Les Leopold turned his recent testimony about corporate tax subsidies in New Jersey into an op-ed in the Newark Star Ledger. You can read it here.
Here’s the problem with the belief that helping Wall Street always helps the economy: it isn’t true. In recent decades, Wall Street has grown bigger and financial sector profits have gone from 10% to 25% of total corporate profits, but everyone else in America has lived through a generation of stagnant wages and sluggish economic growth. Even today, big banks are making record profits and handing out huge bonuses as average wages barely budge.
The truth is that Washington has it backwards. For a long time now, Wall Street’s success hasn’t helped the broader economy — it’s come at the expense of the rest of the economy. Wall Street is looting the economy and Washington is helping them do it.Elizabeth Warren, “My Plan to Rein in Wall Street”
The AFL-CIO Paywatch program keeps an eye on the executive compensation figures public corporations are required to report thanks to the Dodd Frank Wall Street Reform and Consumer Protection Act of 2010. That’s information companies didn’t want to report, and a closer look shows why.
A few takeaways:
In the past 10 years, CEOs have seen their compensation increased by $5,200,000 each. In those same 10 years, employees have seen their compensation increase by $7,858. That’s a ratio of 662 to 1.
After the big Trump tax cut in 2017, the top 10 companies in stock buybacks last year spent $25,200,000,000 reacquiring their own stock, driving up stock prices. Since the majority of executive compensation comes from stock grants and option, the average CEO in this group made $30,800,000. Until 1981, the SEC considered stock buybacks stock manipulation, which was not allowed.
Arthur Peck, the Gap CEO, earned 3,566 times more than the Gap’s median worker. Median is the worker who is in the middle of the distribution curve, meaning there are as many workers making less as making more. The Gap’s median worker earned $5,831 last year. Mind the wage gap.
At the other end of the spectrum, Niraj Shah, CEO of home furnishings e-commerce site Wayfair, made just two times what the company’s median worker made (which was $42,694). Seems way fair.
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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|Think about how much your income would go up if you didn’t have to pay for healthcare at all. That would begin to close the gap between productivity and wages for the first time in a generation.|
Pundits and politicians repeatedly warn us that the country cannot afford costly social services. They caution about the perils of a rising national debt, the supposed near bankruptcy of Medicare and Social Security, and the need to sell public services to the highest bidder in order to save them. We must tighten our belts sooner or later, they tell us, rather than spend on social goods like universal health care, free higher education and badly needed infrastructure.
To many Americans this sounds all too true because they are having an incredibly tough time making ends meet. According to the Federal Reserve, “Four in 10 adults in 2017 would either borrow, sell something, or not be able pay if faced with a $400 emergency expense.” To those who are so highly stressed financially, the idea of paying for a costly program like Medicare for All sounds impossible.
We are the richest country in the history of the world, however, and certainly could afford vastly expanded and improved vital public services if we had the will. What stands in the way is runaway inequality. Our nation’s wealth has been hijacked by the super-rich, with plenty of aid from their paid-for politicians.
Over the past 40 years the top fraction of the top one percent have systematically denied working people the fruits of their enormous productivity. The results of this wage theft can be seen clearly in the chart below which tracks productivity (output per hour of labor) and average weekly wages (after accounting for inflation) of non-supervisory and production workers (about 85 percent of the workforce).
The red line shows the rise of American productivity since WWII. While not a perfect measurement of the power of our economy, it does capture our overall level of knowledge, technical skills, worker effort, management systems, and technology. Ever-rising productivity is the key to the wealth of nations.
As we can see clearly in the chart above, the productivity trend has been ever upward. Today the average worker is nearly three times as productive per hour of labor as he or she was at the end of WWII. And the workforce is more than three times as large. That means we are a colossal economic powerhouse. But unless you are an economic elite, it doesn’t feel that way.
To understand why we need to look at the blue line – average real worker wages. From WWII to the late 1970s or so, as productivity rose so did the average real wage of nearly all American workers. Year by year most working people saw their standard of living rise. For every one percent increase in productivity, about two-thirds went to labor, and the remaining one-third went to capital investment and profits.
After the late 1970s, however, the story changes dramatically. Real wages stall for more than 40 years, while productivity continues to climb. Had wages and productivity continued to rise in tandem, the average weekly earnings of the American worker would be almost double what it is today, rising from today’s average of $746 per week to $1,377 per week.
What happened? Where did all the money go that once went to working people?
The fatalistic story sold to us by elite-funded think tanks is that the rise of international competition and the introduction of advanced technology crushed the wages of those without the highest skill levels. The typical worker, it is claimed, is now competing with cheap labor from around the world and hence sees his or her wages stall and even decline. And since there really isn’t much anyone can do about globalization or automation, there’s nothing we can do about the stalling wages. Such a convenient story to justify runaway inequality!
The real story is far more complex and troubling. Yes, globalization and automation contribute to stagnant wages. But as the International Labor Organization shows in their remarkable 2012 study, only about 30 percent of this wage stagnation can be attributed to technology and globalization. The main cause is the neo-liberal policy agenda of deregulation of finance, cuts in social spending and attacks on labor unions. And within that mix the biggest driver of wage stagnation can be attributed to financialization – the deregulation of Wall Street which permitted — for the first time since the Great Depression — the rapacious financial strip-mining of workers, students, families and communities. Put simply, the neo-liberal model ushered in by Thatcher and Reagan, and then intensified by Clinton and Blair, moved the wealth that once flowed to working people to financial and corporate elites. (For a more thorough account see Professor William Lazonick’s “Profits without Prosperity.” )
How much money are we losing?
More than we can imagine. Here’s a back-of-the-envelope estimate for just the most recent year on the chart, 2017: The gap between the productivity wage and the current average wage is $631 per week. That is, if the average weekly wage continued to rise with productivity, it would be $631 higher than the current average wage. In 2017, there are 103 million of these workers. So the total amount of “lost” wages that flowed to economic elites is a whopping $3.4 trillion! (103 million x $631 x 52 weeks) And that’s just for one year.
Here’s how to pay for Medicare for All
Current estimates for a single payer system come in at about $3 trillion per year. Americans already are paying $1.9 trillion in payroll and income taxes that go to Medicare, Medicaid and other government health programs. So, we would need to raise another $1.1 trillion to provide universal healthcare and prescription drugs with no co-pays, no deductibles and no premiums.
In the name of fairness, that additional $1.1 trillion to pay for Medicare for All should be raised by taxing back a portion of the $3.4 trillion in wealth that has flowed to the super rich instead of to working people. After all, working people have not had a real wage increase in more than forty years as economic elites have siphoned away tens of trillions of dollars of income that once went to working people, (the gap between the two lines). Wouldn’t it be more than fair to ask the superrich to pay the $1.1 trillion needed for Medicare for All?
There are numerous ways for these economic elites pay their fair share:
>Financial transaction tax on stock, bond and derivative transactions;
>Wealth tax on those with over $50 million in wealth;
>Minimum corporate tax of 35 percent on all corporations with over $100 million in profits who now pay little or nothing like Amazon did this past year;
>Raise the marginal tax bracket to 70 percent on all income over $10 million per year;
>Increase the inheritance tax on the super-rich to prevent the creation of a permanent oligarchy…and so on.
The point is to give Americans what they have been long denied – high quality universal healthcare AND a real wage increase by providing Medicare for All with no co-pays, no deductibles and no premiums.
Think about how much your income would go up if you didn’t have to pay for healthcare at all. That would begin to close the gap between productivity and wages for the first time in a generation.
Wait! Shouldn’t working people pay something for health care coverage?
We already are. We pay payroll taxes for Medicare and a portion of our regular taxes go to fund Medicaid and other public health programs for veterans, Native Americans and public health-related research and regulation.
So next time you hear someone say we can’t afford a public good, that we need to tighten our belts and get used to austerity, think about all that wealth that has flowed to the very top. Think about that big fat gap between productivity and real wages. Think about how runaway inequality has allowed the wealth of the richest nation in history to be hijacked by the super-rich.
It’s time the American people got a real wage increase and Medicare for All would deliver just that.
Originally published at commondreams.org.