Page 4 of
5 SUPER CAPITALISM, SUPER
IMPERIALISM PART 1: A Structural
Link By Henry C K
Liu
the US-dominated
global economy, causing over-production resulting
from stagnant demand caused by inadequate wages. A
true spokesman for labor would point out that
enlightened modern management recognizes that the
performance of a corporation is the sum total of
effective team work between management and labor.
System analysis has long shown that
collective effort on the part
of the
entire work force is indispensable to success in
any complex organism. Further, a healthy consumer
market depends on a balance between corporate
earnings and worker earnings. Reich's point would
be valid if US wages had risen by the same
multiple as CEO pay and corporate profit, but he
apparently thought that it would be poor etiquette
to raise embarrassing issues as a guest writer in
an innately anti-labor journal of Wall Street.
Even then, unless real growth also rose 600% in
two decades, the rise in corporate earning may be
just an inflation bubble.
An
introduction to economic populism To be
fair, Reich did address the income gap issue eight
months earlier in another article, "An
Introduction to Economic Populism" in the Jan-Feb,
2007 issue of The American Prospect, a magazine
that bills itself as devoted to "liberal ideas".
In that article, Reich relates a "philosophical"
discussion he had with fellow neo-liberal cabinet
member Robert Rubin, then treasury secretary under
Bill Clinton, on two "simple questions".
The first question was: Suppose a proposed
policy will increase the incomes of some people
without decreasing the incomes of any others. Of
course Reich must know that it is a question of
welfare economics long ago answered by the "pareto
optimum", which asserts that resources are
optimally distributed when an individual cannot
move into a better position without putting
someone else into a worse position. In an unjust
society, the pareto optimum will perpetuate
injustice in the name of optimum resource
allocation. "Should it be implemented? Bob and I
agreed it should," writes Reich. Not exactly an
earth-shaking liberal position. Rather, it is a
classic neo-liberal posture.
And the
second question: But suppose the people whose
incomes will rise are already wealthier than
everyone else. Although no one will lose ground,
inequality will widen. Should it still be
implemented? "I won't tell you where he and I came
out on that second question," writes Reich without
explaining why. He allows that "we agreed that
people who don't share in such gains feel
relatively poorer. Widening inequality also
further tips the balance of political power in
favor of the wealthy."
Of course, clear
thinking would have left the second question mute
because it would have invalidated the first
question, as the real income of those whose
nominal income has not fallen has indeed fallen
relative to those whose nominal income has risen.
In a macro monetary sense, it is not possible to
raise the nominal income of some without lowering
the real income of others. All incomes must rise
together proportionally or inequality in
after-inflation real income will increase.
Inequality only a new worry? But
for the sake of argument, let's go along with
Reich's parable on welfare economics and financial
equality. That conversation occurred a decade ago.
Reich says in his January 2007 article that
"inequality is far more worrisome now", as if it
had not been or that the policies he and his
colleagues in the Clinton administration, as
evidenced by their answer to their own first
question, did not cause the now "more worrisome"
inequality. "The incomes of the bottom 90% of
Americans have increased about 2% in real terms
since then, while that of the top 1% has increased
over 50%," Reich wrote in the matter of fact tone
of an innocent bystander.
It is surprising
that a former labor secretary would err even on
the record on worker income. The US Internal
Revenue Service reports that while incomes have
been rising since 2002, the average income in 2005
was $55,238, nearly 1% less than in 2000 after
adjusting for inflation. Hourly wage costs
(including mandatory welfare contributions and
benefits) grew more slowly than hourly
productivity from 1993 to late 1997, the years of
Reich's tenure as labor secretary. Corporate
profit rose until 1997 before declining, meaning
what should have gone to workers from productivity
improvements went instead to corporate profits.
And corporate profit declined after 1997 because
of the Asian financial crisis, which reduced
offshore income for all transnational companies,
while domestic purchasing power remained weak
because of sub-par worker income growth.
The break in trends in wages occurred when
the unemployment rate sank to 5%, below the 6%
threshold of NAIRU (non-accelerating inflation
rate of unemployment) as job creation was robust
from 1993 onwards. The "reserve army of labor" in
the war against inflation disappeared after the
1997 Asian crisis when the Federal Reserve
injected liquidity into the US banking system to
launch the debt bubble. According to NAIRU, when
more than 94% of the labor force is employed, the
war on wage-pushed inflation will be on the
defensive. Yet while US inflation was held down by
low-price imports from low-wage economies, US
domestic wages fell behind productivity growth
from 1993 onward. US wages could have risen
without inflationary effects but did not because
of the threat of further outsourcing of US jobs
overseas. This caused corporate profit to rise at
the expense of labor income during the
low-inflation debt bubble years.
Income
inequality in the US today has reached extremes
not seen since the 1920s, but the trend started
three decades earlier. More than $1 trillion a
year in relative income is now being shifted
annually from roughly 90,000,000 middle and
working class families to the wealthiest
households and corporations via corporate profits
earned from low-wage workers overseas. This is why
nearly 60% of Republicans polled support more
taxes on the rich.
Carter the
granddaddy of deregulation The policies and
practices responsible for today's widening income
gap date back to the 1977-1981 period of the
Carter administration which is justly known as the
administration of deregulation. Carter's
deregulation was done in the name of populism but
the results were largely anti-populist. Starting
with Carter, policies and practices by both
corporations and government underwent a
fundamental shift to restructure the US economy
with an overhaul of job markets. This was achieved
through widespread de-unionization, breakup of
industry-wide collective bargaining which enabled
management to exploit a new international division
of labor at the expense of domestic workers.
The frontal assault on worker collective
bargaining power was accompanied by a realigning
of the progressive federal tax structure to cut
taxes on the rich, a brutal neo-liberal global
free-trade offensive by transnational corporations
and anti-labor government trade policies. The cost
shifting of health care and pension plans from
corporations to workers was condoned by government
policy. A wave of government-assisted compression
of wages and overtime pay narrowed the wage gap
between the lowest and highest paid workers (which
will occur when lower-paid workers receive a
relatively larger wage increase than the
higher-paid workers with all workers receiving
lower pay increases than managers). There was a
recurring diversion of inflation-driven social
security fund surpluses to the US fiscal budget to
offset recurring inflation-adjusted federal
deficits. This was accompanied by wholesale
anti-trust deregulation and privatization of
public sectors; and most egregious of all,
financial market deregulation.
Carter
deregulated the US oil industry four years after
the 1973 oil crisis in the name of national
security. His Democratic challenger, Senator Ted
Kennedy, advocated outright nationalization. The
Carter administration also deregulated the
airlines, favoring profitable hub traffic at the
expense of traffic to smaller cities. Air fares
fell but service fell further. Delays became
routine, frequently tripling door-to-door travel
time. What consumers save in airfare, they pay
dearly in time lost in delay and in in-flight
discomfort. The Carter administration also
deregulated trucking, which caused the Teamsters
Union to support Ronald Reagan in exchange for a
promise to delay trucking deregulation.
Railroads were also deregulated by
Railroad Revitalization and Regulatory Reform Act
of 1976 which eased regulations on rates, line
abandonment, and mergers to allow the industry to
compete with truck and barge transportation that
had caused a financial and physical deterioration
of the national rail network railroads. Four years
later, Congress followed up with the Staggers Rail
Act of 1980 which provided the railroads with
greater pricing freedom, streamlined merger
timetables, expedited the line abandonment
process, and allowed confidential contracts with
shippers. Although railroads, like other modes of
transportation, must purchase and maintain their
own rolling stock and locomotives, they must also,
unlike competing modes, construct and maintain
their own roadbed, tracks, terminals, and related
facilities. Highway construction and maintenance
are paid for by gasoline taxes. In the regulated
environment, recovering these fixed costs hindered
profitability for the rail industry.
After
deregulation, the railroads sought to enhance
their financial situation and improve their
operational efficiency with a mix of strategies to
reduce cost and maximize profit, rather than
providing needed service to passengers around the
nation. These strategies included network
rationalization by shedding unprofitable capacity,
raising equipment and operational efficiencies by
new work rules that reduced safety margins and
union power, using differential pricing to favor
big shippers, and pursuing consolidation, reducing
the number of rail companies from 65 to 5 today.
The consequence was a significant increase of
market power for the merged rail companies,
decreasing transportation options for consumers
and increasing rates for remote, less dense areas.
In the agricultural sector, rail network
rationalization has forced shippers to truck their
bulk commodity products greater distances to
mainline elevators, resulting in greater pressure
on and damage to rural road systems. For
inter-modal shippers, profit-based network
rationalization has meant reduced access -
physically and economically - to Container on Flat
Car (COFC) and Trailer on Flat Car (TOFC)
facilities and services. Rail deregulation, as is
true with most transportation and communication
deregulation, produces sector sub-optimization
with dubious benefits for the national economy by
distorting distributional balance, causing
congestion and inefficient use of land, network
and lines.
Carter's Federal Communications
Commission's (FCC) approach to radio and
television regulation began in the mid-1970s as a
search for relatively minor "regulatory
underbrush" that could be
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