Choke consumers’ wages and you choke the economy. Why don’t our leaders see that?
By Murray Dobbin, 26 Sep 2011, TheTyee.ca
Cartoon by Greg Perry.
Where is Henry Ford when you need him?
You may remember Henry — the ruthless industrialist who nonetheless refused to be hobbled by suicidal ideology when it came to doing business. He realized as his workers cranked thousands of new cars off the assembly line that none of those workers would likely ever own one, because he didn’t pay them enough. So he dramatically increased their wages. It was such a good idea that most industrialists followed suit and his practical approach was dubbed Fordism. It was the foundation of a high-wage economy, it lasted a very long time and it produced incredible real wealth for decades.
Until something called neoliberalism decided to kill the goose that laid the golden eggs. And the perpetrators of this ideology — and the catastrophic damage it has done to the global economy, nations, communities and workers — are so wedded to it that they seem determined to pursue its goals and accept its preposterous assumptions until the ship truly does go down.
The new set of goals and assumptions of neoliberalism mandated that workers’ wages and salaries had to be constantly driven down in a new global system of competition for high share prices. Not a competition to achieve growing companies, or economic stability, or balanced growth, or even profits, but share prices.
Now, the vast majority of working people in Canada are up to their eyeballs in debt, hundreds of thousands have no jobs, families are hunkering down in survival mode and not buying much of anything beyond food and clothing, and everyone is waiting for the inevitable bursting of the housing bubble — the only thing keeping the rusting, rudderless hulk afloat. Someone should tell Canada’s finance ministers that consumers account for 60 per cent of our GDP. Choke the consumer (by choking her wages) and you choke the economy.
Last fall, the Canadian Payroll Association reported that 59 per cent of Canadians “said they would face financial difficulty if their paycheque was delayed by even just one week.” Twenty-seven per cent of working Canadians aren’t saving at all.
The faux “financial economy” where nothing needs to be produced, has devastated the real economy but the same policies are still being pursued: fight wage increases, eliminate or down-size pensions, lay off workers to enhance.. you got it, the share price. Insanity: doing the same thing over and over again and expecting different results.
How to create a consumer debt crisis
Today, the five-thousand-ton chickens are coming home to roost. Chicken number one is already home. Working people, whose real (after inflation) increase in pay between 1980 and 2005 was $51, maintained their middle class lifestyle (and corporate profits) by going into debt. In June, household debt hit a record $1.5 trillion. Averaging it out means a two-child household owes about $176,461, including mortgages.
Cheap goods produced by off-shoring manufacturing helped keep the working family afloat, too. But of course the trade-off was the loss of the best private sector jobs in the country. Now Canada boasts the second highest percentage of low paid jobs in the OECD. And with labour costs in China rising, those cheap goods will get more expensive.
Corporate Canada had a lot of help in keeping wages and salaries flat. Starting in earnest with Paul Martin’s finance regime, the federal government — followed by the provinces — has ruthlessly implemented what it euphemistically calls a “labour flexibility” policy. Vicious cuts to EI eligibility, the slashing of welfare rates, the virtual abandonment of labour standards enforcement — all in the service of corporations, er, sorry, the economy. Where working people once had an option of quitting a bad employer (one that, say, demands you work overtime for nothing to prove you want the job), that option has now all but disappeared. It’s an employer free-for-all in denying workers’ rights.
Too bad all the geniuses now occupying the dismal science haven’t figured out that a cheap labour economy ultimately means a low consumption economy.
Yet we are still burdened by the gross incompetence of Conservative Finance Minister Jim Flaherty. He wants to pursue a deficit reduction strategy, taking even more money out of the pockets of Canadians at exactly the time that the economy’s survival depends on a core of stable jobs. Just when the economy is desperately looking for demand, Flaherty will be taking $11 billion off the table.
Even worse, Flaherty insisted before and throughout the last election on moving ahead with another unconscionable round of corporate tax cuts — resulting in a $6 billion increase per year in the deficit. The rationale? It will stimulate investment.
Who will save us from this incompetence? In the first quarter of 2011, corporations were sitting on $471 billion of capital — awash in cash they have no idea what to do with. Why? Because they and their political flunkies in Ottawa and the provinces have screwed the worker/consumer so badly that demand has flatlined. No CEO in his right mind invests just on the basis of lower income taxes. There have to be customers with money to spend. Henry would be shaking his head.
Revenge of the nerds
The Washington Consensus — the name given to neoliberalism and its agenda of privatization, deregulation, free trade, cuts to social spending and massive tax cuts for the wealthy — was not just a call to moderate state intervention in the economy. It was determined to gut it, to return to that period where the economy (by which they always mean capital) was somehow hived off from society and government and allowed to run effectively without regulation or direction. Thirty years of amazing growth and prosperity based on a complex system of mutual dependence between state and capital was tossed aside. It was a sort of revenge of the nerds — we’ll show those uppity workers.
But now the evidence is in. More chickens are coming, and they will be even more gargantuan. Still no one in authority or the business press gets it. No one is listening. But Will Hutton, writing in the Guardian, said it succinctly in an article headlined “Our Capitalist System Is Near Meltdown.” “Markets are beset by mood swings and uncertainty which, if not offset by government action, lead to violent oscillations. Capitalism without responsibility or proportionality degrades into racketeering and exploitation. The prospect of limitless pay is an open invitation to bad, or even criminal, behaviour. Good capitalism cannot happen without referees to blow the whistle or robust frameworks in which markets can function.”
So-called “good” capitalism was bad enough and only marginally good to the extent that organized resistance forced it to be. That resistance, in combination with the spectre of Soviet communism, kept capitalism a bit circumspect regarding notions of social responsibility. It is no coincidence that “bad” capitalism really took off with the collapse of the USSR. With the communist “competitor” out of play, all restraints were off. Former Soviet premier Nikita Khrushchev famously predicted that communism would bury capitalism. But instead, that job is now in the hands of capitalists themselves — in the hands of madmen who, insanely, keep doing the same thing over and over even though the same grim results accrue. I would happily cheer the demise of that capitalism. But it would be a really ugly death. And we need to be talking about what would replace it.