On May 30, 2019, Jeffry Bartash writes on Market Watch:
The shrinking power of unions and globalization have often been blamed for eroding the living standards for millions of Americans, but they might not have caused all that much harm after all.
The bigger culprits?
Boom-and-bust cycles in the economy and a shift in investment toward high-tech assets such as software and robots, according to a new study by global research firm McKinsey Global Institute.
If all the income generated by the United States each year is viewed as a pie, the portion going to workers has been shrinking for decades. From a high of 65.4% of GDP shortly after World War II to a low of 56.7% at the end of 2016.
The decline has been especially sharp since the late 1990s — and it comes at great cost to those who labor for a living. The average American worker would earn $3,000 more today if labor’s share of national income remained the same as it was in 1998, the study calculated.
The average American worker would earn $3,000 more today if labor’s share of national income remained the same as it was in 1998, the study calculated.
It’s not just happening in the United States, either.
Supposedly more egalitarian Europe has experienced the same phenomenon. The portion of national income going to workers in Germany and France, for example, fell to a half-century low right before the global financial crisis in 2008. The same trend has taken place in developing countries as well, though at a slower pace.
In the popular press, the blame has mostly fallen on globalization. Companies outsourced manufacturing to low-wage countries such as China so they could keep more of the profits, the argument goes, depriving American workers of jobs or forcing them to accept lower wages to keep companies from leaving.
The McKinsey study found that globalization and the decline of unions played a role, but only a small one. The firm estimates they account for no more than one-tenth of the decline in labor’s share of overall U.S. income.
How come?
Most industries in the modern U.S. economy — services such as retail, banking, health care and entertainment — are not heavily exposed to competition from low-wage countries. A person who needs financial advice or medical help is not going to hire a Chinese broker or see a doctor in Brazil.
A few important industries were hard hit, particularly auto manufacturing, McKinsey acknowledged. A lot of production was moved to nonunion plants in the southern U.S. or to Mexico, for instance.
By far the biggest reason more income is going to capital — businesses, investors, land owners — is a sharp boom-and-bust pattern not just in the U.S. economy as a whole, but within certain industries such as energy, mining and housing. That’s accounted for one-third of the decline in labor’s share of income since 1999.
The economic rise of China in the early 2000s, for instance, contributed to large increases in the global prices of many key commodities such as oil and metals. Producers kept most of the extra profit for themselves instead of sharing them with workers.
Another big factor in labor’s declining share of income is a shift away from traditional investments in machinery and buildings toward high-tech staples such as software, data, processes and other intangible assets. McKinsey attributes about one-fourth of the decline in labor’s share of income to what it calls “rising and faster depreciation.”
Put another way, these assets wear out faster or have a shorter life span than traditional investments, meaning more capital is used up in the production process. The result is less net income to go around for both labor and business.
What’s also generated more income for capital at the expense of labor is the rise of “superstar” firms and greater substitution of technology for people.
Apple AAPL, +0.11% would be a textbook example of a superstar firm. Alphabet’sGOOG, +0.93% Google and Microsoft MSFT, +0.64% would be others. These companies generate huge profits by developing stranglehoods on certain markets due to innovation, strong patent protection or a lack of competition.
What’s more, the groundbreaking technologies these companies produce have made it cheaper and more efficient for companies to deploy robots and automation instead of workers.
“If labor plays less of a role in production, for example through lower employment, its share of income can decline,” McKinsey noted.
There is a silver lining, though. The continued adoption of improved technologies is more likely to be positive for workers instead of negative by allowing them to be more productive on the job. That will help lead to higher wage gains in the future, McKinsey suggested.
“Policy makers may want to focus their attention on driving productivity growth to help address wage stagnation,” the study concluded.
What else can government do to help? Ensure a competitive playing field that limits the influence of superstar firms, for one thing, McKinsey said, and aid or retrain people when “changes in economic structure take place too rapidly for workers to adapt.”
Gary Reber Comments:
A major cause of growing economic inequality is “a shift in investment toward high-tech [capital] assets such as software and robots” [machines of all description]. Unfortunately, reporter Jeffry Bartash and the authors of the study are handicapped in their thinking because they are stuck in the paradigm of one-factor––human labor––thinking.
Using the pie analogy, less than 10 percent of Americans actually own the productive capital assets held within the structure of a corporation. Said another way 10 percent of the population owns 90 percent of today’s corporate pie. The question we should be asking is: “Who will own tomorrow’s corporations?
Workers are virtually all propertyless (in capital asset terms), except for those in the highest employed positions. While the national focus is always on job creation and raising worker wages instead of ownership creation and providing a capital asset source of income, our scientists, engineers, and executive managers are encouraged to work to destroy employment by making the capital “worker” owner more productive. How much employment can be destroyed by substituting “machines” for people is a measure of their success –– always focused on producing at the lowest cost. Only the people who already own productive capital are the beneficiaries of their work, as they systematically concentrate more and more capital ownership in their stationary 10 percent and less ranks, particularly the 1 percent who own the majority shares and control the corporations. Yet the 1 percent is not the people who do the overwhelming consuming. The result is the consumer populous is not able to get the money to buy the goods, products, and services produced as a result of substituting “machines” for people. And yet you can’t have mass production without mass human consumption made possible by “customers with money.”
Globalization is the other culprit, though these authors, discount it as a factor responsible for economic inequality.
For decades now, free trade and open markets have put the United States, as a country, at a disadvantage, as the controlling owners of American corporations have moved their manufacturing and investments to slave-wage labor countries, boosting those countries’ ability to use and apply and innovate our technological advancements. Now, we find ourselves growing more dependent on such countries, indeed authoritarian- or communist-governed countries. While jobs have been created, especially in slave-wage labor countries but less so in the United States, we have gutted our manufacturing capabilities at home, resulting in millions of jobs destroyed and communities devastated, as a result of this manufacturing migration out of the United States, which is on-going. Of course, the relatively few Americans who are the owners have benefited tremendously as a result of being able to produce at less cost, while seeking global markets with “customers with money” to buy what they are producing.
Business groups, who represent essentially the 1 percent wealthy capital asset ownership class, want to maintain free trade interactions to maximize profits for who they represent. They will look for loopholes and demand exceptions to protect their profitability margins and cost advantages producing outside the United States provides.
At some point (now is good starting time before it is too late) we need to reclaim our manufacturing capability and our ability to innovate and invest in America for the benefit of the American people, not the few who comprise the wealthy capital asset ownership class (whether residing in the United States or in other countries). If we do not decouple our manufacturing from slave-wage labor authoritarian-governed countries, our long-term manufacturing prospects are dim.
Monopolization of our industrial and business sectors also have resulted in huge profits for a tiny wealthy capital asset ownership class, by developing strongholds on certain markets and eliminating competition. This has resulted in far fewer people employed in those sectors, as there is greater substitution of technology for people. As well, this has had a devastating impact on communities.
As for the labor union movement, it has failed American workers, the people they are suppose to represent. Unfortunately, at the present time, the movement is built on one-factor economics — the labor worker. The insufficiency of labor worker earnings to purchase increasingly capital-produced products and services gave rise to labor laws and labor unions designed to coerce higher and higher prices for the same or reduced labor input.
Historically and in its present form, the labor movement is destructive in that it agrees with the idea that propertyless people should exist to serve those who own property. The labor movement doesn’t seek to end wage slavery; it merely seeks to improve the condition of the wage slave. If it actually cared about human rights and freedom, it wouldn’t call itself the “labor movement.”
Instead, the labor union movement should transform to a producers’ ownership union movement and embrace and fight for economic democracy and worker ownership participation in the corporations that they are employed, thus legitimately empowering workers to earn more income through the earnings of the “machines” and other productive capital assets they would own. They should play the part that they have always aspired to — that is, a better and easier life through participation in the nation’s economic growth and progress. As a result, labor unions will be able to broaden their functions, revitalize their constituency, and reverse their decline.
At the core of the transition of our economy are tectonic shifts in the technologies of production –– which generates more income for the owners of the non-human factor of production (productive capital) at the expense of the human factor (labor workers) –– resulting in a greater substitution of technology for people.
As a major piece of the solution to economic inequality, we need to use the powers of the Federal Reserve central bank to provide interest-free capital credit to EVERY child, woman and man, strictly to invest in viable corporations growing our economy, both established and start-ups, with the debt solely repayable with the full, pre-tax earnings of the investments. Risks of default should be covered using “risk pooling” capital credit insurance –– the spreading of financial risks evenly among all the citizen-investors.
We need to break from the growing dependence on foreign business owners and short-term profit-seeking American business owners and become self-sufficient in our manufacturing capabilities to the greatest extent possible and engage in fair trade that respects technological patents.
We need to break up industrial and business monopolies and restructure the corporations with broad ownership, both by employees and all other citizens.
We need to enact support policies that will enable the “labor” union movement to transform to a producers’ ownership union movement and embrace and fight for economic democracy and worker ownership participation in the corporations that they are employed.
In order to fully realize this “Own The Future” plan or contract with the American people, we will need to reform our monetary and tax policies.
It can be frustrating thinking you know a great plan for the long-term future of production and manufacturing in the United States and eliminating poverty and economic inequality and then watch the politicians and the “hoggish” capital asset owners, who are at the controls, build roadblocks to it as they implement short-term band aids to yesterday’s problems that aren’t headed in the right direction, let alone have any long-term viability as the wealthy capital ownership class seeks to not only OWN America but the world.
Yet the proposals to broaden personal ownership stakes in the business corporations growing the economy are not being discussed or are being dismissed in part because they offer more than those Americans in power and control see us doing today, and they are only concerned with today.
I understand we will need to take steps to get to the right place to achieve inclusive prosperity, inclusive opportunity and inclusive economic justice, but in doing so we need to hold to the end goal of creating an economic democracy in which great economic inequality does not exist. Each incremental step along the way needs to be taking us in the right direction. But we must take the first big step by reforming the monetary system and enacting the proposed Capital Homestead Act (aka Economic Democracy Act and Economic Empowerment Act).
I and my colleagues at the Center for Economic and Social Justice (www.cesj.org) often are subject to heat directed our way for advocating our proposals and plans to achieve the long-term goals of ensuring that EVERY child, woman, and man accumulates a significant diversified portfolio of full-voting- and full-earnings-subscribed stock ownership in the corporations growing our economy. I feel the economy is way too micro focused. Americans don’t seem to understand we need long-term objectives to guide us in what we are doing today.
We need to take a long-term view of production and manufacturing in the United States versus moving manufacturing to slave-wage labor authoritarian-governed countries with the effect of gutting our homegrown manufacturing capabilities and making Americans dependent on the people in other countries and their governments instead of our own sovereignty. If we continue to invest in slavery and authoritarianism or socialism/communism, guess what we’ll get.
There has to be a wakeup call. We’re currently spinning our wheels and getting nowhere in the direction we should be going.
It will take a lot, and I mean A LOT of political will to reform the system and put us on the path to building an environmentally responsible future economy that can support general affluence for EVERY citizen.
For an in-depth overview of solutions, see my article “Economic Democracy And Binary Economics: Solutions For A Troubled Nation and Economy” at http://www.foreconomicjustice.org/?p=11
