Wednesday, November 13, 2013

1970 Was The End Of Economic Security And The Beginning Of The Age Of Anxiety In The US

Harold Meyerson does an excellent job of describing the economic history of the US over the last four decades.  He describes the age of security following WW ll,  in which workers shared in the gains in productivity, and the shift to the new era in which the gains in productivity went to shareholders.  He picked 1970 as the starting point of the new era of anxiety because it was the first year in which median wages declined from the previous year. It was followed in 1976 by the first post war trade deficit in the US which has been repeated every year since 1976. Meyerson does not mince words about the causes of this shift.  He argues that it was initiated by a decline in worker power that required cooperation between politicians and industry.  He contrasts it with what has happened in Germany over the same period where workers have shared in the gains from productivity.  He attributes this to a more worker friendly industrial policy in Germany. Germany has managed to run trade surpluses under the same conditions of globalization faced by the US. Some of the salient events that accompanied the move to an epoch of anxiety in the US are highlighted below.

  •  Paul Volker, as head of the Federal Reserve, declared a war on inflation.  Interest rates were raised to over 20% and the economy went into recession.  The high interest rates made it difficult for firms to justify new investments which did not exceed the new hurdle rate.  Between 1979 and 1983, 2.4 million manufacturing jobs were lost in the US.
  • The deregulation of the US economy began under Jimmy Carter and it was supported in the Senate by democrats like Ted Kennedy.  That trend continued until it crested during during the Bush Administration prior to the financial crisis.
  • In 1980 President Reagan broke a strike by federal air traffic controllers by firing all of them and replacing them with new workers.  This triggered a new era of union busting by major US corporations.
  • The relocation of industry from the North to the low-wage South led to a convergence in wages between the North and the South.  Wages in the North fell as competition between the North and the South increased.  Even foreign manufacturers took advantages of low wages and anti-union laws in the South.  They paid lower wages to workers in the South than they paid to their domestic labor force, and they used temporary workers to perform jobs at even lower wages than permanent employees.  The US South became a low wage country.
  • Wal-Mart also facilitated the Southernization of the US economy.  It became the largest employer in the US and it adopted an anti-union strategy in all of its locations.  Wal-Mart also used its market power to force its vendors to cut prices to the bone. Its vendors were forced to offshore production to low wage countries in order to meet Wal-Mart's demands.  The trend set by Wal-Mart impacted wages paid by local retailers and it was copied by other large retail chains.  Chain retailers have replaced US manufacturers as the largest employers in the US.
  • US trade policies like NAFTA and its policy with China facilitated the loss of jobs in the US.  It is estimated that 7.4 million jobs were lost as a result of the change in US trade policy with China.
  • In 1981 Jack Welch announced that company loyalty, which had been an important goal of management in the US,  was nonsense.  He led GE into the new era in which the corporate mission shifted from a concern for all of its stakeholders to the single goal of increasing shareholder value.  Other large corporations followed suit and corporate executives arranged for their compensation to be linked to increases in the stock price.  Jack Welch recently declared that this was one of the dumbest ideas that American corporations initiated but it has now become accepted practice in the US and it is being adopted in many foreign countries.  
  • The bottom line is that the share of corporate revenues in manufacturing that go to wages and benefits have declined by 14% since 1970. The only periods of rising wages in the US have occurred during the infrequent business cycles in which we have had a full-employment economy.

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