Economic Update: Rising Labor, Faltering System

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This week on Economic Update, Prof. Wolff talks about the prospects for a labor-union-worker co-op alliance; megacorp stock buybacks; why and how US/UK sanctions on Russia failed so far; the financial abuse of US retirees; and lastly, union popularity in US at 50-year high.


Transcript has been edited for clarity

Welcome friends to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives and those of our children. I’m your host Richard Wolff. In today's program, we're going to be talking about the growing interest in an alliance between labor unions and worker co-ops, the stock buyback program — corporations using their profits not to invest, not to create jobs but to make more money basically for those who run them. We’re also going to be talking about the rising popularity of labor unions, the scandal of how retirees are being treated in this time of inflation, and why the program of sanctions against Russia has been so unsuccessful.

So let's jump right in. This idea of an alliance between worker co-ops on the one hand and labor unions on the other offers extraordinary advantages and those are becoming more and more interesting to and attractive to people involved on both sides as unionists or as activists in worker co-ops. The idea is simply that these two institutions could and should support each other. Imagine what might happen if there were to be a new third political party and indeed there are efforts in that direction now. If it could base itself in part on an alliance between labor unions on the one hand, and worker co-ops on the other, they might really change the whole attitude, and as we're going to see that's already happening in terms of labor unions. So, here's a way that these two institutions by allying could strengthen each other.

Let me say very clearly why that is, and how that would work. Imagine unions negotiating with an employer because they want higher wages because the employer is trying to get away by not raising wages even though productivity is going up and so on typical problems of labor unions but suppose they could fall back on a tool they wouldn’t necessarily use but would let the employer know they might have to resort to it. We know the name of that tool. It’s called a strike. Workers ultimately saying, “We're not going to work for you if we can't come to some negotiated compromise that’s acceptable.” Well, what worker co-ops offer unions is yet another one of these weapons that you won't use most of the time but is very important to have available should you need it.

It goes like this if an employer is unwilling to negotiate with you…if an employer is unwilling to meet you halfway…if an employer mocks or tries to destroy your union…you have a new alternative, if there's an existing alliance with worker co-ops. You can go to the employer and say, “Look if you refuse to talk with us, if you refuse to meet us halfway, we are going to set up an alternative business right here in this community and we're going to go on strike and we're going to go work in that other new institution we're setting up.” You know, if you're a fast food joint, you don't want there to be across the street from where you are a competing fast food joint (with the same workers you used to have) appealing to the community to support the workers (which are sort of like them) rather than the company which wouldn’t give the workers a fair deal. This is real competition and no capitalist enterprise ever wants it except when giving speeches on Fourth of July events.

A worker co-op is an alternative way to strengthen the labor side in the confrontations between labor and capital. It's also historical. Here's a question of where we need to learn from our history. After the Civil War in the United States, the first national labor union we ever had in this country was called the Knights of Labor and the Knights of Labor was successful. It grew quickly, involved people in many states of this new country but it was also very progressive. Let me give you some ideas. It pushed for a progressive income tax decades before that was finally passed by the United States Congress. It fought for the eight-hour day long before it was legally established and they helped to bring it about. Perhaps more interesting even than that is the fact that they welcomed as regular full members both women and African Americans. Something that very few institutions in the United States at that time did. But here's something you may not know, they fought, that is the Knights of Labor, they fought for worker co-ops as the ultimate goal of the labor movement. They understood that the power of negotiating with the employer was not just, “Here's the arguments why we think this is fair.” It’s not just, “We're willing to strike, to not work, to get our voices heard, our interests attended to… but in the end, if none of that works, we're going to go into business ourselves as workers and you're going to see capitalism with a real competitor in the United States.”

You know, the local Starbucks, the local Target, the local Chipotle — whatever it might be — they don't want anything like this. They will come to the table sooner and negotiate more flexibly and meet workers halfway if they have to face an alliance between workers and labor unions in which they get to know each other and support each other. Think with me, if unions who do go on strike can appeal to their allies among the worker co-ops to come out on the picket line, to support them. Think with the worker co-ops what might come in the way of customers for whatever they set up if workers and unions know that those worker co-ops are their allies. The whole attitude towards labor and the labor movement could change in this country. It would have a powerful new alliance as its advocate.

I want to turn next to stock buybacks. I want to make sure everyone understands it because if you do it gives you a window into another aspect of capitalism that will make you critical. Trillions, not billions, trillions of dollars are spent in the United States probably every year but certainly every other year if you put two years together on buying back stock. What does that mean? It means, take a company, I'll pick one, General Motors, the board of directors, those 15 or so people that make all these kinds of decisions and allow no one else, by the way, to do so. The board of directors decides to take a chunk of its profits, not invest them in a better car, not hire anybody none of that but instead to use billions of dollars from their profits to go into the stock market and buy shares of their own company…General Motors shares, perhaps shares owned by your grandmother, perhaps shares owned by your bank…the usual.

Why would they do that?…because the company, by bringing in big purchase orders for General Motors shares, will drive up the price of General Motors shares on the stock market. You know who that's going to make happy — all the shareholders, all the people who own shares of General Motors. Seeing its price go up will get big smiles. As I've told you many times,10 % of the people in this country, the richest 10 %, own 80 % of the shares. So if you do stock buyback, the biggest beneficiaries are the shareholders. How quaint. You know who's among the top 10 % of our people? The members of the board of directors of General Motors, who make the decision so when they raise the price of the shares, they are helping themselves as shareholders. But it's worse…for many top executives their pay package is dependent on how well the stock does so if the stock goes up they get more salary. So, there's another incentive. What have they done with this incentive? They've taken it a step further.

In recent years, more and more large corporations are borrowing money to buy back their own shares. In other words, they're loading up their company with debt. They don't care. After a few years, they won't be the chief executive of that company. They'll go on and up the chain or retire. They're loading up the company with debt to drive up the price which gives them a bigger salary and a bigger wealth because they own such shares.

By the way, who produced the profit that the company had?… of course all the people who work at General Motors. All of them, but the vast majority of them have nothing to say about what is done with the profits. They wouldn't use them to boost the share prices because they don't own any shares and their wages are not dependent on the value of the shares. That's just the top. They’re taking care of themselves in short. The job of the mass of the people is to come to work, do the work, produce the goods to generate the profits, and then shut up — so that the tiny group at the top, the executives at the top, the major shareholders, can use that money to buy back their shares in the stock market and boost their wealth and boost their income. What a system…it’s the most undemocratic imaginable. All the other things the corporation could and should do…Remember — the next time a corporate executive refers to himself or herself as a job creator — buying back your shares creates no jobs at all.

I want to turn next to what I believe is a scandal having to do with retirees and I’m going to use as my example, a liberal state, Massachusetts, which treats its workers pretty well by at least comparison with much of the rest of the country. But, I want to tell you briefly about what they're doing with their retired school teachers. Nobody ever became wealthy by being a school teacher, you all know it and I know it. School teachers in Massachusetts from kindergarten on up through the public university, University of Massachusetts and so on — when they retire after 40, 50 years of teaching — get a pension. Now the problem with the pension is it’s a fixed amount of money which means over the last year that retired teachers (who have given a lifetime of work educating the children of the state) discovered that prices went up by about 8.5-9% so that their pension money (what they get to live on after their work is done) was able to afford 8 or 9% fewer goods and services because their pension didn't go anywhere but the prices did. So what did the legislature of Massachusetts do? If you understand this, you'll see that's worse in most states of the union. After much hemming and hawing, here’s what the legislature decided: they're going to give a raise to the retired teachers (and the pension they get) of 5%. Before I even go further…5%…the prices of everything went up 8.5-9%. Giving people more, 5% more, they'll still be behind. But it's worse — they don't give you the 5% on the whole pension you get. You pay higher prices with your whole pension but you don't get what's called a COLA, a cost of living adjustment. It's only on the first $13,000 of your pension not on the rest. Unspeakable abuse of your retired teachers.

We’ve come to the end of the first part of today's show. For those of you who may not know, Economic Update is produced by Democracy at Work, a small donor-funded non-profit media organization celebrating 10 years of producing critical system analyses through a variety of media like my monthly lecture Global Capitalism that develops one's understanding of an ability to explain current economic events and trends. You can find this month's lecture along with other video content we produce by subscribing to Democracy at Work on YouTube and by visiting our website: democracyatwork.info

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Welcome back, friends, to the second half of today's Economic Update. I want to begin the second half by talking to you about what happened with the sanctions that were created and applied mostly by the United States but with its European allies, by and large, against Russia following Russia’s invasion of Ukraine back at the end of February of this year. Those sanctions often referred to as the mother of all sanctions because they were bigger and more comprehensive even than Mr. Trump's sanctions against China which were the biggest we had ever seen at that point. These were promised to bring Russia to its knees basically to destroy the Russian economy or so badly weaken it that the Russians would reconsider, end their invasion, and take their troops and tanks and all the rest back across the border from which they had come. Much of the media continue to talk about all these things that were promised to happen by all the experts that the government called in and that were in front of the media. Most of the mainstream media continues to talk, excuse me, as if all of this was working pretty much according to plan Well it isn’t. If you have the time to take a look at publications outside the United States, you would already know that. What I’m wanting to bring to you is a publication that represents all of this quite honestly from inside the United States. A business publication prepared by, written by, and for employers, the class of business leaders. The publication is called Business Insider. You can find it on the internet quite easily and if you look up the edition of August 28th of this year, you will find out that the sanctions have failed. The experts were wrong. That's a quote from the article. “The experts were wrong.” So let me review what I learned from this article. Everything I'm about to tell you comes from that article and you can verify that and pursue that if you're interested. The sanctions involved imposing a blockade. The United States and Western Europe were to stop buying Russian oil and gas. They froze — the sanctions — about half of the reserves Russia has deposited in Western banks as a backing for their currency. They blocked Russians from using the SWIFT [banking system] and other international payment systems that are the lifeline of buying and selling in the international market. No less experts than the two leading banks, probably in the United States, JPMorgan and Goldman Sachs said the Russian economy would immediately collapse. It didn’t. In fact, it shrank after March of this year, that is after weeks of the invasion had happened. It shrank less after the invasion than it shrank when Covid hit two years earlier in March of 2020. The ruble, the currency which did take a dive immediately after, is now worth more in international currency exchange than it was before the Russians invaded. In other words, the Russian invasion has made their currency more valuable.

The Russians are earning more money in trade around the world today, six months after the invasion, than they did before the invasion. Yes, Europeans are buying less oil and less gas from Russia than they did and that might have hurt Russia if no one else had been found to buy from Russia, the oil and gas, etc, that the Europeans and the Americans were no longer buying. But, the mistake of the experts was not understanding that the Russians could, and indeed they have found alternative buyers all over the world. The most important in terms of oil and gas is the country of India which, by the way, is scheduled to surpass China in the next few years to become the most populous country on this planet.

The Indians have been buying oil, lots of it, from Russia. The index of manufacturing, production, and services, that's a measure of how big and how active the production of goods and services is in Russia, is higher today than it was before the invasion in late February of this year. Russia has not collapsed—not even close. All the experts who said it would, in the government, right up to Mr. Biden himself and in the leading experts the government relies on, such as the top bankers at Goldman Sachs and JPMorgan, they were all wrong in what they thought would happen.

If I now go beyond what's in the Business Insider publication, let me drive home with one simple statistic how other signs indicate that those experts did not understand very well the economic realities of the world. The inflation, which was already there before the Russians invaded (and which the war itself didn't do much to make worse) was worsened by the sanctions. It’s really the sanctions that shook up world trade and that shook up the world's economies, not the war. The sanctions. Here’s a statistic of the inflation — probably the biggest problem that has mushroomed since those sanctions were applied, that is, over the last five or six months.

Here’s the statistics I'm going to give you. I’m going to give you, for the United States, for its major ally in the Ukraine which is Britain, and for China, the major ally of Russia. I’m going to give you what happened (in those three countries, the UK, the US, and China) to their prices. What's the rate of inflation right now? or at least as recently as the last 6 to 12 months which are the best numbers we can get. Here we go. Inflation in the United Kingdom right now is 10.1% per year inflation listed here in the United States, 8.5% (between 8.5 and 9%), and the inflation rate right now in China, 2.7%. If you've never heard this comparison — think about what it means that you’ve never heard about this comparison—the Chinese don't have an inflation problem. We do. The Chinese are allied with Russia. We are allied, we in the United States and the United Kingdom are allied with Ukraine. There’s something going on here about who’s picking up the costs. The economic, the financial costs of this war and of the sanctions. You have to ask yourself the question. However you interpret these numbers, you have to ask yourself the question if the experts were that far off the mark back in February, March, and April when they triumphantly told us how the Russians would be made to pay and therefore would have to knuckle under. What else about this war in Ukraine have the experts gotten wrong? and when will we find that out? Think of all the people who've died and all the damage in Ukraine, particularly that has occurred to the people, to the infrastructure, to the very lives. Millions have left that country for fear. Experts with those kinds of consequences — being that wrong — ought to raise a lot more questions than they are doing in this country today. Which is why I brought this segment up.

The last economic update we will have time for today is I want to report to you the latest results, a few weeks old, of the Gallup poll, probably the best known, oldest public polling enterprise here in the United States. It’s a business and it conducts all kinds of polls and its most recent poll concerned the popularity of labor unions. It asked Americans, “Do you approve of labor unions? Do you disapprove?” That kind of question. Gallup announced the results after they tabulated them. Seventy-one percent, let me make sure you get the number, 71% of Americans polled approved of unions. Now, that’s not what I suspect, even most of you, my valuable audience, would have suspected or would have guessed if I'd asked you.

Something has happened over the last few years to change the attitude of Americans towards labor unions. Where the image before might have been of skulking figures on the waterfront, making shabby deals with skeptical strange underworld-connected people and all of that. Films and TV are full of that imagery. What has changed is that the image now is of very earnest young people explaining why the way they're treated at Starbucks, at Amazon, at Chipotle, wherever. Those young people look like they work hard. They're a little bit like the young people, you know, from your own community. They don't look like hustlers. They’re in no way crooks and they have been able by hard work and going public with what they have to say, to change the way Americans look at labor unions.

I recently came across an article that spoke about the rise of the labor union in the American South but in a new way. They're not called unions they take names like Up with Louisiana or Georgia on the March because if you get away from the associations of the word union when you present to working people what’s happening to them (which they know and how a union could make things better which they can understand) it turns out they're right there with you.

It’s also important to understand that workers are becoming more militant. They're willing to speak up. They’re willing to fight back. They’re willing to mobilize with one another. They're willing to organize. That means an alliance is emerging — whether the people involved in it talk about it yet or not — an alliance between all those activists in what we call social movements. Movements against racism, against sexism, to be, in a way, one with nature, to respect the ecology we depend on. These movements of activists are basically being joined by a movement of activists on the job. Well, it's only a matter of time before the activism mobilized in social movements and the activism coming to the fore in the world of labor understand their mutual need to support and strengthen one another. Finally. I’m very glad to be able to see it and talk to you about it.

Thank you for your attention as always and I look forward to speaking with you again next week.


Transcript by Barbara Bartlett

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Showing 1 comment

  • Edward Dodson
    commented 2022-09-21 15:25:10 -0400
    It is worth adding to Professor Wolff’s analysis that at least some portion of households in the U.S. do have significant savings and no debt. Thus, the rise in interest rates is resulting in rising interest income. Neither the Federal Reserve nor our states or federal governments have taken steps to lower the cost of apartment rents or the price of a residential property for first-time buyers. The longer-term strategy is to encourage local governments (including school districts) to move toward a land-value only form of property taxation. In the interim, government must begin to subsidize the construction of millions of permanently affordable housing units — rentals as well as ownership. The National Low Income Housing Coalition estimates there is a shortage of 7 million rental units affordable to those who have household incomes of less than 80% of whatever the area median income is in the region.

    Elimination of the preferential tax treatment for gains experienced on the sale of financial assets and other, so-called “capital gains” could provide some of the government funding. A tax on gains on the sale of residential property put into state or even local affordability trust funds would also help.
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