On June 7, 2017, Heather Long writes on CNN Money:
Kenneth Olsen lives in House Speaker Paul Ryan’s district in Wisconsin. He wishes Ryan had been there to see his wife of 42 years slump in her chair and cry when he told her the news: His GE factory job is being eliminated.
GE factory jobs move from Wisconsin to Canada
“She’s looking at me, saying, ‘what are we going to do?'” Olsen, a soft-spoken 60-year-old said, pausing to brush away tears as he spoke to CNNMoney. “And I’m sitting there going, ‘I’m not sure.'”
Olsen earns nearly $30 an hour as a dispatcher at the GE Power plant in Waukesha, Wisconsin. The factory churns out big industrial engines. Olsen is the maestro of the welding department, coordinating where workers and parts go.
“I’m very worried about losing my house,” Olsen says. Even if he finds another job, he knows there’s little chance he’ll earn anywhere near what he earns here. Most companies hiring in the area pay $15 or less.
President Trump has blasted companies for shipping U.S. jobs to Mexico. But Canada is also aggressively luring factories from across the northern border. The Canadian government gave GE $2 billion in incentives to shut down in Wisconsin and move to a city in Ontario, Canada.
It’s a huge blow for the town of Waukesha. The engine factory has been a bedrock of the community for over a century. All 350 people working on the factory floor will lose their jobs.
“GE has some of the higher paying manufacturing jobs in the city of Waukesha,” says Mayor Shawn Reilly, a Republican.
Kenneth Olsen’s good-paying factory job in Wisconsin is about to move to Canada.
Should Trump punish GE?
Joe Barlow has labored at the same GE (GE) plant for nearly 25 years. He’s so mad about the jobs going to Canada that he threw out every GE product in his house, including the toaster and light bulbs.
“I don’t own anything GE anymore,” Barlow said. “All my family is on board that no one will ever buy another GE product.”
“I hope [Trump] follows through on his 35% tax and punishes those businesses” that offshore work, Barlow said. He would like to see GE first on that list.
GE CEO Jeff Immelt is a member of President Trump’s manufacturing advisory council. Workers at the Waukesha plant, many of whom voted for Trump, are baffled that the president gave Immelt such a prominent role.
Bret Mattice is particularly surprised. He voted for the first time ever in 2016, casting his ballot for Trump because he felt Trump wasn’t like the establishment Republicans and CEOs at all.
“Trump’s values were different than all of them,” says Mattice, another long-time worker at the plant. He believes Trump cares about the “average person.”
Joe Barlow voted for Donald Trump. Barlow hopes Trump will keep to his campaign promise to punish comanies that send U.S. jobs overseas.
Immelt has a history of advising presidents. Before his role with Trump, Immelt was chair of President Obama’s Council on Jobs. Obama actually visited the GE Power plant in Waukesha in 2014. He stood in the very place where Mattice and Barlow work every day and proclaimed that it was a model American factory.
No longer. Soon it will be a Canadian plant.
GE has already started construction in Ontario. The company put out a press release calling it a “brilliant factory.”
The company’s U.S. footprint has shrunk substantially. In 1995, almost 70% of GE’s employees were working in the U.S. By the end of 2015, less than 40% of GE’s workers were in America, according to a CNNMoney analysis.
GE says the company has “changed dramatically” as it has sold off GE Capital,NBC Universal and its appliance unit. Its business today is more global and industrial. That’s why GE bought the Waukesha Engine plant in 2010.
Wisconsin has lost over 125,000 factory jobs
The workers in Wisconsin had hoped Trump would intervene to save their jobs. Their union sent the president a letter on February 6. But now they think their days at GE are numbered. GE has already begun packing up equipment.
“They cut out one piece of your heart at a time. They move jobs out, they move equipment out, they clear space and turn it into stockrooms,” says Jeff Neibauer, who’s spent nearly a quarter century at the factory.
Neibuaer and his colleagues will soon join a growing list of Wisconsin manufacturing workers who have been tossed aside. The state has shed over 125,000 manufacturing jobs since 2000.
Who’s to blame? GE blames the government
GE blames the job losses on Congress.
In the summer of 2015, Congress shut down the Export-Import Bank. It’s a government organization that provides money to help boost American exports.
Powerful nations that the U.S. competes against, including China and Germany, have something similar to the Ex-Im Bank. But many Republicans, including Ryan, slammed the bank as “corporate welfare.”
“Congress has failed to take action,” a GE spokesperson told CNNMoney. “We are the only major economy on the planet without a fully functioning export credit agency.”
At the end of 2015, Congress re-authorized the bank. But it hasn’t been able to do any major deals above $10 million because the U.S. Senate hasn’t confirmed enough people to serve on the bank’s board.
Trump used to favor shutting the bank down, but he recently did a U-turn and nominated more people to fill the vacant board seats.
“If Ex-Im had been reauthorized during that time, the decision to close Waukesha would not have been made,” a GE spokesperson told CNNMoney.
Ryan says the bank had nothing to do with GE’s choice to go to Canada.
“GE’s decision to upend the livelihoods of hundreds of Wisconsinites was deeply disappointing,” Speaker Ryan’s spokeswoman AshLee Strong, told CNNMoney. “The bank was reauthorized in 2015, yet the plant is still closing.”
The workers who are about to lose their jobs feel like pawns. They don’t believe GE’s story — or their congressman’s.
“I would like nothing more than to see Donald Trump come into that planet with Jeffrey Immelt and say, ‘This is ground zero for job creation. Let’s fill my campaign promise of keeping jobs here,'” says Scott Schmidt, a 44-year-old who thought he’d be at the GE factory for his entire career.
Joe Acker is a military veteran who is about to lose his job at a GE factory in Wisconsin.
‘You can’t support a family on $17 an hour’
The GE Power plant itself is located in Rep. Jim Sensenbrenner’s district. He’s a Republican who has been in Congress since 1979 and is a millionaire. But many of GE’s employees live in Speaker Ryan’s district next door.
Among the workers, there’s a feeling that Ryan and Sensenbrenner are out of touch with middle-class life.
“You can’t support a family on $17 an hour,” says Joe Acker, a military veteran who still wears a buzz cut and loves making things. The day he got the job at the GE engine factory over a decade ago, he went home and told his wife he was going to work on the “Superbowl of Engines.”
The GE jobs pay $30 an hour, almost double Wisconsin’s median wage of $17.50. These are the “good jobs” Trump talks about not wanting to lose.
Randy Bryce, a 52-year-old iron worker, is planning to run against Ryan for the congressional seat. It’s being called a longshot, but Bryce, who makes $32 an hour, says he hears a lot of anger that “the middle class is under attack in Wisconsin.”
What about the workers?
Every GE worker CNNMoney spoke with believed they would be at the factory until retirement. The wages and benefits they earned allowed them to own homes, put kids through college and have the kind of retirement that allows you to buy a camper and tootle around America.
Now they are furiously paying off debt, and warning their kids that they may not be able to afford college.
GE put up notice on the factory floor telling workers not to speak to CNNMoney.
“At no time should employees speak for the company. Nor should they initiative contact with, or respond to, anyone in the media,” GE wrote. The notice listed several phone numbers to call. Two were for people outside the U.S., according to a photo of the notice shared with CNNMoney.
GE first made the announcement that it was moving the factory to Canada on September 28, 2015. Employees have had time to prepare and Mayor Reilly says the company is trying to be a good partner and not leave a vacant lot in its wake, but it still stings. The blue collar workers are losing their jobs in Waukesha, but GE is keeping the white collar engineering jobs there.
“Everybody’s always trying to (ask), how can we make it cheaper and faster and put more money into CEO’s pockets?” Acker says. “We’re the ones who are creating the product. We should have a piece of that pie too.”
Unfortunately, ever since the 1946 passage of the Full Employment Act, economists and politicians formulating national economic policy have beguiled us into believing that economic power is democratically distributed if we have full employment – thus the political focus on job creation and redistribution of wealth rather than on equal opportunity to produce, full production and broader capital ownership accumulation. This is manifested in the myth that labor work is the ONLY way to participate in production and earn income, and that individual talent and effort are what distinguish the wealthy from the non-wealthy. Long ago that was once true because labor provided 95 percent of the input into the production of products and services. But today that is not true. Physical capital provides not less than 90 to 95 percent of the input. Full employment as the means to distribute income is not achievable, except while building a future economy that can support general affluence for EVERY citizen. When the “tools” of capital owners replace labor workers (non-capital owners) as the principal suppliers of products and services, labor employment alone becomes inadequate. Thus, we are left with government policies that redistribute income in one form or another.
The men and women who have lost their jobs to the “lowest-cost forces” of globalization are victims of the narrow focus on JOBS as the only way to participate in production and earn income. Without a JOB people become despaired, frightened and dependent on others in the form of government welfare programs to survive. Yet the wealthy are not dependent on JOBS as the source of their wealth is OWNERSHIP of the non-human means of production, the assets forming the bulk of the productivity of their businesses.
Full employment is not an objective of businesses nor is conducting business statically in terms of geographical location. Companies strive to achieve cost efficiencies to maximize profits for the owners, thus keeping labor input and other costs at a minimum. They strive to minimize marginal costs, the cost of producing an additional unit of a good, product or service once a business has its fixed costs in place, in order to stay competitive with other companies racing to stay competitive through technological innovation. Reducing marginal costs enables businesses to increase profits, offer goods, products and services at a lower price (which people as consumers seek), or both. Increasingly, new technologies are enabling companies to achieve near-zero cost growth without having to hire people. Thus, private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role.
The result is that the price of products and services are extremely competitive as consumers will always seek the lowest cost/quality/performance alternative, and thus for-profit companies are constantly competing with each other (on a local, national and global scale) for attracting “customers with money” to purchase their products or services in order to generate profits and thus return on investment (ROI).
Over the past century there has been an ever-accelerating shift to productive capital — which reflects tectonic shifts in the technologies of production. The mixture of labor worker input and capital worker input has been rapidly changing at an exponential rate of increase for over 239 years in step with the Industrial Revolution (starting in 1776) and had even been changing long before that with man’s discovery of the first tools, but at a much slower rate. Up until the close of the nineteenth century, the United States remained a working democracy, with the production of products and services dependent on labor worker input. When the American Industrial Revolution began and subsequent technological advances amplified the productive power of non-human capital, plutocratic finance channeled its ownership into fewer and fewer hands, as we continue to witness today with government by the wealthy evidenced at all levels.
People invented “tools” to reduce toil, enable otherwise impossible production, create new highly automated industries, and significantly change the way in which products and services are produced from labor intensive to capital intensive — the core function of technological invention and innovation. Kelso attributed most changes in the productive capacity of the world since the beginning of the Industrial Revolution to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. Capital, in Kelso’s terms, does not “enhance” labor productivity (labor’s ability to produce economic goods). In fact, the opposite is true. It makes many forms of labor unnecessary.
Furthermore, productive capital is increasingly the source of the world’s economic growth and, therefore, should become the source of added property ownership incomes for all. Binary economist Louis Kelso postulated that if both labor and capital are independent factors of production, and if capital’s proportionate contributions are increasing relative to that of labor, then equality of opportunity and economic justice demands that the right to property (and access to the means of acquiring and possessing property) must in justice be extended to all. Yet, sadly, the American people and its leaders still pretend to believe that labor is becoming more productive, and ignore the necessity to broaden personal ownership of wealth-creating, income-producing capital assets simultaneously with the growth of the economy.
The numbers of men and women working at the GE plant already have declined over the years as a result of technological invention and innovation, enabling the company owners to reduce costs by substituting “machines” for people in production. Assuredly, the new plant in Canada will be even further “automated” in the means to produce GE engines.
What happened in Wisconsin is just a microcosm of what the future holds. That is, if we don’t reform the monetary system and the financial system that enable new capital asset (non-human forms of productive assets) formation.
The United States is headed for more personal and family economic turmoil and social unrest and upheaval due to a faulty economic system that fosters the concentration of wealth-creating, income-generating productive capital––the ownership of non-human productive assets such as land, structures, machines, super-automation, robotics, digital computerized operations, etc. The system is faulty because economic growth is based on individual and family accumulations of savings, with ALL economic growth dependent on past savings “invested” or to pledge as security collateral to lenders to further concentrate productive capital ownership. This will leave the vast majority, or the so-called 99 percent, who are property-less as related to ownership of productive capital assets, unable to save sufficiently and instead struggling to sustain their livelihood month to month, as they fear for job loss and having to rely on taxpayer-supported government welfare.
To change the rules and reform the system, the outcome of FUTURE policies must be to facilitate financing economic growth with “FUTURE SAVINGS,” and simultaneously create new capitalist owners of wealth-creating, income-generating productive capital assets. “FUTURE SAVINGS” are profits used to repay loans for new capital formation and acquisition of existing productive assets by new owners.
Critically, we must recognize that Americans and the world’s people do not have to end up destitute and bereft as the FUTURE unfolds due to fundamentally flawed assumptions in modern economics and finance: that new capital formation is impossible without first cutting consumption, saving, then investing. The result has been that the “supply of loanable funds” derived from past savings determines the “production possibilities curve” or rate at which economic growth can be sustained.
If we are to achieve the goal of general affluence for every human being, the first requirement is to increase progressively the total amount of the income to be shared. This requires increased production, not redistribution, in order to generate incomes that would be distributed according to market principles. This is the ONLY means to promote a fuller utilization of our productive facilities and a consequent progressive increase in the aggregate income to be available for distribution, and to which increasing quantities of newly created products and services would become available to everyone.
“Distribution is the trouble” said Dr, Harold G. Moulton, President of Brookings Institution, in his 1935 book The Formation Of Capital. Said Moulton, “The way our income is distributed provides an inadequate purchasing power for our full production.”
The problem that needs to be addressed is threefold: 1) how to increase production, 2) how to distribute the income from production according to relative inputs of human labor and non-human productive capital, and 3) how to distribute that income to people who will use the increased income for consumption, not reinvestment (to further concentrate ownership of wealth-creating, income-generating productive capital assets).
In today’s economic world, economic progress and the financing of FUTURE growth is subject to a reliance on existing accumulations of savings that result from cutting current consumption. Income, instead of being spent on consumption to keep production and consumption in balance, is diverted into savings. With fewer customers purchasing what is produced, the financing of FUTURE productive capital used to produce new products and services becomes less financially feasible.
As is noted in the forward to the “new edition” of Moulton’s The Formation Of Capital, written by Norman G. Kurland, Michael D. Greaney and Dawn K. Brohawn, my colleagues at the Center for Economic and Social Justice (www.cesj.org):
“Financial feasibility refers to the ability of new capital investment to pay for itself out of the future earnings of the new capital. This is an application of Adam Smith’s observation that the purpose of production is consumption. A standard test to determine whether a company should invest in new capital is whether there is sufficient consumer demand to support the marketable good or service to produced. In other words, why add a new productive asset or tool if no one is going to buy (consume) what it produces? Thus, as Moulton emphasizes in this book, demand for capital is derived from consumer demand.
“Worse, from the standpoint of political and social stability, using past savings to finance growth accelerates, and provides a rationalization for maintaining and even increasing, concentrated ownership of the means of production. It also leads to expanding the role and powers of the State in a desperate effort to stabilize the economy. The rights of private property (i.e., the rights to the fruits of, and control over, what one owns) are taken from individual citizens and transferred to the State.”
The resulting problem is that to the extent that the savings investment approach increases production, the economic benefit accrues to the current owners, who re-invest to acquire more productive capital wealth rather than consume a growing portion of their capital incomes. This concentrates ownership even further.
What historically empowered America’s original capitalists was conventional savings-based finance and the pledging or mortgaging of assets, with access to further ownership of new productive capital available only to those who were already well capitalized. As has been the case, credit to purchase capital is made available by financial institutions ONLY to people who already own capital and other forms of equity, such as the equity in their home that can be pledged as loan security––those who meet the universal requirement for collateral. Lenders will only extend credit to people who already have assets. Thus, the rich are made ever richer, while the poor (people without a viable capital estate) remain poor and dependent on their labor to produce income. Thus, the system is restrictive and capital ownership is clinically denied to those who need it.
The conventional approach relies on savings for additional investment in new productive capital assets, instead of providing the means to satisfy people’s material needs and wants. The result has been to create a global ownership class of very rich people who reinvest most of their capital incomes to further their concentrated wealth ownership.
Supporters of this economic paradigm argue that no income generated by capital should be used for consumption. Instead, all capital income should be reinvested in ways that create new capital, thereby providing jobs for the masses until full employment is reached. Thus, most economist today assume that there is virtually no other means whereby most people can earn an income except in the form of wages paid for their labor.
Moulton summarized the results of his investigation:
“We find no support whatever for the view that capital expansion and the extension of the roundabout process of production may be carried on for years at a time when consumption is declining. [i.e., when saving is taking place.] The growth of capital and the expansion of consumption are virtually concurrent phenomena.”
Of course, the supporters of the arcane economic paradigm ignore and are oblivious to the reality that tectonic shifts in the technologies of production are destroying jobs and devaluing the worth of labor as increasingly the non-human productive capital factor is replacing the need for labor in the production of products and services needed and wanted by society.
Understanding Moulton is absolutely necessary in order for us to set out on a path to inclusive prosperity, inclusive opportunity, and inclusive economic justice. The question that Moulton poses is what should be the source of financing for capital formation?
Moulton answered the question as follows:
“A new and even more dynamic factor has come into the process of capital formation through the evolution of modern commercial banking. The development of the banking system, with its ability to manufacture credit, has served to render funds immediately available for the purposes of capital creation without the necessity of waiting upon the slower processes of accumulating funds from individual savings. The result is to sustain productivity at a higher level and to facilitate the growth of new capital at a more rapid rate than would otherwise have occurred.”
In other words, as noted in the forward to Moulton’s new edition:
“New capital formation can be financed by using money created by the commercial banking system. It is not necessary (and even counterproductive from the standpoint of economic equilibrium and sustainable growth) to rely on cutting consumption to generate the savings necessary to finance new capital formation.
“Following Moulton’s reasoning, the remedy to an economic downturn is thus not to manipulate the money supply by increasing government debt or bailing out failed speculation (which, among other problems, distorts the operation of the market and places a debt burden on future taxpayers). Nor is it an effective, long term solution to stimulate demand by subsidizing artificial job creation, legislating higher minimum wages, ignoring market forces in collective bargaining negotiations, imposing price controls or supports (especially on interest rates), or redistributing existing wealth. Such measures may be necessary at times as expedients, but are ultimately self-defeating. Instead, what is needed is to:
“1) Increase production by financing new capital formation through the extension of bank credit backed by the present value of the future stream of income to be generated by the new capital.
“2) Get the profits generated by the new capital into the hands of all workers and citizens who will use it for consumption, not reinvestment in additional new capital.”
In reading The Formation Of Capital, Moulton fails to list as a possible solution widespread, direct private ownership of the means of production. As noted by my colleagues at CESJ in the forward to the new edition:
“A broad base of owners and diversity in the forms of productive capital owned would ensure that all workers and as many people as possible, including the disabled and poorest of the poor, would receive income generated by many forms of advancing technology, and would use the income from their capital for consumption rather than reinvestment.”
Moulton’s omission was addressed by Louis Kelso and Mortimer J. Adler in their 1958 book The Capitalist Manifesto. Kelso, a successful corporate lawyer and self-schooled economist, was also an expert in finance who later formed a leading investment banking firm specializing in his financial mechanism, the Employee Stock Ownership Plan (ESOP) and other methods for financing worker and broader citizen individual ownership in productive capital. In the late 1960s, I had the privilege to form with Kelso Agenda 2000 Incorporated, a consulting firm, whose advocacy mission was to provide financial mechanism for economic development based on the Kelsonian principles underlying the binary economic or two-factor model of economic reality.
The Capitalist Manifesto made the moral and economic case for widespread ownership of the means of production. How to finance widespread productive capital ownership was spelled out in the assertive subtitle to The New Capitalists: A Proposal To Free Economic Growth From The Slavery Of Savings. (Both books are available as free downloads at http://www.kelsoinstitute.org/pdf/cm-entire.pdf and http://www.kelsoinstitute.org/pdf/nc-entire.pdf, respectively.)
Not surprisingly, the source that Kelso and Adler referenced most often in The New Capitalists is Moulton’s The Formation Of Capital. Moulton showed how the extension of commercial bank credit can be used to finance capital formation without requiring existing accumulations of savings. What Kelso and Adler argued as the solution to the income distribution problem was to democratize access to direct, private ownership of new capital formation.
Over the past century there has been an ever-accelerating shift to productive capital––which reflects tectonic shifts in the technologies of production. Advancing technology continues to rapidly take over the vast bulk of production from human labor.
As pointed out in the forward to the new edition of The Formation Of Capital, Moulton demonstrated that the chief means by which capital formation is financed in a modern industrial and financial economy is commercial bank credit backed by the present value of the future stream of income to be generated by the newly formed capital assets themselves with the collateralization requirement of existing accumulations of savings (already owned assets). To this Kelso added that 1) the ownership of the new capital financed with what he called “pure credit” must be broadly owned, and 2) the universal collateralization requirement could be met by using capital credit insurance and reinsurance in place of existing accumulations of savings.
Kelso’s refinements of Moulton’s work underpin a comprehensive national economic program called “Capital Homesteading” (http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm), developed by the Center for Economic and Social Justice. The “Capital Homestead Act,” which gives a legislative framework to the program is a way to implement both Moulton’s insights and Kelso’s solution to the income distribution problems of a modern economy. It would empower every American man, woman and child, including the poorest of the poor, with equal opportunity and the social tools to acquire, control and enjoy the fruits of productive corporate capital assets. Based on a new socio-economic paradigm that some have called the JUST Third Way” (as the moral alternative to traditional capitalism and socialism), Capital Homesteading also offers a template that can be tailored to eradicate poverty and economic powerlessness in the poorest of nations around the globe. (see the Agenda of The Just Third Way Movement at http://foreconomicjustice.org/?p=5797.)
The means by which Capital Homesteading proposes to achieve its goals involve major restructuring of America’s tax system and Federal Reserve policies (see abridged http://foreconomicjustice.org/?p=8942). These are designed to lift artificial barriers to more equitable distribution of FUTURE corporate capital and stimulate faster growth rates of private sector investment. Capital Homesteading would shift primary national income maintenance policies from inflationary artificial wage increases and unproductive income redistribution expedients, to market-based ownership sharing and dividend incomes.
The proposed Capital Homestead Act would reform monetary institutions and tax laws to democratize access to capital (productive) credit. By universalizing citizen access to direct capital ownership by making available “interest-free” productive credit and new, asset-backed money for increasing production, Capital Homesteading would close the power and opportunity gap between today’s haves and have-nots, without taking away property from today’s owners.
As my colleagues conclude in the forward to the new edition:
“Moulton’s insights in The Formation Of Capital suggest a practical and morally sound basis for restructuring the financial system to enable money to be created as needed to finance sustainable economic growth. World poverty can be eradicated, something not possible within the current economic paradigms, which rely on existing accumulations of savings to finance capital formation. With the specter of another economic depression looming over today’s world, and with the widening gap between “haves” and “have-nots” threatening social harmony, there is no real justification for delaying the implementation of a program of Capital Homesteading to establish and maintain a free, prosperous and just economy for all.”
For other related articles, please see my article “Democratic Capitalism And Binary Economics: Solutions For A Troubled Nation and Economy” at http://www.foreconomicjustice.org/?p=11.
