Friday, January 14, 2011

Understanding the Solutions to Capitalist Failures

Photo from Facing Change: Documenting America, a non-profit collective of dedicated photojournalists and writers coming together to explore America and to build a forum to chart its future.

It’s the Unions, Jack: Why America’s working class would fare better in a social democracy
By Thomas Geoghegan / January 2011

Americans may believe that the United States is set up for the middle class, and Europe is set up for the bourgeois. Or let’s put it this way: America is a great place to buy kitty litter at Walmart and relatively cheap gas. But it is not designed for me, a professional without a lot of money. That’s who Europe is for: people like me.

OK, I’m a union-side lawyer, so Europe’s really set up for people like my clients, or those who used to be my clients before the unions in America collapsed. Let’s put my own self-interest aside: Where would my clients, who are not poor, who make $30,000 to $50,000 a year and yet keep coming up short, maybe by $100, $200 a month, really be better off?

That’s easy: Europe. I can answer that as their lawyer, the way a doctor could answer about their health. The bottom two-thirds of America would be better off in Europe. I mean the people who have not had a raise (an hourly raise in real dollars) in maybe 40 years, and who do not even have a 401(k), nothing but Social Security, and either have no health insurance or pay deductibles of $2,000 or more. Sure, they’d be better off in Europe. When they’re unemployed, they’d certainly be better off in Europe. Over there, even single men can get on welfare. And in much of Europe, contrary to what we hear, overall unemployment is no higher than it is here.

One of the ways Europe is set up for the bourgeois—including, perhaps, many readers of this magazine—is the very fact that it is also set up for people who make $50,000 or less. Since it’s set up for these people, too, the bourgeois—me, maybe you—get the political cover to have it set up for them. What the people-in-the-unions get, people-from-the-good-schools also get. (And indeed, in Europe people-in-the-unions are often people-from-the-good-schools.) They get the six weeks of vacation each year and the pension like a golden parachute. And the higher up we are in terms of income, the more valuable these things are. In America, they don’t tell us: Social democracy, or socialism, or whatever Europe has, pays off biggest for people in the upper middle class, those just below the top.

Take Zurich and Chicago. One looks good and the other, broken down. If America has such a famously high GDP per capita and Chicago is one of America’s crown jewels, maybe there is something wrong with using GDP per capita as an index of social well-being. It’s not that the numbers “lie” in any crude way, but past a certain point, maybe these numbers mislead us as to where we’re better off. For to look at the numbers, who would guess that Zurich looks gloriously like Zurich all over, and that Chicago looks glorious in Lincoln Park, dumpy west of Pulaski Avenue, and gulag-like by 26th and California? But forget the look of the place. It’s also the way of life.

The numbers say, on paper, that I have a better way of life in Chicago. But are these numbers right? It may be that, past a certain level, an increase in GDP per capita pushes my living standard down. I don’t mean this in a spiritual sense—I mean it in a cold, neutral, out-of-pocket sense. Example: If I make more by working longer, I might subcontract out more of my life and incur other “costs,” like losing a trip to Zurich, which may be of far more value than the extra income. Or another example: If I get a raise, I might be worse off. I might widen the gap in income with others around me. Who cares? Well, by doing this, I might be spreading poverty, which, like everything, is relative. I might make my public space more of a hellhole than before.

People at the libertarian Cato Institute love to scoff: “Oh, our poor in America are so well off in GDP per capita.” Go ahead. Argue. I’ll let you win. But I dare the Cato types, when the argument is over, to go outside and walk around some Chicago neighborhoods.

In other words, the further ahead we get, the more our standard of living drops. Let’s say, as a European, I work 1,500 hours a year. Now, let’s put me at 1,800 or even 2,300 hours, like many Americans. While I’ve moved to higher GDP per capita, I don’t have six weeks off; a perfect cup of coffee to sip at some place other than the office; a city to inhale like a bank of violets.

In 2005 the real hourly wage for production workers in America was approximately 8 percent lower than it was in 1973, while our national output (productivity) per hour is 55 percent higher. So it’s dubious whether most Americans have gained even a penny in purchasing power since 1989. And even skewed by all this U.S-type inequality, we understate what Europeans at the “middling” level are able to get for free: publicly provided goods like education, health care, cities like banks of violets. Even apart from the grotesque U.S. social inequality, the net purchasing power disparity after we toss in the public goods is not so great.

It’s no accident that the social democracies—Sweden, France, and Germany, which kept on paying high wages—now have more industry than the United States or the UK. During the ’70s, ’80s, and ’90s, the Anglo-Americans, the neoliberals, the Economist crowd, and the press generally would taunt the social democrats in Europe: “You’d better break the unions.” That’s the way to save your industry.

Indeed, that’s what the United States and the UK did: They smashed the unions, in the belief that they had to compete on cost. The result? They quickly ended up wrecking their industrial base. But Germany, Sweden, and France ignored the advice of the Anglo-Americans, the Financial Times elite, the banking industry: Contrary to what they were told to do, they did not wreck their unions.

And it was the high labor cost that pushed those countries into making higher “value-added” things. Where is Germany competitive? It’s in high-end, precision machinery, made by people with the highest skills. It’s in engineering services. People look at Germany and say, “What about the German unemployment?” But no one in the United States ever says, “What about the German labor shortages?”

Even in 2008, precisely because of “globalization,” Germany had a serious shortage of people able to fill high-skill, high-paying jobs, especially engineers. In the United States, engineers complain that they can’t find work; many of them end up in sales. In the union-free, lower-cost United States, we don’t create the kind of jobs engineers can do. Germany’s problem? It has too many such jobs. It’s our whole globalization thesis turned upside down.

That leads to a seeming paradox: Higher labor costs can make a country more, not less, competitive. In many ways, the United States and the UK got out of manufacturing because their labor costs were too low. I have spent my life watching plants close in Milwaukee and Waukegan, where skilled labor was paid $26 an hour, only to reopen in Georgia and North Carolina, where it was paid $8 an hour. While we’re still fighting over severance two years later, we get the news: The company is bankrupt. The products it makes so cheaply are now crap.

In the United States, our elite, scoffing, says that there is just not enough labor-market flexibility in a country like Germany to allow it to adapt to globalization as we do. But it’s precisely because of our flexibility that we can’t compete. What the laws manage to do in Germany is to keep people together and to hold onto their skills in groups. Co-determination and works councils—in other words, worker control—keep people in groups, rubbing elbows with each other, and all this rubbing of elbows helps build up human capital.

Indeed, this is now a fashionable idea among some economists. Think of all the buzz about the “knowledge” economy, which, in the world of academic economists, is an inquiry into how knowledge drives economic growth. David Warsh in his 2006 book Knowledge and the Wealth of Nations introduces us to economists trying determine the relationship between group collaboration and economic growth.

German worker control contributes to a group interaction that over time not only builds up but also protects a certain amount of human capital, especially in engineering and quality control. This kind of knowledge is not just individual but also group knowledge. It’s the kind of group knowledge that our efficient, “flexible” labor markets so readily break up and disperse.

It’s our flexible labor markets that make it so hard for the United States and the UK to compete. We spend vastly more on basic research than the Germans do—U.S. companies are unrivaled. We spend far more on higher education. But with our flexible labor markets, we’re unable to capitalize on this research and education. Sometimes we try the Japanese model of work, but we never try the German, because we don’t want to cede any real control to workers. Supposedly it’s a great mystery why Germans keep investing in manufacturing and even prospering, despite claims that the German education system is broken (OK, it needs help) and that they aren’t spending enough on research (OK, they aren’t). But they’re doing something right. What is distinctive about Germany is the privileged position the worker has within the firm.

And we must look to that privileged position of the worker to explain how our own middle-class way of life can survive. Putting more money into education is a waste of effort. Putting more money into basic research is a waste of effort. We already spend enough. In fact, we have every factor of production going for us: We have more land, more labor, more capital, and higher levels of formal education. But with our flexible labor markets, we cannot develop the human capital or knowledge we need to wean ourselves away from turning out crap.

The answer to the problems of our country is education, but not the kind we’re pursuing, that is, jamming more kids into college or even teaching practical skills; instead, it’s teaching them how, politically, to cut themselves a better deal. As long as that’s going on, it’s impossible to write off the European or, more specifically, the German model.

Just as the answer to the problems of democracy is usually more democracy, so the answer to the problems of a social democracy is usually more social democracy.

[Copyright © 2010 by Thomas Geoghegan. This work originally appeared in Were You Born on the Wrong Continent?: How the European Model Can Help You Get a Life, published by The New Press and reprinted here with permission. We spotted the excerpt in the pages of In These Times (Aug. 2010).]

Source / Utne Reader

Thanks to Deva Wood / Fluxed Up World