What the New Deal can teach us about winning a Green New Deal: Part II—Movement Building

In Part I in this series on lessons to be learned from the New Deal, I described the enormous economic and social costs of the first years of the Great Depression and the reluctance of business and government leaders to pursue policies likely to threaten the status quo.  I did so to demonstrate that we should not assume that simply establishing the seriousness of our current multifaceted crisis, especially one that has yet to directly threaten capitalist profitability, will be enough to win elite consideration of a transformative Green New Deal.

I also argued that it was the growth of an increasingly militant political movement openly challenging the legitimacy of the police, courts, and other state institutions that finally transformed the national political environment and pushed Roosevelt to change course and introduce his early New Deal employment and relief programs.  In this post, I examine the driving force of this movement, the movement of unemployed.

The growth and effectiveness of the unemployed movement owes much to the organizing and strategic choices of the US Communist Party (CP).  While there is much to criticize about CP policies and activities, especially its sectarianism and aggressive antagonism towards other groups, there is also much we can learn about successful organizing from its work with the unemployed in the early years of the depression.

The party faced the challenge of building a mass movement powerful enough to force a change in government policy. Although its initial victory was limited, the policy breakthrough associated with the programs of the First New Deal led to new expectations and demands, culminating in Roosevelt’s adoption of far more extensive employment and relief policies as part of his Second New Deal, only two years later.

We face a similar challenge today; we need to build a mass movement capable of forcing the government to begin adopting policies that help advance a Green New Deal.  Therefore, it is well worth our time to study how party activists built a national organization of the unemployed that helped the unemployed see that their hard times were the result of structural rather than personal failure; encouraged local, collective, and direct action in defense of immediate shared basic needs; and connected local actions to a broader national campaign for government action.

The CP and the unemployed movement

The CP made its decision to organize the unemployed even before the start of the Great Depression.  In August 1929, two months before the stock market crash, the CP established the Trade Union Unity League (TUUL) as an alternative to the AFL and called on that body to assist in the creation of a nation-wide organization of Unemployed Councils (UCs).

The CP was following the lead of the Communist International which had, in 1928, declared the start of the so-called Third Period, which was said to mark the beginning of capitalism’s terminal stage, and called on all communist parties to end their joint work with other organizations and prepare for the coming revolutionary struggle.  This stance meant that as unemployment exploded, those without work had the benefit of an existing organization to give them a voice and instrument of action.  Unfortunately, it also led to destructive attacks on other political tendencies and efforts to build organizations of the unemployed, thereby weakening the overall effort.

The CP’s first big effort directed towards the unemployed was the March 6, 1930 demonstrations against unemployment and for relief that drew some 500,000 people in twenty-five cities and was organized under the banner of “International Day for Struggle against Worldwide Unemployment.”  The New York City demonstration, the largest, was met by police repression, with many demonstrators beaten and arrested.  But another New York City protest by the unemployed in October produced a victory, with the city agreeing to boost relief spending by $1 million.  These actions created visibility for the CP’s fledgling national network of UCs and helped to build its membership.

The Unemployed Councils of the USA held its founding convention in early July.  The following month it issued a statement calling on Congress to adopt its “Workers Unemployment Insurance Bill.” The bill called for “payment of $35 per week for each unemployed worker plus an additional $5 per week per dependent and the creation of a ‘National Unemployment Insurance Fund’ to be generated through a tax on all property valued in excess of $25,000 and incomes of more than $5,000.” A new Workers’ Commission, to be elected by working people, was to control the distribution of funds.

To this point, the Unemployed Councils of the USA was dominated by the CP, and its general program and demands largely echoed those of the CP, often including foreign policy declarations expressing support for the Soviet Union.  However, in November, finally acknowledging that this dominance was limiting recruitment, the party agreed to give its organizers more independence and freedom to focus on the issues of most direct concern to the unemployed.  In the months that followed, “a wave of rent strikes, eviction fights, and hunger marches involving an estimated 250,000 workers in seventy-five cities and six states swept the country. The Unemployed Councils had become a force to be reckoned with.”

The party’s focus on building a confrontational movement operating both locally and nationally led it to reject a variety of other efforts embraced by some unemployed.  As Franklin Folsom describes:

Early in 1931, some leaders of Unemployed Councils had recommended setting up food kitchens, and Communists helped organize food collections. These were humane acts of assistance to people who needed something to eat immediately. In a few months, however, both the Communists and the Unemployed Councils abandoned the idea, saying it had nothing to do with solving the basic problems of the unemployed.  Similarly, Communist and council policy on the subject of looting varied depending on time and place.  In the early days of mass unemployment some Communists encouraged the direct appropriation of food.  Later the practice was frowned on because it solved no long-term problem and could provoke very costly counteraction.

Many unemployed also turned to self-help activities to survive.  The so-called “productive enterprise” movement, in which unemployed workers sought to create their own enterprises to produce either for the market or barter, spread rapidly.  According to one study, by the end of 1932 this movement was active in thirty-seven states, with the largest group in California.  The CP and UCs opposed this effort from the start, calling it a self-starvation movement.

The organization and activity of the UCs

Most UCs were neighborhood centered, since the unemployed generally spent most of their time in the neighborhoods where they lived. The basic unit of the UC was the block committee, which comprised all unemployed local residents and their family members.  Each block committee elected delegates to a neighborhood unemployed council, and these councils, in turn, elected delegates to county or city unemployed councils.

The block committee office served as a social center, where the unemployed could gather and build relationships.  Through conversation and even more importantly action they were also able to develop a new radical understanding of the cause of their unemployment as well as appreciation for collective power.  As Steve Nelson, a leader of the Chicago UC movement, explained, it was important for the unemployed to “see that unemployment was not the result of their own or someone else’s mistake, that it was a worldwide phenomenon and a natural product of the system.” Thus, “unemployed agitation was as much education as direct action.”

With time on their hands, the unemployed were generally eager to act in defense of their neighbors, especially around housing and relief.  Here is Christine Ellis, a UC organizer, talking about what happened at one UC meeting in a black neighborhood on the west side of Chicago:

We spoke simply, explained the platform, the demands and activities of the unemployed council. And then we said, “Are there any questions?”…. Finally an elderly Black man stood up and said, “What you folks figure on doing about that colored family that was thrown out of their house today?… They’re still out there with their furniture on the sidewalk.” So the man with me said, “Very simple. We’ll adjourn the meeting, go over there, and put the furniture back in the house. After that, anyone wishing to join the unemployed council and build an organization to fight evictions, return to this hall and we’ll talk about it some more.” That’s what we did…everybody else pitched in, began to haul in every last bit of furniture, fix up the beds…and when that was all done, went back to the hall. The hall was jammed!

Carl Winder, another UC activist, describes the response of the councils in New York to attempted evictions for nonpayment of rent:

Squads of neighbors were organized to bar the way to the dispossessing offices.  Whole neighborhoods were frequently mobilized to take part in this mutual assistance.  Where superior police force prevailed, it became common practice for the Unemployed Councils to lead volunteer squads in carrying the displaced furniture and belongings back into the home after the police had departed.  Council organizers became adept in fashioning meter-jumps to restore disconnected electric service and gas.

Hosea Hudson, a UC activist in Alabama, tells how landlords in Birmingham would sometimes allow tenants to stay even without paying rent “because if they put a family out, the unemployed workers would wreck the house and take it away for fuel by night…. This was kind of a free-for-all, a share-the-wealth situation.”

No Work, No Rent! was the common chant at UC anti-eviction actions.  And because UCs were part of a national organization, successful strategies in one area were quickly shared with UCs in another, spurring new actions.  According to one account, UCs had practically stopped evictions in Detroit by March 1931.  It was estimated that in 1932, 77,000 New York City families were moved back into their homes by UCs.  At the same time, these were costly actions. The police would often arrest many of those involved as well as use force to end resistance, leading to serious injuries and in some cases deaths.

UCs also mobilized to help people who were turned down for relief assistance.  Normally, UC organizers would gather a large crowd outside the relief agency and send in an elected committee to demand a meeting to reverse the decision.  Here is Hosea Hudson again, explaining the approach of the Birmingham UC:

If someone get out of food and been down to the welfare two or three times and still ain’t got no grocery order…. We’d go to the house of the person that’s involved, the victim, let her tell her story. Then we’d ask all the people, “What do you all think could be done about it?” We wouldn’t just jump up and say what to do. We let the neighbors talk about it for a while, and then it would be some of us in the crowd, we going to say, “If the lady wants to go back down to the welfare, if she wants, I suggest we have a little committee to go with her and find out what the condition is.”

In New York, UC members would often organize sit-ins at the relief office and refuse to leave until the center reversed a negative decision.  Intimidated by the aggressive protests, local relief officials throughout the country increasingly gave ground and approved relief requests.

This kind of activism directly challenged business and elite claims that prosperity was just around the corner.  It also revealed a growing radical spark, as more and more people openly challenged the legitimacy of the police, the court system, and state institutions.

With demands for relief escalating, cash-strapped relief agencies began pressing city governments for additional funds.  But city budgets were also shrinking.    As Danny Lucia reports in his study of unemployed organizing, this was an explosive situation.  In 1932, with Chicago’s unemployment rate at 40 percent, “Mayor Anton Cermak told Congress to send $150 million today or federal troops in the future.”

Thus, the militancy of the unemployed movement was now pushing mayors and even some business leaders to also press for federal action.  This development served to amplify the UCs own state and national campaigns demanding direct job creation and a program of federal relief.  These campaigns, by design, also helped generate publicity and support for local UC actions.

For example, in January 1931, a gathering of the Unemployed Councils of America and the TUUL decided to launch a national petition drive aimed at forcing Congress to pass a Federal Unemployment Insurance bill.  The UCs then began door-to-door canvassing for signatures.  Approximately a month later a delegation of 140 people was sent to Washington DC to deliver the petition to Congress on National Unemployment Insurance Day.  Demonstrations in support of the petition, organized by UCs, were held in most major cities on the same day.

Not long after, the CP set up a new organization, the Unemployed Committee for the National Hunger March, to coordinate a national hunger march on Washington DC to demand federal unemployment insurance and “the granting of emergency winter relief for the unemployed in the form of a lump-sum payment of $150 per unemployed worker, with an additional $50 for each dependent” as well as “a 7-hour workday, establishment of a union wage pay scale for unemployed workers, payment of a soldiers’ bonus to veterans of World War I, and an end to discrimination against black American and foreign-born workers.”  Local conferences selected 1,670 delegates, who converged on Washington from four separate columns in December 1931.  Their trip across the country was supported by local UCs.

Not surprisingly, the delegates were denied entrance to the Capital to present their demands.  They stayed two days and then started back, holding mass meetings across the country on their return trip to talk about their demands and the need for mass action to win them.

Another National Hunger March took place the following year.  This time 3,000 delegates came to Washington DC to again present their demands for winter relief and unemployment insurance.  These marches not only helped to strengthen the movement of the unemployed, they also greatly increased the pressure on elected officials to take some action to restore popular confidence in the government.

Underpinning the strategic orientation of the work of the UCs was the CP’s determination to build solidarity between the labor movement and the unemployed and anti-racist unity.  The first is highlighted by struggles in Detroit, where most unemployment was the result of auto factory layoffs.  There, the UCs and the Young Communist League led several marches to auto plants to protest the inadequate benefits given to laid-off workers.  Organizers would also read statements aimed at the workers still employed in the plants, pledging that the unemployed would not scab if workers struck for improved conditions.

As for anti-racism work, the CP “made sure that all of its agitation in the unemployed councils included protests against racial discrimination by relief agencies, landlords, and local and federal government.  On a more individual level, the Communists’ emphasis on multiracial organizing created situations in which whites and Blacks worked together for a common purpose and created personal bonds.”

Other organizing efforts

The CP was not the only left organization working to build a movement of the unemployed.  Both the Socialist Party and the Conference of Progressive Labor Action (CPLA), led by A.J. Muste, also created unemployed organizations that mobilized hundreds of thousands of jobless workers in local and national protests.  The Socialist Party created affiliated committees in a number of cities, the largest in Chicago and New York.  These committees were, like the UCs, generally oriented towards direct action in response to local conditions but they also engaged in electoral efforts.

The CPLA organized a number of Unemployed Citizen Leagues (UCLs) following the model of the Seattle Unemployed Citizens League. Established in the summer of 1931, the Seattle UCL quickly grew to a membership of 80,000 by 1933.  The UCLs initially focused on self-help through barter and labor exchange.  For example, members of the Seattle league:

persuaded farmers to let them harvest the fruit and potatoes for which there was no market, and they borrowed trucks to transport this produce.  Women exchanged sewing for food.  Barbers cut hair for canned berries.  This practice of barter spread and was highly organized. . . . Some men collected firewood from cutover forested areas; in all, they cut, split, and hauled 11,000 cords.  The products of these labors were shared by UCL members.  Some members repaired houses or worked in shoe repair shops, while others did gardening.  There were also child welfare and legal aid projects in which lawyers contributed their services.

The UCLs were also active in local elections, supporting candidates and legislation in favor of extended relief aid and unemployment insurance.  However, after a few years, most abandoned their focus on self-help, finding that “the needs of the jobless greatly exceeded the ability of a mutual aid program to meet them,” and turned instead to more direct-action protests similar to those of the UCs.  Although the CPLA failed to develop a national presence, their leagues were important in the Midwest, especially Ohio.

The CP was hostile to these organizations and their organizing efforts. In line with their Third Period strategy, the CP considered them to be a danger to the movement they were trying to build and their leaders to be “social-fascists.”  Party opposition went beyond denouncing these groups.  UC activists were encouraged to undermine their work, sometimes by physical force, other times by infiltrating and disrupting their meetings. This sectarianism clearly weakened the overall strength of the unemployed movement.  At the same time, local UC activists would sometimes ignore CP and UC leadership directives and find ways to build solidarity around joint actions on behalf of the unemployed.

The unemployed were not the only group whose organizing threatened the status quo.  As Steve Fraser pointed out: “Farmers took to the fields and roads in shocking displays of lawlessness. All across the corn belt, rebels banded together to forcibly prevent evictions of fellow farmers.” The Farm Holiday Association, an organization of midwestern farmers founded in 1932, not only mobilized its members to resist evictions, it also supported a progressive income tax, federal relief for the urban unemployed, and federal government control of the banks.  “In the South, tenants and sharecroppers unionized and conducted what a Department of Labor study called a ‘miniature civil war.’”

Veterans also organized.  World War I veterans from around the country, many with their families, traveled to Washington DC in summer 1932.  The call for a national Bonus March, although made by a largely anti-communist leadership, was inspired by the CP organized First National Hunger March. The veterans had been promised a bonus to compensate for their low war-time pay, but the Congress had delayed payment until 1945.  The veterans wanted their money now and set-up camps near the Capitol to pressure Congress to act.  Their camps were destroyed and the veterans violently dispersed by troops led by Douglas McArthur and Dwight Eisenhower.

In short, the political trajectory was one that concerned a growing number of political and business leaders.  Working people, largely anchored by a left-promoted, mass-based movement of unemployed, were becoming increasingly militant and dismissive of establishment calls for patience.  Continued federal inaction was becoming ever more dangerous.  Recognizing the need for action to preserve existing structures of power, it took Roosevelt only three months to drop his commitment to balanced budget orthodoxy in favor of New Deal experimentation.

Lessons

The multifaceted crisis we face today is significantly different from the crisis activists faced in the first years of the Great Depression.  But there is no question that, much like then, we will need to build a powerful, mass-movement for change if we hope to harness state power to advance a Green New Deal.

The First New Deal was not the result of administration concerns over the economic and social costs of the Great Depression.  Rather, it was political pressure that forced Roosevelt to begin experimenting with programs responsive to the concerns of working people.  And, not surprisingly, these experiments were, as will be discussed in the next post in this series, quite limited. It took new organizing to push Roosevelt to implement more progressive programs as part of his Second New Deal.

There are also lessons to be learned from the period about movement building itself, specifically the CPs organizing and strategic choices in targeting the unemployed and building a national movement of the unemployed anchored by a network of UCs.   The UCs helped transform how people understood the cause of their hard times.  They also created a local, collective, and direct outlet for action in defense of immediate shared basic needs.  The CP also emphasized the importance of organizing those actions in ways designed to overcome important divisions among working people.  Finally, the party and the UCs created broader campaigns for public policies on the national level that were directly responsive to local concerns and actions. Thus, organizing helped create a momentum that built political awareness, leadership capacity, class unity, and national weight around demands for new public initiatives.

The call for a Green New Deal speaks to a variety of crises and the need for change in many different sectors, including food production, energy generation, transportation, manufacturing, social and physical infrastructure, housing, health care, and employment creation.  It also projects a vision of a new more sustainable, egalitarian, and democratic society.  While it would be a mistake to equate the organizing work in the early years of the depression, which focused on employment and relief, with what is required today given the multifaceted nature of our crisis, we would do well to keep the organizing experience highlighted above in mind as we seek to advance the movement building process needed to win a Green New Deal.  It offers important insights into some of the organizational and political challenges we can expect to face and helpful criteria for deciding how best to respond to them.

For example, it challenges us to think carefully about how to ensure that our organizing work both illuminates the roots of our current multifaceted crises, building anti-capitalist consciousness, and challenges existing racial, ethnic, and gender divisions, strengthening working class unity.  It also challenges us to think about how to ensure that that our efforts in different geographic areas and around different issues will connect to build a national presence and organizational form that strengthens and unites our various efforts and also projects our overall vision of a restructured society.  And it also challenges us to think about how we should engage the state itself, envisioning and preparing for the ways it can be expected to seek to undermine whatever reforms are won.

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What the New Deal can teach us about winning a Green New Deal: Part I–Confronting Crisis

The New Deal has recently become a touchstone for many progressive efforts, illustrated by Bernie Sanders’ recent embrace of its aims and accomplishments and the popularity of calls for a Green New Deal.  The reasons are not hard to understand. Once again, growing numbers of people have come to the conclusion that our problems are too big to be solved by individual or local efforts alone, that they are structural and thus innovative and transformative state-led actions will be needed to solve them.

The New Deal was indeed a big deal and, given contemporary conditions, it is not surprising that people are looking back to that period for inspiration and hope that meaningful change is possible.  However, inspiration, while important, is not the same as seeking and drawing useful organizing and strategic lessons from a study of the dynamics of that period.

This is the first of a series of posts in which I will try to illuminate some of those lessons.  In this first post I start with the importance of crisis as a motivator of change.  What the experience of the Great Depression shows is that years of major economic decline and social devastation are not themselves sufficient to motivate business and government elites to pursue policies likely to threaten the status quo.  It was only after three and a half years of organizing had also created a political crisis, that the government began taking halting steps at serious change, marked by the policies associated with the First New Deal.  In terms of contemporary lessons, this history should serve to dispel any illusions that simply establishing the seriousness of our current multifaceted crisis will be enough to win elite consideration of a transformative Green New Deal.

The Great Depression

The US economy expanded rapidly throughout the 1920s, a period dubbed the Roaring Twenties. It was a time of rapid technological change, business consolidation, and wealth concentration.  It was also a decade when many traditional industries struggled, such as agriculture, textiles, coal, and shipbuilding, as did most of those who worked in them.  Growth was increasingly sustained by consumer demand underpinned by stock market speculation and debt.

The economy suffered a major downturn in 1920-21, and then mild recessions in 1924 and 1927.  And there were growing signs of the start of another recession in summer 1929, months before the October 1929 stock market collapse, which triggered the beginning of the Great Depression.  The collapse quickly led to the unraveling of the US economy.

The Dow Jones average dropped from 381 in September 1929 to forty-one at the start of 1932.  Manufacturing output fell by roughly 40 percent between 1929 and 1933.  The number of full-time workers at United States Steel went from 25,000 in 1929 to zero in 1933.  Five thousand banks failed over the same period.  Steve Frazer captured the extent and depth of the decline as follows: “In early 1933, thirty-six of forty key economic indicators had arrived at the lowest point they were to reach during the whole eleven grim years of the Great Depression.”

The resulting crisis hit working people hard.   Between 1930 and 1932, the number of unemployed grew from 3 million to 15 million, or approximately 25 percent of the workforce.  The unemployment rate for those outside the agricultural sector was close to 37 percent.  As Danny Lucia describes:

Workers who managed to hold onto their jobs faced increased exploitation and reduction in wages and hours, which made it harder for them to help out jobless family and friends. The social fabric of America was ripped by the crisis: One-quarter of children suffered malnutrition, birth rates dropped, suicide rates rose. Many families were torn apart. In New York City alone, 20,000 children were placed in institutions because their parents couldn’t support them. Homeless armies wandered the country on freight trains; one railroad official testified that the number of train-hoppers caught by his company ballooned from 14,000 in 1929 to 186,000 in 1931.

“Not altogether a bad thing”

Strikingly, despite the severity of the economic and social crisis, business leaders and the federal government were in no hurry to act.  There was certainly no support for any meaningful federal relief effort.  In fact, business leaders initially tended to downplay the seriousness of the crisis and were generally optimistic about a quick recovery.

As the authors of Who Built America (volume 2) noted:

when the business leaders who made up the National Economic League were asked in January 1930 what the country’s ‘paramount economic problems’ were, they listed first, ‘administration of justice,’ second, ‘Prohibition,” and third, ‘lawlessness.’ Unemployment was eighteenth on their list!

Some members of the Hoover administration tended to agree. Treasury Secretary Andrew Mellon thought the crisis was “not altogether a bad thing.”  “People,” he argued, “will work harder, live a more moral life.  Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.”

President Hoover repeatedly stated that the economy was “on a sound and prosperous basis.”  The solution to the crisis, he believed, was to be found in restoring business confidence and that was best achieved through maintaining a balanced budget.  When it came to relief for those unemployed or in need, Hoover believed that the federal government’s main role was to encourage local government and private efforts, not initiate programs of its own.

At time of stock market crash, relief for the poor was primarily provided by private charities, which relied on donations from charitable and religious organizations.  Only 8 states had any type of unemployment insurance.  Not surprisingly, this system was inadequate to meet popular needs.  As the authors of Who Built America explained:

by 1931 most local governments and many private agencies were running out of money for relief.  Sometimes needy people were simply removed from the relief rolls.  According to one survey, in 1932 only about one-quarter of the jobless were receiving aid.  Many cities discriminated against nonwhites.  In Dallas and Houston, African-Americans and Mexican-Americans were denied any assistances.

It was not until January 1932 that Congress made its first move to strengthen the economy, establishing the Reconstruction Finance Corporation (RFC) to provide support to financial institutions, corporations, and railroads.  Six months later, in July, it approved the Emergency Relief and Construction Act, which broadened the scope of the RFC, allowing it to provide loans to state and local governments for both public works and relief.  However, the Act was structured in ways that undermined its effectiveness. For example, the $322 million allocated for public works could only be used for projects that would generate revenue sufficient to pay back the loans, such as toll bridges and public housing.  The $300 million allocated for relief also had to be repaid.  Already worried about debt, many local governments refused to apply for the funds.

Finally, as 1932 came to a close, some business leaders began considering the desirability of a significant federal recovery program, but only for business.  Most of their suggestions were modeled on World War I programs and involved government-business partnerships designed to regulate and stabilize markets.  There was still no interest in any program involving sustained and direct federal relief to the millions needing jobs, food, and housing.

By the time of Roosevelt’s inauguration in March 1933, the economy, as noted above, had fallen to its lowest point of the entire depression.  Roosevelt had won the presidency promising “a new deal for the American people,” yet his first initiatives were very much in line with the policies of the previous administration. Two days after his inauguration he declared a national bank holiday, which shut down the entire banking system for four days and ended a month-long run on the banks. The “holiday” gave Congress time to approve a new law which empowered the Federal Reserve Board to supply unlimited currency to reopened banks, which reassured the public about the safety of their accounts.

Six days after his inauguration, Roosevelt, who had campaigned for the Presidency, in part, on a pledge to balance the federal budget, submitted legislation to Congress which would have cut $500 million from the $3.6 billion federal budget.  He proposed eliminating government agencies, reducing the pay of civilian and military federal workers (including members of Congress), and slashing veterans’ benefits by 50 percent.  Facing Congressional opposition, the final bill cut spending by “only” $243 million.

Lessons

It is striking that some 3 ½ years after the start of the Great Depression, despite the steep decline in economic activity and incredible pain and suffering felt by working people, business and government leaders were still not ready to support any serious federal program of economic restructuring or direct relief.  That history certainly suggests that even a deep economic and social crisis cannot be counted on to encourage elites to explore policies that might upset existing structures of production or relations of power, an important insight for those hoping that recognition of the seriousness of our current environmental crisis might encourage business or government receptivity to new transformative policies.

Of course, we do know that in May 1933 Roosevelt finally began introducing relief and job creation programs as part of his First New Deal.  And while many factors might have contributed to such a dramatic change in government policy, one of the most important was the growing movement of unemployed and their increasingly militant and collective action in defense of their interests.  Their activism was a clear refutation of business and elite claims that prosperity was just around the corner.  It also revealed a growing radical spark, as more and more people openly challenged the legitimacy of the police, courts, and other state institutions.  As a result, what was an economic and social crisis also became a political crisis.  As Adolf Berle, an important member of Roosevelt’s “Brain Trust,” wrote, “we may have anything on our hands from a recovery to a revolution.”

In Part II, I will discuss the rise and strategic orientation of the unemployment movement, highlighting the ways it was able to transform the political environment and thus encourage government experimentation.  And I will attempt to draw out some of the lessons from this experience for our own contemporary movement building efforts.

The 1933 programs, although important for breaking new ground, were exceedingly modest.  And, as I will discuss in a future post, it was only the rejuvenated labor movement that pushed Roosevelt to implement significantly more labor friendly policies in the Second New Deal starting in 1935.  Another post will focus more directly on the development and range of New Deal policies in order to shed light on the forces driving state policy as well as the structural dynamics which tend to limit its progressive possibilities, topics of direct relevance to contemporary efforts to envision and advance a Green New Deal agenda.

Growing Old in America: Baby Boomer Nightmare

Despite its reputation as the wealthiest generation, baby boomers (generally considered to be those born between 1946 and 1964) are facing a retirement nightmare.  A 2016 St. Louis Federal Reserve study of the retirement readiness of U.S. families came to the same conclusion but put it more gently: “It could be worrisome that, for many American households, the total balances of their retirement accounts may not be sufficient to ensure a solid life in retirement.”

The investment industry, always ready to deflect blame, argues that the problem is the result of the fact that Americans just don’t save enough.  But even Barron’s, a sister publication of the Wall Street Journal that specializes in financial news, understands what is really happening.  As a recent article in the magazine points out:

Too few Americans are saving for retirement. Those who do save are putting away too little. It is only a matter of time before this sparks an economic and political crisis. . . .

But America’s retirement crisis wasn’t created because of character flaws or personal irresponsibility. Nor can it realistically be fixed by technocratic fixes.

The ugly, unspoken truth is that many people are just not earning enough money. They barely have enough to cover their daily expenses; they don’t have enough left over to be able to save.

The promised golden years are out of reach for most boomers.

Baby boomers are moving rapidly towards retirement.  Those born in 1946 are now 73, those born in 1964 are now 55.  Despite being celebrated for their good economic fortune, especially in contrast to millennials, most boomers face a future that doesn’t include retirement with dignity or, in the words of the St. Louis Fed, a solid life.

Although labeled the wealthiest generation, a Stanford Center on Longevity examination of retirement preparedness found that “baby boomers are in a financially weaker position than earlier generations of retirees, in terms of home equity accumulation, financial wealth, and total wealth.”

The Stanford Center study divided the boomer generation into two groups, the early boomers (born 1948-1953) and mid-boomers (1954-1959), and compared them to early (before 1942) and later born (1942-47) members of the previous “silent generation.”  The following are some of its key findings:

  • Holding age fixed, mid-boomers age around 55-60 years old had saved less than previous generations at the same age.

  • Holding age fixed, a 50-year old mid-boomer had saved less in any retirement plans, including workplace plans and Individual Retirement Account plans, than a 50-year old from prior generations.

  • Holding age fixed, boomers age 55-60 had a higher debt burden than prior generations at the same age, evidenced in a higher debt-to-net worth ratio, a lower liquid-asset to all asset ratio, and a higher loan-to-value ratio.

But boomer problems are not just comparative.  For example, the Stanford study also found that approximately 30 percent of baby boomers had no money saved in retirement plans in 2014, when they were age 58, on average, “leaving them little time to start saving for retirement.”  And, the median balance for those who held a retirement account was only $200,000, far too small an amount to generate the income needed to carry a person through a 20- to 30-year retirement.

Looking just at retirement age boomers, a 2018 PBS News Hour report noted that:

Nearly half of Americans nearing retirement age (65 years old) have less than $25,000 put away, according to the Employee Benefit Research Institute’s annual survey. One in four don’t even have $1,000 saved.

Adding to the retirement nightmare is the fact that many boomers also remain deep in debt.  A CNBC story reports that:

One-third of homeowners over the age of 65 were still paying off a mortgage in 2012, compared with less than a quarter of people in 1998 — and the median amount they owed nearly doubled to $82,000 from $44,000.

Meanwhile, the number of people aged 60 and older with student debt quadrupled between 2005 and 2015, to 2.8 million from 700,000.

One reason for low boomer financial balances is that this generation was hit hard by the Great Recession and the following years of low interest rates, and has yet to recover. Boomer median household net worth was $224,100 in 2007 and only $184,200 in 2016.

African American and Latinx baby boomers face even greater problems, earning less money and having far less retirement savings than white Americans.  According to Forbes, “The average white family had more than $130,000 in liquid retirement savings (cash in accounts such as 401(k)s, 403(b)s and IRAs) vs. $19,000 for the average African American in 2013, the most recent data available.”

Latinx retirement savings also trails that of whites.  For example, in 2014, among working individuals age 55 to 64, only 32.2 percent of Latinx had money in a retirement account compared with 58.5 percent of whites. The average Latinx account held $42,335 while the average white account held $103,526.

With private pensions and personal savings inadequate to fund a secure retirement, it is no wonder that so many boomers strongly defend Social Security, the so-called third leg (in addition to private pensions and personal savings) of the retirement “stool.”  But, as important as it is, the average Social Security check in 2018 was only $1,422 a month or $17,064 a year.

It should therefore come as no surprise that research by the Institute on Assets and Social Policy finds that one-third of seniors have no money left over at the end of the month or are in debt after meeting necessary expenses.  Or that growing numbers of seniors are making the decision to forego retirement altogether, by either continuing to work to returning to the labor force.

Saying goodbye to retirement

According to the 2019 report titled Boomer Expectations for Retirement, one-third of boomers plan to retire at age 70 or not at all.  And one-third of employed boomers ages 67-72 postponed retirement.

Thus, while labor force participation rates are declining for many age cohorts, they are growing for boomers and older workers. In fact, between April 2000 and January 2018, “there has been essentially no net growth of employment for workers under age 55. Over that same time, employment for workers over age 55 has doubled.”

The figure below shows labor force participation rates for six age 50-plus cohorts since the turn of the century. As Jill Mislinski states: “The pattern is clear: The older the cohort, the greater the growth.”

Sadly, many of these older workers have had little choice but to accept low-paid, physically demanding work at some of America’s richest companies (e.g., Walmart and Amazon) who are delighted to take advantage of their desperation.

Jessica Bruder’s 2017 book, Nomadland: Survival in Twenty First Century America, describes mostly white baby boomers who, strapped for money, decide to buy used RVs and travel.  We learn about the friendships they make, and also the minimum wage seasonal jobs they are forced to take to survive. Zhandarka Kurti draws on Bruder’s work to highlight their experience with Amazon:

With its motivational slogan of “work hard, have fun, make history,” Amazon recruits seasonal workers at various “nomad friendly events” including “RV shows and rallies—in more than a dozen states across America.” Older workers are drawn to the opportunity to make good money in a relatively short time. . . . Also ironically, Walmart and Amazon, the two competing retail giants and also the country’s largest employers, allow their workers to park overnight, an attractive perk for many older nomads who struggle with food security let alone rent. . . .

While most of the nomads are made aware of the physical aspects of the job [working in Amazon fulfillment centers] during the training seminars, they are nonetheless surprised by just how much pain they are in after a day’s work. . . . Older workers constantly complain of chronic pain from work and Amazon’s solution is to offer free over-the-counter pain killers. . . . Amazon leaves older workers so physically tired that they have little occasion to enjoy their leisure time. Instead they spent the remainder of their “free” time nursing themselves back to health to survive another workday. . . .

In many ways older workers are Amazon’s dream labor force. “They love retirees because we’re dependable. We’ll show up and work hard, and are basically slave labor” one 78 year-old workamper who previously worked as a teacher in California’s community colleges confides in Bruder. Older workers are what Bruder calls “plug-and-play labor” in that they are only around for a short time, are often too tired to complain about the non-existent benefits and are generally appreciative of the jobs regardless of the pain they endure. . . . Amazon also receives federal tax credits to hire older disadvantaged workers and the company predicts that by 2020 one in every four workampers in the US would have worked for Amazon.

It is clear that leading American businesses do not favor bringing back pensions, or boosting wages, or paying higher taxes to strengthen and expand social security and other social services.  Thus, if existing trends are not challenged and reversed, the boomer generation (or at least a significant minority) may well be the last to experience some sort of satisfactory retirement. This development is yet another sign of a failed system.  Boomers need to find ways to help younger generations keep the goal of a satisfying retirement alive, and join in a common fight for the structural changes required to realize it.

Portrait of the 2009-2019 US expansion

June 2019 marks the 10th anniversary of the current US economic expansion.  If it makes it through July it will surpass the 1991-2001 expansion as the longest on record.  But while expansions are to be preferred over recessions, there are many reasons to view this record-breaking expansion critically.  In fact, the nature of this expansion, hopefully captured in the following portrait, highlights the growing inability of the US economic system, even when performing “well,” to meet majority needs.

Weak Growth

This has been a weak expansion in terms of growth.  By way of comparison, GDP grew by 43 percent over the first 39 quarters of the 1991-2001 expansion (which was the previous record holder).   In the first 39 quarters of this expansion, through March 2019, GDP grew by only 22 percent.

At its current pace, the current expansion would have to run six more years to equal the aggregate growth of the 1991-2001 expansion, and nine more years to match the 54 percent aggregate GDP growth recorded over the 1961-69 expansion.  The figure below illustrates the relative weakness of the current expansion in terms of growth.

Strong corporate profits

At the same time, weak growth did little to dampen corporate earnings.  As we can see in the following figure, corporate earnings have been on the rise since 2001, reaching their maximum in 2015.  While pre-tax profits have leveled off, after tax profits, thanks to the recent Trump tax cut, have resumed their upward march.

We see a similar trend in the figure below which shows corporate profits as a share of GDP.

After-tax corporate profits will likely turn down again soon, as the effects of the tax cut are already weakening, indicating the end to this expansion is not far off.

Weak wage growth

The suppression of wages is one of the main reasons that corporations were able to enjoy such strong profits despite weak growth.  The figure below shows the collapse of labor’s share of corporate income.  The trend began during the 2001-2009 expansion but accelerated during this expansion.  Even more striking, the share has remained low despite the many years of expansion.

The wage stagnation underlying this trend is illustrated more directly in the next figure.

As we can see, there have been only two recent periods when workers (outside those in the 95th percentile) enjoyed real gains: 1997-2001 and 2015-2017.  Both periods were marked by very low rates of unemployment and followed long periods of expansion during which wages remained largely unchanged.  It is worth noting that both periods were also marked by a decline in corporate profits, suggesting that corporations cannot long tolerate any kind of upward movement in majority earnings.

For reasons that remain unclear, wage growth in 2019 has slowed.  The Federal Reserve Board, always keen to make sure that wages remain low to ensure profitability, began pushing up interest rates in late 2015 in response to the rising wage levels noted above.  The recent wage slowdown has, at least temporarily, caused the Fed to halt its interest rate hikes, which will likely help extend the expansion.

Employment struggles

The dramatic decline in unemployment is perhaps the most celebrated achievement of this expansion.  As we can see in the figure below, the unemployment rate steadily fell over the expansion, from a high of 10 percent down to a low of 3.6 percent as of May 2019.  Such a low level suggests a very tight labor market, which makes the wage stagnation difficult to explain.  The likely answer is that the current low level of unemployment is a poor measure of labor tightness.

A better measure appears to be the labor force participation rate, which is calculated as the civilian labor force (i.e., those employed and those unemployed and actively looking for work) divided by the civilian noninstitutional population (i.e., those not in the military or institutionalized). The figure below also shows the labor force participation rate for those 16 years and older.

As we can see, the current labor force participation rate of 62.8 percent remains significantly below its 2008 peak and even further below the even higher peak reached at the turn of the century.  The decline in the labor force participation rate means that millions of workers have yet to return to the labor force, either to hold a job or to look for one.

The seriousness of this problem is highlighted by the labor force participation rate of the prime age cohort, those 25-54 years of age.  Their core status stems from the fact that, as Jill Mislinski explains,

This cohort leaves out the employment volatility of the high-school and college years, the lower employment of the retirement years and also the age 55-64 decade when many in the workforce begin transitioning to retirement … for example, two-income households that downsize into one-income households.

In the figure below we can see that the labor force participation rate of the prime age cohort remains significantly below its two previous peaks.  The fact that millions of prime age workers have yet to return to the labor market is a strong indicator that labor market conditions remain far from ideal despite years of economic expansion.

Weak Investment

One reason for the slow growth and associated weak job creation is that business has been reluctant to invest.  Instead, they have been content to use a growing share of their earnings to fund dividend payments and stock buybacks.  The following chart, taken from a Federal Reserve Board study of the relationship between corporate capital investment and net stock buybacks, shows a post-2000 downward trend in business investment as a share of GDP and a rise in the value of dividend payments and stock buybacks as a share of GDP.

While the Federal Reserve study concludes that it is difficult to determine whether “corporations are actively reducing investment in order to finance share repurchases and dividend payments . . . [or] pessimism about future demand and economic growth is leading corporations to defer capital spending, and companies are simply returning cash to their shareholders for want of attractive investment opportunities,” there can be no question that there has been a noticeable change in business behavior.

For example, as can see below, whereas in the past nonfinancial corporations invested up to 40 percent of their cash flow back into their business, that share has fallen below 20 percent for most of the current expansion.  In other words, the lack of investment has nothing to do with a shortage of funds.

As the Federal Reserve study points out, business has been funneling ever more of its earnings, through dividends and stock buybacks, to its top managers and stockholders.  According to the New York Times, “From 2008 to 2017, 466 S.&P. 500 companies distributed $4 trillion to shareholders as buybacks, equal to 53 percent of profits, along with $3.1 trillion as dividends.”  Beyond slowing growth and job creation, such a policy has helped to drive income and wealth inequality to record levels, ensuring that those at the top remain content with the economy’s performance despite the problems faced by most working people.

The following figure, from another Federal Reserve Board study, this one titled A Wealthless Recovery?, highlights the extremely uneven distribution of rewards during this expansion.  The authors of the report grouped working-age households into four different groups according to their reported “usual income.”  As we can see from the blue bars, the Great Recession left all groups with substantially less wealth.  However, as we can see from the green bars, which extend the period under analysis to 2016,  (which includes many years of expansion), only the top income group enjoys a gain in wealth.  In other words, the expansion has done little to help the bottom 90 percent of working-age households recover the wealth they lost during the Great Recession.

Austerity

Sustained fiscal austerity is another reason for the slow growth during this expansion. The figure below shows the cumulative growth in per capita spending by federal, state, and local governments following the troughs of the 11 recessions since World War II.  As Josh Bivens explains:

Astoundingly, per capita government spending in the first quarter of 2016—twenty-seven quarters into the recovery—was nearly 4.9 percent lower than at the trough of the Great Recession. By contrast, 27 quarters into the early 1990s recovery, per capita government spending was 3.6 percent higher than at the trough; 24 quarters after the early 2000s recession (a shorter recovery that did not last a full 27 quarters), it was almost 10 percent higher; and 27 quarters into the early 1980s recovery, it was more than 17 percent higher.

If government spending in this expansion had followed the pattern of previous recoveries, public spending would have been far greater, not only boosting demand and employment but ensuring provision of needed public services.  As Bivens points out,

If government spending following the Great Recession’s end had tracked the spending that followed the early 1980s recession—the only other postwar recession of similar magnitude—governments in 2016 would have been spending almost a trillion dollars more in that year alone.

State and local governments are primarily responsible for this austerity.  In many cases, their actions were the result of tax cuts enacted to benefit the wealthy and leading corporations that left state and local governments short of revenue.  Limited by balanced budget requirements, most ended up slashing spending on social services.  As a consequence, the brunt of austerity has been borne by working people.

Summing up 

This is far from a complete portrait of the current expansion.  Yet, it still clearly reveals how the logic of capitalism works against the interests of the great majority of working people, even during a long period of profitable economic activity.  A recession awaits, and then our troubles will intensify.  Key to our ability to build a popular democratic response in defense of majority interests may well be how people evaluate the benefits of remaining committed to an economic system that that undermines their well-being in multiple ways even when it is functioning well.

Making excuses for unemployment: The myth of a “skills gap”

It has taken ten years of expansion, but the US unemployment rate has finally fallen below 4 percent.  However, this low rate of unemployment presents a somewhat misleading picture of labor tightness.  For example, both the labor force participation rate and employment to population ratio remain significantly below previous highs, making clear that the economy is far from full employment.

The current labor force participation rate of prime age workers, those 25-54 years, is a case in point.  It remains below the previous peak rate in 2008, and even further below the peak rate at the turn of the century.  We would need an additional 1.2 million employed prime age workers to match the 2008 labor force participation rate and 2.5 million more to match the turn of the century rate.  Still it appears that at the present moment unemployment is no longer a major political issue.

That said, since we can be confident that this expansion will end and unemployment will once again become a serious problem, it is worth revisiting how mainstream economists and government policy makers treated the high rates of unemployment that marked the first five years of this expansion. In brief, and perhaps not surprisingly, most tended to explain away the slow decline in the unemployment rate by blaming workers themselves.  More specifically, they cited a “skills gap.”

As Matthew Yglesias describes:

Five or six years ago, everyone from the US Chamber of Commerce to the Obama White House was talking about a “skills gap.”

The theory here was that high unemployment reflected a structural shift in the labor market such that jobs were available, but workers simply didn’t have the right education or training for them. Harvard Business Review ran articles about this — including articles rebutting people who said the “skills gap” didn’t exist — and big companies like Siemens ran paid sponsor content in the Atlantic explaining how to fix the skills gap.

However, as Yglesias notes, the skills gap story doesn’t hold up.  Yes, business did complain for years that they found it hard to hire workers with the experience and skills they wanted.  But the fact is, as three economists demonstrate in their recently published paper, there was no real skills gap.  Rather, business just took advantage of the high rates of unemployment to jack up their skill requirements.  And as the unemployment rate gradually fell, they lowered them, which ended talk of the skills gap.  In short, employment problems are system generated, not worker caused.

The study

In “Upskilling: Do Employers Demand Greater Skill When Workers Are Plentiful?,” the economists Alicia Sasser Modestino, Daniel Shoag, and Joshua Ballancee used a proprietary dataset of 36.2 million online job postings aggregated by Burning Glass Technologies (BGT).  BGT “aggregates detailed information daily on more than 7 million online job openings from over 40,000 sources including job boards, newspapers, government agencies, and employer sites.” It also extracts details from the posted advertisements, allowing analysis according to 70 job characteristics, including job title, employer name, location, and the level of education and years of experience required. About half of the BGT postings include employer name.  The authors tapped the BGT dataset to carry out three different tests to determine whether employer job requirements, specifically education and experience requirements, changed in response to changes in the supply of available workers over the years 2007 to 2014.

They first tested whether education and experience requirements grew more in states and occupations that experienced greater increases in the supply of available workers, measured both by state unemployment rates and by state labor supply/labor demand ratios.  Then they carried out the same test, but this time looking at individual firms and their job requirements for specific job titles.

For both tests, the authors also used several control variables, including “the share of the state population with a bachelor’s degree in 2000 and the average age of the state population in 2000 to account for both heterogeneity in the pre-existing pool of skilled labor available to employers, as well as the initial share of openings requiring a particular skill in 2007 to account for heterogeneity across state × occupation cells.”

As a final check of their work, the authors made use of a “labor shock” that was uncorrelated with underlying economic trends: the drawdown of troops from Iraq and Afghanistan between 2009 and 2012. The authors examined “whether state × occupation cells receiving larger numbers of returning veterans correspondingly experienced a greater increase in their skill requirements.”

The results

In the first test the authors examined whether changing labor market conditions influenced “the share of postings requiring a bachelor’s degree or greater and the share of postings requiring at least four years of experience.”  And they found a strong relationship:

within a six-digit detailed occupation, a 1 percentage point increase in the state unemployment rate is associated with a 0.64 percentage point increase in the share of job postings requiring a bachelor’s degree and a 0.84 percentage point increase in the share of job postings requiring at least four years of experience. How large is the upskilling effect in terms of economic importance? In the context of the most recent downturn, our results imply that the nationwide increase in unemployment rates between 2007 and 2010 raised education requirements within occupations by 3.2 percentage points and raised experience requirements by 4.2 percentage points, respectively. Relative to the observed increases in skill requirements . . . during this period, our estimates suggest that changes in employer skill requirements due to the increased availability of workers during the business cycle can account for up to 30 percent of the total increase for education and nearly 50 percent of the total increase for experience.

Their findings of a strong relationship between labor slack and increased skill requirements are illustrated in the following two figures.

The second test also found a positive relationship between employer skill requirements and labor market slack even when limited to a consideration of the same job title at the same employer in the same state.  As the authors state:

Controlling for firm × job-title pairs within a state, we find that a one percentage point increase in the state unemployment rate raises the share of jobs postings requiring a bachelor’s degree by 0.505 percentage points and the share of job postings requiring at least four years of experience by 0.483 percentage points.

As for the labor shock of returning veterans, the authors again found “a strong, significant, and positive relationship between the sharp increase in the supply of returning veterans and the rise in employer skill requirements for both education and experience.”

The takeaway

The claim of a skills gap was widely embraced by those looking to deflect attention from capitalism’s growing inability to generate adequate employment even during years of economic expansion.  If the problem is a skills gap, then the responsibility for solving the problem rests on the shoulders of workers themselves, who will have to do a better job of keeping up with the times.  However, as Yglesias notes in his article summary, “the skills gap was the consequence of high unemployment rather than its cause. With workers plentiful, employers got choosier.”

Unemployment rates will rise again, and papers like “Upskilling: Do Employers Demand Greater Skill When Workers Are Plentiful?” are helpful for preparing us to challenge those whose arguments serve to defend a system that has grown ever more unresponsive to majority needs.

They’re at it again: Selling the US-Mexico-Canada Agreement

The headlines once again misrepresent the aims and consequences of a US free trade agreement, in this case repeating the International Trade Commission’s claim that President Trump’s US-Mexico-Canada agreement (USMCA) will boost US growth and employment.

The International Trade Commission is required by law to evaluate the economic consequences of the USMCA, which is supposed to replace the North American Free Trade Agreement (NAFTA), before Congress can debate whether to approve it.  According to its report, which was released on April 18, 2019, the agreement can be expected to “raise U.S. real GDP by $68.2 billion (0.35 percent) and U.S. employment by 176,000 jobs (0.12 percent)” and “would likely have a positive impact on U.S. trade, both with USMCA partners and with the rest of the world.”

While supporters of the agreement happily repeat the Committee’s conclusion “that, if fully implemented and enforced, USMCA would have a positive impact on U.S. real GDP and employment,” the fact is that the predicted gains are miniscule.  Moreover, given the flaws in the Commission’s admittedly sophisticated modeling, there is no reason to take the results seriously.  Finally, a careful examination of the many chapters in the proposed agreement makes clear that its real aim is to strengthen contemporary globalization dynamics, enhancing corporate power and profits at the expense of majority living and working conditions in all three countries.

Putting the projected “gains” in perspective

The Commission assumed that the US economy’s complete adjustment to the agreement would take six years.  It then used a computable general equilibrium model to simulate how the terms of the agreement would change US markets and compared the “equilibrium” outcome at the end of the adjustment period with baseline results that assumed no significant change in US economic policies or global agreements over the same period.

On the basis of such modeling, the Commission concluded that six years after the implementation of the agreement, the US economy would be $68.2 billion bigger than if the agreement had not been approved.  That is, as the Commission acknowledges, a one-time gain of 35/100 of one percent in real GDP.  Current US GDP is over $21 trillion; $68 billion is a rounding error in an economy of that size.

As for the projected growth in employment, the one-time gain of 176,000 jobs relative to the base line forecast translates into an increase in employment after six years of 12/100 of one percent.  That gain in employment is roughly equal to the number of new jobs added in a month of moderate economic growth.  The Commission’s model produced similar miniscule gains for other variables, including US wages.

In short, if we take these predictions seriously, the obvious conclusion is that there is little to gain from approving this agreement.  Of course, that is not the Commission’s position.  However, there is little reason to take these results seriously.

Dodgy methodology

It took a lot for the Commission to produce even these minimal games.  More specifically, it took a dodgy methodology that is biased towards policies that promote globalization.

The Commission organized its work as follows: it first sought to model the economic consequences of “eight groups of USMCA provisions: agriculture, automobiles, intellectual property rights (IPRs), e-commerce, labor, international data transfer, cross-border services, and investment.” Then, it took the provision specific results of each group and used them as modeling inputs for the economy-wide computable general equilibrium model it used to produce the overall estimates cited above.

Since not all the provisions changed current policies, the Commission divided the eight groups into two categories.  The first included the “set of provisions that would alter current policies or set new standards within the three member countries, and that would therefore be expected to modify current conditions after USMCA enters into effect.” This included provisions affecting agriculture, automobiles, IPRs, e-commerce, labor, and investment decisions related to the investor-state dispute settlement mechanism.

The second category included provisions that “would reduce policy uncertainty. These commitments would primarily serve to deter future trade and investment barriers, thus offering firms some assurance that current regulations and standards, which may or may not be expressly governed by current policies, will not become more restrictive.” Included in this category are provisions that would affect international data transfer, cross-border services trade, and investment decisions related to market access and nonconforming measures.

Significantly, it was the Commission’s determination of the gains from those provisions that would reduce policy uncertainty, by restricting the possibility for future government regulation of corporate activity, that proved decisive.  As a Public Citizen Eyes on Trade blog post pointed out,

Most of the [overall gains reported by the Commission] are derived from a highly dubious new research methodology, which assigns an invented positive economic value to terms that reduce “policy uncertainty” by freezing in place environmental, consumer protection, financial and other safeguards. If the ITC had not done this, the report would have projected a negative outcome. All $68.2 billion of the deal’s supposed economic gains arise from simulating the impact of removing trade barriers that do not exist. In other words, the gains are generated not through the removal of trade barriers directly, but through the elimination of the possibility of new future regulatory policies, which are deemed to be potential trade barriers. Absent this fabrication, the revised NAFTA would have been projected to lower the United States’ GDP by $22.6 billion and reduce the number of jobs by 53,900.

The problems only multiply when these separate results are used as inputs in the Commission’s economy-wide model.  This model, as noted above, is a computable general equilibrium model.  As such, it seeks to process all the ways the changes generated by the agreement interact to change market behavior before eventually producing – over a six-year period in this case — a new equilibrium outcome for the economy.  As one might imagine, this kind of modeling is quite complex and to ensure a result it requires some very significant assumptions.  Among them are:

  • The assumption that product markets are “perfectly competitive (implying zero economic profit for the firm).”
  • The assumption that there is “full capacity utilization of capital.”
  • The assumption that there is no unemployment.
  • The assumption that “global trade balances remain constant.”

In other words, while we may want the Commission to investigate whether a new trade agreement might cause a worsening of trade balances, or unemployment, or deindustrialization, or monopolization, the Commission’s model, by assumption, asserts that these are non-problems.  As a result, the model has a clear pro-trade agreement bias.

Thanks to these assumptions, if a country drops its trade restrictions, market forces will quickly and effortlessly lead capital and labor to shift into new, more productive uses.  It is no wonder that mainstream economic studies, which rely on computable general equilibrium modeling, always produce results supporting ratification of free trade agreements.  In light of this, it is striking how small the estimated gains were for this trade agreement.

The real winners

So, one might ask, what is really going on here?  Well, the agreement enjoys strong corporate support precisely because a number of its chapters include provisions responsive to the interests of leading US multinational corporations.  What follows are just a few examples drawn from the report.

The agreement includes provisions that require harmonization and thus a reduction in food safety standards, force governments to negotiate new standards with industry representatives, set deadlines for import checks, require that new standards be based on scientific principles, and that safety standards be applied “only to the extent necessary to achieve the appropriate level of protection” and “not [be] more trade restrictive than required.”

The agreement also includes a number of market access provisions to promote cross-border trade in services and financial services.  More specifically, the agreement’s market access provisions “are aimed at removing quotas and other barriers that impede the entry of services suppliers into foreign markets.” The Commission believes that “the broadcasting, telecommunications, and courier services sectors in the United States are estimated to gain the most, followed by the commercial banking sector in all three countries.”

The agreement also includes provisions “which would strengthen protections in major IPR categories such as trade secrets, regulatory data protection, patents, trademarks, copyrights, and civil, criminal, and administrative enforcement.”  The pharmaceutical industry will be one of the biggest beneficiaries.  For example, the agreement includes a “patent resolution mechanism that requires notice to patent holders, and an opportunity for relief, when a generic manufacturer seeks to rely on an originator’s test data for marketing approval without the patent holder’s consent.”

The USMCA would be the first U.S. free trade agreement with a chapter on digital trade.  Among other things, it would prevent governments “from restricting cross-border flows of financial data, which would require data to be stored or processed locally” and would “forbid them to adopt restrictive data measures in the future.”  This provision would be especially valuable to U.S. computer services and digital platform services firms. “Other key Digital Trade chapter provisions include a ban on import duties or other discriminatory customs measures on digital products (e.g., e-books, videos, music, software, and games), and prohibition of legal discrimination against digital products produced or created in other signatory countries.”

The agreement also includes a chapter that restricts the ability of governments to use state-owned enterprises to meet public needs by requiring that they be “regulated impartially, and do not benefit from special treatment and unfairly infringe upon the activities of private firms.”

The list goes on.  No wonder that major business associations are expressing strong support for the agreement. As the New York Times reports:

Industry groups called for the pact’s quick passage into law. Linda Dempsey, the vice president for international economic affairs at the National Association of Manufacturers, said that the deal was “a win for manufacturers.”

Jordan Haas, the director of trade policy at the Internet Association, said the report underlined that the deal’s digital trade provisions were “critical to America’s future economic success” and “mean jobs and opportunities in every state.”

There is a lot at stake in this struggle.  We need to stop calling for progressive reform of the agreement, a call that only leads to popular confusion about what drives US government policy.  Instead we need to build a movement that simply says no to NAFTA in any form.

The Uneasy US-China Relationship: What Lies Ahead?

The US and China are the two dominant poles in the global economy, as illustrated in the figure below which traces the global trade in parts and components. And they have a very uneasy relationship.  However, despite current tensions, it is unlikely that either side will succeed in dramatically changing it.  The main reason is that the relationship has been heavily shaped by the activities of leading multinational corporations, including from the US, and their interests in maintaining it can be expected to set limits on the actions of both governments.

China-US tensions

Xi Jinping, the president of the People’s Republic of China and head of the Communist Party of China, is actively pursuing policies that he hopes will reduce the country’s dependence on foreign multinational corporations and western markets.  Toward that end, he has promoted an industrial modernization program called “Made in China 2025” which aims to make the country a global power in 10 strategic industries, signed new trade agreements, created new regional institutions such as the Asian Infrastructure Investment Bank, launched new global initiatives such as the Belt and Road Initiative, and strengthened the country’s military.  This effort is often described in the western media as an attempt at decoupling from the west.

The US government for its part sees these efforts as a challenge to US dominance and has taken steps to block them and to isolate China.  For example, the US has levied tariffs on Chinese exports to the US, and has demanded that China do more to respect US intellectual property rights and open up more domestic markets to US firms.  It has also sought to stop other countries from using Chinese technology, especially in their wireless networks, and from participating in Chinese organized regional organizations and initiatives.  It also seeks to include a so-called “poison pill” clause in the US–Mexico–Canada free trade agreement which would limit the ability of Canada and Mexico to sign trade agreements with China without US approval.  The US hopes to insert such a clause in other trade agreements in order to force countries to choose whether to have closer economic ties with the United States or with China. It has also greatly expanded its military activities in areas surrounding China, for example, in Vietnam and the Philippines.

While the differences between the two governments are serious, and represent conflicting elite interests, there are other important factors that need to be considered in evaluating likely future developments.  One of the most important is the profit considerations of multinational corporations.

The continuing importance of multinational corporations in China

Foreign direct investment has played a key role in boosting Chinese growth and creating a regional production system in which East Asian and Southeast Asian countries sell parts and components to China-based firms for final assembly and export outside the region, especially to the US and Europe.  As an Asian Development Bank study explains:

The pattern of inward FDI to Asia reveals firms’ motivation of entry that is different from that into the rest of the world. . . . Foreign affiliates in Asia established by FDI tend to be engaged more in trade and investment for the purpose of reexporting intermediate and/or final goods to the countries outside the host country (vertical and export-platform FDI) than those in other regions.

Rapid expansion of FDI to EEA [emerging East Asia] has been closely associated with the establishment of regional production networks by multinational companies, especially with the PRC as the region’s main assembly and production hub to create positive spillovers on the rest of the regional economies. Indeed, based on the number of foreign affiliates in Asia that both import and export, the PRC is the most popular host for vertical and export-platform FDI with various parent economies [as shown in the table below].

This positioning by foreign firms in China, as both importers and exporters, means that China, and emerging East Asia more broadly, remain tied to the global economy, and in particular the US economy.  The continuing strength of this relationship is highlighted in the following figure from the Asian Development Bank study.  The high correlation of 0.85 between the growth in US non-oil imports and the growth in exports by emerging East Asia (which includes the PRC) in the period after the Global Financial Crisis, makes clear that there has been relatively little decoupling since the crisis.

In addition, foreign multinational corporations continue to produce China’s most technologically advanced products and exports.  Chip making is a good example of the former.  Historically, the semiconductor industry has concentrated on producing relatively standard computer chips that could be used for multiple purposes.  However, increasingly the electronics industry is demanding new, more powerful and specialized computer chips for use in devices involving artificial intelligence, self-driving cars, and the many products tied to the “internet of things.”

China continues to import most of its chips, but as a Stratfor article notes, foreign firms dominate semiconductor manufacturing in China as well, and especially of the most advanced chips:

the biggest players are often international companies with domestic subsidies. South Korea’s SK Hynix and Samsung are the two largest by revenue, followed closely by the United States’ Intel and Taiwan’s TSMC. But the two Chinese companies in the top six — Huahong Group and SMIC — are generations behind leading non-Chinese companies. And while Chinese tech giant Huawei has become a major player in designing certain chips, those powering the company’s latest generation of high-end smartphones were, in fact, built by TSMC.

As for exports, Sean Kenji Starrs, writing in the Socialist Register 2019, provides the following table listing the top ten exporters from China.  As we can see, electronics are China’s most important export product.  However:

The overwhelming majority of China’s top electronic exporters are foreign firms (especially Taiwanese and South Koreans – only Huawei makes the top ten) Samsung and LG perform their own final assembly in China but Western TNCs (including increasingly Japanese) prefer to outsource their lower value production to Taiwanese firms operating in China.

In short, it will be very challenging for the Chinese government to dramatically end its reliance on foreign multinational corporations or restructure its trade relations, without seriously jeopardizing Chinese growth (which is already falling fast) and the country’s political stability.

US multinational corporations and China

It is well-known that many leading US multinational corporations, including firms like Apple, Nike, and Walmart, depend on China-based production for their US sales.  What is less well-known is that many US multinational corporations occupy highly profitable positions in Chinese domestic markets.  For example, 2017 marked the sixth consecutive year that China was the top market for General Motors in terms of both sales and profit. Starr lists several other important examples: Google has a Chinese market share in smartphone operating systems of over 70 percent. Microsoft has a 90 percent market share in desktop operating systems. Boeing has a 45 percent market share in airplanes.  Coca-cola has a 63 percent market share in carbonated soft drinks. Starbucks has a 55 percent market share in coffeeshops. Cisco has a 55 percent market share in ethernet switches.

Moreover, as the economist Prema-chandra Athukorala shows in the table below, US multinationals operating in China, also use the country as a profitable platform from which to export to other countries.  In fact, in 2013, “the value of goods exported to the rest of the world by US MNE affiliates in China was US$37.5 billion, which was almost three times the value of their exports to the United States.”

Thus, China is extremely important to the operation and profitability of leading US firms.  And any US administration would have to think very carefully about the economic and political repercussions if it were to pursue policies that triggered a serious disruption in existing economic relations with China.

In sum, it is clear that both governments operate subject to real limits set by powerful multinational corporations, limits that will likely constrain China’s push for decoupling as well as the US drive to isolate China.  That said, it is important to keep in mind that there is an even more powerful force that could undermine the stability of the relationship and the contemporary global economy: the growing contradictions at work in both countries that have led to massive inequality and workplace resistance, ever slower growth and financial imbalances, and the likelihood of recession in the United States.