09-05-2010, 03:30 PM
Excerpted from: http://www.rdwolff.com/content/teaching-...m’s-crisis
Teaching Capitalism’s Crisis
by Richard Wolff.
The Basic Analysis
This is not a financial crisis. It is rather a systemic crisis rooted in the conflicted relation between employers and employees across all capitalist enterprises in the United States. It flows from Main Street as much as from Wall Street. It engulfs households, enterprises, and the government. It is a crisis of capitalism and not merely of finance.
To see this, let’s take a brief look at U.S. history. For the 150 years from 1820 to around 1970, workers’ average productivity rose every decade. The hourly output of commodities rose because workers were better trained, had more and better machines, were more closely supervised, and had to work harder and faster. Over those same years, workers’ real wages (what their money wages actually afforded) also rose every decade. Because productivity rose faster than real wages, capitalists’ profits also rose faster than wages.
Thus our working class enjoyed 150 years of rising consumption as our capitalists enjoyed rising profits. No wonder U.S. workers would come to define individual self-worth and to measure success in life according to the standard of consumption: it kept rising. Successive generations of parents promised their children better standards of living and proudly kept those promises. Capitalists and workers could join in celebrating American exceptionalism since no other capitalism had such a long history of rising consumption.
But all that changed in the 1970s and never returned. Real wages stopped rising as U.S. corporations (1) moved operations abroad to pay lower wages and make higher profits, (2) replaced workers with machines (especially computers), and (3) hired ever more U.S. women and immigrants at lower wages than men received. Real wages in the later 1970s exceed real wages today.
Meanwhile, productivity—led by computerization—kept rising. Simply put, since the 1970s, what employers got from each worker kept rising while the real wages paid to each worker stagnated. The difference between rising outputs and stagnant wages—the source of capitalists’ profits—grew bigger and bigger. As employers’ profits exploded, those entitled to portions of those profits have done well: the managers they hire, the shareholders who get dividends and capital gains, and so on. The specialists who handled each employer’s mushrooming profit—the finance industry that invested it, lent and borrowed it, managed it, —thereby got growing portions of the rising profits.
What happened to a working class that measured individual success by rising consumption when it no longer had rising wages to pay for it? It could not and did not forego rising consumption. It found two other ways to cope and thereby laid the groundwork for one part of the current crisis. First, if individuals’ real wages per hour stagnate, earnings can rise if each household does more hours of paid labor. Thus, millions of housewives entered the paid labor force over the last 30 years while husbands took second jobs and both teenagers and retirees found paid work too. Today, we work on average 20 per cent more hours per year than workers in France, Germany and Italy.
With more household members out working, new costs and problems beset American families. Women wage-earners needed new clothes, a second car, and services like daycare, prepared food, psychotherapy, and drugs to handle new pressures and demands. Such extra costs soaked up women’s extra income; not enough remained to fund other expected and desired increases in household consumption. Moreover, households were badly strained by the exhaustion and stress of overworked spouses, alienated children, and growing rates of divorce, alcoholism, and drug dependency. In such conditions, the American working class took another step to maintain rising consumption levels. It borrowed money in unprecedented quantities. Soaring household debts proved to be another part of the groundwork of today’s crisis.
The U.S. business community then grasped a fantastic double opportunity. First, it could reap huge profits from the combination of flat wages and rising productivity. Second, it could lend a portion of those profits back to a working class traumatized by stagnant individual wages to enable it to consume more. Instead of paying their workers rising wages (as in the 1820-1970 period), employers (directly or through the banks) flooded very profitable loans onto desperate and often financially naive workers. For employers generally, and especially for financial corporations, this seemed truly a golden age, the validation of capitalism’s celebrated magic.
Underneath the magic, however, workers were increasingly exhausted, their families were disintegrating, and their anxieties were deepened by unsustainable debt levels. At the same time, banks, insurance companies and other financial enterprises profited by taking ever greater risks and by designing and selling ever more questionable securities to systematically misinformed investors. In those heady times, non-financial industries also took bigger risks believing that “the new economy” touted by Alan Greenspan would only ever expand. Before long, workers by the millions began to default on their debts. Then corporations did, too. The credit house of cards collapsed; housing prices tanked; and recession descended. The system had long celebrated the idea that this could not and so would not happen. When it did, nobody was prepared. Since mid-2008 the crisis has deprived millions of their jobs, income, homes, and wealth in the trillions. A desperate population demanded explanations and solutions, changes that would fix the economic disaster. It dumped Republicans and hoped for an economic revival from Obama.
Bush and then Obama poured trillions into the finance industry (guaranteeing the debts of and/or investing in the nation’s biggest banks and insurance companies). Obama then did likewise in organizing the bankruptcies of Chrysler and General Motors. The steps aimed to “kick-start the economy” or to “get the economy moving again” or to “fix the credit markets”: in short to resume the happy state of the economy before the crisis hit in 2008.
This strategy is absurd because were it to succeed (far from certain), it would only return the economy to the web of problems that produced the crisis. This strategy fails to take account of those problems and their historical depth. An exhausted, anxious, and over-indebted working class cannot sustain a widely corrupted, bankrupt, or over-leveraged corporate sector and a government now adding trillions to its national debt.
Another Obama strategy favors government re-regulation especially of the finance industry. The premise is that deregulation since the 1970s caused the crisis. Yet the history of past regulations in the United States challenges such a strategy. FDR’s New Deal did regulate (the social security system, unemployment insurance, restrictions on bank and insurance companies, new business taxes, labor relations, constraints on businesses). Regulation was intended not only to overcome the collapse of capitalism in the 1930s but to prevent future collapses. Neither intention was realized. The Great Depression persevered despite regulations; only World War II finally ended it. Moreover, because regulations impeded profitability and growth, employers had strong incentives to evade, undermine, and, if possible, destroy them. After World War II, many corporate boards of directors spent lavishly on lobbying, funding think tanks, bribing, and campaigning in the mass media to undo almost all of them.
The 1930s regulations not only gave employers incentives to undermine them; they also left employers in the position to decide on the uses made of enterprises’ profits. Employers could and indeed did use those profits to undermine regulations. That is the history of regulations from the 1930s to this day. Like FDR’s, Obama’s proposed regulations thus display a built-in self-destruct button.
A reasonable solution now must learn the lessons of past capitalist crises. Today’s government bailouts, regulations, etc. must not reproduce that self-destruct button. Boards of directors must be deprived of the incentives and resources that have ended up negating the rules and controls that aim to make economic activity serve social needs. This requires a basic change: the workers in every enterprise should become collectively their own board of directors. For the first time in American history, the workers who depend on a socially regulated economy would then occupy the position of receiving enterprise profits and using them to make regulations succeed rather than sabotaging them.
This proposal for workers to collectively become their own board of directors also democratizes the enterprise. It gives the majority in every enterprise the power to decide what is produced, how and where it is produced, and what is done with the proceeds. Such economic democracy inside enterprises is not only a necessary crisis response; it also fosters real democracy across society as workers will demand similar democracy in the communities where they live. Finally, the desire of the mass of people to hold meaningful and decently paid jobs, to live and also work democratically, would then no longer be undone by their employers. In our capitalist system, the employers are chiefly corporate boards of directors and those coporations’ major shareholders. They retain the power, incentives, and resources both to generate crises and to resist effective means to prevent them. That system is the underlying cause of and problem for today’s global crisis. It is long overdue for a basic change.
***
Wolff's video is also quite worthwhile:
http://www.capitalismhitsthefan.com/
Teaching Capitalism’s Crisis
by Richard Wolff.
The Basic Analysis
This is not a financial crisis. It is rather a systemic crisis rooted in the conflicted relation between employers and employees across all capitalist enterprises in the United States. It flows from Main Street as much as from Wall Street. It engulfs households, enterprises, and the government. It is a crisis of capitalism and not merely of finance.
To see this, let’s take a brief look at U.S. history. For the 150 years from 1820 to around 1970, workers’ average productivity rose every decade. The hourly output of commodities rose because workers were better trained, had more and better machines, were more closely supervised, and had to work harder and faster. Over those same years, workers’ real wages (what their money wages actually afforded) also rose every decade. Because productivity rose faster than real wages, capitalists’ profits also rose faster than wages.
Thus our working class enjoyed 150 years of rising consumption as our capitalists enjoyed rising profits. No wonder U.S. workers would come to define individual self-worth and to measure success in life according to the standard of consumption: it kept rising. Successive generations of parents promised their children better standards of living and proudly kept those promises. Capitalists and workers could join in celebrating American exceptionalism since no other capitalism had such a long history of rising consumption.
But all that changed in the 1970s and never returned. Real wages stopped rising as U.S. corporations (1) moved operations abroad to pay lower wages and make higher profits, (2) replaced workers with machines (especially computers), and (3) hired ever more U.S. women and immigrants at lower wages than men received. Real wages in the later 1970s exceed real wages today.
Meanwhile, productivity—led by computerization—kept rising. Simply put, since the 1970s, what employers got from each worker kept rising while the real wages paid to each worker stagnated. The difference between rising outputs and stagnant wages—the source of capitalists’ profits—grew bigger and bigger. As employers’ profits exploded, those entitled to portions of those profits have done well: the managers they hire, the shareholders who get dividends and capital gains, and so on. The specialists who handled each employer’s mushrooming profit—the finance industry that invested it, lent and borrowed it, managed it, —thereby got growing portions of the rising profits.
What happened to a working class that measured individual success by rising consumption when it no longer had rising wages to pay for it? It could not and did not forego rising consumption. It found two other ways to cope and thereby laid the groundwork for one part of the current crisis. First, if individuals’ real wages per hour stagnate, earnings can rise if each household does more hours of paid labor. Thus, millions of housewives entered the paid labor force over the last 30 years while husbands took second jobs and both teenagers and retirees found paid work too. Today, we work on average 20 per cent more hours per year than workers in France, Germany and Italy.
With more household members out working, new costs and problems beset American families. Women wage-earners needed new clothes, a second car, and services like daycare, prepared food, psychotherapy, and drugs to handle new pressures and demands. Such extra costs soaked up women’s extra income; not enough remained to fund other expected and desired increases in household consumption. Moreover, households were badly strained by the exhaustion and stress of overworked spouses, alienated children, and growing rates of divorce, alcoholism, and drug dependency. In such conditions, the American working class took another step to maintain rising consumption levels. It borrowed money in unprecedented quantities. Soaring household debts proved to be another part of the groundwork of today’s crisis.
The U.S. business community then grasped a fantastic double opportunity. First, it could reap huge profits from the combination of flat wages and rising productivity. Second, it could lend a portion of those profits back to a working class traumatized by stagnant individual wages to enable it to consume more. Instead of paying their workers rising wages (as in the 1820-1970 period), employers (directly or through the banks) flooded very profitable loans onto desperate and often financially naive workers. For employers generally, and especially for financial corporations, this seemed truly a golden age, the validation of capitalism’s celebrated magic.
Underneath the magic, however, workers were increasingly exhausted, their families were disintegrating, and their anxieties were deepened by unsustainable debt levels. At the same time, banks, insurance companies and other financial enterprises profited by taking ever greater risks and by designing and selling ever more questionable securities to systematically misinformed investors. In those heady times, non-financial industries also took bigger risks believing that “the new economy” touted by Alan Greenspan would only ever expand. Before long, workers by the millions began to default on their debts. Then corporations did, too. The credit house of cards collapsed; housing prices tanked; and recession descended. The system had long celebrated the idea that this could not and so would not happen. When it did, nobody was prepared. Since mid-2008 the crisis has deprived millions of their jobs, income, homes, and wealth in the trillions. A desperate population demanded explanations and solutions, changes that would fix the economic disaster. It dumped Republicans and hoped for an economic revival from Obama.
Bush and then Obama poured trillions into the finance industry (guaranteeing the debts of and/or investing in the nation’s biggest banks and insurance companies). Obama then did likewise in organizing the bankruptcies of Chrysler and General Motors. The steps aimed to “kick-start the economy” or to “get the economy moving again” or to “fix the credit markets”: in short to resume the happy state of the economy before the crisis hit in 2008.
This strategy is absurd because were it to succeed (far from certain), it would only return the economy to the web of problems that produced the crisis. This strategy fails to take account of those problems and their historical depth. An exhausted, anxious, and over-indebted working class cannot sustain a widely corrupted, bankrupt, or over-leveraged corporate sector and a government now adding trillions to its national debt.
Another Obama strategy favors government re-regulation especially of the finance industry. The premise is that deregulation since the 1970s caused the crisis. Yet the history of past regulations in the United States challenges such a strategy. FDR’s New Deal did regulate (the social security system, unemployment insurance, restrictions on bank and insurance companies, new business taxes, labor relations, constraints on businesses). Regulation was intended not only to overcome the collapse of capitalism in the 1930s but to prevent future collapses. Neither intention was realized. The Great Depression persevered despite regulations; only World War II finally ended it. Moreover, because regulations impeded profitability and growth, employers had strong incentives to evade, undermine, and, if possible, destroy them. After World War II, many corporate boards of directors spent lavishly on lobbying, funding think tanks, bribing, and campaigning in the mass media to undo almost all of them.
The 1930s regulations not only gave employers incentives to undermine them; they also left employers in the position to decide on the uses made of enterprises’ profits. Employers could and indeed did use those profits to undermine regulations. That is the history of regulations from the 1930s to this day. Like FDR’s, Obama’s proposed regulations thus display a built-in self-destruct button.
A reasonable solution now must learn the lessons of past capitalist crises. Today’s government bailouts, regulations, etc. must not reproduce that self-destruct button. Boards of directors must be deprived of the incentives and resources that have ended up negating the rules and controls that aim to make economic activity serve social needs. This requires a basic change: the workers in every enterprise should become collectively their own board of directors. For the first time in American history, the workers who depend on a socially regulated economy would then occupy the position of receiving enterprise profits and using them to make regulations succeed rather than sabotaging them.
This proposal for workers to collectively become their own board of directors also democratizes the enterprise. It gives the majority in every enterprise the power to decide what is produced, how and where it is produced, and what is done with the proceeds. Such economic democracy inside enterprises is not only a necessary crisis response; it also fosters real democracy across society as workers will demand similar democracy in the communities where they live. Finally, the desire of the mass of people to hold meaningful and decently paid jobs, to live and also work democratically, would then no longer be undone by their employers. In our capitalist system, the employers are chiefly corporate boards of directors and those coporations’ major shareholders. They retain the power, incentives, and resources both to generate crises and to resist effective means to prevent them. That system is the underlying cause of and problem for today’s global crisis. It is long overdue for a basic change.
***
Wolff's video is also quite worthwhile:
http://www.capitalismhitsthefan.com/