On May 6, 2011, I spoke at the First Unitarian Church in Portland along with Chuck Collins (from the Institute for Policy Studies) as part of a program sponsored by the church’s Real Wealth of Portland group. We both addressed the following theme: “Economic Insecurity Continues…and Communities Respond.”
Chuck talked about a very important initiative: Common Security Clubs. The First Unitarian Church has sponsored similar clubs for approximately one year.
What follows is the talk I gave:
The Challenges Ahead
I want to begin by summarizing my three main points—
First, our economic problems are serious and structural, and a long time in the making. They did not start with the 2007 collapse of the housing bubble, which means that we should not assume that so called “normal market forces” will eventually return us to an acceptable economic state. In other words, without major structural changes in the way our economy works we face a future of stagnation with ever worsening conditions for growing numbers of people.
Second, business and political leaders are not committed to making any serious changes in our economic structure. That is not because they are stupid. Rather it reflects a real class interest in maintaining the status quo. It is not that they are unaware of or unconcerned with our current social problems but rather that they view the cost of making necessary changes to our economy as too high.
Third, meaningful solutions will require building a movement that challenges our current reliance on profit driven market outcomes. This movement has to be built by organizing strong social and community institutions, ones that give people the chance to develop in common a correct understanding of the causes of our problems and the organizational weight and confidence to promote the needed transformation of our economy.
The National Bureau of Economic Research, the official designator of recessions and expansions, declared that our economy went into recession in December 2007 and that this recession ended and an expansion began in June 2009. In other words we have been in an expansion for almost two years. Normally, the deeper the recession, the stronger the recovery. However, as I am sure you are aware, the recession was very deep and to this point the recovery has been extremely weak.
The federal government has poured trillions of dollars into the economy to end the recession and boost the recovery. The government’s great accomplishment has been a strong recovery of profits. In fact, total domestic corporate profits are now about as high as they were in 2006 before the start of the crisis, and financial profits as a share of total profits are pushing 35%, which is close to the pre-crisis high of 40%.
But beyond this restoration of corporate profitability, and the recovery of finance as our leading economic sector, little has happened to generate sustained and beneficial growth for the great majority of us. For example, total bank excess reserves averaged around $10 billion a year in the decades prior to the crisis. Now they are pushing $1.4 trillion. The banks are just holding this money. One reason is that since October 2008 the Federal Reserve Board is paying them interest on those reserves. Similarly non-financial corporations now have the highest ratio of cash to assets in post-war history; they are not using that money to invest in new plant and equipment.
What this means is that our leading financial and non-financial corporations have plenty of money, but see no privately profitable productive investment opportunities. At the same time, they are in no hurry to pursue policy changes because despite the slow recovery they are doing quite well. Thus, as things stand, there is little reason to believe that this government supported expansion will be long lasting or beneficial for working people.
I cannot emphasize enough the fact that we are in an expansion; these are the good times—the period of recovery, when our income is supposed to go up, when unemployment is supposed to significantly decline, when we have money to rebuild our infrastructure, fund our health care and other social programs, and build a solid collective nest egg to cover the hard times which will of course come. The fact that this is not happening—that we continue to struggle during this period of economic expansion—is indicative of the fact that our economic system as presently structured is not one we can count on; in other words it is a flawed system.
With this perspective, you can see why the small increases in employment and production that are cheered by policy makers mean little—of course we are going to see some increases. But for how long and with what effect? Given the lack of corporate interest in investment or lending I think that there is little reason to be optimistic. And now, there is even an increasingly strong movement to slash government spending. Those who support that policy claim that we just have to put the collapse of the bubble economy behind us, tighten our fiscal belts, and let market forces return our economy to normal—but what is normal?
Let us consider the previous economic expansion. That expansion lasted from 2001 to 2007. If we compare it to the nine other post-war expansions, it ranks dead last in terms of the growth in GDP, investment, employment, wage and salary income, and compensation. It ranks highly in only one category—and that was the growth in profits. In fact, median household income actually fell over this period of economic expansion. And it is important to recall that this expansion was long lasting only because it was supported by a debt-driven housing bubble. We no longer have that bubble to support growth. Therefore, the new normal appears to be ever weaker growth and deteriorating living and working conditions for the great majority of us. I don’t find that to be acceptable.
Significantly, more and more people are arguing that our current problems are caused by government deficits that are too big, taxes that are too high, and unions that are too strong,. They are therefore pushing for a major reduction and privatization of government social programs, tax cuts for the wealthy and corporations, and a weakening of unions, especially those in the public sector.
This would be a recipe for disaster. Where these policies have been implemented, in places like Ireland, Greece, and the UK, the result has been only more problems: lower growth, greater deficits, and of course worsening social conditions. That is not a surprising outcome. If you have an economy where there is weak domestic demand because banks will not lend and corporations will not invest, workers are deep in debt, unemployment is high, and exports are limited, and then you cut government spending—it should not surprise anyone that things go from bad to worse.
And, it is not like we haven’t tried similar policies here in the United States. We have been cutting taxes, government programs, and union strength for more than two decades, and we can see the effects—ever weaker growth, greater inequality, and worsening living and working conditions for the great majority.
The fact is that government spending is one of the main reasons that we still have an economic expansion. Debt fears are being hyped to scare us.
So, why are there powerful social forces arguing for these policies? I think there are two main reasons. The first is to ensure that our anger is not directed at the corporate sector. When this crisis broke in 2008 people were angry, and they were angry at our corporations. There were demands for nationalization of the banks and auto industry and calls for greater government intervention in the economy to save homes, employ people, in short, chart a new economic course for the country.
What happened was quite different. The president immediately made clear that he was not going to interfere with market processes—in finance, in auto production, in the housing market, in health care, or in job creation. Rather he did all he could to bail out those corporations that were in trouble because of their own reckless pursuit of profit. And his efforts succeeded. Profits are back up and finance continues to dominate. Unfortunately for us, those efforts did little to address our needs.
I think that the corporate sector is getting nervous. They are fearful that their large profits in the face of our deteriorating social conditions might lead to a renewal of demands for social change. And lets be clear—any significant social change is going to require a significant change in government policy. For example, strengthening our economy will require an end to free trade agreements; rebuilding our infrastructure; a new green industrial policy directed at retrofitting our buildings, developing solar and wind power and mass transit; and a shrinking and redirection of finance. Rebuilding our communities will require new labor laws to support unionization and higher minimum wages; support for education, health care, and transportation rather than military activity; and an increase in taxes on corporations and the wealthy to help pay for many of the needed initiatives.
This is not what the corporate sector wants. Therefore, they are trying to steer us in a different direction—to encourage us to believe that the reason our economy is not doing better is that our government deficits are too great and workers have too much power. It is ironic. We have government deficits not because of runaway social programs but because the government had to bail out the private sector. It was this spending that kept us out of depression and enriched our corporations. And now the leading lights of the private sector are trying to convince us that the main cause of our slow growth is this very same deficit spending. So, the first reason for this anti-government offensive is to keep us from focusing on corporate behavior and the contradictions of market processes by encouraging us to blame the government and unions for our problems.
The second reason is that the push for marginalizing government programs will likely open up new private profit making opportunities for our large corporations. For example, the privatization of our military, our education system, our health care system, our retirement and social insurance systems all mean public dollars flowing into private coffers. And as a bonus corporations would likely get new tax breaks.
To state the obvious: corporations are defending policies that help them make profits at majority expense. I think the best way to grasp this reality is to focus on General Electric. GE is not only one of our nation’s largest corporation, its head, Jeffrey Immelt, was picked by President Obama to head his President’s Council on Jobs and Competitiveness. President Obama said he picked him because “He understands what it takes for America to compete in the global economy.”
That may be true, but what is GE’s competitiveness strategy?
First, it is to avoid taxes. GE reported worldwide profits of $14.2 billion in 2010, including $5.1 billion from its operations in the United States. Yet, it paid no US taxes; in fact it claimed a tax benefit of $3.2 billion.
It accomplished this through a very aggressive working of our tax policy. Here is what the New York Times said:
G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.
Second, it is to shift operations from production to finance. According to the New York Times:
General Electric has been a household name for generations, with light bulbs, electric fans, refrigerators and other appliances in millions of American homes. But today the consumer appliance division accounts for less than 6 percent of revenue, while lending accounts for more than 30 percent. . . . Because its lending division, GE Capital, has provided more than half of the company’s profit in some recent years, many Wall Street analysts view G.E. not as a manufacturer but as an unregulated lender that also makes dishwashers and M.R.I. machines.
Third, it is to move its operations and profits outside the US. Since 2002, the company has eliminated a fifth of its work force in the United States while increasing overseas employment. Over that same period G.E.’s accumulated offshore profits have risen from $15 billion to $92 billion.
GE is far from unique in employing this strategy. For example, the Wall Street Journal reports that U.S. MNCs cut their work forces in the United States by 2.9 million during the 2000s while increasing employment overseas by 2.4 million.
So, we are in a battle over the nature and direction of our economy. Successive governments, in response to corporate demands, have worked to promote more mobility for corporations, lower taxes for corporations, and the growing power of finance—all at our expense. And despite our current economic problems, our government continues to push for more of the same. In sum, while we might be experiencing a crisis caused by capitalism it is not a crisis for capitalism.
So, what shall we do? In fact, we are not short of ideas. We have all sorts of progressive policy suggestions. The problem is that those with power are not interested in our suggestions. This means that we need to organize if we are to succeed in making a real change. Here are a few of my suggestions about next steps.
First, we need to make sure that people understand the structural nature of the problems we face. We have to make sure that unions, neighborhood associations, and places of worship become venues where people can talk, learn, develop their understandings and most importantly connections.
Second, we need to build alliances around critical demands—changes in government priorities, for example, such as cutting military spending in favor of social programs, raising taxes on the wealthy and corporations, and defending Medicare and Social Security. These alliances shouldn’t be hard to build.
Third, we need to be creative in who and how we organize. We need organizations where people can produce themselves more fully as actors. In the 1930s, for example, we had councils of the unemployed. They fought for greater government spending, unemployment insurance, and in support of unionization for workers with jobs. Now, we have large numbers of homeless and hungry. We need to do more that take food to food banks—we need to help the hungry and homeless organize themselves into powerful social movements.
We also need to help students, for example, see that their likely future of job insecurity, low wages, and lack of health care can be changed if they join with others, including unions, and health care advocates, and perhaps their parents, to demand a change in the direction of the economy. And we need our unions to recognize that many of our young workers will be moving from job to job, and company to company, in temporary positions, which means that unions will have to develop new forms of organization.
Fourth, we need to focus our attention on the public sector. I think that one of our key challenges is to develop new coalitions between public sector unions and those who use public services. While I believe that we need to fight against spending cuts for important programs I also know that our existing programs are far from perfect. Moreover, just maintaining the same level of spending is not the same as transforming our economy. We need more accountable and responsive public programs and I think the key to that, to the democratizing of the state, is a community-public sector worker alliance.
For example, imagine if those that cared about the environment; worker rights; an end to militarization; and gay, lesbian, transgender rights could engage public school teachers who were responsive to these views and collectively develop curriculum that advanced those views, thereby producing young people able and eager to contribute to making a better society. And also imagine that in return, those in the community committed to working to ensure good funding for schools and political protection and decent salaries for our teachers. We would not only help to improve the school system but also develop a new and positive understanding of the benefits of public services. The same process can be encouraged around transportation by finding ways to bring bus riders and bus drivers together. The same for social workers and their clients. You get the idea. Public sector workers could become our defenders—blowing the whistle if our money is not being property spent and helping us find ways to play a meaningful role in determining the actual nature and delivery of the services we want and pay for.
We really have little choice but to help build resistance to current political tendencies and shape more positive visions. There are very few of us that can avoid the consequences of failure.