Steve Jobs, Google CEO plotted ‘gentlemen’s agreement’ to keep wages down

RT
Published time: January 25, 2014

Two of the most powerful people in the technology world secretly and perhaps illegally coordinated business strategies in which they agreed not to poach each other’s employees, thereby keeping salaries low, according to emails unveiled in federal court.

Apple founder Steve Jobs and Google CEO Eric Schmidt apparently kept a secret pact to institute a “no-hire” policy in which each executive promised not to recruit each other’s workers. Yet the tech superstars are just two of the business leaders to be implicated in the wink-wink agreement, which reportedly included Google, Apple, Intel, Adobe, Intuit, and Pixar.
According to Pando Daily journalist Mark Ames, the scheme began in early 2005, when the need for Silicon Valley engineers was at an all-time high. The deal’s consequences became so pervasive that the US Department of Justice launched an antitrust investigation in 2010, which laid the groundwork for a class action lawsuit filed on behalf of more than 100,000 Silicon Valley employees who allege they were deprived of over $9 billion since 2000.

The US 9th Circuit Court of Appeals refused to throw out the class action suit over the objections of executives at Apple, Google, Intel, and Adobe. The emails in question were unsealed Tuesday by Judge Lucy Koh, the same judge who presided over the Samsung-Apple patent lawsuit.

Jobs, who died in 2011, seems to be the principal architect behind the illegal conspiracy. Yet Schmidt, according to an email from Google senior advisor Bill Campbell dated February 27, 2005, “got directly involved and firmly stopped all efforts to recruit anyone from Apple.”

Schmidt is also said to have told his Senior Vice President for Business Operation Shona Brown to only mention the pact “verbally, since I don’t want to create a paper trail over which we can be sued later.”

Google founder Sergey Brin was also strong-armed when he approached members of Apple’s Safari team about working for Google. Jobs, in an emailed quoted by Pando Daily, cited the “gentlemen’s agreement” when threatening Brin, stating: “If you hire a single one of these people that means war.”

Testifying in court, former Palm CEO Edward Colligan said Jobs enforced the no-poaching policy by threatening to hire away Palm employees, or worse.

“Mr. Jobs also suggested that if Palm did not agree to such an arrangement, Palm could face lawsuits alleging infringement of Apple’s many patents,” Colligan said.

Colligan swore he told Jobs the scheme was “likely illegal” and that Palm Inc. – a computer hardware firm eventually obtained by HP – would not be “intimidated” by a patent battle.

“If you choose the litigation route, we can respond with our own claims based on patent assets, but I don’t think litigation is the answer,” Colligan testified to telling Jobs, as quoted by Reuters.

A jury trial has been set for May 27 in San Jose, California.

The Year of the Great Redistribution

Robert Reich

One of the worst epithets that can be leveled at a politician these days is to call him a “redistributionist.” Yet 2013 marked one of the biggest redistributions in recent American history. It was a redistribution upward, from average working people to the owners of America.
The stock market ended 2013 at an all-time high — giving stockholders their biggest annual gain in almost two decades. Most Americans didn’t share in those gains, however, because most people haven’t been able to save enough to invest in the stock market. More than two-thirds of Americans live from paycheck to paycheck.

Even if you include the value of IRA’s, most shares of stock are owned by the very wealthy. The richest 1 percent of Americans owns 35 percent of the value of American-owned shares. The richest 10 percent owns over 80 percent. So in the bull market of 2013, America’s rich hit the jackpot.

What does this have to do with redistribution? Some might argue the stock market is just a giant casino. Since it’s owned mostly by the wealthy, a rise in stock prices simply reflects a transfer of wealth from some of the rich (who cashed in their shares too early) to others of the rich (who bought shares early enough and held on to them long enough to reap the big gains).

But this neglects the fact that stock prices track corporate profits. The relationship isn’t exact, and price-earnings ratios move up and down in the short term. Yet over the slightly longer term, share prices do correlate with profits. And 2013 was a banner year for profits.

Where did those profits come from? Here’s where redistribution comes in. American corporations didn’t make most of their money from increased sales (although their foreign sales did increase). They made their big bucks mostly by reducing their costs — especially their biggest single cost: wages.

They push wages down because most workers no longer have any bargaining power when it comes to determining pay. The continuing high rate of unemployment — including a record number of long-term jobless, and a large number who have given up looking for work altogether — has allowed employers to set the terms.

For years, the bargaining power of American workers has also been eroding due to ever-more efficient means of outsourcing abroad, new computer software that can replace almost any routine job, and an ongoing shift of full-time to part-time and contract work. And unions have been decimated. In the 1950s, over a third of private-sector workers were members of labor unions. Now, fewer than 7 percent are unionized.

All this helps explain why corporate profits have been increasing throughout this recovery (they grew over 18 percent in 2013 alone) while wages have been dropping. Corporate earnings now represent the largest share of the gross domestic product — and wages the smallest share of GDP — than at any time since records have been kept.

Hence, the Great Redistribution.

Some might say this doesn’t really amount to a “redistribution” as we normally define that term, because government isn’t redistributing anything. By this view, the declining wages, higher profits, and the surging bull market simply reflect the workings of the free market.

But this overlooks the fact that government sets the rules of the game. Federal and state budgets have been cut, for example — thereby reducing overall demand and keeping unemployment higher than otherwise. Congress has repeatedly rejected tax incentives designed to encourage more hiring. States have adopted “right-to-work” laws that undercut unions. And so on.

If all this weren’t enough, the tax system is rigged in favor of the owners of wealth, and against people whose income comes from wages. Wealth is taxed at a lower rate than labor.
Capital gains, dividends, and debt all get favorable treatment in the tax code – which is why Mitt Romney, Warren Buffet, and other billionaires and multimillionaires continue to pay around 12 percent of their income in taxes each year, while most of the rest of us pay at least twice that rate.

Among the biggest winners are top executives and Wall Street traders whose year-end bonuses are tied to the stock market, and hedge-fund and private-equity managers whose special “carried interest” tax loophole allows their income to be treated as capital gains. The wild bull market of 2013 has given them all fabulous after-tax windfalls.

America has been redistributing upward for some time – after all, “trickle-down” economics turned out to be trickle up — but we outdid ourselves in 2013. At a time of record inequality and decreasing mobility, America conducted a Great Redistribution upward.

Profits Just Hit Another All-Time High, Wages Just Hit Another All-Time Low

Henry Blodget | Apr. 11, 2013 | Business Insider


In case you need more confirmation that the US economy is out of balance, here are three charts for you.

1) Corporate profit margins just hit another all-time high. Companies are making more per dollar of sales than they ever have before. (And some people are still saying that companies are suffering from "too much regulation" and "too many taxes." Maybe little companies are, but big ones certainly aren't. What they're suffering from is a myopic obsession with short-term profits at the expense of long-term value creation).

Business Insider, St. Louis Fed

2) Wages as a percent of the economy just hit another all-time low. Why are corporate profits so high? One reason is that companies are paying employees less than they ever have as a share of GDP. And that, in turn, is one reason the economy is so weak: Those "wages" represent spending power for consumers. And consumer spending is "revenue" for other companies. So the profit obsession is actually starving the rest of the economy of revenue growth.

Business Insider, St. Louis Fed

3) Fewer Americans are working than at any time in the past three decades. The other reason corporations are so profitable is that they don't employ as many Americans as they used to. As a result, the employment-to-population ratio has collapsed. We're back at 1980s levels now.

Business Insider, St. Louis Fed

In short, our current obsessed-with-profits philosophy is creating a country of a few million overlords and 300+ million serfs.

That's not what has made America a great country. It's also not what most people think America is supposed to be about.

So we might want to rethink that.

Specifically, we might want to have the goal of our corporations be to create long-term value for all of their constituencies (customers, employees, and shareholders), not just short-term profit for their shareholders.

Meanwhile, if you want to know more about what's wrong with the economy, and why our current obsession with short-term-profit is hurting all of us, flip through these charts:

AMERICA TODAY: 3 Million Overlords, 300 Million Serfs

Upward Redistribution

Why Tax Policy is Not at the Root of the US's Economic Problem

by DEAN BAKER


There has been much public discussion of who exactly pays taxes and who gets government benefits ever since Mitt Romney’s now-famous fundraising speech was made public. Almost all of this discussion has focused narrowly on what the government actually takes from people in tax revenue and what it pays out in Social Security, unemployment insurance, and other benefits. This is unfortunate, because tax and transfer policy is the less important way in which the government helps or harms people.

The set of rules the government puts in place that structure the economy redistributes far more income than its tax and transfer policy. Starting with an obvious example, the government has destroyed millions of manufacturing jobs through a trade policy that puts U.S. manufacturing workers in direct competition with low-paid workers in the developing world. This policy has also had the effect of driving down wages in other sectors as the displaced manufacturing workers are forced to compete for jobs in retail or elsewhere in the service sector.

Note that this is not free trade. There are millions of very bright people in India, China, and elsewhere in the developing world who could easily train to U.S. standards for doctors, lawyers and other highly-paid professions. They would be happy to work in the United States for half the prevailing wage in these areas, leading to large gains to consumers and the economy, but we chose not to structure our trade agreements to facilitate trade in this area.

We have also strengthened patent and copyright laws to make the monopolies granted stronger and longer. Currently we spend $300 billion a year on prescription drugs. If drugs were sold in a competitive market, we would save around $270 billion annually. This transfer from consumers to drug companies is about five times as large as the size of the Bush tax cuts to the richest 2 percent.
Labor-management policy is another important area through which the government redistributes income. In the last three decades this policy has been much more friendly to management and hostile to workers. For example, in the Chicago teacher strike, Mayor Rahm Emanuel had gone to court and threatened strike leaders with fines and imprisonment if they did not end their strike.

There are many other areas in which the rules set by the government redistribute income. In the last three decades, the direction of redistribution has been mostly upwards. If we want to have a serious discussion of makers and takers, we have to look at these rules, not just the tax code.

America’s Descent Into Poverty

The Mega-Rich and the "Useless Eaters"

by PAUL CRAIG ROBERTS

 

The United States has collapsed economically, socially, politically, legally, constitutionally, environmentally, and morally. The country that exists today is not even a shell of the country into which I was born.  In this article I will deal with America’s economic collapse. In subsequent articles, i will deal with other aspects of American collapse.

Economically, America has descended into poverty. As Peter Edelman says, “Low-wage work is pandemic.” Today in “freedom and democracy” America, “the world’s only superpower,” one fourth of the work force is employed in jobs that pay less than $22,000, the poverty line for a family of four.  Some of these lowly-paid persons are young college graduates, burdened by education loans, who share housing with three or four others in the same desperate situation.  Other of these persons are single parents only one medical problem or lost job away from homelessness.

Others might be Ph.D.s teaching at universities as adjunct professors for $10,000 per year or less. Education is still touted as the way out of poverty, but increasingly is a path into poverty or into enlistments into the military services.

Edelman, who studies these issues, reports that 20.5 million Americans have incomes less than $9,500 per year, which is half of the poverty definition for a family of three.

There are six million Americans whose only income is food stamps. That means that there are six million Americans who live on the streets or under bridges or in the homes of relatives or friends. Hard-hearted Republicans continue to rail at welfare, but Edelman says,  “basically welfare is gone.”

In my opinion as an economist, the official poverty line is long out of date. The prospect of three people living on $19,000 per year is farfetched. Considering the prices of rent, electricity, water, bread and fast food, one person cannot live in the US on  $6,333.33 per year. In Thailand, perhaps, until the dollar collapses, it might be done, but not in the US.

As Dan Ariely (Duke University) and Mike Norton (Harvard University) have shown empirically, 40% of the US population, the 40% less well off, own 0.3%, that is, three-tenths of one percent, of America’s personal wealth. Who owns the other 99.7%?

The top 20% have 84% of the country’s wealth. Those Americans in the third and fourth quintiles–essentially America’s middle class–have only 15.7% of the nation’s wealth.   Such an unequal distribution of income is unprecedented in the economically developed world.

In my day, confronted with such disparity in the distribution of income and wealth, a disparity that obviously poses a dramatic problem for economic policy, political stability, and the macro management of the economy, Democrats would have demanded corrections, and Republicans would have reluctantly agreed.

But not today. Both political parties whore for money.

The Republicans believe that the suffering of poor Americans is not helping the rich enough. Paul Ryan and Mitt Romney are committed to abolishing every program that addresses needs of what Republicans deride as “useless eaters.”

The “useless eaters” are the working poor and the former middle class whose jobs were offshored  so that corporate executives could receive multi-millions of dollars in performance pay compensation and their shareholders could make millions of dollars on capital gains. While a handful of executives enjoy yachts and Playboy playmates, tens of millions of Americans barely get by.

In political propaganda, the “useless eaters” are not merely a burden on society and the rich. They are leeches who force honest taxpayers to pay for their many hours of comfortable leisure enjoying life, watching sports events, and fishing in trout streams, while they push around their belongings in grocery baskets or sell their bodies for the next MacDonald burger.

The concentration of wealth and power in the US today is far beyond anything my graduate economic professors could image in the 1960s. At four of the world’s best universities that I attended, the opinion was that competition in the free market would prevent great disparities in the distribution of income and wealth.  As I was to learn, this belief was based on an ideology, not on reality.

Congress, acting on this erroneous belief in free market perfection, deregulated the US economy in order to create a free market. The immediate consequence was resort to every previous illegal action to monopolize, to commit financial and other fraud, to destroy the productive basis of American consumer incomes, and to redirect income and wealth to the one percent.

The “democratic” Clinton administration, like the Bush and Obama administrations, was suborned by free market ideology. The Clinton sell-outs to Big Money essentially abolished Aid to Families with Dependent Children. But this sell-out of struggling Americans was not enough to satisfy the Republican Party. Mitt Romney and Paul Ryan want to cut or abolish every program that cushions poverty-stricken Americans from starvation and homelessness.

Republicans claim that the only reason Americans are in need is because the government uses taxpayers’ money to subsidize Americans who are unwilling to work. As Republicans see it, while we hard-workers sacrifice our leisure and time with our families, the welfare rabble enjoy the leisure that our tax dollars provide them.

This cock-eyed belief, on top of corporate CEOs maximizing their incomes by offshoring the middle class jobs of millions of Americans, has left Americans in poverty and cities, counties, states, and the federal government without a tax base, resulting in bankruptcies at the state and local level and massive budget deficits at the federal level that threaten the value of the dollar and its role as reserve currency.

The economic destruction of America benefitted the mega-rich with multi-billions of dollars with which to enjoy life and its high-priced accompaniments wherever the mega-rich wish.

Meanwhile, away from the French Rivera, Homeland Security is collecting sufficient ammunition to keep dispossessed Americans under control.

Corporations Should Have Labels So We Know What We're Getting

by Ralph Gomory on Sat, 05/05/2012 ~ The Economic Populist (The Huffington Post)

In a recent article we wrote:

America today is very different from the country that fought the Revolutionary War and framed the Constitution. Then, it was a nation of farmers; today, it's a nation of corporations.

Though we are today a nation of corporations, there is remarkably little discussion about corporate actions and the impact of those actions on our lives, even though it's clear that what our corporations, especially our major corporations, choose to do affects in major ways wages, jobs, healthcare and the overall economy.

There is even less discussion on what we want from our corporations. Is it, for example, enough that their sole goals are to maximize the return to their shareholders?

This article suggests something citizens can do to spur these needed discussions and to make visible what corporations are actually doing and the effects of their actions. Here we are not calling on the government to mandate this transparency, rather we are calling on ordinary citizens and citizen organizations to act to make the actions of corporations more visible, more transparent.

Labeling the Corporation
We are used to the idea that many of the products we buy are labeled. For example, many processed foods are obliged to disclose their ingredients, and they are labeled so that we do not have to guess at what we are eating. Consumers are often encouraged to read the label, so they will know what they are buying.

Similarly, let us now insist on labeling and making visible what corporations are doing. Corporations affect us and our country through their decisions on outsourcing and on wages and pensions, and by what their goals are. Do they consider in their actions the effects on customers, their own employees, the communities in which they operate, and on the country that sustains them with its laws? Or do they only consider shareholder value?

Do they pioneer with new and valuable products, and if they do, how do they decide where those products are made? Or, in the realm of services, do they exploit the ignorance of their customers to either give them loans they cannot repay or investment advice more tailored to corporate profits than to the welfare of the customers.

Let's label corporations with labels that tell us what they are actually doing.

How to Label the Corporation
We are not talking here about physical labels attached to products that corporations make, but about electronic labels attached to the corporations themselves.

But where would these labels come from? How would they be made? What would they look like? What would they do?

An example of corporate labeling already exists. It was created by a cooperative effort between the Zicklin Center for Business Ethics Research at The Wharton School of the University of Pennsylvania and the Center for Political Accountability (CPA). While this is a label that only describes the political spending activities of corporations, the methodology can be applied equally well to other corporate actions.

Together the two organizations developed a set of twenty-nine criteria by which the corporate approach to managing, overseeing and disclosing political expenditures could be judged. The criteria covered disclosure of the range of a company's political spending -- contributions to candidates, Party committees and ballot initiatives as well as payments to trade associations and other tax exempt entities organized for political purposes -- and its policies and practices for associated decision making and oversight.

They then scored the top 100 U.S. corporations on all twenty-nine criteria, and for each company the weighted scores for the individual criteria were combined into a single rating, specifically, the CPA-Zicklin Index of Corporate Political Accountability and Disclosure.

Before the Index was made public each company was informed of its rating and had the opportunity to dialog with CPA about them. This also gave the company the opportunity to make changes in the policies and practices they were publicly posting on their website. Only after that was the rating made public. The result is that you can see today this well thought out rating of the top 100 U.S. companies on the CPA website and also, for those who want it, a detailed d of how it was determined.

We believe that something very much like this can be done for other corporate activities.
The essential step is to work out criteria about which you want information, then see what information can be obtained for each company. It was important to the CPA-Zicklin effort, that a corporation not providing information to the public on a specific criterion would result in a score of zero on that criterion and thus a lower rating when the result is made public.

We suggest that civic organizations with a particular interest, label corporations on that interest., whether that is the environment, how they treat their employees, the quality of their goods, or the degree of outsourcing. They should then develop their criteria, and gather information; not always only from the corporations.. They should then produce a publicly available rating that is easy to link to.

Modern technology makes all this possible and more. People with a particular interest in a particular company could organize a Facebook page. There could also be Smartphone apps, similar to those that already exist for comparison shopping. Pointing the camera of a Smartphone at a product would immediately reveal the company that makes it and the rating given to that company by a selected website on a selected issue.

Any and all of these actions will contribute to making visible, transparent and discussible what our corporations are doing.

We are a nation of corporations, but our press and our conventional politics do not in any systematic way make visible the effect of corporate actions on the country. Let us as citizens make up for that significant omission.

The War on Labor

Right to Work
by JACK RANDOM

“When you are approaching poverty, you make one discovery which outweighs some of the others.  You discover boredom and mean complications and the beginnings of hunger, but you also discover the great redeeming feature of poverty: the fact that it annihilates the future.  Within certain limits, it is actually true that the less money you have, the less you worry.” ~ George Orwell, Down and Out in London and Paris

As a fan of George Orwell I have grown to wonder if too many of our political geniuses misinterpreted his classic work 1984 as a how-to book on controlling the masses. Had they read his earlier autobiographical work Down and Out in London and Paris, they would have understood that Orwell was a man of the people and his sympathy was planted firmly with the poor, the outcast and the working class.

Of all the Orwellian phrases in common use these days one of the most egregious is the Right to Work. Adopted in twenty-three states, right-to-work laws effectively ban labor unions by prohibiting workers from gaining union representation by a majority vote. The Right to Work is the right of a worker to refuse to pay union dues. Because unions gain power by representing workers as a united front in negotiations with management, right-to-work laws negate that power.

As a result of these union-busting laws, unions have ceased to function and workers earn less. The average worker in a right-to-work state earns anywhere from $1,500 to $5,000 less per year than workers in other states. They receive less in health benefits, less in pension benefits and less protection from unsafe conditions or unfair dismissal.

Studies have been inconclusive on the decline of union representation as a result of right-to-work laws because unions must already have declined in order for such laws to be adopted. The law therefore serves as a substantial roadblock to rebuilding a union movement.

The war on labor does not end with Right to Work. Having decimated labor in the private sector (as of January 2011, according to Bureau of Labor Statistics, the number of union workers in the private sector fell to a 100-plus-year low of 6.9 percent), anti-labor forces have taken aim at the public sector. The tactic of choice against police, firefighters, teachers and other government employees is attacking the right to collective bargaining and binding arbitration.

To fully comprehend this attack, you need to understand that government employees are often prohibited by law from striking to achieve fair treatment in negotiations with their employers. In those cases where it is legal to strike, conscientious employees are loath to do so because of the harm it would do to students and communities. Binding arbitration by an impartial body is an alternative to the strike.

When you take away the right to fair arbitration, you leave workers at the mercy of their employers and you cut the union off at its knees.

These same politicians who yearn for yesteryear when the middle class was strong and the American dream of upward mobility was still alive, neglect to tell you that those were the days when unions were on the rise.

The peak rate of union workers in this nation was the mid 1950’s. After the experience of the Great Depression and the Second World War, Americans understood that if workers were to achieve financial security they needed representation to counter the power of corporations and bankers. Combined with the GI Bill, enabling veterans to gain a college education, the union movement more than any other single phenomenon created the working middle class.

The statistics are staggering. From a high of 35% of workers represented by a union to a low of 11.9 % today, if you wonder why wages have stagnated while corporate profits have exploded, look no further.

Both of the key strategies in the war on labor operate on the same principle: divide and conquer.

The right-to-work laws divide the workforce into those who support the union, who feel a sense of responsibility to fellow workers, who recognize the need for unity in representation against the powerful, against those who will not sacrifice a red penny of their paycheck for the common good.

The assault on collective bargaining is an attempt to divide private workers, who have already lost their union rights, against public workers, who earn more and claim greater benefits because they have retained union representation.

We are all in this fight together. If we wish to push back the most powerful force the world has ever encountered, corporate greed, we must unite against the tide. The right to organize the workplace, the right to unionize, must be fought for and defended.

We are under siege. We are the victims of a devastating fifty-year war against workers that is relentless and without mercy. The corporations have taken control of our government with unlimited sponsorship of elected officials. They have moved our industries to China, Malaysia, Indonesia and elsewhere, without any concern for the welfare of our nation or its people. They have outsourced our technology service, drafting and infrastructure planning jobs to India. They have reduced their share of tax responsibility to a minimum with offshore accounts and favorable legislation, forcing a beleaguered workforce to pick up the tab. And they have done all this with a sense of entitlement.

We are just beginning to fight back. We are beginning to understand that if we speak out in one voice, the 99 against the one, our politicians will begin to listen. We are beginning to understand that fighting for labor rights overseas will bring the jobs that are rightfully ours back home.

China does not own America.

The low point in this war on labor was in 2010 when the anti-labor forces took control of our legislatures but they overplayed their hand. In 2012 we must take back control and reverse the course of the nation.

The corporations do not own us.

The first part of the labor agenda must be to strike down right-to-work laws in the 23 states that now embrace them. The most efficient means is a federal law affirming the principle of majority rule as fundamental to the rights of labor. Barring that, states that uphold the rights of labor should establish a policy of preference to those states that do the same. Right-to-work states should be held to account. States that fail to acknowledge the basic right to organize the workplace should pay a price.

The second part of the labor agenda should be an affirmation of the right to collective bargaining and binding arbitration as an alternative to the general strike. Again, federal law is the most efficient means to this end but state alternatives should serve to provide motivation should the federal government fail.

The corporations that have taken control of our government will cry foul. They will accuse us of class warfare to which we will reply: yes, but now we are fighting back.

Lockouts: The Empire Strikes Back

Tuesday, February 14, 2012 by Common Dreams
by David Macaray

If you’re looking for evidence of just how confident, militant, and insufferably arrogant companies have become in recent years, look no further than the phenomenon of the lockout. A lockout is where a company closes its doors, refusing to allow its union employees to return to work until they accede to company demands—demands that typically call for staggering cuts in wages and benefits.

Unlike strikes—which, as the ultimate manifestation of employee dissatisfaction with management, are a universally recognized form of protest—lockouts are a form of extortion. A lockout represents an unambiguous threat, an ultimatum. Management figuratively places a gun to the employees’ heads and says, Take it or leave it.

There was a time not long ago when strikes were a regular part of the American economic landscape, and when, conversely, lockouts were about as scarce as hen’s teeth. In fact, lockouts were practically unheard of. But given that the business world has been recalibrated—and given the availability of replacement workers, part-timers and temps, coupled with the weakening of state and federal labor laws—strikes are now relatively uncommon, and, in a reversal, lockouts have become management’s new weapon of choice.

One of the uglier incidents occurred recently at Caterpillars’ London, Ontario, facility. After the membership refused company demands that they accept a whopping 55-percent wage cut, plus the elimination of the pension plan (along with other take-aways), the plant’s 465 production workers were abruptly locked out. No further negotiating, no compromises, no mediation; the company went directly to lockout mode. Then, after a 6-week lockout, Caterpillar announced it was shutting the plant down for good, and that everyone had lost their jobs. That’s what we politely meant by businesses “recalibrating.”

Strikes have always had a distinctly schizoid nature, being both dreaded and embraced, glorified and vilified Traditionally, when workers in a viable facility (i.e., one making a healthy profit) reached the point in contract negotiations where the company refused to budge, they hit the bricks. They shut the place down, walked off the job, thereby depriving the company of the ability to make a profit, and, very importantly, sacrificing their own economic well-being by no longer earning a wage or receiving benefits.

Because the stakes are so high, strikes have always been rightly regarded as spooky, monumental undertakings. While some strikes have been successful, many—perhaps most—have not. But successful or not, strikes need to be recognized as labor’s only real weapon. Depriving management of the opportunity to make money is the only bullet in the chamber; everything else is theatrics. Other than striking, what’s a union going to do to get the management’s attention—threaten to stand on the front lawn and scream insults through a megaphone?

Here’s a true story. In 1983 I was part of a union negotiating team that called a strike against a major manufacturing company, an action that put more than 700 men and women out on the street. It was a chaotic scene. Even though we got a 96-percent strike authorization vote prior to the shutdown, once the real thing happened, and the hammer dropped, people were understandably frightened and anxious. The strike lasted 57 days.

Looking to nip any problems in the bud, we immediately contacted the company’s HR rep and made clear our views regarding people crossing the picket line. Although we were a tight local, and didn’t anticipate scabs, you never know what people will do in a crisis. We told the company that if they allowed scabs to cross, we would be forced to retaliate by taking out full-page ads in local newspapers, exposing the company’s greed and stubbornness, and calling them bad names.

They didn’t take our peremptory salvo well. The strike was barely four hours old, and tensions were already running high. They told us to shut up, mind our own business, and not presume to lecture them on how to run their operation. But they also informed us that they had no intention of allowing people to cross over, believing that allowing people to cross would create more problems than it solved. We believed them.

But within a week or two, a handful of our guys tried to do just that. They approached at night (it was a 24-hour operation) hoping they wouldn’t be observed, and asked to be put to work. When the company refused, it occurred to them that being denied entry might very well constitute a “lockout.” While it was a known fact that strikers weren’t entitled to unemployment benefits, wouldn’t “locked-out” employees be eligible?

They went down to the unemployment office and made their case. They told the duty officer that even though their union had called a strike, they themselves wished to continue working, but the company wouldn’t let them. “Doesn’t that mean that this is a lockout and not a strike?” they asked eagerly. The duty officer seemed puzzled. She thought about it a moment and answered: “What’s a lockout?”

Unemployment is dropping! Explained by Abbott & Costello

COSTELLO:   I want to talk about the unemployment rate.

ABBOTT:   Good Subject. Terrible times. It's 9%.

COSTELLO:   That many people are out of work?

ABBOTT:   No, that's about 20%.

COSTELLO:   You just said 9%.

ABBOTT:   9% Unemployed.

COSTELLO:   Right 9% out of work. 

ABBOTT:   No, that's about 20%.

COSTELLO:   Okay, so it's 20% unemployed.

ABBOTT:    No, that's 9%...

COSTELLO:   WAIT A MINUTE. Is it 9% or 20%?

ABBOTT:    9% are unemployed. 20% are out of work.

COSTELLO:   IF you are out of work you are unemployed.

ABBOTT:    No, you can't count the "Out of Work" as the unemployed. You have to look for work to be unemployed.

COSTELLO:   But they ARE out of work!!!

ABBOTT:   No, you miss my point.

COSTELLO:   What point?

ABBOTT:   Someone who doesn't look for work, can't be counted with those who look for work. It wouldn't be fair.

COSTELLO:   To whom?

ABBOTT:   The unemployed.

COSTELLO:   But they are ALL out of work.

ABBOTT:   No, the unemployed are actively looking for work... Those who are out of work stopped looking. They gave up because there were just no prospects for them and they became discouraged. And, when discouraged workers give up, they are no longer in the ranks of the unemployed.

COSTELLO:   So if you're off the unemployment roles, that would count as less unemployment?

ABBOTT:   Unemployment would go down. Absolutely!

COSTELLO:   The unemployment just goes down because you don't look for work?

ABBOTT:   Absolutely it goes down. That's how you get to 9%. Otherwise, it would be 20%. You don't want to read about 20% unemployment, do ya?

COSTELLO:   That would be frightening.

ABBOTT:   Absolutely.

COSTELLO:   Wait, I got a question for you. That means they're two ways to bring down the unemployment number?

ABBOTT:   Two ways is correct.

COSTELLO:   Unemployment can go down if someone gets a job?

ABBOTT:   Correct.

COSTELLO:   And unemployment can also go down if you stop looking for a job?

ABBOTT:   Bingo.

COSTELLO:   So there are two ways to bring unemployment down, and the easier of the two is to become discouraged and just stop looking for work.

ABBOTT:   Now you're thinking like a politician.

COSTELLO:   I don't even know what I just said!

A Generation of CEOs Who Don't Know How to Raise Wages

Monday 24 October 2011

by: Dean Baker, Truthout | Op-Ed 

Those who follow the rants from our business leaders and their allies in politics and the media have been struck by a disquieting cry in recent months. We have been repeatedly told that, even though we have more than 25 million people unemployed or underemployed, businesses are unable to find qualified workers. 

For example, last week New York Times columnist Thomas Friedman took us to Illinois, where Doug Oberhelman, the CEO of Caterpillar, one of the largest companies in the country, complained that he could not find qualified hourly workers for his manufacturing facilities. Oberhelman went on to complain that he also could not find engineering service technicians, or and even welders.

 

Friedman also recounted a conversation with Chicago's new mayor, former Obama chief of staff Rahm Emanuel. According to Friedman, Emanuel complained about "staring right into the whites of the eyes of the skills shortage." Friedman recounts a story from Emanuel about two young CEOs in the health care software business who claimed that they have 50 job openings today, but can't find the people.

There are many other accounts like the ones in Friedman's column, of businesses who find their growth prospects stunted by their inability to hire good workers. Two parts to this story should bother people.

First, in spite of all the complaints in the media about businesses not being able to find good workers, this problem doesn't seem to show up in the data. According to the Bureau of Labor Statistics (BLS), the overall ratio of job openings to existing jobs is just 2.3 percent. This is down by almost a third from its pre-recession level.

Mr. Oberhelman's experience at Caterpillar doesn't seem to be common among his peers; the job opening rate in manufacturing is just 2 percent. Even in professional and business services, the category that would likely include the workers that the software execs wanted, the job opening rate is just 3.5 percent, down by more than 25 percent from pre-recession levels.

As a group, employers also don't seem to see inadequate worker skills as a problem when asked in surveys.  The National Federation of Independent Businesses has been asking its members about the biggest problems they face for more than a quarter century. In the most recent survey, only 6 percent listed labor quality as one of their top problems. This is up from the 3 percent at the trough of the downturn, but down sharply from the 24 percent peak reached more than a decade ago.

While the experience of CEOs cited by Friedman might appear to be atypical since it is not reflected in the data, there is another aspect to the problem that is even more disconcerting.

These CEOs apparently do not know how a business is supposed to respond to the inability to find qualified workers.

According to standard economics, when businesses can't fill job openings, they are supposed to offer higher wages. If these businesses offered higher wages, then they could lure away workers from their competitors. They may also be able to attract workers from other states, or even other countries. Certainly there are workers somewhere in the world who have the skills that are needed to work at Caterpillar or at software firms run by Mr. Emanuel's friends. If these CEOs raised wages high enough, then these workers would be willing to work for their companies.

However, for some reason, they have not chosen to raise wages to the market clearing level, and, therefore, can't get the workers they want. Apparently, these CEOs do not know how to raise wages.

This inability to raise to wages is also reflected in the data. There is no major occupation group that has seen substantial increases in real wages over the last decade. Even college graduates as a group (excluding those with a postgraduate degree) have not seen an increase in real wages over the last decade. This indicates either that there is no problem of skills shortages, or that companies are increasingly being run by CEOs who do not know how to increase wages.

Since it would be rude to imply that CEOs are not being honest when they complain about the lack of skilled workers, we should assume that they don't know how to raise wages. This is a problem that could be easily remedied. The government could offer short courses to CEOs and other top executives that would teach them how to raise wages and why this would be beneficial to their firms.

These raise-waging instruction sessions should not be very expensive; even the thickest CEO could probably learn how to raise workers' wages in a day or two. Most state and local governments could afford the cost, which should be easily repaid in stronger growth when employers learn how to address their skills shortage.

Companies should not have to forego expansion and workers should not have to be unemployed just because CEOs don't how to raise wages. The skills shortage problem can be fixed.

How Far We’ve Fallen

The Deadly Two-Tier Matrix

by DAVID MACARAY

 

How many stockbrokers, lawyers, bankers, accountants, aluminum siding salesmen, rodeo clowns, etc, would turn down a big, fat pay raise if it came with strings attached?  What if accepting that pay raise was contingent upon all future new-hires being denied the opportunity to earn those same wages?  Would they make a personal sacrifice for these future employees—reject a pay raise as a matter of principle—or would they take the money and never give it a second thought?  My guess is that most would accept the money.

And yet we hear the pejorative term “sell-out” applied to union negotiators who agree to two-tier structures.  Under a two-tier wage/benefit schedule, new-hires can never receive the same compensation as those employees already on the payroll.  We hear “sell-out” applied to the UAW.  And, unfortunately, we hear it applied with little or no understanding of how ferociously the union resisted it, or how forcefully the two-tier configuration was crammed down their throats.

Look at the record.  First of all, no one but organized labor categorically opposes the two-tier system.  That’s because no one but organized labor has the ideological and institutional solidarity to generate that opposition.  Second, the record will show that many union locals have risked their own economic well-being by designating the two-tier as a “strike issue.”  And third, even a cursory look at the history of collective bargaining will show that those unions who’ve accepted two-tier arrangements have been dragged to that decision, pissing and moaning, kicking and screaming.

I’ve sat at the bargaining table when the two-tier was broached.  It’s an insidious negotiating device.  To begin with, the company comes at you with a steamroller.  They paint a dreadful economic picture, one colored with dire scenarios of massive takeaways, lay-offs, even plant closures.  In the case of the UAW, the companies’ woes were already public knowledge.  Everyone knew Detroit was getting creamed by Japan, and that the UAW had lost over a million members, reducing it to a shell of its former self.

Management tells you that they’re sinking, that they need help, that they need a lifeline.  It’s terrible news.  The picture is dark; prospects are dark; the meeting room itself seems to grow palpably darker.  Then, suddenly, a ray of light….when they announce that there’s a way out of this mess, a way that won’t require paycuts, or furloughs, or layoffs, or increased medical premiums.

If the union will allow the company to low-ball all future employees, the company will promise not to penalize any existing employees.  Simple as that.  Everyone not only gets to keep all the goodies they currently have, but there might even be a modest pay raise in the piece.  All they have to do is allow the company to change the way they compensate new-hires.  But the company also somberly warns the union:  If we reject this two-tier proposal, those necessary cost savings will have to come out of our own hide.

When we present our standard objections—that these draconian steps aren’t necessary, that they aren’t fair, that they’re un-American, that they’ll be resented and despised, etc.—the company reminds us that no one presently on the payroll, not one single person, will be affected by this arrangement, that it only applies to hypothetical workers, to fictional workers, to workers who don’t technically even “exist.”

They make it sound eminently reasonable.  For example, if any potential new-hire examines the contract and doesn’t like what he sees in the two-tier arrangement, he’s free to walk away and find work elsewhere.  No one’s going to be forced to do anything that doesn’t make absolute sense to them.  In other words, it’s your classic win-win situation.

But make no mistake.  By acknowledging that the beleaguered UAW had its back against the wall, we’re not suggesting the two-tier is defensible, because it’s not.  Indeed, it’s unfair, it’s extortionate, it kills morale, it erodes solidarity, and, ultimately, it betrays you, because even after you agree to it (against your better judgment), the company continues to chip away at your wages and benefits—as if you never agreed to anything.

The two-tier is an abomination.  The problem isn’t how to identify it;  the problem is how to stop it from finding its way into a union contract.

The job declension that exists today resembles something like this (listed in declining order):

Full-time, fully paid and fully benefited workers
Two-tier workers (lesser pay, lesser benefits)
Perma-temps (sufficient hours, no benefits)
Temps (spotty work, no benefits)
Undocumented workers (less than federal min. wage, no benefits, victimization)
Part-time workers (supplemental income, no bennies)
Day-laborers (low pay, no bennies, no guaranteed work)
Panhandlers

Clearly, those who have it best are the men and women employed in full-time jobs at decent pay with good benefits (e.g., union workers in a big-time manufacturing plant).  Correspondingly, those who have it the worst are the guys, usually Spanish-speakers, who hang out at Home Depot looking for pick-up jobs.

That top category, where people make decent wages and enjoyed good benefits, used to be considered standard procedure in America.  No one really felt it was that big a deal.  After all, good jobs were what this country was supposed to be all about.  Today those “regular” jobs are considered a luxury.  That’s how far we’ve fallen.

Rank-and-File Economics: Fighting for a Wage- and Job-Led Recovery

Wednesday, September 14, 2011 by Dollars & Sense

by Katherine Sciacchitano

 

Riddle 1: When is a recovery not a recovery?
Answer: When profits are at record levels, corporations are sitting on $1.7 trillion in cash, and unemployment is still at 16+% and rising.

Riddle 2: When is a stimulus not a stimulus?
Answer: When it’s less than one-fourth the size of the hole in the economy it is intended to fill.

Riddle 3: When will it be possible to rebuild the economy?
Answer: When the U.S. labor movement joins with community and international labor allies to demand global economic development, jobs, and rising wages.

When the U.S. housing bubble burst in 2008, putting jobs first was a no-brainer. Global unions demanded immediate action. The G-20—the group of 20 nations charged with coordinating a global response to the crisis—agreed. Governments rushed to do stimulus spending. The worst was prevented.

Then in the spring of 2010 the Greek debt crisis hit. Markets plummeted. The G-20 pulled back and told countries to cut spending. Greece, Ireland, Spain, Portugal, and the U.K. have since enacted austerity packages with drastic spending and wage cuts.

The global jobs crisis is now worse than ever. Between 2007 and 2010, 30 million workers lost their jobs worldwide. In the United States, GDP is falling, jobs have declined since the recovery started, and the unemployment rate is rising again as federal stimulus funds fade and layoffs mount in the states. The Brookings Institution estimates it will take over ten years to return to normal employment levels, even at pre-crisis growth rates. Now, real wages are falling as well.

Union reps negotiating contracts with state and local governments are on the frontlines of the resulting battles. Flanked as they are by terrified members on one side, and angry tax payers and state legislatures attacking wages, benefits, and bargaining rights on the other, their problems go far beyond what can be solved at the bargaining table.

The out-of-the-box solution would be to organize for a comprehensive program of job creation. Blueprints for jobs-based recoveries do exist. But such blueprints need “rank-and-file economists” to turn them into brick and mortar. With Democrats and Republicans actively vying to impose austerity, those rank-and-file economists—community organizers as well as union reps—must tell, not ask, our elected representatives what we need. Then they have to engage in the drawn-out battle to make what we need a reality.

A major obstacle to struggle is the widespread belief—even among many union members—that there is little that government can do besides cut spending, and that only the private sector can create jobs.

Yet the fact that so many are frustrated with government over the high unemployment is evidence that on some level people do believe government action is not only possible but necessary. A rank-and-file economics needs to channel that frustration and nurture that belief. It needs to explain why the “free market” isn’t going to create the jobs that are needed. It needs to educate people about the real causes of the crisis. And it needs to convince community and union members that a positive agenda for long-term growth still exists.

First, we have to arm ourselves by educating ourselves.

The Private Sector Can’t Do It Alone
Here in the United States, people are surrounded by the narrative that only the private sector can create jobs. Even those who acknowledge that we need to rebuild our infrastructure and that rebuilding would create jobs are likely to say that we can’t afford public investment right now. Instead, the argument goes, we should cut taxes and let corporations create the jobs and the investment we need: too much public spending got us where we are; every tax dollar spent by the government is one less dollar business could be used to create jobs.

There are three main responses to these arguments.

First, corporations already have enough cash to invest; tax cuts for corporations and the wealthy aren’t going to lead to more job creation.

The Bush tax cuts didn’t boost job creation, they didn’t boost wages, and they didn’t boost investment in the real economy. What they boosted was corporate profits and the deficit. Today businesses are sitting on record profits and $1.7 trillion in cash that they don’t want to invest. What investment is being done is aimed at boosting productivity and cutting labor costs—that is, cutting jobs. The jobs problem is not due to businesses not having enough cash to invest. Further enriching corporations with tax cuts isn’t going to fix it.

Second, the deficit didn’t cause the crisis; the crisis caused the deficit.

Calls to cut government spending in order to spur growth ignore the fact that the economic crisis we’re in has nothing to do with government spending. The deficit didn’t cause the crisis. The crisis caused the deficit. The spike in the deficit is principally due to the drop in revenues as people lost jobs and businesses lost sales. What additional spending we have done in the past three years—for the stimulus program and for TARP—was temporary. And as economist Dean Baker from the Center for Economic and Policy Research (CEPR) has calculated, in the long run the U.S. budget deficit would virtually disappear if it brought its health-care spending in line with other industrialized countries, all of which have universal health coverage.

Third, there are times when government spending is essential to help the economy over a crisis and when failure to spend will make the deficit worse.

In the short term, the best way to reduce the deficit without increasing unemployment is to recover from the crisis, not cut spending and create more joblessness while the economy is still weak. This is a lesson we should have learned from the last great global economic collapse, the Depression of the 1930s.

Before the 1930s, most economists believed that economies recovered naturally from recessions: in a downturn, either prices would fall and stimulate spending, or wages would fall and stimulate hiring, or both. But when consumers and businesses stopped spending during the Depression, falling wages and prices made the economy worse. It took the New Deal to get the economy growing. From 1933 through the end of the Depression, GDP rose and fell with government spending. By 1936 unemployment had fallen from 23% to 9%. But in 1937 unemployment rose again after Roosevelt cut the budget to reduce the deficit. After that it took massive spending for World War II to return the economy to full employment.

Stimulus Isn’t Enough Either
Given the lessons from the Depression of the 1930s, why didn’t the Obama stimulus plan work better than it did?

One reason is that the housing bubble drained nearly $1.4 trillion in annual spending, yet the Obama administration proposed a stimulus that was only $825 billion spread over several years. Congressional Republicans then reduced that number to $727 billion. They also cut proposed spending for infrastructure, green energy, and aid to states so they could increase tax cuts, even though tax cuts are known to create fewer jobs.

But the deeper reason the Obama stimulus failed is that the administration misunderstood the nature of the crisis. The country needs more than stimulus spending for recovery. It needs a sustained program for rebuilding the real economy and raising wages. The problem isn’t just that cutbacks over the past decades have left us with a shortage of over two trillion dollars in infrastructure spending. It’s that growing inequality has created too big a hole in demand.

During the boom following World War II, the United States regularly used government spending to ease recessions. The idea was that instead of waiting for unemployment to push down wages in the hopes that low wages would boost hiring, the government should boost job creation, and hence wages, by plugging holes in private consumption with public expenditures.

This worked because during the post-war boom, wages as a matter of policy rose with productivity. Recessions were due to short-term policy missteps or the “business cycle”—production temporarily getting ahead of demand. When that happened, businesses made fewer profits and investment would fall. Government spending would boost demand. And demand would spur investment.

In the current economy, stimulus spending can’t accomplish what it did in the post-war economy. Not only have we just had a massive financial crisis rather than a dip in the business cycle, but the crisis happened after decades of stagnating wages. Since the 1980s, demand has been based not on rising wages, as it was in the post-war era, but on household debt backed by the rising prices of assets such as stocks and real estate.

With the bursting of the housing bubble, 28% of homeowners are now under water. Under these circumstances, households that get a temporary bump in disposable income from a stimulus package are as likely to pay down debt as they are to increase spending. Even households that aren’t in debt may save instead of spending because of fear of unemployment. The economy may get a small boost. But businesses correctly see that demand isn’t there and hold back from investing. The economy remains in a hole unless the government embarks on a sustained program of rebuilding wages, jobs, and the real economy.

How We Unlearned Equality
To understand what it will take to rebuild the economy, we have to understand the strength of the post-war economy and how it was reversed.

The great economic lesson of the post-war era was the importance of equality for economic growth and stability. The period before the Great Depression had been marked by steep inequality, debt, and bubbles. Following World War II, the governments of the United States and most of Western Europe made commitments to full employment and rising wages in order to avoid another similar collapse. Global growth reached record rates. Inequality declined. And there were no serious global financial crises.

In the United States, real hourly wages roughly doubled during this period. The policies that made this wage growth and stability possible included corporate acceptance of collective bargaining; a strong social safety net; high quality public services; regulation of business; progressive tax systems—where corporations and the wealthy are taxed at higher rates—to help pay for public services and the cost of regulation; deficit spending to stimulate the economy during economic downturns, thereby preventing wages from falling; and a willingness to lower interest rates when unemployment rose.

Corporate tolerance for these pro-labor policies was transitory and grudging: it lasted as long as the extraordinary post-war levels of profit lasted. Once global profit rates slowed, corporations fought to reverse wage growth and restore profit rates under the guise of the policy mix that came to be known as neoliberalism. They attacked labor rights, the minimum wage, and unemployment insurance. They pushed to reduce taxes on corporations and the wealthy, shifting the tax burden to working people instead. They lobbied to privatize public services and deregulate industries—opening opportunities for profits, denigrating the role of government, and increasing the likelihood of financial crises. The rhetoric of balanced budgets and self-reliance replaced support for a strong safety net and stimulus spending to stabilize wages during recessions. And interest rate hikes were used to minimize inflation—now touted as a primary threat to living standards—by raising unemployment and keeping wages low.

There were changes in international policy as well. After World War II, U.S. trade policy had focused on opening up markets for U.S. exports, which meant not only higher profits but higher domestic employment. Under neoliberalism, boosting profits meant moving production to lower cost areas overseas and exporting back to the United States. It meant cutting jobs at home as well as and pushing down wages abroad.

In short, while the post-war strategy supported rising incomes in the United States and much of the rest of the world, the strategy from the 1980s onward was built on stagnating or falling wages for workers generally. The result was that the global rate of profit rose while hourly wages stagnated or fell, with few exceptions, throughout the globe—not just in the United States and developing countries, but in Europe as well.

To compensate for stagnating purchasing power, U.S. consumers borrowed, and the finance industry made credit more available: between 1981 and 2007, the last year of the housing bubble, household debt doubled as a percentage of GDP. The U.S. consumer became the consumer of last resort for the world. And the global economy balanced precariously on U.S. consumer debt and the dollar.

By the early 2000s, balancing on U.S. consumer debt meant balancing on the housing bubble: dollars exited the country to pay for imports and were recycled back, not as demand for U.S. exports, but as demand for investment in U.S. mortgage securities and other financial assets. The world found out how painful a balancing act this was when the U.S. housing bubble burst, homeowners defaulted on mortgages, and the banking system nearly collapsed, cutting off the supply of easy credit. Global demand plummeted. It hasn’t recovered since. Tackling Inequality Head-on In its own terms, neoliberalism worked: it increased profits, suppressed wages, and shifted tax burdens from the wealthy to lower income workers. Proponents have seized on the deficits created by the crisis to slash social spending, helping insure against future tax increases for those at the top.

The contradictions should be obvious to all: suppressing wages suppresses demand, and balancing consumer spending on debt rather than wages destabilizes the U.S. economy and the global economy. Cutting government spending before we rebuild private demand will throw the country and the world back into recession. It will keep U.S. unemployment at Depression-era levels. And it will result in larger, not smaller, deficits.

Yet the contradictions don’t register because people have a deep-seated belief that the very inequality that is crashing the system is essential to growth and jobs—that by limiting inequality we are limiting our ability to generate wealth.

To build momentum for a jobs- and wage-based recovery, the labor movement has to tackle the belief in inequality head on. It needs to show that the jobs crisis can only be addressed by rebuilding and rebalancing the national and global economies with higher wages and greater equality.

Going Global: Coordination, not Competition
Jobs debates tend to focus on national needs. We’re told repeatedly that competition is the key to a country’s economic success: increase productivity, decrease labor costs, hone our technology, and we’ll beat out the other guy to get the jobs. But the kind of development the world needs for recovery isn’t a zero-sum game. U.S. labor needs healthy manufacturing and wage growth in other countries every bit as much as we need a revival of manufacturing and wages in the United States.

Achieving the objectives proposed in this article—rising wages, demand-led growth, and global development—will require both struggle and international coordination. Labor is familiar with many of the economic tools that will be needed to achieve these core objectives, but it is used to applying them in a national context only, not advocating for their use as part of a global development agenda. Here are a few of the most familiar tools that will be needed and what labor can add by pressing for international coordination:

Fiscal and monetary policy to support employment growth. Governments need to return to wider use of fiscal and monetary policy to stimulate demand and put a floor on unemployment. But in a global economy, stimulus spending can end up “leaking” out of a country when consumers buy imports. Stimulus is most effective when countries act together so one country can’t “steal” demand from another by keeping its wages and demand low while another country raises wages and expands demand.

Labor rights and employment regulation to raise wages. Using fiscal and monetary policy to put a floor on unemployment can help keep wages from falling. But wage growth needs a vigorous commitment to collective bargaining, social benefits such as health care and pensions, minimum and living wage laws, and a strong safety net for unemployed and underemployed workers. These policies are most effective when widely adopted, both because widespread adoption raises global demand and also because it discourages low-wage competition.

Tax reform to provide adequate revenues. Tax reform is needed to ensure that the wealthy and corporations pay their share of the costs for the economic crisis, and to provide revenue for rebuilding and development. Corporate tax reform in particular needs to be coordinated to prevent corporations from gaming differences in countries’ tax rates by relocation or transfer pricing. Since the crisis began, a vigorous global movement has sprung up for a financial transaction tax, which could raise hundreds of billions globally from the finance industry.

Industrial policy to nurture high-wage manufacturing sectors. Ultimately, strong job growth is needed to support strong wage growth. Countries that have developed successfully—including the United States and Britain in their early years, Europe and Japan after World War II, the Asian Tigers in the 1980s, and now China—have done so by using industrial policies to nurture infant industries and growth. These policies have included such measures as regulation of the movement of capital in and out of the country; government investment in infrastructure, education, research and development; requirements that corporations purchase inputs locally and train local workforces; and facilitating the availability of credit for key industries and sectors. Since the eighties and nineties, neoliberal policies and trade agreements have sought to ban many of these policies and make countries dependent on transnational corporations instead. International labor campaigns to eliminate these bans will be critical for reversing this dependence and the advantage it gives corporations over labor. Freeing countries to use industrial policy will in turn be critical for the growth of green manufacturing and energy production as the world grapples with climate change.

Rebuild and Rebalance
A broad consensus is developing within the global labor movement on how this rebuilding and rebalancing needs to take place. There are three main goals:

Raise wages, raise demand. The most pressing economic problem today isn’t government debt or deficits. It’s the hole in demand left by 30 years of wage suppression, and the danger of another period of bubble-fueled growth. To be sustainable, demand has to be based on wages, not on household debt. Inequality isn’t just painful for workers. It’s destabilizing for the global economy. Correcting inequality isn’t a matter of charity. It’s a matter of economic survival.

First and foremost, rebalancing the global economy means correcting the global wage imbalance by creating jobs and raising wages. This imbalance isn’t primarily about high- versus low-income countries. It’s about the share of national incomes going to workers wages and the share going to profit. Since 1980, the share of income going to labor has fallen steadily in all regions of the world, with the possible exceptions of East and Central Asia. The decline hasn’t been due to shifts to low-wage occupations. It hasn’t been limited to low-wage countries. And it has occurred at all income levels. It’s also getting worse. In the current recovery, U.S. corporations captured a whopping 88% of the growth in national income through the beginning of 2010, while only 1% went to labor. Compare that to the recovery after the 1991 recession, when 50% of the growth in national income went to labor.

Replace growth based on low-wage exports with wage- and demand-led growth around the world. As U.S. corporations moved overseas in the eighties and nineties, the U.S. government used the carrot and the stick—as well as its powers over the IMF and the World Bank—to persuade destination countries to cut government spending, let wages fall, remove regulations on movement of foreign capital known as “capital controls,” and “devalue” currencies to artificially force down the price of exports. The result was intensified global competition and the emergence of an “export-led” model of growth: economies grew not because rising wages grow domestic demand, but because suppressed wage growth (or falling wages) pushed down the price of exports. Regardless of their income level, countries that adopt the export-led model suppress both wage growth and demand for imports. They export more than they import. And they run permanent trade surpluses while their trading partners lose jobs and run deficits.

European countries that are sharply reducing deficits to deal with the current crisis and letting wages stagnate or fall are turning to the export-led growth model in hopes of becoming “more competitive.” This kind of “competitiveness” as a primary strategy for global growth isn’t the solution for lagging incomes. It’s a recipe for an intensified race to the bottom and permanently depressed wages. It’s also impossible for a majority of the world to “export” its way out of the crisis and back to growth; for every country that exports, another must be able to import. The solution, whether in Europe or the developing world, is to trade in the model of export-led growth for one based on rising wages and domestic demand.

Create a global model for economic development and decent work. The idea of stimulus spending is that it “jumpstarts” a cycle of demand, investment, and job creation when a basically healthy economy stalls. Today, living on the “other side” of the export-led model the United States helped create, U.S. consumers are too mired in debt, corporations too addicted to outsourcing and cutting jobs and wages, and the country too far behind in infrastructure spending for this kind of stimulus to be effective. We need to rebuild, not “jumpstart,” the U.S. economy. The same is true overseas. Developing countries mired in the export-led model also suffer from a long-term lack of public investment and infrastructure.

To replace the export-led growth model unions need to demand a global agenda for decent work. This in turn requires a program for sustainable development that includes support for public services such as education and health care, funds for infrastructure, and support for sustainable manufacturing and green energy in both advanced and developing countries. The jobs and wages created by this investment will in turn build the base of demand needed for sustained demand-led growth.

Closer Than We Think

There are ways out of the current jobs crisis. Budget-cutting, austerity, and intensified wage competition aren’t among them. Unionists need to keep their eyes on the ball: The chief barrier to recovery is the lack of global demand. A main cause of the current crisis is a multi-decade, multi-pronged strategy of wage suppression across the world. And the response must include global coordination for economic development—a global New Deal.

Governments committed to neoliberal policies won’t be the prime movers behind a global New Deal. That’s labor’s job. So is forging the ties with other labor movements that will be needed to carry on the struggle both nationally and internationally (see sidebar).

This struggle must take place country by country. Over the past decade U.S. unionists have fought successful battles for living wage ordinances. They have won community benefits agreements from corporations receiving public funds, locking in pledges to create jobs and respect labor rights. They’ve renewed the battle for single-payer health care and made common cause with immigrant workers working at the margins of the U.S. economy. There is crucial organizing for a national infrastructure bank, withdrawal from Iraq and Afghanistan, putting a floor on foreclosures, and taxing the wealthy. Learning new strategies is not going to be the hard part of U.S. labor. Nor will forging international linkages with unions in other countries—a process which will deepen understanding of common problems and exponentially increase the energy and clarity of struggle.

The hard part will be unlearning the indoctrination we’ve received about the crisis, the role of government in the economy, and the free market. Once we do that, we can build successful movements at home and abroad. We’re closer than we think to the army of rank-and-file economists that we need.

How to Create More Jobs By Lowering Wages: Texas and America

Wednesday, September 14, 2011 by RobertReich.org

by Robert Reich

 

Perry and Romney can duke it out over who created the most jobs, but governors have as much influence over job growth in their states as roosters do over sunrises.

States don’t have their own monetary policies so they can’t lower interest rates to spur job growth. They can’t spur demand through fiscal policies because state budgets are small, and 49 out of 50 are barred by their constitutions from running deficits.

States can cut corporate taxes and regulations, and dole out corporate welfare, in efforts to improve the states’ “business climate.” But studies show these strategies have little or no effect on where companies locate. Location decisions are driven by much larger factors — where customers are, transportation links, and energy costs.

If governors try hard enough, though, they can create lots of lousy jobs. They can drive out unions, attract low-wage immigrants, and turn a blind eye to businesses that fail to protect worker health and safety.

Rick Perry seems to have done exactly this. While Texas leads the nation in job growth, a majority of Texas’s workforce is paid hourly wages rather than salaries. And the median hourly wage there was $11.20, compared to the national median of $12.50 an hour.

Texas has also been specializing in minimum-wage jobs. From 2007 to 2010, the number of minimum wage workers there rose from 221,000 to 550,000 – that’s an increase of nearly 150 percent. And 9.5 percent of Texas workers earn the minimum wage or below – compared to about 6 percent for the rest of the nation, according to the Bureau of Labor Statistics. The state also has the lowest percentage of workers without health insurance. Texas schools rank 44th in the nation in per-pupil spending.

The Perry model of creating more jobs through low wages seems to be catching on around America.

According to a report out today from the Commerce Department, the median income of U.S. households fell 2.3 percent last year – to the lowest level in fifteen years (adjusted for inflation). That’s the third straight year of declining household incomes. Part of this is loss of jobs. Part is loss of earnings.

More and more Americans are retaining their jobs by settling for lower wages and benefits, or going without cost-of-living increases. Or they’ve lost a higher-paying job and have taken one that pays less. Or they’ve joined the great army of contingent workers, self-employed “consultants,” temps, and contract workers – without healthcare benefits, without pensions, without job security, without decent wages.

It’s no great feat to create lots of lousy jobs. A few years ago Michele Bachmann remarked that if the minimum wage were repealed “we could potentially virtually wipe out unemployment completely because we would be able to offer jobs at whatever level.”

I keep on hearing conservative economists say Americans have priced themselves out of the global high-tech labor market. That’s baloney. The productivity of American workers continues to soar. The problem is fewer and fewer Americans are sharing the gains. The ratio of corporate profits to wages is the highest it’s been since before the Great Depression.

Besides, how can lower incomes possibly be an answer to America’s economic problem? Lower incomes mean less overall demand for goods and services — which translates into even fewer jobs and even lower wages.

In short, the Perry (and Bachmann) model of job growth condemns Americans to lower and lower living standards. That’s nothing to crow about.

Pouring the Red Ink Down the Sink

September 1, 2011

The Politics of Debt Repudiation

by MIKE WHITNEY

The US consumer’s decade-long spending spree has ended, but there’s still an ocean of red ink left to mop up. And with housing prices falling and unemployment tipping 9 per cent, it will take longer to clear the family balance sheet than many had anticipated.


Traditionally, the government has helped to ease the pain of deleveraging by providing fiscal stimulus to boost economic activity and lower the real cost of debt. But Capitol Hill is now in the grips of deficit hawks who frown on such Keynesian remedies, so households and consumers will have to fend for themselves and pay-down debts as best as they can or default when repayment is no longer possible . That’s bad news for the economy that depends on consumers for 71 percent of GDP. Without a healthy consumer, the economy will face years of sluggishness and stagnation.


U.S. household debt as a share of annual disposable income is currently 115 percent, down from the peak of 135 percent in 2008. But, while consumers are making headway in paring down their debts, there’s still a lot of work to do. Economists believe that the figure will eventually return to its historic range of 75 percent, which means slower growth for years to come unless someone else makes up the difference in spending.


But what sector is big enough to make up for the loss in consumer spending? Business? Government?


Business spending is still significantly below pre-crisis levels of investment. Naturally, businesses aren’t going hire more workers and produce more products if demand is weak. And, demand is bound to stay weak if there’s no rebound in consumption.  But how can the consumer rebound when he’s buried under a mountain of debt and making every effort to increase his savings? Surely, if wages were growing, then it would be easier to pay down debts while increasing spending at the same time. But wages aren’t growing, in fact, they are falling in inflation-adjusted terms. So personal consumption–which typically leads the way out of recession–will continue to disappoint. This is from an article by Stephen Roach titled “One Number Says it All”:

“There are two distinct phases to this period of unprecedented US consumer weakness. From the first quarter of 2008 through the second period of 2009, consumer demand fell for six consecutive quarters at a 2.2 per cent annual rate. Not surprisingly, the contraction was most acute during the depths of the Great Crisis, when consumption plunged at a 4.5 per cent rate in the third and fourth quarters of 2008.

As the US economy bottomed out in mid-2009, consumers entered a second phase – a very subdued recovery. Annualized real consumption growth over the subsequent eight-quarter period from the third quarter of 2009 through the second quarter of 2011 averaged 2.1 per cent. That is the most anemic consumer recovery on record – fully 1.5 percentage points slower than the 12-year pre-crisis trend of 3.6 per cent that prevailed between 1996 and 2007.

These figures are a good deal weaker than originally stated. As part of the annual reworking of the US National Income and Product Accounts that was released in July 2011, Commerce Department statisticians slashed their earlier estimates of consumer spending. The 14-quarter growth trend from early 2008 to mid-2011 was cut from 0.5 per cent to 0.2 per cent; the bulk of the downward revision was concentrated in the first six quarters of this period – for which the estimate of the annualized consumption decline was doubled, from 1.1 per cent to 2.2 per cent.

I have been tracking these so-called benchmark revisions for about 40 years. This is, by far, one of the most significant I have ever seen. We all knew it was tough for the American consumer – but this revision portrays the crisis-induced cutbacks and subsequent anemic recovery in a much dimmer light.” (“One Number Says it All”, Stephen S. Roach, Project Syndicate)

Roach’s timeline is key to understanding what’s going on. He says: “the subsequent eight-quarter period from the third quarter of 2009 through the second quarter of 2011 averaged 2.1 per cent.” The period that Roach calls a “very subdued recovery” coincides with the implementation of the $787 billion fiscal stimulus (ARRA).


Absent the Obama administration’s fiscal intervention, there would have been no recovery. This is worth considering in view of the fact that households continue to pay-down debts and will do so for the forseeable future. If the government doesn’t provide additional stimulus, then the economy will slip back into negative territory. And that’s precisely what’s happening now. Here’s an excerpt from an article by John P. Hussman, Ph.D, Hussman Funds who connects the dots drawing from recent data:

“It is now urgent for investors to recognize that the set of economic evidence we observe reflects a unique signature of recessions comprising deterioration in financial and economic measures that is always and only observed during or immediately prior to U.S. recessions. These include a widening of credit spreads on corporate debt versus 6 months prior, the S&P 500 below its level of 6 months prior, the Treasury yield curve flatter than 2.5 per cent…, year-over-year GDP growth below 2 per cent, ISM Purchasing Managers Index below 54, year-over-year growth in total nonfarm payrolls below 1 per cent, as well as important corroborating indicators such as plunging consumer confidence. There are certainly a great number of opinions about the prospect of recession, but the evidence we observe at present has 100 per cent sensitivity (these conditions have always been observed during or just prior to each U.S. recession) and 100 per cent specificity (the only time we observe the full set of these conditions is during or just prior to U.S. recessions). This doesn’t mean that the U.S. economy cannot possibly avoid a recession, but to expect that outcome relies on the hope that “this time is different.” (“A Reprieve from Misguided Recklessness”, John P. Hussman, Ph.D, Hussman Funds)

Policy should be based on more than hope. It should be grounded in a firm grasp of macroeconomics and a commitment to the common good.


Keep in mind, that during the peak bubble years of 2000 to 2007 households nearly doubled their “outstanding debt to $13.8 trillion” and “personal consumption grew by 44 per cent from $6.9 trillion to $9.9 trillion”. Also, from 2003 to the third quarter 2008 US households extracted $2.3 trillion of equity from their homes in the form of home equity loans and cash-out refinancings” (figures from “Will US Consumer Debt Cripple the Recovery”, McKinsey Global Institute)


$2.3 trillion! Think about that. That’s nearly $500 billion that was being pumped into the economy every year, which is more than Obama’s $787 stimulus distributed over a two-year period. That’s why unemployment stayed low while housing prices ballooned, because loose lending standards and easy money inflated the biggest credit bubble of all time. But now the trend has reversed itself and debt-deflation dynamics are in play forcing consumers to cut spending, increase saving, and pay down their debts. Only the federal government has the ability and the wherewithal to support the flagging economy while the process continues. The government must boost its spending, increase the deficits, and assist in the deleveraging process. This is from an article by economist Laura Tyson titled “Recovering from a Balance-Sheet Recession”:

“In other recoveries during the last 50 years, public-sector employment increased. This time it is falling: during the last year the private sector added 1.8 million jobs while the public sector cut 550,000.

What should policy makers do to combat the large and lingering job losses that result from a financial crisis and balance-sheet recession? Mr. Koo, whose book on Japan’s experience should be required reading for members of Congress, showed that when the private sector is curtailing spending, fiscal stimulus to increase growth and reduce unemployment is the most effective way to reduce the private-sector debt overhang choking private spending.

When the Japanese government tried fiscal consolidation to slow the growth of government debt in response to International Monetary Fund advice in 1997, the results were economic contraction and an increase in the government deficit. In contrast, when the Japanese government increased government spending, the pace of recovery strengthened and the deficit as a share of gross domestic product declined….” (“Recovering from a Balance-Sheet Recession”, Laura D’Andrea Tyson, New York Times)

Did you catch that? When the Japanese government tried to decrease the deficits by slashing spending, they increased the deficits. This is the lesson that every country in the EU –which has applied the ECB-IMF austerity measures—has learned. Cutting spending when the economy is weak is bad policy and bad economics. Struggling economies must "growth" their way out off of recession by spending liberally and putting people back to work, thus adding to government revenues. Here’s Tyson again explaining why this is so:

“The market understands that the most important driver of the fiscal deficit in the short to medium run is weak tax revenues, reflecting slow growth and high unemployment, and that additional fiscal measures to put people back to work are the most effective way to reduce the deficit.

“Every one percentage point of growth adds about $2.5 trillion in government revenue. An extra percentage point of growth over the next five years would do more to reduce the deficit during that period than any of the spending cuts currently under discussion. And faster growth would make it easier for the private sector to reduce its debt burden….Under these conditions, slow growth leads to a higher debt ratio, not vice versa…” (“Recovering from a Balance-Sheet Recession”, Laura D’Andrea Tyson, New York Times)

So, how do we speed up the deleveraging process so the economy can get back on track?


First, the government must be committed to long-term “sustained” fiscal stimulus until the share of household debt to disposable income returns to normal. Second, there should be a restructuring of household and personal debts “including”,– as economist Carmen Reinhart says– “debt forgiveness for low-income Americans”….


“Until we deal head-on with the fact that some of those debts are not ever going to be repaid, we will continue to have this shadow over growth”, Reinhart told Bloomberg News last weekend.


Debt repudiation, principle write-downs on underwater mortgages and amnesty on delinquent student loans should all be added to the mix of stimulants to future growth.


Finally–along with federally-funded government jobs programs (a revised WPA, etc)–Congress needs to address the chronic supply-demand imbalance that has emerged from Labor’s dwindling share in corporate profits. The imbalance has now reached historic levels which has widened gross inequality and threatens to keep the economy in a semi-permanent state of Depression. Here’s a quick summary from Barry Ritholtz’s “The Big Picture”:

“Labor share averaged 64.3 percent from 1947 to 2000. Labor share has declined over the past decade, falling to its lowest point in the third quarter of 2010, 57.8 percent. The change in labor share from one period to the next has become a major factor contributing to the compensation–productivity gap in the nonfarm business sector….

While Labor Share has recently plummeted to all-time lows since record keeping began, Median Household Income has stagnated for the past 12 years. In the last recession (2001), incomes had only begun to decline…. One decade later, Labor Share has collapsed, incomes have gone nowhere, and credit availability… has all but vanished except for the most creditworthy…” (“The Heart of the Matter”, The Big Picture)

Not only is labor getting a smaller and smaller piece of the pie, but, also, financial engineering–spurred-on by low interest rates and deregulation–has given rise to consecutive credit bubbles which have transferred a larger share of pension and retirement fund-wealth to Wall Street speculators. So, working people are not just getting screwed on their labor, the government and central bank are actually helping to facilitate the pilfering of their savings.


At the same time, corporate profits have continued to skyrocket. As the Wall Street Journal’s Kelly Evans notes, “Since the recession ended in mid-2009, U.S. corporate profits have jumped by about 43 per cent to a record $1.45 trillion as of the first quarter, after taxes, inventory and accounting adjustments, according to the Commerce Department.” (“More Liquidity Only Douses Growth Sparks”, Wall Street Journal)


So, despite sky-high unemployment, household deleveraging, historic inequality and slow growth; profits keep rising. Is there any doubt about whose interests are being served.


The only way out of the mess that workers find themselves in, is through politics. And–on that score–FDR said it best:

“We cannot allow our economic life to be controlled by that small group of men whose chief outlook upon the social welfare is tinctured by the fact that they can make huge profits from the lending of money and the marketing of securities–an outlook which deserves the adjectives ‘selfish’ and ‘opportunist.’” –Franklin Delano Roosevelt, “FDR Explains the Crisis: Why it feels like 1932″, Pam Martens, CounterPunch.