Lordstown is the poster child for modern financialized capitalism and runaway inequality
By Les Leopold
The vacant Lordstown General Motors facility is a frightening sight—6.2 million square feet of modern industrial might spread over 900 acres doing absolutely nothing except depressing the regional economy and the spirits of northeast Ohio. Just a few months ago it produced the Chevy Cruze and provided thousands of good paying industrial jobs with excellent benefits. Now it’s gone, and unless the Democrats have something meaningful to say about it, they too may be gone.
Lordstown is the poster child for modern financialized capitalism and runaway inequality. It symbolizes the kind of system in which the super-rich reap the rewards and the rest of us pay the price.
This new version of capitalism burst onto the scene when Wall Street deregulation took hold in the early 1980s, but it really came into full view when Wall Street’s insatiable greed took down the economy in 2007. The financial crash put GM on life support, and it quickly became crystal clear that textbook capitalism was a fiction.
Under the supposed rules of free markets, the corporations that cannot compete successfully should perish—what Schumpeter called creative destruction. In 2007, most of Wall Street’s big banks—as well as GM—would have gone down, but their size and the centrality of these mammoth institutions meant that their rapid demise (without government intervention) would crater the entire economy. They were, instead, the beneficiaries of taxpayer bailouts.
The mythical capitalism of creative destruction is long gone. There are new rules for financialized capitalism. One demands that we the taxpayers must bail out both the biggest Wall Street banks and the largest corporations, like GM, because they are far too big to fail. It’s the ultimate blackmail. Either we pay or we are all economically devastated.
A second new rule of the new capitalism dictates that not only must we bail them out, but we are not permitted to ask for anything substantial in return.
Unlike private investors, who provide capital to distressed companies, we taxpayers do not get any ownership rights with our investment, nor do we get a high rate of return on our money if things go well. We also do not have a say in how the bailed out enterprises do business, nor are we able to remove their predatory executives (and jail the ones who broke the law). In exchange for our financial guarantees, we are not permitted to demand that a corporation like GM keep its jobs in the U.S., nor may we insist that they refrain from giving future revenues via stock buybacks to their super-rich investors (who would have earned nothing without our largess). These bailed-out entities are instead returned to their private owners as soon as possible so that they can again be run by and for the wealthy.
What did GM do after we bailed them out?
As soon as GM could amass a sizable profit it engineered a $5 billion stock buyback to enrich their top officers and hedge fund investors. The pressure for the stock buybacks came from none other than Harry J. Wilson, a former member of the Obama bailout team. On our dime he had learned all there was to know about GM, which he then put to work to enrich himself. He formed an investment group of hedge funds to buy up GM shares and, when they had sufficient control, demanded the massive stock buyback. He prevailed and walked off with tens of millions of dollars. The financial strip-mining of GM workers and the communities so dependent on the company could then proceed in earnest.
Today, GM is a private enterprise constrained only by its union contracts. Its primary goal is to generate as much cash flow as possible in order to dole out more stock buybacks to enrich super-wealthy elites and its top officers, who are paid through stock incentives. That cash comes from slashing U.S. jobs and outsourcing as much production as possible to low wage areas around the world.
These corporate executives made a cold-blooded decision that the Chevy Cruze, although profitable, would not generate as much profit as SUVs and trucks. So they shut down Lordstown entirely, along with several other U.S. facilities.
There was an alternative. They could have put the new Chevy Blazer into these idle facilities, but they instead decided that more cash for stock buybacks could be generated by assembling the Blazer in Mexico.
What is the Democratic Party’s response?
For nearly a generation, the corporate wing of the Democratic Party has aided and abetted this financial strip-mining. Starting with Bill Clinton they have led the charge to deregulate Wall Street and promote trade deals that make it easier and easier to shift production abroad. They poured and drank the Wall Street Kool-Aid, which claimed that the rise of financialized capitalism would bring riches to us all. Instead, manufacturing collapsed, the average worker wage stalled and the CEO/worker wage gap rose from 45 to 1 in 1970 to an obscene 800 to 1 today.
Some liberal Democrats just throw up their hands and say there’s nothing much that can be done about all of this. Globalization is here to stay, they say, and automation is killing these jobs anyway, so the best we can do is provide retraining and cash subsidies for those who have been left behind.
Other liberals worry that if we try to keep these jobs in the U.S. we will be taking jobs away from poorer workers in less developed nations. They seem to believe that financialized capitalism is some kind of philanthropic organization designed to uplift the poor, rather than a machine designed to enrich elites.
Still others argue that we should not cater at all to these manufacturing workers, who are largely white males (though, actually less so each year). Instead they argue that Democrats should worry about women, people of color and the LGBTQ communities who will never work in the declining manufacturing sector.
Warning: Any candidate arguing anything like the above positions should stay clear of Lordstown.
The Fatalistic Fallacy
What unites these positions is an erroneous dogma. The decline of manufacturing in the U.S. is not an inevitable product of the global economy, no matter how often that false narrative is repeated by politicians and pundits. Germany, for example, is far more dependent on global trade than the U.S. and it has as least as much automation. Nevertheless, manufacturing in Germany is nearly twice as large a percentage of their economy—20.66 percent as of 2016 compared to only 11.6 percent for the U.S economy. And German workers earn more. The total compensation for a German manufacturing worker is $43.18 per hour versus $39.03 in the U.S.
Manufacturing jobs declined in the U.S. because both political parties joined hands in facilitating Wall Street deregulation, tax cuts on corporate and financial elites, and anti-worker trade deals that make it easier and easier to ship jobs abroad.
Do progressive Democrats have a plan?
It’s not easy to come up with a fix for Lordstown, Carrier and thousands of other profitable facilities that have been shuttered. To do so requires changing the most fundamental rules of financialized capitalism, something that only Bernie Sanders has so far addressed. Let’s think back to how it might work in the case of GM.
It’s 2007 and GM is on life support. The government offers a $50 billion bailout. In exchange, however, “We the People” then set terms for this bailout:
No stock buybacks, period.
No profitable facility shall be shut down, ever.
As long as GM is viable, the current number of workers must be maintained in the U.S. or GM will lose any current and future government contracts, tax credits and state/local subsidies.
CEO salaries can be no higher than 12 times that of its average employee.
Unions, the government and community stakeholders shall have seats on the board of directors (as in Germany)
In effect this would be saying that any too-big-to-fail corporation that is bailed out becomes a joint enterprise among key stakeholders. In the case of banks, they would become public banks like the Bank of North Dakota.
Such terms would have stopped the closing of Lordstown and many other GM facilities. Writ large they would dramatically increase the production of decent paying jobs all over the U.S and reduce some of the financial strip-mining that produces runaway inequality.
Anything short of this—like praying another company will take over these mammoth facilities—will seem hollow to those who have been crushed by the strip mining process.
The choice is clear: Either we have the courage to interfere with financialized capitalism or we will once again abandon these workers to demagogues like Trump.
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After two printings and more than 50,000 copies sold, Runaway Inequality will get a new introduction and a new printing early in 2018. While we discussed a new title for the book, Runaway Inequality in the Age of Trump, we decided to not change the name, but the draft of the new introduction, which follows, discusses what we’ve been doing to reverse runaway inequality, and the changes our new president has brought to the nation. Since you’re likely already familiar with the book and our education program, we’re interested in hearing your reactions. Please use the form at the right to leave whatever comments you want to make. Thank you.
Preface to the Third Printing
By Les Leopold
Runaway Inequality has sold 50,000 copies. The book, and the accompanying curriculum, are being used in hundreds of workshops, conferences and discussion groups for unions, church groups, immigrant worker centers and environmental organizations. A Spanish print and e-book edition is now available as well. Thousands of people have joined the RunawayInequality.org educational network and hundreds have volunteered to become runaway inequality trainers. (All training materials in Spanish and English are available free of charge at runawayinequality.org. All royalties from book sales go back into the project).
It’s a good start but much more is needed. Runaway inequality has been festering for more than a generation, growing more severe under both political parties. The election of Donald Trump is making it worse. That’s why we’ve added “in the Age of Trump” to the title. However, this book is not a diatribe against Trump nor an attack on all of those who voted for him. Rather, it lays out the facts about runaway inequality, how it ties together so many crucial issues we all face, and why it can unite us in building a movement for economic fairness and justice. The facts in this book will highlight how rule by financial elites is ruining all that we hold dear. We think that message also can reach many who voted for Trump out of sheer frustration.
Many working people hoped that Donald Trump would bring a new voice to politics and the economy by ending anti-labor trade deals, protecting decent paying jobs, and generally improving wages and working conditions. Those wishes are not being fulfilled. Rather, Trump is exacerbating runaway inequality.
As part of the billionaire class, he is acting true to form. That class believes that the super-rich are the heart and soul of the economy — the job creators. Trump and his fellow financial elites truly believe they should be liberated from all burdensome regulations and taxes. They believe that public services should be turned over to the private sector and run for profit. To the richest of the rich, runaway inequality is a sign of great achievement — a blessing, not a plague on our economy. They feel it entitles them to a privileged position in every area of life.
It is not an accident that the Trump administration is loaded with super-rich Wall Street and corporate elites. It is not an accident that he is calling for enormous tax cuts on corporations claiming that they will lead automatically to increases in wages. But as this book shows as clearly as possible, Trump has it backwards. Tax cuts for the wealthy and corporations lead to more wealth for the few. It does not trickle down. Instead the rich grow richer and richer while worker wages stall. That’s been the case for more than a generation.
The Great Distraction
As this book makes clear, runaway inequality predates Trump by more than four decades and transcends both political parties. Democrats and Republicans alike have supported policies that accelerate inequality. However, Trump is adding a highly negative element that can not be brushed aside — race-bating — the age old American practice of using race to attract white supremacists, divide working people and distract us from the pursuit of economic fairness. Historically, in-your-face race-baiting (not the subtle dog-whistles like “getting tough on crime”) usually has been confined to fringe candidates from the Jim Crow South. But Trump is reviving that tradition with gusto. He is the first president ever to tacitly welcome the support both of neo-Nazis and the Klan.
Race-baiting is nothing new for Trump.
In 1989, he called for the death penalty for the Central Park Five — five young black men who Trump erroneously claimed had committed rape. (They were exonerated of the crime when DNA led the police to the real culprit.)
He was the leading advocate of the “Birther” movement to which white supremacists flocked. It falsely claimed that President Obama was not a U.S. citizen and therefore not a legitimate president.
During his 2016 campaign, Trump attacked a sitting federal judge because of his Hispanic heritage. As far as we know, that’s a first for a sitting president.
Trump launched his entire presidential campaign by attacking Mexican immigrants whom he called rapists and murderers.
After the Charlottesville supremacist riot in the summer of 2017, he virtually exonerated the Nazi and KKK thugs who chanted racist and anti-Semitic slogans, beat-up counter-demonstrators and murdered one.
Later in 2017, he also pardoned ex-Sherriff Joe Arpaio who was held in contempt of court for overtly refusing to halt practices that violated the constitutional rights of thousands of Latinos. In 2007, Arpaio said to Lou Dobbs on television that it was an honor to be compared to the KKK.
Some Trump supporters try to write all this off as refreshing defiance of stultifying political correctness — “He’s just saying stuff out loud that we are thinking and afraid to say.” But it is a grave error to give Trump or anyone else a pass when race, religion or ethnicity is used to play us against each other. In each case, Trump is promoting himself and trying to bring closer to him those who believe the world should be ordered by skin color. At the same time, race-baiting moves the national conversation further away from reversing runaway inequality. It serves as a great distraction from mobilizing against the rule of financial elites.
“Playing a Symphony on that White Skin”
Historically, race-baiting has been used to protect the privileges of economic elites by dividing workers (as we show in detail in our curriculum and in Chapter 9 of this book).
There are still millions of Americans who believe in the disproven idea that there are such things as biological races with different traits including intelligence. That entire idea has been scientifically disproven again and again. In fact, the idea of a separate biological race of “negro” was created by southern elites to justify the institution of slavery. After the Civil War, there was a virtual second civil conflict lasting twenty years between the former plantation elites and poor white/black farmers for control of civil society. It was not until nearly 1900 that the white supremacists fully recaptured power and instituted the Jim Crow laws.
In his novel Freedom Road, Howard Fast (best known for Spartacus) graphically describes how the manipulation of skin color paved the road to power for Southern elites after the Civil War. In this selection from his fictional account, a former plantation owner describes how to reclaim their riches by creating a violent army from those who are fixated on their skin color:
… there’ll be men enough, the scum that we used for overseers, the trash that bought and sold slaves and bred them, the kind who were men with bullwhips and filth without one, the kind who have only one virtue, a white skin. Gentlemen, we’ll play a symphony on that white skin, we’ll make it a badge of honor. We’ll put a premium on that white skin. We’ll dredge the sewers and the swamps for candidates, and we’ll give them their white skin – and in return, gentlemen, they will give us back what we lost through this insane war, yes, all of it.
Playing “a symphony on that white skin” also was the tactic of choice used by the steel industry to break strikes and prevent unionization after WWI. Management consultants and academics developed an entire pseudo-science of racial/ethnic/religious hierarchies to determine which groups are best suited for different kinds of work. This 1925 chart from a steel facility in Pittsburgh is a classic example of how race, religion and ethnicity were used to carve up the workforce. (The darker the shade of the box, the less fit that group supposedly is for a given task.) The goal was clear — keep workers divided.
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How does Wall Street financially strip-mine a country, territory or state? It loans governments more and more money knowing that, no matter what, they have to pay it back — even if it means closing schools, cutting thousands of jobs and turning day-to-day life into misery for working people and the poor.
With the loss of jobs, tax revenues collapsed, leading to more and more borrowing to fill the budget gap. Despite a crumbling credit rating, Puerto Rico had no trouble finding new loans, thanks to special tax rules dating back to 1917 that made the bonds of US territories triple-tax free.
“The 100-year-old law stipulates that no one — not any state, not any county or city, not the District of Columbia, not any other territories, not even Puerto Rico itself — can tax the interest that Puerto Rico pays its investors. This has spurred people with eyes on easy profits to dive in for decades,” the New York Times reported in May.
Investors also relied on a Puerto Rican constitutional requirement that the territory pay creditors before it spends money to provide government services, a promise the territory’s government recently could not keep. A struggling economy was pushed towards ruin, as the NY Times reported.
In the summer of 2016, Congress passed Promesa, a law that gave US territories a way to seek court protection from creditors. The idea was to help struggling territories reorganize their burdensome debt while making sure that the most deserving creditors moved to the head of the line. Puerto Rico sought protection in May of this year, but now a hedge fund, Aurelius Capital, is suing to reverse Promesa. A NY Times article from August explains the process.
There have been other problems over the years. While the multinational pharmaceutical companies created jobs, they also collected $477.5 million in wage subsidies from Puerto Rico, tapping a program intended to help farmers pay farmhands a higher wage, reports Common Dreams, because the US Department of Agriculture classified them as farmers. Yet those same companies were allowed to use far more land than other foreign farming companies because the Puerto Rican government didn’t consider them to be farms. The companies had advantages coming and going, while Puerto Rico struggled.
Hedge funds like Aurelius Capital bought up Puerto Rican debt for pennies on the dollar in recent years, and are now insisting on full repayment. Illinois and the US Virgin Islands are also weathering similar attacks from vulture hedge funds, textbook examples of how wealth is stripped from a company (or a territory) and shifted to enrich the wealthy.
Financial strip-mining by vulture hedge funds won’t stop until we build a movement to change the laws and stop it.
Austin DSA Members Participate in CWA “Reversing Runaway Inequality” Workshop
Reported by David Pinkham
On Saturday, July 8th at the bright and early hour of 8 A.M., Colin Gray and I, cramming our faces with cold coffee and Clif bars, carpooled down to Southwest Austin and managed to arrive about eight minutes late to the regional Communication Workers of America office where Kris Raab would be leading us on a journey through the past in order for us to understand how we reached the economic present.
She began the class by dredging our collective memory for a history of progressive movements. We discussed the common social, political, and economic threads that ran through all of these historical moments. This brought us to the inevitable pushback–“The Powell Memo.” In 1971, corporate lawyer and future Supreme Court Justice Lewis Powell issued a calling-all-capitalists manifesto in which he outlined the need for a broad coalition of ruling business leaders with the express purpose of ensuring the “survival of what we call the free enterprise system”.
We proceeded to learn about the leveraging of debt, stock buybacks, and exploitation of systemic racism and sexism utilized to strip-mine the increasingly financialized economy of its surplus value and ensure that all profits remain in the hands of the wealthy capitalist class. As a group, we related stories of our own personal alienation from and struggles with this system and discussed strategies by which we can reclaim democratic control of our society.
If you enjoy friendly wagers on the vastness of the wage gap, combating capitalism, and/or socializing with socialists, this class is for you.
There were 19 DSA members plus our instructor who is also a DSA member, and we learned that the function of industrial production is not to make products for a profit but to feed money into finance capital.
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