Stagflation gradually subsided during the Reagan years, largely because of a recession brought about by high interest rates and tight federal fiscal policies. Yet, in the process, this extremist wringing-out solution ushered in a free-market orthodoxy that has been with us ever since; it convinced public officials that nothing else besides the grim rigors of the marketplace could properly order the economy. There would be no more protective buffers or soft landings for victims of the natural workings of the market. Monetarists, supply-siders and globalizers achieved ascendancy; planners, regulators and pump-primers were banished from the scene. Economic nationalism was thrown aside in favor of global corporatization.
Now the dominant conservative orthodoxy, which says, in effect, "Let capitalism do its thing," is at long last being challenged and shown to be a hollow construct. It's taken 25 years, but the inherent fissures always present in the foundation of unregulated capitalism are widening with each passing month. Evidence of the economy's sudden vulnerability was apparent in the campaigns of the several Democratic candidates for president, most of whom offered scathing critiques of various aspects of the corporate system. Economic populism is once more in style on the political trail.
It's about time. American hourly wages are stagnant; they've shrunk in constant dollars by more than 10 percent over the past generation. One worker in four is now earning a poverty-level wage. Meanwhile, those at the top are being rewarded as never before. According to Forbes magazine, the 400 richest Americans increased their wealth by 10 percent last year - to an aggregate of $955 billion, creating the widest U.S. income gap between the rich and the rest since 1929, the year the stock market crashed and the Great Depression began.
For the past two decades, the conservative orthodoxy's answer to such dysfunction has been that, yes, the rich are prospering but so are the poor and the middle class, who at least are working and enjoying the benefits of secure employment. True at one time, perhaps, but no longer. Through February, the economy had shed manufacturing jobs for 43 consecutive months, eliminating close to 3 million of them; meanwhile, overall employment has declined for three years in a row - the worst performance since the 1930s. Economist Joseph Stiglitz points out that the U.S. economy needs to produce 1 million net positions annually (more than 83,000 a month) just to accommodate new entrants into the labor force; it produced all of 1,000 in December. A recent CNN report places total American unemployment at 14.7 million (nearly a 10 percent rate), counting underemployed and discouraged job seekers, as well as the 8.4 million officially without work.
These employment statistics are stunning and disturbing in light of soaring corporate profits (up 22 percent in the last quarter of 2003); healthy productivity (up 9 percent in the last two quarters) and a suddenly buoyant stock market (a 25 percent rise for the Dow Jones average and a 50 percent jump for the NASDAQ over the past year). Yet those wedded to the existing economic dogma profess little concern about the uneven nature of this latest jobless recovery.
Secretary of Commerce Donald Evans, a former CEO, insists all is well because "capital markets" like the prevailing Bush administration policies and because productivity and stocks are rising.
An upbeat Barton Biggs, prominent Wall Street investment analyst with brokerage giant Morgan Stanley, affirms that "the market wants Bush to be re-elected." Jobs, it appears, are irrelevant.
U.S. political and business leaders are unique in viewing economic success exclusively through the distorted prism of investment returns and stock enhancement. Nowhere else in the industrialized world is there such a wide disconnect between capital and labor, and nowhere else are government policies so one-sidedly biased in favor of capital and so ineffectual in helping workers.
The strongest evidence of late that American capitalism is out of kilter lies in the field of unregulated trade - or "free trade," as its backers prefer to term it. Free trade (that is, the worldwide corporate search for sources of inexpensive labor) accounts, along with new worker-replacement technology, for most of the job losses suffered by Americans in recent years. It has even spawned an entirely original industry, termed "diversified outsourcing services" by the annual Fortune 500 listing of business enterprises, dedicated to helping client firms transfer their personnel needs to cheaper labor markets at home and abroad.
The overseas work of these modern-day flesh merchants, a subcategory called "offshoring," came prominently into view during the 2001 recession, when it began to be applied to white-collar information-technology jobs, those considered the national safety valve for the lost manufacturing employment that began to migrate in the 1980s. Factory jobs regrettably had to go, Americans were earlier told, because the country's work force simply couldn't compete with low-cost labor in the Third World. (Its inability to compete was facilitated, of course, by such diplomatic gems as NAFTA.) Not to worry, however; manufacturing jobs weren't needed anyway - this from the Federal Reserve's Alan Greenspan - and high-tech service-sector positions requiring an educated American labor force would naturally replace them. Workers merely had to retrain or upgrade their skills for good jobs that would never leave.
Guess what? They're leaving. The Economist magazine reports that nearly half of America's top 1,000 companies are actively experimenting with offshoring. Depending on whose estimates you accept, anywhere from 400,000 to 1 million white-collar jobs have already gone abroad since 2001, mostly to India and other Asian nations. Over the next decade, 3.3 million more are expected to follow, saving U.S. corporations 30 to 80 percent on labor costs and eliminating roughly 25,000 American jobs per month. One flagship firm, IBM, has publicly announced that two-thirds of its future positions will be filled outside the country. More troubling, a University of California study recently concluded that wage disparities have rendered 14 million domestic service jobs vulnerable to possible displacement.
Dismissing such concerns, N. Gregory Mankiw, the myopic chairman of the president's Council of Economic Advisors, speaking for the Bush administration, has called the departure of jobs a positive development, one of the avidly anticipated benefits to American business produced by world trade liberalization. Echoing that sentiment, Treasury Secretary John Snow has inexplicably termed the flight of jobs an acceptable way for corporations to cut costs. The next chance to reverse this ingrained policy mind-set is at the polls next November. Otherwise, we may be hearing more from a long-dead critic of capitalism's inner contradictions and self-destructive tendencies, whose ideas are suddently undergoing a surprising intellectual revival prompted by globalization. His name? Karl Marx.
- Wayne M. O'Leary is an Orono, Maine writer specializing in politics and economics.
Copyright © 2004 Blethen Maine Newspapers Inc.