On April 29, 2015, Harold Meyerson writes in The Washington Post:
“Policy,” says David Rolf, the Seattle union official chiefly responsible for the first successful campaigns for a $15 minimum wage, “is just frozen power.” By which measure, the problem with U.S. trade policy for the past quarter-century is that it reflects the growing imbalance of power between investors, able to profit from global markets, and workers, who have lost the institutions that once enabled them to improve or at least maintain their jobs and incomes.
Beyond question, the entry of China, India and the former Soviet bloc into the world labor market has exerted downward pressure on jobs and wages throughout the advanced industrial world. In the United States, that pressure has been particularly intense and widespread. As one paper published last year in the Review of Economics and Statistics concluded, U.S. workers forced out of their jobs by globalization between 1984 and 2002 saw their wages decline by between 12 percent and 17 percent. And that was before the full weight of Chinese competition descended on American manufacturing and an additional 55,000-plus U.S. factories shuttered their gates.
But globalization has not had so grim an aspect in every advanced economy. Like the United States, Germany is home to a large number of iconic manufacturers — Volkswagen, Daimler, Siemens, to name a few — that have factories all over the world. Yet Germany frequently has the world’s largest trade surplus while the United States perennially runs the world’s largest trade deficit. More remarkably, German manufacturing workers make a good deal more than their American peers: Their hourly compensation averaged $46 in 2012, $10 more than the U.S. average, according to a Labor Department survey.
To be sure, Germany’s advantage is partly due to the euro’s undervaluation of German goods. But the fundamental difference between Germany’s experience of globalization and our own is the result of a vastly different balance of power between capital and labor. German worker organizations wield power in ways that would astound their U.S. counterparts — above all, by virtue of the legal requirement that the boards of all sizable corporations be equally divided between workers and management.
On Tuesday, I met with eight leaders of IG Metall — the union of Germany’s manufacturing workers, and by most measures the most powerful union on the planet. Like workers throughout the advanced industrial world, they’ve not been able to stop the decline of some of their older industries. “We’ve lost jobs every day in steel and shipbuilding,” said Horst Mund, the union’s international director.
But in auto, aerospace, electronics, high-speed rail and defense technology, their experience has deviated completely what we’ve seen in the United States.
The strategy of the German unions has been to allow, often reluctantly, their globe-trotting corporations to perform the less skilled, lower-value work in lower-paying nations but to insist on keeping the most highly skilled and compensated work in Germany. With world-class worker training, the union and the companies “continually upgrade our productivity,” said Reinhard Hahn, a union leader who also is a member of Siemens’s board. Workers in China do the final assembling of the Airbus A320, but that constitutes just 3 percent to 5 percent of the plane’s total value: The precision parts are made in Germany, many by small firms linked to the global production chain through the union’s own efforts, Hahn said.
With Airbus soon to open a similar assembly plant in Alabama, U.S. workers now compete not with Germans but with Chinese for low-end jobs. As predicted some years ago by the Boston Consulting Group, low-wage Southern labor has begun to erode the Chinese advantage in low-cost production, and foreign firms are flocking there. The role of the South in the global production chain increasingly resembles that of the pre-Civil War era, when it provided the cheapest labor in a chain that created the millionaire clothing manufacturers of Manchester, England.
Congress is poised to vote on a measure that would ease the passage of a massive trade deal, the Trans-Pacific Partnership. My Post colleague Dana Milbank has written that any such deal should be linked to major increases in infrastructure projects, to compensate for the lost jobs, and in worker training programs. I’d go Dana one further:
When we set the standards for globalization, we need to ensure benefits flow to workers as well as investors, and that won’t happen absent the kind of fundamental shift in power from shareholders and management to labor that the German system embodies. Like earlier trade deals, the Pacific pact offers no such rebalancing. It freezes policy — and the rewards of globalization — to reflect our massive imbalances of power and income.
This article is yet another in a continuous stream of articles focused on “jobs as the ONLY means to be productive and earn an income.” In particular, this article is about the balance of management (representing the ownership class) and labor (the non-owner worker contingent of a corporation). The workers are represented by unions (where they still exist), always focused on contract negotiations that will result in higher and higher wages and better benefits, without a corresponding increase in worker productivity. It is technological change that makes tools, machines, structures, and processes ever more productive while leaving human productiveness largely unchanged (our human abilities are limited by physical strength and brain power––and relatively constant). Most changes in the productive capacity of the world since the beginning of the Industrial Revolution can be attributed to technological improvements in our capital assets, and a relatively diminishing proportion to human labor. Capital, in binary economist Louis Kelso’s terms, does not “enhance” labor productivity (labor’s ability to produce economic goods). In fact, the opposite is true. It makes many forms of labor unnecessary. Because of this undeniable fact, Kelso asserted that, “free-market forces no longer establish the ‘value’ of labor. Instead, the price of labor is artificially elevated by government through minimum wage legislation, overtime laws, and collective union bargaining legislation or by government employment and government subsidization of private employment solely to increase consumer income.”
The union movement, even in Germany, is entirely focused on wage-related protections and increased compensation, as this article attests. The labor union movement really should transform to a producers’ ownership union movement and embrace and use its collective bargaining advantage for represented workers to become capital owners in the growth of the corporations they are employed by. Unions should play the part that they have always aspired to––that is, a better and easier life through participation in the nation’s economic growth and progress. As a result, labor unions will be able to broaden their functions, revitalize their constituency, and reverse their decline.
Kelso argued that unions “must adopt a sound strategy that conforms to the economic facts of life. If under free-market conditions, 90 percent of the goods and services are produced by capital input, then 90 percent of the earnings of working people must flow to them as ‘wages’ of their capital and the remainder as wages of their labor work…If there are in reality two ways for people to participate in production and earn income [their labor and their ownership of capital assets], then tomorrow’s producers’ union must take cognizance of both…The question is only whether the labor union will help lead this movement or, refusing to learn, to change, and to innovate, become irrelevant.”
Unions are the only group of people in the whole world who can demand a real Kelso-designed Employee Stock Ownership Plan (ESOP), who can demand the right to participate in the expansion of their employer by asserting their constitutional preferential rights to become capital owners, be productive, and succeed. The ESOP can give employees access to credit so that they can purchase the employer’s stock, pay for it in pre-tax dollars out of the assets that underlie that stock, and after the stock is paid for earn and collect the capital worker income from it, and accumulate it in a tax haven until they retire, whereby they continue to be capital workers receiving income from their capital ownership stakes. This is a viable route to individual self-sufficiency needing significantly less or no government redistributive assistance.
The unions should reassess their role of bargaining for more and more income for the same work or less and less work, and embrace a cooperative approach to survival, whereby they redefine “more” income for their workers in terms of the combined wages of labor and capital on the part of the workforce. They should continue to represent the workers as labor workers in all the aspects that are represented today –– wages, hours, and working conditions –– and, in addition, represent workers as full voting stockowners as capital ownership is built into the workforce. What is needed is leadership to define “more” as two ways to earn income.
When labor unions transform to producers’ ownership unions, opportunity will be created for the unions to reach out to all shareholders (stock owners) who are not adequately represented on corporate boards, and eventually all labor workers will want to join an ownership union in order to be effectively represented as an aspiring capital owner. The overall strategy should assure that the labor compensation of the union’s members does not exceed the labor costs of the employer’s competitors, and that capital earnings of its members are built up to a level that optimizes their combined labor-capital worker earnings. A producers’ ownership union would work collaboratively with management to secure financing of advanced technologies and other new capital investments and broaden ownership. This will enable American companies to become more cost-competitive in global markets and to reduce the outsourcing of jobs to workers willing or forced to take lower wages.
Kelso stated, “Working conditions for the labor force have, of course, improved over the years. But the economic quality of life for the majority of Americans has trailed far behind the technical capabilities of the economy to produce creature comforts, and even further behind the desires of consumers to live economically better lives. The missing link is that most of those unproduced goods and services can be produced only through capital, and the people who need them have no opportunity to earn income from capital ownership.”
Walter Reuther, President of the United Auto Workers, expressed his open-mindedness to the goal of democratic worker ownership in his 1967 testimony to the Joint Economic Committee of Congress as a strategy for saving manufacturing jobs in America from being outcompeted by Japan and eventual outsourcing to other Asian countries with far lower wage costs: “Profit sharing in the form of stock distributions to workers would help to democratize the ownership of America’s vast corporate wealth, which is today appallingly undemocratic and unhealthy.
“If workers had definite assurance of equitable shares in the profits of the corporations that employ them, they would see less need to seek an equitable balance between their gains and soaring profits through augmented increases in basic wage rates. This would be a desirable result from the standpoint of stabilization policy because profit sharing does not increase costs. Since profits are a residual, after all costs have been met, and since their size is not determinable until after customers have paid the prices charged for the firm’s products, profit sharing [through wider share ownership] cannot be said to have any inflationary impact on costs and prices.”
Unfortunately for democratic unionism, the United Auto Workers, American manufacturing workers, and American citizens generally, Reuther was killed in an airplane crash in 1970 before his idea was implemented. Leonard Woodcock, his successor, nor any subsequent union leader never followed through.
But ESOPs are designed for those who are employed. What about the majority of the population who are not represented by unions where they are employed and those who are not employed at all?
The answer is in the law of contracts. Under “modern” methods of finance it is possible — even preferable — to form new capital using the present value of the anticipated future stream of income embodied in a contract. This contract (called a “bill of exchange”) enables corporations with “feasible capital projects” (meaning they pay for themselves out of their own profits) to grow without having to retain earnings (and reinvest) — earnings can be paid out to the people to whom they belong: the shareholders. People have financed capital projects this way from the dawn of civilization.
New capital asset formation should not rely on “past savings,” that is, on past reductions in consumption held in the form of money. As Dr. Harold Glenn Moulton pointed out in his 1935 classic, “The Formation Of Capital,” however, past savings are actually the least efficient to finance new capital formation.
Why? Because reducing consumption cuts demand for consumer goods (obviously), and the demand for new capital goods relies on there being an increase, not a decrease, in the demand for consumer goods, or no rational person would finance new capital — if it’s not going to pay for itself out of future profits (which won’t materialize if people aren’t consuming the increased goods and services), you’d just be throwing your money away.
What’s the solution? Finance using “future savings” –– not past reductions in consumption turned into money, but future increases in production turned into money. World leaders need to know that, given the right tax and monetary reforms, every family, and every child, woman, and man can become an owner of capital without taking anything from anybody else — and everybody can be better off.
To use the “future earnings” method of finance on a universal scale that will empower EVERY child, woman, and man to acquire capital ownership shares representing the growth assets of American corporations, the Federal Reserve will need to perform what they were invented to do: 1) provide adequate liquidity to the private sector 2) in the form of an elastic, asset-backed currency with a stable and uniform value for 3) qualified capital projects. Regulating clearinghouse operations also legitimately comes under a central bank.
Louis Kelso’s breakthrough was to tie the money creation powers of a commercial and central banking system to the need for expanded capital ownership, thereby emancipating humanity from “the slavery of savings” that presumably dictated either that only the rich could as a rule own new capital, or that “ownership” must become meaningless in a State-controlled economy that redistributes earnings.
Using the function of the Federal Reserve we would be able to give to EVERY child, woman, and man an opportunity to individually share in the growth of the economy. By adopting expanded expanded ownership proposals with a reformed Federal Reserve system, we can make it possible for people without existing savings to purchase capital and secure the wellbeing and independence of the American family.
Because the Federal Reserve was hijacked by the very people it was intended to keep in check, the money power became even more concentrated under the Federal Reserve Act of 1913 than under the National Banking Act of 1863, and State control of the economy — and élite control of the State — became the orthodox political and economic position within a generation.
With the Just Third Way and Capital Homesteading platforms of the Center for Economic and Social Justice (www.cesj.org), however, we have the opportunity to turn things around through a new vision of an economically just future for all that restores the sovereignty of the human person and the family as the fundamental unit of society.
Universal capital ownership will also defuse political power. “Power,” as Daniel Webster pointed out nearly two centuries ago in 1820, “naturally and necessarily follows property.”
The institutional barriers preventing people from becoming owners are not necessarily specific laws (those can be changed almost at will), but a tax system that discourages widespread ownership, and a monetary system that is not open to use by all qualified people. It’s access to money and credit that determines who owns, not a specific law. We need to reform institutions to make it possible for ordinary people to own capital. The key is capital ownership, not more government or private sector control of ordinary people.
Under the Just Third Way’s more just and simple tax system, access to ownership of the means of production in the future would by provided to every child, woman and man by requiring the government to lift all existing legal and institutional barriers to private property stakes as a fundamental human right. The system was made by people and can be changed by people. Guided by the right principles of economic justice, “we the people” can organize and demand that the system be reorganized to make true economic democracy the new foundation for true political democracy. The result of this movement of new justice-committed leaders and activists will be inclusive prosperity, inclusive opportunity, and inclusive economic justice.
Support the Agenda of The Just Third Way Movement at http://foreconomicjustice.org/?p=5797, http://www.cesj.org/resources/articles-index/the-just-third-way-basic-principles-of-economic-and-social-justice-by-norman-g-kurland/, http://www.cesj.org/wp-content/uploads/2014/02/jtw-graphicoverview-2013.pdf and http://www.cesj.org/resources/articles-index/the-just-third-way-a-new-vision-for-providing-hope-justice-and-economic-empowerment/.
Support the Capital Homestead Act at http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-a-plan-for-getting-ownership-income-and-power-to-every-citizen/ and http://www.cesj.org/learn/capital-homesteading/capital-homestead-act-summary/. See http://cesj.org/learn/capital-homesteading/ and http://cesj.org/…/uploads/Free/capitalhomesteading-s.pdf.