Economic Update: Is US Capitalism in Decline?

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[S9 E26]

This week on Economic Update, Professor Wolff delivers updates on pay inequalities for CEOs VS average workers, the economics of mega-mergers, billionaires' idea of “charity”, the economic consequences of attacking the Huawei Corporation and Sen. Bernie Sanders take the lead on two new bills in Congress designed to expand and provide loans to employee-owned businesses and worker co-ops.

In the second half of the show, Professor Wolff interviews Professor Richard McIntyre on the basic problems with U.S. capitalism today.

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Dr. Richard McIntyre is Professor of Economics and chair of the Economics department at the University of Rhode Island where he is also co-director of the URI in Cuba program. He has lectured at many universities in the US and Europe including the University of Rennes II in Winter/Spring 2017 where he held the Chair of the Americas (Chaire des Amériques). He is the author of Are Worker Rights Human Rights? (Michigan 2008), co-editor of Knowledge, Class and Economics: Marxism without Guarantees (forthcoming, 2017), and the author of many academic and popular articles across a range of topics in political economy. 


This Transcript has been edited for clarity. 

Welcome friends to another edition of Economic Update, the weekly program, devoted to the economic dimensions of our lives—jobs, debts, incomes—our own, those of our children.

I’m your host Richard Wolff.

And it is my pleasure to bring you each week these Economic Updates. I want to begin today with an American success story of a sort. I want to introduce you to a man, whose name you probably don’t know, David Zaslav. He is the CEO of Discovery incorporated, the cable television company. And he’s on our program today, because last year, 2018, he made $129.4 million dollars, which is a good bit more than I make. Over the last several years, from 2014 through 2018—I added up his income—it came to just under $400 million dollars. If you’re not doing that well then you are in the vast majority, and that’s really kind of what I want to talk about.

I went to the Economic Policy Institute in Washington, and I found out that the typical CEO of a top 500 corporate part of America earns on average $12.4 million dollars a year, the CEO. And I did a little math—we’re good at this as economists—and I found out that that works out to $238,000 dollars per week, is the average pay of a CEO. EPI also told me what the average pay of an American worker is also in 2018, and that worked out to $18 dollars and 90 cents an hour or $752 dollars per week. So there we have it. An average American worker gets $752 dollars a week, and the average CEO of a big corporation gets $238,000 dollars per week. That’s a ratio of somewhere in the neighborhood of 300 to 1. In case any of you think that that’s normal or natural or necessary, it’s none of those. Thirty or forty years ago, the ratio was about 30 or 40 to 1. Today it is ten times that ratio. Capitalism has been good for those at the top and for the rest of us not so much.

My second update has to do with mergers that are in the news. One is between T-Mobile and Sprint, major telephone companies, and the other one is a merger between Renault, the French car company, and the Fiat Chrysler merger Corporation. And in both of these mergers, which are under way, there’s a lot of talking in the financial press that upset me. It was talking about the benefits to the consumer that will likely result from these mergers. And my economics hat pumped up and said to me, “Explain why that’s not true.” Well, here’s what it’s about.

These mergers are always in part designed to save on costs, to cut costs, to become leaner and meaner or whatever metaphor as you like. That’s the point, indeed, is to save on costs and, of course, one of those costs, labor costs, to do away with excess workers that you don’t need any more of two companies with two headquarters, and two systems, and two warehousing operations, merge into one. So it’ll produce a lot of unemployment. That’s the first thing to keep in mind.

The second thing is the statement that saving costs, these companies will pass on, they reduced costs and lower prices. In your dreams, they will. The whole point of the merger is to cut the costs without dropping the prices, because that will maximize the profits, which is what they’re in business to be doing. So you can be just as assure that the merger will cut costs, as you can be sure that the merged company will do its damnedest not to cut prices very far, because that’s how they maximize the profits that you can get out of merging.

And here’s the irony, of course, this is always going on. Capitalism as a system, it puts companies in competition to one another and typically there’s a winner and a loser. One company wins the competition, the other one loses it. And here’s what happens after the winning and the losing is done—the winter eats the loser. That’s right, the company that lost has to sell off its equipment. Who with you, you think, buys used equipment? The company that won. Where will the workers go who lose their jobs from the company that goes out of business? Those lucky enough to get another job will probably try to get one with the company, that won, which will have jobs, because it’s buying the used equipment from the one that lost. And when that process is finished, many companies become fewer companies until they’re just big enough and few enough to be able to get together at the golf course, play a few rounds and cut a few deals in order not to have the drop of prices even after they’ve cut the costs. That’s what typically happens, and that’s what mergers are all about.

The statement, the statement that they’re going to help consumers, here’s why that’s made, that statement, not just general PR—public relations—but because these mergers need approval by the authorities, the anti-trust authorities in most countries, they need to get the politicians on board to look the other way. And the way you do that is tell a lot of stories about the consumer benefits. So they’ll pass it through. Don’t be fooled.

My next update is again about very wealthy people. I guess today’s program is going to concentrate on them. Let me introduce to you, Mackenzie Bezos. You may not know her name, but you know her illustrious husband Jeff Bezos, the CEO of Amazon. Well, they were married many years, McKenzie and Jeff were. And then they went their separate ways recently. And out of the divorce, a settlement had to be made. Jeff Bezos, who was the world’s richest person having an estimated personal wealth of about $150 billion dollars.

By being divorced—he’s still the wealthiest person—but it’s down to 114, the poor fellow. But it’s good news for Mackenzie. She now has $37 billion dollars and so she ranks number 202—her husband is number one—number 22 on the Bloomberg billionaires list. And she recently announced that she’s going to be giving half of her wealth out of the $37 billion, half are going to be given to charity either during her lifetime, or by means of her will, when she passes on.

Wow. She and her husband are both members of a group called the Giving Pledge—204 individuals and families very, very rich who’ve pledged to give half or more of their wealth to charity. One of them is Warren Buffet. And I want to read to you his statement about this group, that Giving Pledge. I’m going to read it to you, it’s one you’ll want to remember. Here we go. He’s talking about the other billionaires like him that are part of this pledge.

“The generosity of this group is a reflection of the inspiration we take from the many millions of people who work quietly and effectively to create a better world for others. Often at great personal sacrifice.” Let me translate. He really appreciates the people who work for others, because the others are him—that’s who they’re working for. And he recognizes that they do it at great personal sacrifice, which is also correct because he doesn’t pay them very much. This is translated into “why I’m wonderful and part of this great group”. And if you take that seriously, I have a bridge I would like to sell to you early tomorrow morning if we can just meet somewhere where nobody will be recording what I say.

The next update has to do with the Huawei Corporation that you’ve been hearing about, a Chinese telecommunications company that is being attacked and banned and discriminated against by American companies ordered to do so by the Trump administration. And I wanted to comment briefly on this.

First, I find it remarkable that a government that refers to itself as conservative Republican and so on, is interfering, having the government interfere in a private enterprise in a way and with a precision that is remarkably contrary to every ideological commitment those folks have made over the last fifteen years. This is government intervention, not to mention the tariffs and all the other things he’s doing, on a scale no Democrat would have dared consider for fear of the storm it would have produced.

But there’s also another dimension that I really want to bring to your attention in this whole Huawei business. What the American government has done is sent the message to every corporation in the world, that does business with an American company, buying inputs from an American company or selling parts to an American company, they’re learning that they have a new risk they didn’t understand they had before.

Don’t do business with America! That’s the message here because you don’t know when Mr. Trump or whoever comes later will cut them off from you, will put you hanging out there like Huawei is, unable to get important inputs it needs from the American companies, it’s been paying big bucks to, to get those things. Never mind the Americans who will lose their jobs because the business isn’t there anymore.

It is a message that every CEO of every company in the world has just sent the memo down the line of their company, “Cut business with Americans. Reduce dependence on Americans. Find business partners elsewhere in countries that don’t do this.” And why is it all being done to advance Mr. Trump’s career opportunities? You know, he’s worried about the election he might not make it. If the predictions of a recession in the United States either this year or next come true—and that is the consensus—it will be very bad for his re-election campaign. That’s why he puts the pressure on the Federal Reserve to lower the interest rates. And maybe all this noise about tariffs and Huawei and companies is designed to make it look like we’re heading into a real economic trouble because if we are, and that becomes the general perception, well, then the Federal Reserve will have to do what it’s supposed to do lower interest rates to anticipate this problem.

I am aware that the Financial Press, has recently indicated that the odds of a cutting of interest rates have gone from the low digits to over 50% just over the last three weeks, good news for Mr. Trump’s re-election campaign, but an important warning to every company in the world to do less business with the United States, pay more to another company than you might have to pay to an American, because the risk is less that you’ll be cut off, and therefore have your life extinguished as an enterprise.

Final economic update that we will have time for it. My hats off to a group of senators, I want to give them their due—Bernie Sanders (I-Vt.), Kirsten Gillibrand (D-N.Y.), Patrick Leahy (D-Vt.), Maggie Hassan (D-N.H.), and Jeanne Shaheen (D-N.H.). These are all senators who introduced two pieces of legislation and they have also been introduced into the House by Representative Mark Pocan, a Democrat of Wisconsin. Here are the two. The first one is to set up, put aside $45 million dollars to set up all of the United States centers to establish and expand employee ownership in the American economy using the model of the Vermont Employee Ownership Center that Mr. Sanders, of course, knows all about being the Senator from that state. This is to provide technical help and support to get people forming worker co-ops. The second bill sets aside the U.S. Employee Ownership Bank to provide $500 million dollars in low interest loans to get these projects going. In other words, to do for worker co-ops what has always been done for capitalist enterprises to begin to create a so-called level playing field.

We’ve come to the end of the first half of Economic Update. I want to thank you all. Remind you, please to become a YouTube subscriber because it is enormously helpful to us, to make use of our websites democracyatwork.info, and rdwolff.com where you can communicate to us. Follow us on Facebook, Instagram, and Twitter. And finally, a hearty thank you to the Patreon community for the enormously important support they provide and for which we are grateful. Stay with us will be right back with an extraordinary interview

Welcome back friends to the second half of Economic Update.

I am very proud to welcome once again to our cameras and our microphones Professor Rick McIntyre, Richard McIntyre to be formal. So I want to first of all shake your hand and welcome you back Rick.

Thanks for having me.

Let me tell you all about who Rick McIntyre is. He’s a professor of Economics and Chair of the Economics Department, at the University of Rhode Island. He’s also there the co-director of the URI in Cuba program. He has lectured at many universities in the United States and abroad including the University of Rennes in France. He also there held the Chair of the Americas position. He is the author of the book Are Worker’s Rights Human Rights? and also co-editor of Knowledge, Class, and Economics Marxism without Guarantees. He is also the author of many articles and all kinds of published material.

What I want to do with Rick McIntyre, whom I’ve known for many, many years, is that on a different kind of conversation from what we normally had. Normally, we focus on a particular topic, where the guest is a specialist or an expert. What we are going do this time is a little different. I want to draw a Rick out on a question about the basic broad conditions of American capitalism as we speak. To have two people who study that material talking with one another about whether really big changes are under way or are coming down the pike in this system that we all depend on and that we all live in.

So let me begin with one way of many ways to get in. Do you think that the Trump administration, now that we’ve had two and-a-half years of it, is making a basic change in American capitalism or is it more of the same? How would you assess both the condition of capitalism under Trump, and what the meaning of the whole Trump phenomena, is?

Well, I tend to think of Trump more as a symptom than a cause, of course, the longer he’s an office, the more of a cause he becomes. But I think he’s partly a symptom of the dysfunctionality of American capitalism over the last three decades. The capitalism that did very well for a lot of people, but also did very poorly for a lot of people. And then large swaths of the country in the upper Midwest, in the industrialized areas, people have lost track of the meaning of life that the suicide rate is at all-time highs, and Trump appealed to people in the so-called social capital deserts. He put together a coalition of a lot of different groups, but that, I think, is a sign that the dysfunctionality of American capitalism has reached a new level. So I think in that sense, Trump as a symptom is a sign that something really different has happened.

Would you say that the balance between, using your metaphor from the beginning, of those for whom capitalism works and those for whom it doesn’t, that balance has shifted, so that the number for whom it’s good is shrinking and the number for whom…

Well, we know what the numbers say, but let’s not de-emphasize too much how successful this form of capitalism has been. The amount of surplus, the amount of profit that’s flown to the big merchants, to the big bankers, to the big tech companies on the West Coast is truly astounding. The wealth that has been piled up is unprecedented. Nowhere else in the world do we have anything like Google, Microsoft, Facebook, the big Amazon, the big tech companies. America won that race, but in the middle of it we won it partly because wages were prevented from rising here and these companies have taken advantage of incredibly low wages abroad. So that all the surplus has flown to them. People tend to emphasize globalization and trade, and that’s what Trump wants us to pay attention to. But the big story really in the United States has been deunionization, the complete collapse of working-class institutions that, if nothing else, we’re able to defend working people against this kind of thing, at least through the 1980s. With that gone, it’s been open season.

Tell us then a little bit about the labor movement, where do you think it is? Are there strings of a new militancy emerging? Is it more that we should expect of the 50-year decline that they have suffered? What do you see? Especially if you give it that kind of importance as you just did.

Well, the private sector unionization rate is now 6.4%. So how much lower can you go? There’s really only one direction to go. And there’s some signs with working done in immigrant communities earning very low wages, the Fight for $15, alliances between community activists and labor groups, now, some signs of alliances between concentrating on ecology and labor movement people, there’s some signs of a broadening of the movement, but there’s not a lot of movement yet. So every time there’s a few green shoots people say, “Wow, the labor movement is coming back.” But I think we have to be careful, and we need a broader movement that’s going to confront capital in all its forms. One of the things about Trump that I resisted thinking about for a long time because it’s too simple, but it makes sense—Trump is a landlord. He sees the world as a landlord, he represents the landlord class. The people whose wealth is tied up in land and minerals. The landlord class is the class that most folks face every day in their lives because they have to rent apartments from those people. So I think we need a different kind of movement, that’s going to confront capital in all of its forms—financial, industrial, merchant, and landlord. The labor movement can do some of that, but it needs allies. And maybe being in a tough position will encourage the labor movement to find more analyses.

A number of people have begun to edge towards the notion that capitalism, or at least American capitalism, is in some broad sense, in decline. In other words, of course, there is the high techs in California and so on, roaring ahead, but decline always had elements within it of upward movement, it’s never all one direction. But if you look around at that suicide raid, the opioid catastrophe, the inequality that seems on a perpetual rush to get worse, you begin to get a sense of a system that is falling apart that can’t survive. And it may be that the center has moved instead of being in North America, and Western Europe, and Japan, it’s moved over to China, and India, and Brazil, and so on... How do you feel about the very phrase “capitalism in decline”? Is that meaningful?

Well, I think in one way, in an ideological way, it’s very meaningful. In other words, the fact that most people do the average of people under 35 prefer socialism to capitalism. Now, it’s not clear, people know what they mean when they say that, but just the fact that they would say that.

That’s amazing.

The politicians in the Democratic Party who have to now say, “Oh no, I’m a capitalist.” Of course, they’re not capitalist, but a notion that they need to say that means that there is an ideological crisis, there’s no question about it. And amongst young people, I think the idea that capitalism failed is just common sense. I mean they’ve grown up with 2008, they’ve grown up with student debt, they’ve grown up with the deindustrialization. So this is just a fact on the ground. To question it now is where do you go? And that’s why some of the social movements that have so far been more electoral than economic, but nonetheless creates some hope. I mean, the idea that you can say I’m a democratic socialist and get 14 million votes for President in 2016 is darn impressive. So on the ideological front I think there’s no question that things have changed. And the more purely economic front, you know, capitalism has always progressed by destroying what exists, right, you know that. And so we have a country in which you have both Detroit and San Francisco at the same time, a place that’s almost too successful and can’t live with that success. In another place that became a complete disaster that, again, the only way to go is up. So I would be a little careful about saying capitalism writ large is in decline. The other thing that happened as a result of the 2008 crisis is the Fed acted to bail out the whole world. So now, the dollar is more firmly in place as the currency of choice than it has ever been. So, you know, when we talk about unevenness, sometimes that’s a little bit vague, it sounds like you don’t really want to say what you mean, but I think that American capitalism is in decline, on the one hand, but extraordinarily successful, on the other, in different sectors, in different regions.

But that was always true. Then if that balance shifts too much, then you have the conditions for a real change to happen.

I think we have the conditions for real change because of what’s happening with young people. And who have grown up in a different world then. I went to public universities, I paid nothing for my college education, I came out with a little bit of debt. That’s a very different situation now. People who have been through a crisis that was every bit as bad as 1929. If the government had taken extraordinary steps under both Republicans and Democrats. So the only way the system was bailed out was by the state. The notion that I don’t have to convince students anymore that capitalism doesn’t really work. I mean, there’s a few, there are Libertarians, they read things. But, ironically, the students who don’t read much they have the common sense to know that this system doesn’t really work. They don’t know what would work, they’re willing to give socialism a try even if they don’t know what it means. So I think we’re in a moment where there’s a generational shift and there’s a lot of opportunity amongst youth.

If you wanted—I know this is an impossible question—but if you wanted to give advice to young people that are searching in just the way you’ve described what would be a direction where you might imagine a labor movement, a larger social movement might coalesce around a program that people alienated from capitalism, might find attractive? What would you say?

Well, since that will never happen, I can answer freely. I think one thing that sometimes gets underplayed is the notion that we have to have power in the workplace, that we have to have a voice in the workplace. We used to have a simple solution on the left, which we would say, “Well, we nationalize property, we nationalize the means of production.” That didn’t work out that well—that’s a long story, which we can tell another day perhaps—but we don’t want to say that story anymore. So the idea of working for a voice at work, which you have been spending a lot of time on, very important I think. But also, wouldn’t it be nice if we had a political democracy, as well? We have the framework of a political democracy, but we don’t have a real political democracy, and especially at the local level, where real estate interests tend to be extraordinarily dominant. It’s great that Bernie is running for president. It’s great that some of these other people are running for president. That’s not going to change what happens in the neighborhoods and the communities. So to have stronger voice in politics is something that... And I know young people that are working on this, it’s very important. And then young people are going to have to live with the results of climate change. And we know that the reason why climate change has resisted as a reality is that the solutions all involve the state and the expansion of the state in some way. And since that’s evil, we can’t believe that climate change must be real. So if those three different movements could coalesce around economic democracy, political democracy, and ecology then we would have something. And I think the potential is there today.

I sure hope you’re right back. Thank you very much, I’m going to bring you back and we’re going to continue this conversation, as we watch the uneven development unfold.

I’d like to do that.

I thank you all for watching and I hope that the very raising of these questions, not so much the answers that we’re beginning to try to formulate, but the question about a system, recognizing that we have a system, we live under a system, and it has its own motion, its own ways of being is something we ought to talk about, think about, and intervene in shaping as much as we can. I hope that kind of a conversation is of interest to you. If it is, let us know. And in any case, I look forward to speaking with you again next week.


Transcript by Aleh Haiko
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