Profit on Wall Street, Recession on Main Street
In America's deeply dysfunctional economy, unemployment is stuck at a 'new normal' of 9%, while corporate profits race ahead
In the past few weeks alone, Bank of America, Goldman Sachs, Cisco Systems and Borders have all announced massive layoffs. Borders is closing its retail stores, auctioning off its holdings and letting go 10,000 employees as, due to online competition, the company is no longer profitable and filed for bankruptcy earlier this year. In contrast, Bank of America, Goldman Sachs and Cisco Systems have all posted profits in the last few quarters – in some cases, record highs. Alhough according to the latest data, 9.1% of Americans are unemployed, major US corporations are slashing jobs not out of necessity but out of greed. The revived focus in Washington on creating jobs may be pointless if corporate America no longer needs workers.
A new report by Northeastern University's centre for labour market studies shows (pdf) that corporate downsizing, work hour reductions and the correlated growth of corporate profits directly led to the recession. Big business in America shed jobs and squeezed increased productivity from their remaining workers, but report authors Andrew Sum and Joseph McLachlan write: "None of these productivity gains was shared by wage and salary workers in the form of higher real weekly earnings." Instead, corporations increased their profits "at a higher relative rate than in any other post second world war recession."
Following the recession of the 1980s, 28% of the economic growth in recovery went to corporate profits, while 25% went to boost the wages and salaries of ordinary workers. Today, 88% of the economic recovery has gone to boosting corporate profits. As a widely cited earlier version of Sum and McLachlan's report finds (pdf), only 1% – that's one out of every $100 – has gone to wages and salaries for the folks who clearly need it most.
In the raw capitalist model, some percentage of people need to be unemployed – a point Karl Marx sharply critiqued and, later, John Maynard Keynes used to justify government's role promoting full employment. While any level of unemployment seems untenable to average Americans trying to pay their bills, economist-types have long accepted that, left to its own devices, the unemployment rate will never be zero. Ongoing 5% unemployment is considered the norm, though in February, the Federal Reserve Bank of San Francisco released a paper arguing that 6% unemployment might be the new baseline. But what if it's worse? What if we've reached a new low in unchecked capitalist greed that will perpetually drive up the unemployment rate as long as companies can keep extracting a profit?
The financial sector occupies an increasing share of America's economy. Between 1973 and 1985, the financial sector comprised 16% of domestic corporate profits. In the 1990s, it hit 30%. In the past decade, the financial industry's slice of the economy topped 41% – and t may even go higher. These businesses make money not by making things, but by making bets on other money. Employees sold separately.
Increasingly, financialisation is sweeping more traditional businesses. General Electric, which has laid off thousands of workers in the past several years, posted profit growth in the last quarter driven not by refrigerators or even missiles, but by the company's financial services arm. Even Cisco Systems, which will lay off upwards of 6,000 people this year, targets financial industry customers to buy its routers and computer networks.
Of course, companies have always played a sort of shell game with workers and revenues. The difference now may be that major players can generate profits just by playing the game, regardless of the outcome. A few blocks from where I live in Brooklyn, NY, the Maramont food manufacturing company with 150 decently paid union workers is moving operations to non-unionised Pennsylvania. The modern twist on this unfortunate but old story is that Goldman Sachs owns the small company – and if they don't make money off this scheme, they'll move the company to Bangladesh, or even get rid of workers altogether, or perhaps short their own holding and make money betting against Maramont. It's all the same to Goldman, as long as they make a buck. The workers, rather than essential parts of a productive economic engine, are now just pawns in high finance's game.
Most Americans are not Marxists. We want capitalism to work, generating earnings and opportunities – not just for Wall Street titans, but for ordinary working people. That, after all, is the essence of the American story. Yet, today's corrupt brand of capitalism would confound even Marx, who in his critique of the market's reliance on unemployment wrote, "[C]apital only increases when it employs workers." If extreme profit-making at the expense of ordinary workers continues to go unchallenged, Marx's criticism may seem more like nostalgia. If we do nothing to confront corporate greed, we will not create new jobs in America.
© Guardian News and Media Limited 2011