Chancellor's
Professor of Public Policy, University of California at Berkeley; Author,
'Beyond Outrage'
The Answer Isn't Socialism; It's Capitalism That Better Spreads the
Benefits of the Productivity Revolution
Posted: 05/06/2012 5:28 pm
Francois
Hollande's victory doesn't and shouldn't mean a movement toward socialism in
Europe or elsewhere. Socialism isn't the answer to the basic problem haunting
all rich nations.
The
answer is to reform capitalism. The world's productivity revolution is
outpacing the political will of rich societies to fairly distribute its
benefits. The result is widening inequality coupled with slow growth and
stubbornly high unemployment.
In
the United States, almost all the gains from productivity growth have been
going to the top 1 percent, and the percent of the working-age population with
jobs is now lower than it's been in more than thirty years (before the vast
majority of women moved into paid work).
Inequality
is also growing in Europe, along with chronic joblessness. Europe is finding it
can no longer afford generous safety nets to catch everyone who has fallen out
of the working economy.
Consumers
in China are gaining ground but consumption continues to shrink as a share of
China's increasingly productive economy, while inequality in China is soaring.
China's wealthy elites are emulating the most conspicuous consumption of the
rich in the West.
At
the heart of the productivity revolution are the computers, software, and the
Internet that have found their way into the production of almost everything a
modern economy creates. Factory workers are being replaced by computerized
machine tools and robotics; office workers, by software applications;
professionals, by ever more specialized apps; communications and transportation
workers, by the Internet.
Some
work continues to be outsourced abroad to very low-wage workers in developing
nations but this is not the major cause of the present trend. This work now
comprises such a tiny fraction of the costs of production that it's becoming
cheaper for companies to do more of it at home with computers and software, and
even bring back some of it ("in-source") from abroad.
Consumers
in rich nations are reaping some of the benefits of the productivity revolution
in the form of lower prices or more value for the money -- consider the cost of
color TVs, international phone calls, or cross-country flights compared to what
they were before.
But
most of the gains are going to the shareholders who own the companies, and to
the relatively small number of very talented (or very lucky and well-connected)
managers, engineers, designers, and legal or financial specialists on whom the
companies depend for strategic decisions about what to produce and how.
Increasingly,
via stock options and bonuses, the owners and the "talent" are one
and the same. While many other people indirectly own shares of stock through
their pensions and 401-K plans, 90 percent of the value of all financial assets
in the U.S. belongs to the richest 10 percent of the American population.
Meanwhile,
a large number of low-paid service workers sell personalized comfort and
attention -- something software can't do -- in the retail, restaurant, hotel,
and hospital sectors (most U.S. job growth since 2009 has occurred here.)
Others -- temps, contract workers, the under- and partially-employed, fill in
where they can. A growing number are not working.
The
problem is not that the productivity revolution has caused unemployment or
under-employment. The problem is its fruits haven't been widely shared. Less
work isn't a bad thing. Most people prefer leisure. A productivity revolution
such as we are experiencing should enable people to spend less time at work and
have more time to do whatever they'd rather do.
The
problem comes in the distribution of the benefits of the productivity
revolution. A large portion of the population no longer earns the money it
needs to live nearly as well as the productivity revolution would otherwise
allow. It can't afford the "leisure" its now experiencing
involuntarily.
Not
only is this a problem for them; it's also a problem for the overall economy.
It means that a growing portion of the population lacks the purchasing power to
keep the economy going. In the United States, consumers account for 70 percent
of economic activity. If they as a whole cannot afford to buy all the goods and
services the productivity revolution is generating, the economy becomes
stymied. Growth is anemic; unemployment remains high.
That's
why "supply-side" tax cuts for corporations and the wealthy are
perverse. Corporations and the rich don't need more tax cuts; they're swimming
in money as it is. The reason they don't invest in additional productive
capacity and hire more people is they don't see a sufficient market for the
added goods and services, which means an inadequate return on such investment.
But
more Keynesian stimulus won't help solve the more fundamental problem. Although
added government spending has gone some way toward filling the gap in demand
caused by consumers whose jobs and incomes are disappearing, it can't be a
permanent solution. Even if the wealthy paid their fair share of taxes, deficits
would soon get out of control. Additional public investments in infrastructure
and basic research and development can make the economy more productive - but
more productivity doesn't necessarily help if a growing portion of the
population can't absorb it.
What
to do? Learn from our own history.
The
last great surge in productivity occurred between 1870 and 1928, when the
technologies of the first industrial revolution were combined with steam power
and electricity, mass produced in giant companies enjoying vast economies of
scale, and supplied and distributed over a widening system of rails. That ended
abruptly in the Great Crash of 1929, when income and wealth had become so
concentrated at the top (the owners and financiers of these vast combines) that
most people couldn't pay for all these new products and services without going
deeply and hopelessly into debt -- resulting in a bubble that loudly and
inevitably popped.
If
that sounds familiar, it should. A similar thing happened between 1980 and 2007,
when productivity revolution of computers, software, and, eventually, the
Internet spawned a new economy along with great fortunes. (It's not
coincidental that 1928 and 2007 mark the two peaks of income concentration in
America over the last hundred years, in which the top 1 percent raked in over
23 percent of total income.)
But
here's the big difference. During the Depression decade of the 1930s, the
nation reorganized itself so that the gains from growth were far more broadly
distributed. The National Labor Relations Act of 1935 recognized unions' rights
to collectively bargain, and imposed a duty on employers to bargain in good
faith. By the 1950s, a third of all workers in the United States were
unionized, giving them the power to demand some of the gains from growth.
Meanwhile, Social Security, unemployment insurance, and worker's compensation
spread a broad safety net. The forty-hour workweek with time-and-a-half for
overtime also helped share the work and spread the gains, as did a minimum
wage. In 1965, Medicare and Medicaid broadened access to health care. And a
progressive income tax, reaching well over 70 percent on the highest incomes,
also helped ensure that the gains were spread fairly.
This
time, though, the nation has taken no similar steps. Quite the contrary: A
resurgent right insists on even more tax breaks for corporations and the rich,
massive cuts in public spending that will destroy what's left of our safety
nets, including Social Security and Medicare and Medicaid, fewer rights for
organized labor, more deregulation of labor markets, and a lower (or no)
minimum wage.
This
is, quite simply, nuts.
And
this is why a second Obama administration, should there be one, must focus its
attention on more broadly distributing the gains from growth. This doesn't mean
"redistributing" from rich to poor, as in a zero-sum game. To the
contrary, the rich will do far better with a smaller share of a robust, growing
economy than they're doing with a large share of an economy that's barely
moving forward.
This
will require real tax reform -- not just a "Buffett" minimal tax but
substantially higher marginal rates and more brackets at the top, with a
capital gains rate matching the income-tax rate. It also means a larger Earned
Income Tax Credit, whose benefits extend high into the middle class. That will
enable many Americans to move to a 35-hour workweek without losing ground --
thereby making room for more jobs.
It
means Medicare for all rather than an absurdly-costly system that relies on
private for-profit insurers and providers.
It
will require limiting executive salaries and empowering workers to get a larger
share of corporate profits. The Employee Free Choice Act should be an explicit
part of the second-term agenda.
It
will require strict limits on the voracious, irresponsible behavior of Wall
Street, from which we've all suffered. The Glass-Steagall Act must be
resurrected (the so-called Volcker Rule is more ridden with holes than cheese),
and the big banks broken up.
And
it will necessitate a public educational system - including early child
education - second to none, and available to all our young people.
We
don't need socialism. We need a capitalism that works for the vast majority.
The productivity revolution should be making our lives better -- not poorer and
more insecure. And it will do that when we have the political will to spread
its benefits.
ROBERT B. REICH, Chancellor's Professor of Public
Policy at the University of California at Berkeley, was Secretary of Labor in
the Clinton administration. Time Magazine named him one of the ten most
effective cabinet secretaries of the last century. He has written thirteen
books, including the best sellers "Aftershock" and "The Work of
Nations." His latest is an e-book, "Beyond Outrage." He is also
a founding editor of the American Prospect magazine and chairman of Common
Cause.
