The new American paradox: capital versus labor

Low levels of investment in the US despite strong profits appear to be reviving - in the midst of hard times for most workers - an 'old-fashioned, almost Marxist discussion of capital versus labor'. So has Nobel Laureate economist Paul Krugman recently put it, in asking whether the explanation of the 'paradox' of lingering high unemployment coinciding with corporations flush with cash lies in 'robots' or 'robber barons', i.e. new technology or increasing monopolization.

Perhaps even more important has been the legacy of the active role of governments in acting on behalf of capital against labor, only the latest example of this being the anti-union legislation just adopted in Michigan - the birthplace of the modern industrial unionism.


The roots of this go all the way back to the political response to the labour militancy and profit squeeze of the 1970s. The answer to the stark question posed on the July 14, 1974 cover of Time magazine -‘Can Capitalism Survive?’ - was given at the end of that decade by the determination of the Federal Reserve under Paul Volcker to break wage-push inflation. This was achieved via sky-high interest rates and the unemployment this induced – the opposite of what the Fed’s commitment to low interest rates today is designed to do.

But what did ‘even more to break the morale of labor’, as Volcker himself told us in our interview with him for The Making of Global Capitalism, was the Reagan administration’s dismissal of 12,000 highly-paid air traffic controllers and the decertification of their union in 1981. This was seen by many in the Fed as the most important of Reagan’s domestic initiatives, especially as the corporate aggressiveness this encouraged was consolidated through anti-union legislation and conservative labor board appointments.

Successive federal governments’ promotion of the liberalization of trade and capital flows also strengthened capital against labor. The economic restructuring that followed further undermined the historic foundations of trade unionism, exemplified by the collapse in the number of unionized workers in manufacturing from 7.5 million jobs in 1983 to 1.5 million by 2007. Even when unemployment recovered in the 1990s, workers now faced permanent insecurity in increasingly precarious jobs.

This was not so much a matter of the changing nature of the jobs. Work in the auto industry was, before unionization in the 1930s, also notoriously precarious, with very high turnover. Conversely, in spite of the retail sector ranking near the top in productivity growth in recent decades, the increasing number of retail jobs continued to pay badly and exhibit high turnover. What has in fact made most jobs precarious today has been the decline in labor’s organizational strength relative to that of corporations across all sectors. Reintroducing pre-Bush era tax rates on very high incomes is certainly justified, as is increasing capital gains and inheritance taxes insofar as the growth in income inequality is today so closely tied to the accumulation of wealth. (Lowering corporate taxes at the same time, as the Obama administration is contemplating, will only further deepen the problem). But even a fairer tax system only nibbles at the edges of the pattern of income distribution yielded by an economy with such deep structural asymmetry of power between capital and labour.

One of the main justifications for the inequality between labor and capital – that profits are invested for the general benefit – is today especially questionable because corporations and banks are sitting on their cash even as workers’ suffer insecurity and unemployment. Indeed, an IMF survey in June 2012 (“Rise of Inequality at Center of Economic Crisis”) demonstrates this has gone so far as to undermine effective demand - which is why corporations are now reluctant to invest.

Yet this has been the remit of decades of government support for strengthening capital against labor. To employ another ‘old-fashioned, almost Marxist’ notion, one might call this not so much a new paradox as a recurrent contradiction of capitalism.

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