Saturday, June 6, 2009

One question: Les Leopold

Les Leopold's readable new book, The Looting of America: How Wall Street's Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity—and What We Can Do About It is out this month from Chelsea Green. Les directs two nonprofits, The Labor Institute and The Public Health Institute, which are aimed at educating union workers on public policy issues.

The crux of Les' thesis, if I can summarize without subverting, is that the roots of this recession lie in the gap between productivity and real wages, which began growing in the early 1970s. Instead of going to workers in the form of wages, who would have spent the money on real goods and services that grow economies, productivity gains began going to owners and executives, who, having all the stuff they needed, invested the money. All this new money seeking good returns led to risky lending practices and financial instruments, which, in turn, led to the current mess.

This is a provocative and debatable argument, and certainly one that will resonate in pro-labor circles. My question for Les: In pegging the financial meltdown in the U.S. to the decoupling of productivity gains and real wages, the underlying inference is that those gains – or a larger portion of them – were wrongly diverted away from wage earners. What caused this divergence and why are wage earners entitled to a larger portion of productivity gains?

Here's his reply:
There really is no consensus on why productivity and wages diverged so dramatically. I can only give you my read. I think several trends entwined to undercut the price of labor.

First was what we call “globalization” which, in this case, refers to the ability of corporations to move capital quickly to all parts of the globe. The Bretton Woods agreements, which ended in the early 1970s, had previously prevented such rapid movement of investment capital. But after its collapse, corporations could set up shop in low-wage areas and import the final products back into the United States. American labor, in effect, was in direct competition with workers all over the globe.

This led to the second factor: the decline of unions. The globalization process and its impact on U.S. workers could have been mitigated, in my opinion, had the labor movement been stronger. But labor union density had been in a secular decline since the mid-1950s. Why that happened is a much longer story, but the impact was two fold: First, unions could not moderate national policies on deregulation, capital flight and cheap imports; and second, unions could not effectively bargain hard at the workplace.

The third set of factors involved a shift in political power to the upper income brackets. During the Reagan era and beyond, social programs were slashed, taxes on the wealthy were reduced, the minimum wage was not increased to keep up with the cost of living, and labor laws were weakened.

I don't think we can blame new technologies for the transfer of productivity gains. The computer revolution came later as did the Internet. Manufacturing was becoming more and more automated throughout the 1950s and 1960s. In fact, there was much hand-wringing in the late 1950s about the impact of automation on work and the rise of leisure --- what would workers do with all their free time?

That's why my main point is the following: The distribution of the fruits of productivity is more like a tug of war – a genuine struggle between the investor class and the rest of us. It’s not automatic. Policy impacts the division of the pie.

There is, however, an additional and very important factor to consider, no matter whether you favor more money for working people or more for the investment classes. I think we are living through a real life experiment about what happens when you let too much money accumulate at the top: It runs out of tangible investment opportunities in the real economy and much of it ends up in Wall Street’s fantasy finance casino.

There is a relationship between the rising gap between the super rich and the rest of us, and the crashing of the economy. Such were the conditions before the Great Depression and those conditions almost led us there again. I believe that for the sake of the entire economy, it is best to narrow the income/wealth gap.

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