people they are not.

Although any sections detailing enforcement have yet to be leaked, TISA would likely depend on the “investor-state dispute mechanism” generally mandated in “free trade” agreements. Deceptively bland sounding, the mechanism is a secret tribunal to which a “dispute” is sent when a corporation wants a safety or environmental regulation or law changed so as to increase its profits. One of the most frequently used of these tribunals is an arm of the World Bank.

Many of the judges who sit on these tribunals are corporate lawyers who otherwise represent corporations in similar disputes with governments, and there is no appeal to their decisions. These rulings become a benchmark for subsequent disputes, thereby pushing the interpretations further in favor of multi-national capital.

That the Trade In Services Agreement, or the Trans-Pacific Partnership, or the Transatlantic Trade and Investment Partnership, or the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), have to be negotiated in total secrecy, with only corporate lobbyists having access to texts or meaningful input, speaks for itself. The empty shell of formal democracy under capitalism gets ever emptier.

Are we ready for the twilight of neoliberalism?

Not since the Great Depression have so many people in the global North called into question capitalism, yet among most of the advanced capitalist countries there is little organized pushback. Worse, parties of the Right appear to be gaining ground as voters who in the past backed the traditional parties of the center-left increasingly stay home, disgusted at their “me, too” approach to economics.

A decaying order increasingly reliant on repression that delivers immiseration to ever more people ought to be under more pressure. It can’t be said there are no serious challenges — social movements such as Spain’s Indignados and political coalitions contending for power such as Greece’s Syriza, for example — and the dramatic instant popularity of the Occupy movement demonstrated widespread discontent.

Still, the limitations of Occupy led to its demise and nothing yet has arisen in its place. Is there a weakness in our movements that is preventing them from organizing that discontent and channeling it into productive forces capable of challenging prevailing social orders?

We Make Our Own History coverAny answer to the puzzle of why Left movements have gained so little traction comprises multiple parts. Certainly the enormous institutional advantages that industrialists and financiers possess through their ability to exert decisive influence over governments, their domination of the mass media, the disposal of police and military forces at their service, and ability to infuse their preferred ideologies through a web of institutions can’t be discounted. Nonetheless, that does not relieve ourselves of the necessity to think about how we attempt to organize.

Activist knowledge has been “frozen” in specific forms, and today’s movements must be willing to break with past patterns and to build different styles of organization, argue Laurence Cox and Alf Gunvald Nilsen in their study of social movements, We Make Our Own History: Marxism and Social Movements in the Twilight of Neoliberalism.* In writing this book, the authors, both of whom have long histories in activist work, set out to “reclaim” activist knowledge for today’s movements and problems.

The authors quite reasonably argue that the failure of neoliberalism is “evident” and that we are now living in the “twilight” of the neoliberal era. That neoliberalism is reaching its end does not necessarily mean that capitalism is reaching its end; merely capitalism’s latest phase. “There is no alternative” retains a powerful punch even as conditions continue to deteriorate around the world. Moreover, activists are at a disadvantage when operating within rules designed to maintain the status quo.

Theory does not derive from an armchair

Theory, Professors Cox and Nilsen write, derives from the activist work of making sense of, and changing, social experience. Theory helps grasp ideas in opposition to dominant discourses, helping us go beyond our immediate situation or experience. A “unity of theory and action, and not simply practice,” is a necessity. But theory is not a concept imposed from high above nor the province of a handful of philosophers. They write:

“The producers of theory are — potentially — everyone who reflects on their experiences so as to develop new and improved ways of handling problematic aspects of that experience. Theory, in this perspective, is knowledge that is consciously developed out of experience, and has been worked through using experience as a touchstone, that has become explicit and articulate, and which as been brought to a level where it can be generalised.” [page 8]

The everyday experience of creating new forms of organization during struggles itself provide bases for a better world.

“At their best and within wider movements for social change, the council, the assembly, the occupied factory, the social centre, the self-organised neighbourhood, or the liberated zone can simultaneously prefigure a different way of living together, represent an effective means of organising here and now, and embody a critique of key social relationships and institutions.” [page 11]

Building from abstract concepts in its early pages, We Make Our Own History steadily builds concrete scaffolding. A key concept of this scaffolding, introduced to emphasize the understanding that the current organization of the world is a product of human construction that can be disassembled and replaced through human agency, is that of “movements from above.” We are used to seeing grassroots activity as movements — movements from “below.” We Make Our Own History defines “movements from above” as the collective agency of dominant groups to reproduce or extend their power and hegemonic positions.

Movements from above draw upon a multitude of positions to cement their hegemony, among them their directing role in enterprises, superior access to state power, ability to extract “consent” from significant sections of the subaltern and ability to apply repression to those who refuse to consent. Movements from above are “forever moving.” the authors write, and are able to use a variety of tactics in their responses to movements from below: military force, police force, the law, and school and workplace sanctions. When necessary, concessions will be made, but only to some groups and in forms that reinforce clientalism and patriarchal relations while blocking self-activity and organization.

Seeing the efforts of elites as “movements from above” enables an understanding of our ability to change conditions, through the combined efforts of movements from below.

The building blocks of a movement

Movements from below must become strong enough to counter the hegemony of capitalist elites with a “counter-hegemony.” Professors Cox and Nilsen propose three “levels” of movements from below in distinguishing their ability to force structural change. Local, defensive struggles (the basic building block) can coalesce into much more effective offensives when they connect with other movements from below on the basis of common grounds to forge extra-regional or international coalitions that critique dominant ideas and projects.

Such coalitions, however, tend to remain field-specific and don’t necessarily relate to the social totality that shapes the issue being struggled against. If activists begin to examine larger structural issues, the authors write, they may go beyond field-specific campaigns to become a “social movement project” that targets the social totality. Thus,

“[S]uch a social movement project stands out from other forms of collective agency from below by virtue of its capacity to identify its own actors socially; name its central opponent; and recognizing that the social totality is the product and object of such struggles. In other words, there is a return ‘up’ the sequence from opposing everyday routines to opposing the structures that generate them, and finally to directly confronting the movements from above which have constructed the whole.” [page 83]

From this comes the question of: What is the nature of what we are fighting? To assist in answering that question, the authors divide the history of capitalism into three eras:

  • “Disembedded” market-centered liberal capitalism that lasted into the early 20th century. This era was marked by the violent incorporation of the colonized world into the world-system of capitalism, and concessions made to emergent middle classes split them from the subaltern, linking them to the aristocracy and bourgeoisie.
  • “Re-embedded” state-centered organized capitalism from the end of World War II to the 1970s. This period arose out of the breakdown of the previous era and in response to mass uprisings carrying the potential to sweep away capitalism. Some measure of development was allowed for the global South through import-substitution industrialism; workers of the global North received increasing wages and concessions in exchange for de-politicizing their demands.
  • “Disembedded” neoliberal capitalism since the 1980s, a project to “disembed” capital from institutional regulations. The turn to neoliberalism is grounded in changed conditions, in particular the profit squeeze that set in during the 1970s, and is organized globally through alliances with capitalists in all regions of the world and links among trans-national capital. Capitalists’ attempt to restore previous profit levels centers on breaking the power of labor and a strategy of “accumulation through dispossession” — the conversion of common property into private capital.

The victory of neoliberalism is “pyrrhic,” the authors write, because the accumulation strategies that restored power for capitalists are the root of the present crisis. Thus, we are in the twilight of neoliberalism. That elites can offer nothing new is a sign of their brittleness, but the simultaneous weakness of movements from below has led to an unusually long period of stalemate.

Learning from one another, not blindly following

How then will this logjam be broken? As no movement, organization or leader has a monopoly of ideas, Professors Cox and Nilsen envision a “movement of movements”: The coming together of independent movements without the intention of submitting to the leadership of any single party or of privileging narrow definitions of working class interests. This necessitates not only learning from one another to increase the body of knowledge that can be drawn upon but also learning from the past. It also stresses the full incorporation of struggles against racism, sexism and all other forms of oppression.

Winning, the authors write, means defeating the state, breaking up at least some power relations and instituting new ones, but doing so through the masses, not a vanguard. Success, then, is the collective achievement of people going beyond what they previously believed possible.

“These situations share a potential for human self-development to flourish beyond the normal limits set by exploitation, oppression, ignorance and isolation, creating institutions driven by human need rather than by profit and power. … These ‘everyday utopias’ do not need to be installed from above by decree; what they do need is a breaking of power relations within communities, workplaces, state institutions and globally, which stand in their way.” [pages 186-7]

Building the “counter-hegemony” that can check and then supplant the hegemony of capitalists is far from an easy task. Those who benefit from the current world order spare no exertion in attempting to convince us that no other world is possible. Realizing that such assertions are nothing more than self-serving ideology helps to give ourselves the necessary consciousness to liberate ourselves:

“[I]f we do not see not see neoliberalism as a complex, contested, fragile and ultimately impermanent achievement of elite agency we are taking the intentions of its makers as given fact — and in essence conceding permanent defeat.” [page 142]

Professors Cox and Nilsen set themselves the audacious goal of reclaiming activist knowledge through filling a void in studies of social movements. They have succeed: We Make Our Own History is recommended reading for activists serious about bringing into being a better world.

* Laurence Cox and Alf Gunvald Nilsen, We Make Our Own History: Marxism and Social Movements in the Twilight of Neoliberalism. [Pluto Press, London, 2014]

Shopping ’til we all drop at Wal-Mart

Wal-Mart is concentrated neoliberalism. From working to weaken government at the same time it gorges on government subsidies, to exploitation of its workforce, to moving production to the places with the lowest wages and weakest laws, to underpaying taxes, the workers who walked out on Black Friday have no shortage of targets.

Some of the latest findings in a just released report reveal that Wal-Mart dodges $1 billion a year in taxes and is the recipient of an estimated $6.2 billion a year in indirect subsidies through social-welfare programs such as food stamps. A separate report also just published documents the poverty of Wal-Mart workers, many of whom regularly skip meals because their pay is so low.

Four members of the Walton family, recipients of the capital amassed by Wal-Mart Stores Inc., are collectively worth $144 billion — each is one of the nine richest people in the United States. At the same time, Wal-Mart workers are organizing food drives so they can eat. Wal-Mart officials shamelessly praise the food drives as examples of its employees caring about their co-workers.

Too bad Wal-Mart executives care much less about their employees.

It’s not as if the company can’t afford to pay its workers — it earned $78.4 billion in profits for its last five fiscal years. In 2013 alone, Wal-Mart paid nearly $6.2 billion in dividends to its shareholders.* And who were the major recipients of this largesse, extracted from the backs of its employees? None other than the Walton family, who own about 50 percent of the company’s stock, according to The Wall Street Journal. Then there are the buybacks of its stock — a buyback is when a company pays a premium above the price to buy its stock from willing sellers, giving a windfall to the sellers and spreading the profits among fewer shareholders. In 2011, for example, Wal-Mart spent $11.3 billion on dividends and stock buybacks.

A Wal-Mart protester is led away during a Black Friday action in Sacramento, California. (Photo via Making Change at Walmart.)

A Wal-Mart protester is led away during a Black Friday action in Sacramento, California. (Photo via Making Change at Walmart.)

Who pays for this massive transfer of wealth? Let’s look at the other side of the equation. A report prepared by public-interest group Eat Drink Politics, “Walmart’s Hunger Games: How America’s Largest Employer and Richest Family Worsen the Hunger Crisis,” offers several stories of Wal-Mart employees who make too little money to eat properly. One employee, La’Randa Jackson of Cincinnati, Ohio, says:

“I skip a lot of meals. The most important thing is food for the babies, then my younger brothers. Then, if there’s enough, my mom and I eat.”

Full time work but under the poverty line

The Hunger Games report notes that Wal-Mart’s immense size drives down pay not only in retail but in other industries. The company’s wages are much less than it claims:

“Estimates of hourly Walmart wages vary, but one study by the National Bureau of Economic Research found that Walmart cashiers average just $8.48/hour, while another industry report found the average pay to be $8.81 per hour. At this rate, an employee who works 34 hours per week, which is Walmart’s definition of full-time, is paid $15,500 per year, which is about $8,000 below the federal poverty line for a family of four.”

Not that all Wal-Mart employees are able to work even those 34 hours per week. The Hunger Games report said:

“As many as 600,000 Walmart workers currently work part-time, although many want to work full-time and are pushing for additional hours. The company intensified its hiring of temporary workers last year, while continuing to deny full-time hours to many employees who want them.”

The report on Wal-Mart’s tax evasion, “How Walmart is Dodging Billions in Taxes,” produced by the coalition Americans For Tax Fairness, found that the company exploits tax loopholes to pay about $1 billion per year less in taxes than it would otherwise — a total of $5.1 billion in the past five years.

Meanwhile, the company retains a fleet of 74 lobbyists, mostly former members of Congress both Republican and Democratic, spending $33 million on lobbying in the past five years. Among the goodies on Wal-Mart executives’ wish list are more tax breaks, including a drop in the statutory corporate tax rate to 25 percent from 35 percent (although it, like almost all corporations, pay much less than 35% already) and the elimination of taxes on revenue it claims to have earned outside the U.S. Americans For Tax Fairness estimates that the company would avoid another $720 million per year in taxes should its wishes be granted.

This report also finds that taxpayers already spend at estimated $6.2 billion per year subsidizing Wal-Mart’s low pay and paltry benefits. This was calculated by projecting the cost to Wisconsin of Wal-Mart as reported in a study prepared by the Democratic Party staff of the U.S. House of Representatives Committee on Education and the Workforce to the company’s 1.4 million employees across the country. Programs included in the report’s estimate include school breakfast and lunch programs, Section 8 housing subsidies, the Earned Income Tax Credit, Medicaid, the Low Income Home Energy Assistance Program and food stamps (the Supplemental Nutrition Assistance Program).

It’s the system, not one company

Wal-Mart is not unique in the viciousness in how it deals with, and exploits, its employees. 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. One company will inevitably become the most ruthless in implementing what companies in a variety of industries are forced to do under the rigor of capitalist competition. Wal-Mart so happens to be it.

Multi-national corporations that transfer production to low-wage countries  — and their suppliers who are forced to move production to them under compulsion, such as apparel manufacturers who knuckle under to the demands of Wal-Mart — profit from systems of global supply chains, and are the fiercest advocates of “free trade” agreements that make it easier for them to transfer and subcontract production.

If a supplier doesn’t transfer production to a low-wage company, it can’t meet Wal-Mart’s demand for lower prices and goes out of business because Wal-Mart is a dominant customer. Other suppliers, even those who service other chains, then have to do the same to match the competition.

Although an increasing amount of outsourced production is being shifted to Bangladesh and Vietnam, and the Chinese government is seeking to manufacture higher-end and more sophisticated products, the low wages and vast numbers of exploitable workers, often displaced from the countryside, that China offers represented an opportunity for Western and Japanese corporations.

“Market forces” are at work here. If markets can’t be expanded, cutting costs is the route to maintaining profit rates, no matter the human cost. The Wal-Mart workers and their allies who demonstrated, walked out and, in Los Angeles, staged a hunger strike on Black Friday are therefore not only going up against the company most responsible for the lowering of wages and movement of production overseas — one virulently opposed to any form of employee organizing and relentless in eliminating local competition — they are going up against the market forces of capitalism and the logic of neoliberalism.

The fight of Wal-Mart’s workers is our fight. Consider this passage from a Businessweek article:

“Walmart has been opposed to unions since Sam Walton opened his first store in Rogers, Ark., in 1962. These days, ‘we have human resources teams all over the country who are available to talk to associates, and we will get questions about joining a union,’ says David Tovar, a spokesman for the company. ‘We would say: Let us remind you of all that Walmart offers, and of what might go away. Quarterly bonuses might go away, vacation time might go away.’ ”

The Wal-Mart spokesman is merely saying out loud what many other corporate executives say in private. U.S. labor law, weak as it is, renders illegal intimidation tactics in regards to union organizing. Yet the company believes it can talk and act with impunity. So far, that is true.

Everyone who shops at Wal-Mart contributes to this problem. Those who do believe they are saving money by buying at low prices, but those low prices actually come at a high cost. The cost will become higher until we become willing to stop believing that begging for crumbs is the only way the world can be organized.

* My own calculation: Four quarterly dividend payments of 47 cents a share, multiplied by 3.28 billion outstanding shares.