Momentous change is approaching in American politics. Conceivably, the turning point has already arrived, too indistinct to recognize. We are witnessing the demise of the reigning economic ideology. A deep shift of this kind is a very rare event, one that comes along only every thirty or forty years. Economic disorders accumulate that the orthodoxy cannot answer and may even have caused. Eventually, the ideological presumptions are discredited by real-world contradictions.
The last time this happened was in the 1970s, when economic liberalism foundered and collapsed. Ossified intellectually, unable to adjust to changed circumstances, the liberal order did not know how to deal with economic consequences like inflationary stagnation. As the long postwar prosperity lost its energy, so did liberal politics.
Something similar is happening now to the Republicans. Their problem is the underperforming economy, which must borrow to stay afloat and, roughly speaking, lifts only half the boats. The conservative order–inspired two generations ago by Milton Friedman and Friedrich von Hayek and brought to power by Republican ascendancy–pushed government aside so business and capital would be free to generate more lasting prosperity. But their utopian promise was not fulfilled. Instead, the right’s principal product, one can say, was economic inequality.
The breakdown won’t necessarily produce an immediate shift in power. When the bottom fell out of liberal doctrine thirty years ago, what first unfolded was confusion and political paralysis, then an awkward retreat by the Democrats until they were finally displaced by the aggressive new conservatives under Ronald Reagan. But it does mean that Republicans have lost the political cohesion to advance their more extreme measures (privatizing Social Security, freeing capital entirely of taxation).
More to the point, the way is now open for alternative thinking: the new ideas that can lead to a new governing order. These ideas must be grounded in a determination to give people back their future. The strange paradox of our times is that despite America’s fabulous wealth, most people’s lives are shadowed by economic anxieties and real confinements, the wounds that market ideology has imposed. They fear that much worse is ahead for their children. Reform must re-establish this fundamental principle: The economy exists to support society and people, not the other way around. Only government can liberate them from the harsh rule of the marketplace, the demands imposed by capital and corporations that stunt or stymie the full pursuit of life and liberty in this complex industrial society. This very wealthy country has the capacity to insure that all citizens, regardless of status or skills, have the essential needs to pursue secure, self-directed lives. This starts with the right to health, work, livable incomes and open-ended education, and to participate meaningfully in the decisions that govern their lives. The marketplace has no interest in providing these. It is actively destroying them.
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A coherent alternative agenda that will fulfill these principles does not yet exist. Nor will a liberal-progressive program emerge miraculously if the Democratic Party should somehow regain power in the next few years, since many Democrats in Congress have internalized the market ideology and collaborate with the right. But elements of that alternative agenda are already ripe for discussion. Before we explore some of them, however, we should examine the economics of why the right failed.
History’s Goat
The economic engine is running on empty. It looks robust only if you ignore the underlying conditions. Household savings were negative last year for the first time since 1933; that is, families kept up by spending more than they earned and by borrowing to do so. The national economy, encompassing private-sector business and government as well as households, also had negative savings in the fall quarter of 2005, despite bountiful corporate profits.
The household accounting reflects a common reality: Wage incomes, adjusted for inflation, are stagnant or falling. The weekly wage for 92 million people in nonsupervisory jobs (82 percent of the private-sector workforce) has declined for three consecutive years, largely because total working hours shrank across the economy. Even per capita income–a broader measure that includes the billionaires–declined for four years in a row under Bush. One in six manufacturing jobs has been lost since 2000 (39 percent in communications equipment, 37 percent in semiconductors). These losses are explained as free-market “efficiencies” but mainly represent the global relocation of American production.
The cumulative effect is an economy that doesn’t produce enough to pay for what it wants and needs. The conservative order, notwithstanding its proclaimed values, makes up the difference by borrowing. In five years, Bush has added $2.5 trillion to the federal debt with more to come (thanks to his regressive tax cutting, deficit spending, the war in Iraq and the subpar economy). In the same five years, the national economy as a whole took on even more debt–$2.9 trillion–to pay for the ever-swelling trade deficits. The creditors are our trading partners, led by China and Japan. The collective indebtedness is growing much faster than the nation’s collective income–always an ominous sign for a debtor. George W. Bush may wind up as history’s goat because he had the bad luck to inherit the effects of twenty-five years of rightward governance (including Bill Clinton’s tenure). Government shifted tax burdens downward, favored military spending over productive domestic investment, encouraged multinationals to disperse jobs and production overseas and embraced the Federal Reserve’s hard-money monetary policy, which suppressed working-class wages. Fortunes were shifted upward, fabulously.
The era produced a great ideological irony: Starting with Reagan, the right repeatedly finessed its contradictions with debt–the borrow-and-spend “sin” they once assigned to liberalism. In 1981, Reagan’s first year as President, the federal debt surpassed $1 trillion for the first time ever. Twenty-five years later, despite fiscal restraint under Clinton, the federal debt has surpassed $8 trillion.
The Republicans now find themselves in a corner with no good choices. If Bush withdrew the stimulus of federal deficits, economic growth would collapse. The sensible course would require a massive shift in priorities–moving money and benefits from the wealthy few to the struggling many–but that is ideological heresy and would double-cross the GOP’s monied patrons. Bush could confront the huge trade deficits by imposing unilateral limits on imports, but that is also a humiliating heresy he won’t touch. So conservatives are likely to muddle on, hoping the economy will somehow work itself out of its weaknesses. Progressives should get busy now developing alternative ideas for the major shift that must inevitably follow.
For Life and Liberty
You wouldn’t know it from reading the newspapers, but substantial and often overwhelming majorities of Americans have repeatedly endorsed governing concepts that conventional politicians dismiss as radical or unrealistic: Universal healthcare. A job for everyone who wants to work, guaranteed by the government. Secure retirements. Stronger enforcement of environmental laws. Stronger defenses against encroaching corporate power. Union protection for workers against exploitative employers. The list goes on. These widely endorsed goals assume an activist government that nurtures people and society first, ahead of corporations and capital. Imagine a political agenda that sets out to give the people what they say they want.
The heart of the problem is the deterioration of work and wages. There are many other elements damaging the pursuit of life and liberty; but as old-school liberals always understood, if wages and working conditions are not moving in the right direction, you won’t accomplish much toward healing other social injuries and disorders. What follows is a short list of provocative ideas meant to stimulate imaginations.
§ Repair wages. This should start with government acting as the “employer of last resort” and involves a large and permanent program of federally financed jobs, open to anyone ready and willing to work and closely integrated with skill training and education. For most workers, the public jobs would be temporary, a safe harbor until opportunities improve in private employment. What might the people do? Any work that helps address the vast inventory of unmet public needs–a broad program of public investment that rebuilds neighborhoods, reclaims ruined ecosystems or restores production. Local citizens and governments would choose the priorities, not Washington.
The most dramatic benefits would obviously accrue to the poor–injecting jobs with reliable (and legal) cash incomes into desolate urban and rural communities, a financial platform to stimulate private enterprise and redevelopment. Young people could hold part-time public jobs, conditioned on staying in school, and bring cash home to the family, while getting hands-on experience and productive skills–a powerful alternative to dead-end lives. The federal job guarantee would also bolster the broad working class: a new safety net for the people displaced by recessions, offshoring or corporate downsizing. Wages could be scaled upward for the public jobs, based on the skill levels involved, and the displaced industrial workers would have access to retraining.
Above all, a permanent program of public employment, properly conceived, would boost wages. It would mop up surplus labor (about two times larger than official unemployment) and create a new wage floor, generating upward pressure in the labor market. In a more bountiful era, this might seem unnecessary, even inflationary. But today’s economy has things upside down: It proliferates the low-wage service jobs that cannot sustain families, while it gradually eliminates the high-wage manufacturing jobs that provide middle-class incomes. Public jobs, together with a sustained campaign to raise the minimum wage and other measures, would gradually shift the flow of rewards in the other direction.
Employers will not like this, obviously, and will argue that rising wages are bad for the economy–higher prices, lower profits. But is that really so? The steady deterioration of working-class wages over the past thirty years did not produce a healthier economy. Someone should ask working people whether they would choose cheaper prices at Wal-Mart or better incomes for themselves. The current labor market does indeed benefit the more affluent Americans who have been enriched by what happened to the price of labor. Now it is time to reverse the flow and heal the wounded–that is, restore a balanced prosperity.
§ Deregulate labor. The destruction of worker rights (the right to organize a union, established by the 1935 National Labor Relations Act) is a great failure of regulatory government and a critical factor in the deterioration of wages and working conditions. Union density has declined to 8 percent of the private-sector workforce, yet a poll last year found that 53 percent of workers would like to be represented by a union–if they could. The gap between aspirations and reality is maintained by systematic and often illegal corporate tactics that block workers from exercising their rights.
One answer might be to eliminate the National Labor Relations Board–free the workers of regulation. Federal law and regulators are quite lame in policing the corporate illegalities, but workers and unions are prohibited by law from using effective tactics like secondary boycotts, sit-down strikes occupying workplaces and mass mobilizations. A newly enacted labor law would be grounded in constitutional rights–free speech, freedom of assembly, the Thirteenth Amendment prohibiting involuntary servitude–rather than politically vulnerable regulatory law.
Rethinking labor rights is another opportunity to build bridges across class differences by creating a broader set of rights that apply to all employees, regardless of union status. That would involve basic protections against managerial abuses, and also new rights of self-expression and the right to participate in decision-making within the firm. The best companies already do this, because they know the free flow of information among employees stimulates innovation and efficiency reforms. Labor law effectively inhibits unionized workers from even meeting with nonunion colleagues without the boss’s consent.
Ultimately, labor-law reform should encourage an economy of worker ownership in which employees share responsibility for the firm with management and share more equitably in the returns. The top-down corporate structure is a major source of inequality. Does anyone imagine that employees, if they had a voice, would ratify the scandalous executive pay for CEOs?
§ Tax corporate behavior. Major corporations used to be part of the liberal social contract. They were the institutional partners that distributed health insurance, pensions, labor guarantees and other progressive benefits to workers and communities (reimbursed by federal tax deductions). But during the last generation, companies have resigned from this role, turning on their employees and extracting “profit” by expropriating the value that belonged to their workers: wages, pensions, healthcare benefits and good working conditions.
Government has to step in and fill the void to avert social calamity. The old arrangement helped build the middle class, but it was never as good as it sounded. Roughly half the country was left out. Moreover, the voluntary nature gave managements the power to set the terms–and the freedom to break promises–which were challenged only by unions.
Universal health insurance is the most pressing imperative because health costs continue to soar as the burden is shifted to employees. Pensions may become a larger crisis in the long run. The right’s twenty-five-year experiment with individual pension accounts has failed, leaving even middle-class workers unprepared for retirement. Instead of tinkering with the failed concept, reformers should create an entirely new national pension: universal, mandatory savings under government supervision that, alongside Social Security, will insure comfortable retirement for all. One model is the pension plan already enjoyed by federal employees and members of Congress [see Greider, “Riding Into the Sunset,” June 27, 2005].
Companies need to pay, meanwhile, for their antisocial behavior. They collect hundreds of billions in tax breaks and subsidies, yet abuse society in return–degrading the environment and communities, ignoring the national interest, offloading their obligations. Corporate taxation has declined since the 1960s from more than 20 percent of federal revenue to less than 10 percent. Despite their profitability, scores of major corporations pay zero taxes (some even collect refunds). One plausible remedy is to refashion the corporate income tax as an important new mechanism for enforcing corporate obligations to society. Imagine a reformed tax code that clears away all the corrupted loopholes and sets the basic corporate tax rate higher, at around 45 percent.
Corporations would then be able to reduce their tax liability–perhaps by 15 points or more–by demonstrating that their performance adheres to higher social standards. Does the company, for instance, increase wages for workers in step with its rising productivity, as economists assume, or does it pocket the money for the insiders and shareholders? A positive record could knock several points off the tax rate. Does the company have an egregious history of trashing environmental laws or fraudulent dealings in financial markets? It would be ineligible for reductions. If the company is increasing its American workforce, augmenting pensions and healthcare, encouraging democratic relations with employees, it could be rewarded at tax time. This leverage would penalize bad behavior at the bottom line and reinforce the tattered regulatory laws. The performance ratings would be public–a “market signal” that tells investors and consumers which companies are the white hats and which are the rogues.
§ Develop an industrial policy for essential needs. Economic deregulation produced real economic gains, like stimulating technological innovation, but it also fed inequality in sly ways. The deregulated system raised costs for the least affluent, while larger business customers were able to bargain for lower prices. Financial deregulation (enacted by Democrats in 1980) legalized usurious lending and created a large pool of families (now around 12 million) who can’t afford a bank account and get ripped off by predatory lenders. Deregulation of electric u tilities led to Enron and the price-rigging scandals. That sector, meanwhile, notoriously ignores its culpability for producing global warming.
The point is, some consumer goods are too essential to be left to the profit-seeking enthusiasms–and reckless disruptions–of private enterprise. People need them to live and are thus always prey to exploitation. Family finances will benefit and so will the environment if government selectively re-regulates industrial sectors producing for essential needs: banking and finance, energy, elements of transportation and telecommunications, for starters.
The basic approach is restoring a franchise relationship in which firms accept government-imposed obligations in exchange for limited competition and an assurance of moderate profits. Market space can be preserved for smaller, innovative firms. New rules can avoid the inflexibilities of the old system. But the notion that corporations have a right to annex common public assets and turn them into profitable commodities has to be stopped. Companies are buying the water. What’s next–selling us clean air?
A prime candidate for essential-needs regulation is the drug industry. Among its many outrages, the drug companies ride free on the expensive basic research financed by government, then convert it into private, overpriced products–paying nothing at all back to the original financiers, the taxpayers. If citizens ever understood this scam, they would be angry enough to demand a nationalized drug industry. At the very least, citizens are entitled to reasonable pricing and a share of the profits from the medicine they paid to create.
Re-regulation of commerce also requires some rules accepted as everyday practice in business. When government hands out public money to a company, it should demand an enforceable contract: written agreement from the corporate recipient about what the public gets in return and the right to recover the money if the agreement isn’t fulfilled. When government puts up public capital for a private development as tax breaks or infrastructure, it should get equity in return. If businesses don’t like these terms, they don’t have to take the public’s money.
These ideas and others can gain political traction if reformers reclaim the language of freedom. It starts with a liberating message for people: The failure lies in the system, not yourselves. When the conservative order stripped away government protections for society, control was handed over to another master–the marketplace–that is even more remote from accountability and far less sympathetic to the human condition. That old order is collapsing. Now life and liberty can be restored. Government helps by creating the proper foundations. People will do the rest for themselves.
