Two American Families

Bill Moyers has a great interview on the Colbert Report this week, regarding his new documentary that follows 2 middle class families since the 1990s. He quotes Jim Hightower:

The real question is not why do people fall through the cracks, the real question is why are there so many cracks?

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Labor in the Temp Economy

Mother Jones has another dispatch from the excellent Economic Hardship Reporting Project, with this edition focused on temporary employment. It underscores, in visceral detail, how an increasingly prevalent mode of employment leaves workers economically insecure (and often unsafe).

To get one thing straight, the temporary sector isn’t exactly taking over the economy. There is a difference between “fast growing” and “huge,” and this sector is clearly the former:

In the early 1980s, employment in the “temporary help services” industry—which covers both temp workers and employees of the firms that supply them—stood in the several hundreds of thousands. Now it’s 2.5 million, a seven-fold increase in less than four decades. By 2020, the BLS foresees more than 440,000 new jobs in the sector.

However, the details of it are depressing:

Back at the Labor Ready office, I have to wait nearly 30 minutes to receive my check. The job paid $8 an hour—minimum wage. For five hours of labor, I get $37.34 after taxes. I am not paid, however, for the four hours on call, or the time spent in transit to and from the job site, or waiting to get paid. None of this meets the legal definition of wage theft, but it sure feels like it…

Labor Ready’s Oakland workforce is nearly entirely black, excepting the branch manager, who is white. Most of the workers I talk to are searching for stability but finding it elusive. They include homeowners in foreclosure, apartment-dwellers who are being evicted, and residents of motels negotiating for a few more days. And many express hope they can parlay a temp gig into something permanent…

The potential to convert a temp job into full-time employment is one of the benefits promoted by Labor Ready, but the company doesn’t actually know at what rate this happens…

Yet there’s little evidence to support the claim that temp agencies help impoverished workers…Providing low-skill workers with a temp job, they wrote, “is no more effective than providing no job placements at all.”

There is not really a big policy takeaway from this. There will always be a need for low-skilled workers, and it seems like increasingly these jobs will not even offer the protections of permanent employment. Certain things, like strengthening the safety net and increasing the minimum wage, will be a help. However, the growth of the temporary model may be seen as undermining any gains that organized labor or cooperative enterprises might seek- it would be hard to imagine either growing as fast as this sector. Clearly, our society will need to rethink how labor can have solid footing in a temp economy.

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Wrong on Wisconsin- What’s Next for Unions and Progressivism?

Over a year ago, I wrote:

But it will backfire. It didn’t take long for the opinion polling to demonstrate clearly that Scott Walker’s overreach would earn him ill repute in a state with a proud history of labor rights. Walker and his GOP lackies chose to plow ahead, amid ceaseless protests in the Capitol (which have only grown tonight, of course). Now it’s time for the reckoning. This anti-worker bill will be used in every coming election, both in Wisconsin and around the country, as a way to show that the GOP has gone too far.

I was wondering when the tipping point would come; my economics training taught me about social structure of accumulation theory, in which an economic downturn can resolidify support for various policies that will restore economic balance. We didn’t quite get that in 2008, because of politics. Instead, we got a half-baked stimulus and a dead-on-arrival Employee Free Choice Act. We got a weakened health care bill that was a Phyrric victory and has been a political football since the minute of its passage. We got a climate change bill that passed only one house, again, dead-on-arrival in the Senate.

Social structure of accumulation theory, as I wrote in an assignment in November 2008, would predict that we’d have many restorative policies by now. Instead, somehow, the pendulum swung a little left, and then was dragged way right by shrill voices with the worst of intentions. With this anti-worker bill, I think, the pendulum will swing back. We needed a tipping point to restore sanity (not just the Jon Stewart kind) in this country. We needed a wake-up call to show moderates that Republicans don’t care about fiscal rectitude- instead, they are out for their own political gain and for the economic gain of the well-heeled. This short-term success spells long-term doom for the GOP.

Or so I hope.

Oops- I guess in the short run, I got that wrong. And ultimately, I think mainstream liberal commentators like Ezra Kleinare much more likely to be right, than are those who think unions will miraculously resurge (like me in 2011):

Wisconsin’s new law won’t, on its own, radically change the power of public-sector unions. But Walker’s ability to withstand the recall will likely spur other governors to follow suit, and likely drain the enthusiasm of the opposition in other states. And even if it doesn’t, labor’s inability to win the recall is more evidence of their inability to reverse their own structural decline. They’re not winning on worksites, as the share of the labor force that’s unionized has been dropping for decades, and they’re not winning at the ballot box.

Let’s rewind to 2008- at the time, the talk of the labor left was the Employee Free Choice Act, which would have made organizing unions much easier. The economy collapsed, Obama and the Democrats achieved a supermajority, and it still couldn’t become law. Indeed, with that example in mind, it’s hard to imagine how labor can make a comeback. I don’t know what progressive institution, if any, can fill the void. But either way, here I am in 2012, eating crow and searching for answers.

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Minimum Wage aren’t Living Wages

The National Low Income Housing Coalition has put together the map above (h/t NYT) that underscores the real impact of inequality in our society. In a sentence, it shows the the rent is too damn high and the wages are too damn low.

In fact, there is no state in the country where a 40-hour minimum-wage worker can affordably rent a two-bedroom apartment (at fair market rent). In fact, in about half the states, even two 40-hour minimum-wage workers can barely afford that. This is why, pre-crisis, many activists focused on the fact that minimum wages are not living wages (and thus, the Democrats successfully raised the minimum wage after taking Congress in 2007). Regardless of that change, the minimum wage is worth less than it was in 1968. The value of the minimum wage over time actually captures the general stagnation of lower-class wages over the last 30-40 years.

And, one personal anecdote on this: when I was at Notre Dame, before I knew much about economics, my big cause was a living wage campaign on campus that turned into a more general pro-labor and pro-union effort. We organized and organized without getting very far, and the recession hit as I was graduating, and so little has happened since. However, what first drew me in was the simple notion that a worker at a Catholic institution (or anywhere for that matter) should be able to support their family working 40 hours. Maybe that is no longer part of the social contract, and we should just focus on employment. When the economy recovers, though, the ranks of the working poor will still be huge.

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Apple, America, and a Squeezed Middle Class

I learned quite a bit about Apple from the NYTimes article by Duhigg and Bradsher. One particularly striking passage:

In mid-2007, after a month of experimentation, Apple’s engineers finally perfected a method for cutting strengthened glass so it could be used in the iPhone’s screen. The first truckloads of cut glass arrived at Foxconn City in the dead of night, according to the former Apple executive. That’s when managers woke thousands of workers, who crawled into their uniforms — white and black shirts for men, red for women — and quickly lined up to assemble, by hand, the phones. Within three months, Apple had sold one million iPhones. Since then, Foxconn has assembled over 200 million more.

This discussion about the flexibility of Chinese labor highlights that the lack of American competitiveness is not simply due to high wages and living standards in the U.S. It is the entire supply chain that makes production in China so appealing to firms. Americans would protest living in a dorm attached to their factory and being woken up at midnight to start a 12 hour shift. But that is exactly what makes China so enticing for businesses.

Yves Smith fills in much of what the article left out. But here I want to make a connection to economic theory. This article reminded me of my undergraduate macroeconomics course in the Spring of 2008. The economic crisis was just setting in, and one of my classmates asked the professor if the solution was simply to cut wages, so that American firms would be competitive again. The professors answered: “Yes. That’s right.” End of story. The same professor repeated this claim in a panel discussion on the crisis, claiming that decreasing the prices of factors of production will make U.S. firms globally competitive once again. Duhigg and Bradsher demonstrate the danger of assuming away production to a black box “production function.” The production function approach ignores supply chains and institutional arrangements surrounding production, and leads certain economists to make quite silly proclamations. Cutting wages in the U.S. will not make U.S. factories more competitive; China has an entirely different supply chain that simply does not exist in the United States.

One person who does study global supply chains and institutional arrangements is economic sociologist Gary Gereffi (note: again, interesting economics happening outside of economics departments). He also directs the Center for Globalization, Governance and Competitiveness at Duke University, which has mapped Global Value Chains in North Carolina. (The website is quite fascinating to explore.) This approach to studying the global economy looks at the supply chains, and where each stage takes place and how much value is added at each step in the process. This is a type of economic analysis, very different from what academic economists do, that should prove more useful in understanding global competitiveness and production.

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Obama’s Third State of the Union*

Some of my economics colleagues were certainly unimpressed by the President’s focus on encouraging manufacturing in the United States, and his condemnation of the outsourcing of jobs. Economists tend to have a great deal of faith in market forces, and consider the market price an accurate reflection of “all relevant information.” In economics, aiming for insourcing or encouraging particular sectors of the economy (and not others) is “distortionary” because those policies distort prices and quantities from their market price, which (sometimes!) in theory yields the most efficient price and quantity. Generally, economists have little faith in the government’s ability to “pick the winners.”

However, I found Obama’s focus on manufacturing in America, “an economy to last,” as one of the more promising aspects of the address. As I have written before, we should not ignore the benefits of the manufacturing sector in the economy. A healthy manufacturing sector not only affords well-paying jobs, which fosters a middle class, but also leads to R&D spillovers in related industries that may not even exist yet. Why are Japan and South Korea leading in lithium ion battery technology? Because electronics industries fled to there throughout the 1980s and 90s, and when it became clear that battery development would be the next global challenge, they were already far ahead. The U.S. is trying to catch up, but we are starting for our own goal line.

A great deal of research supports these arguments. One of the classic works on global competitiveness is Alice Amsden’s Asia’s Next Giant, which challenges the conventional wisdom that liberalization and market forces caused South Korea’s economic boom. Amsden attributes Korea’s success to a strong government that supported the manufacturing industry and worked with firms to import key technologies and train workers with relevant skills.

And this brings me to a second key aspect of The President’s address: the relationship between market and government. He is the first president in my lifetime to recognize that it is not about government vs. the market. (Even Bill Clinton favored a small government and lower taxes.) Obama’s speech recognized that the market and the government needed to support each other in order for our economy to succeed. The two are intertwined, and by supporting each other can achieve higher economic outcomes and realize more competitive firms. The debate should not be about whether responsibility lies with the government or the private sector to create jobs; the economy should not be understood as something apart from or in opposition to the economy. Rather, the government can support and even initiate certain desirable industries, so that we may achieve a healthy and resilient economy:

Think about the America within our reach. A country that leads the world in educating its people. An America that attracts a new generation of high-tech manufacturing and high-paying jobs. A future where we’re in control of our own energy, and our security and prosperity aren’t so tied to unstable parts of the world. An economy built to last, where hard work pays off, and responsibility is rewarded.

*Third because the 2009 address shortly after Obama’s inauguration was technically not a state of the union.

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De Nada

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Stimulus: yes, but it’s not enough!

The American Jobs Act would provide much needed stimulus to our ailing economy. However it is more like putting a bandage over the deep flesh wounds inflicted by globalization over the past two decades. The U.S. economy needs to be fundamentally restructured in order to address the prolonged recession in a sustainable way, a restructuring that involves political, legal, and business institutions. More stimulus is no silver bullet.

Germany provides a wonderful example of how a society can fight back and protect itself from the damaging effects of the spread of the market economy, (á la Karl Polanyi). Instead of just giving away manufacturing industries as the United States did, Germany took a very active role in preserving manufacturing. They have an entirely different institutional environment. Corporate boards have labor representation, the government works to encourage industries that provide jobs that they want in Germany, and the corporations are not chasing extraordinary short term profits like we do in the United States as a result of mandatory quarterly reports and their influence on the capricious stock market.

While it is important not to romanticize manufacturing, we must not ignore its benefits. Maintaining industry has had massive benefits for Germany. While unemployment is higher than it was before the crisis, it is much lower that we are still suffering in the U.S. (by some est., 6% vs. 9% in the U.S.).  Industry provides jobs for middle skilled laborers; these jobs have left the U.S. and left a growing gap in income – and this is the cause of the disappearance of the middle class that everyone is talking about but no one understanding. In addition, R&D activities have been shown to follow manufacturing; certainly it is not difficult to imagine the benefits of having the research teams in close proximity to the manufacturing process. It is only a matter of time before R&D and “high tech” jobs also leave the U.S. in pursuit of the industries, unless we do something to protect our economy.

There are other spillovers, too. The article linked above details how German companies are exporting kitchens to China. These companies build the kitchens to fit European size ovens, which are smaller than American ovens. This has essentially blocked all competition from American companies that might want to export ovens to China, and has paved the way for a boom in German oven businesses as well.

The restructuring necessary for the health of the U.S. economy will require a multifaceted institutional reform, that includes the political system, the legal system, and the stock market.

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“The Jobless and Wageless Recovery”

Steven Greenhouse, who generally covers labor issues for the NYT, has a blog post about a new paper on the current “jobless and wageless recovery.” The authors (Andrew Sum, Ishwar Khatiwada, Joseph McLaughlin, and Sheila Palma, from the Center for Labor Market Studies at Northeastern University) present the most comprehensive statistics I’ve seen on how capital has recovered in lieu of labor. The chart below, for example, shows that 92% of national income growth has gone to corporate profits in the current recovery.

The same dynamics that led us into the crisis are leading us forward in stagnation. There is no reason to expect a vibrant recovery in consumption if all gains in output and productivity are going to corporations, while government money is running to the sidelines.

The authors don’t delve into what’s causing this dynamic, but it should be obvious to anyone who has followed American political economy in the last 3 decades. Corporations simply have too much power in economic and political spheres. American workers and voters are no longer organized to fight this power. I originally saw the election of 2008 as a correction from the usual feedback loop, and it certainly has been in some ways, but certainly not to the extent that is needed.

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How I Would Reinvent Capitalism

The Nation had 16 activists respond to the question, “If you had the ability to reinvent American capitalism, where would you start? What would you change to make it less destructive and domineering, more focused on what people really need for fulfilling lives?” Three of them resonated with me in particular: Chris Macklin on employee ownership, Dirk Philipsen on how we measure prosperity, and Eugene McCarraher on our “moral imagination.”

I’m not going to block-quote them, however- instead, I’ve put in my own reader submission (limited to 400 words), which the magazine is soliciting from its readers. You’ll see that it attempts to weave together concepts from all three of these columns:

Capitalism’s defining quality is evident in its name- capital, not labor, nature, or morals, is put above all else. This preeminence of capital has ramifications for how we produce, consume, earn, save, and tally it all up; I argue that it causes problems in each of these facets of our economic life. Often, people confuse capitalism with markets (free ones in particular). Instead, I think capitalism has a few distinctive consequences: 1) surplus is distributed by those who own, not those who work and make; 2) more consumption is always better; and 3) anything “outside” the economy, like the environment, may as well not exist.

Capital is relevant to these features because it means that the production process can be owned, and thus the fruits of it can be immediately taken from the hands that produce it. As a corollary, this means that to profit, those who own capital must sell as much as possible, some of which is indeed bought back by those who make the goods. And finally, capital seeks its return without any regard to destruction that it doesn’t have to pay for, like ozone depletion or disappearing wetlands.

As long as capital remains preeminent, we cannot remake capitalism. Instead, we need to gradually remake economic structures to chip away at capital’s power. Giving workers stock ownership is one small step, but giving workers complete control over their enterprise is a more radical fruitful step. It would mean that production and consumption would be more tightly linked, as the amount one consumes would be more in line with what one produces. Lavish consumption would not disappear entirely, but would be made scarce. Remeasuring economic value to include environmental externalities is another small step, but forcing these externalities into pricing through democratically-decided taxes is a larger and more fruitful step (and I guarantee, a worker-run Chamber would fight it a lot less).

These steps must be supported by increased class consciousness through education.  The value of worker ownership and environmental stewardship are obvious to their beneficiaries; demonstrating that capital’s dominance stands in the way of these benefits is critical. A class-conscious society will support economic structures that value labor and value nature, not just profits. Changing capitalism does not mean removing markets or destroying property, but rather reshaping production and consumption markets so economic value is not distorted by power divides between capital and other.

How would you remake capitalism?

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