The Pathology of the US Economy: The Costs of a Low-Wage System

134 Pages·2016·14.249 MB·English

by  Michael Perelman

THE PATHOLOGY OF THE U.S. ECONOMY
The Pathology of the
., Economy/
a System
Low~Wage
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~
St 's Press
and cournge has been an inspirntion to me
"t:-;2 p,:;r,_'i-JOL -JCY GF YHE U.S. ECOi\'Q.'vJY
© ! 993, 1996 by J\ilici"uci F-'ercln1ar1
i\JJ ·-ig:hcs :if.·:,;c::r</-':::(L i"-!o pan oCthís book rnay be used 01 reproduced
.n ¡··_1 1-ru,;r r:.ef \;;.1rutsoever ,v;_u-1oul "riHen permiz;sioo exccpt in 1-he
' --.. ,_ of b!.'1cf r:¡LtOí:?ti2n.s en-1bodiec i11 cri1'1c21 articlz:s or cevievvs
E:u,· i;'1(Y-rn;-uJ0n .. ;.\cklress·
F;rs.: (JubJ!shcd in tbe tJnited .S.í:ates of i\rnerira iíl l 99:'.:
_1<. ~pníc(r=_-¡:_¡ \\vith; \terstío11:;) i 996
'l\T u-; i2.-t 262S-9'
:;_,1bE1ry or· C>:Jnfp ;:ss Cnl:tlctgtn1:-u1 '-'''''''"'"'''' Data
~·ere P"J.2-fL l'A. chae[
'J'hc pctC!1ntugy of thc U.S. ~conorny / J\l[icha.;:-:"! Perelrnan
bibl.~ograph)cal refercnces and 1nc!ex
ISBl'vi iJ-::'.-!'J.-!2685-9
! lJriitcd S:rn.tcs--Econorníc conoirions. L industrial relations-
-U:1itec1 Stau::s 3 l\1Joneta•y poJJcy-lTnitcd Scatcs. Firuu1ce-
-1Jni1;cd SU.il:cs. \l'lages-tJnjted Srnces L Titlc.
HCJOJ P417 J993
n-4498s
CIP
List of Tables {Utd X l1
X11
lnrroduction to rhe} 996 Xepr1n1 X l!l
1 The Se1t.ti~1g of !he Dedine 1
¡\ Prev1evv of tbe Book
~fbe Roots of Economic Ivhsrnanagernent 3
The Failurc of Econorrüc Policy 4
Tbe R_o!e of Clises 6
'fhe Ct1alle111ge f',J1ead 8
The Goiden i\.ge of Capüalisrn 10
Post-V\lar Decline 16
The Rate of Profit 18
The Decline and FaHing Profit Rates 19
Poverty and the Distrlbution of Income 22
The OH Shock as a Consequence of the Economic
Decline 23
The Decline as a O>rnplfox Econorny-wide Process 25
Econorrücs and Oversimplification 27
28
2 The AUack on Labmu Accelemtes the Economk
Decline 30
The Post-War Labour-Manage1nent i\ccord 30
The Breakdown of the Labour-Managernent Accord 31
Rebellion on the Shop Floor 32
The Social Dynan11cs of the Economic Decline 34
The Decline and Social J)iscord 36
How Business A_ttacked Labour 37
Unen1ployment and Labour Discipline 40
Scorched Earth Econo1nics 41
A Catastrophe for Labour 44
Adding Insult to Injury 46
The Disastrous Expansion of Low·" Wage Service
Employment 48
vii
C'ontents lX
lOI
;c,,:JJ;;m;ed _f<'¡scal Z~csts uf t.abour s [.lefcat 1~he Pernicious Inftuence of Excessive Mihtary Spending 104
'1 :-i,:~ Ha.itElli R_oacl to -Econorn1c 'S .5 Ho\Y Might. Actualiy I-Iarm the
105
J. t_.=i:ovE:rrn1H:~nw" an.d the Decline 58 'fhe Class Nat1Jre of Militar'y Keynesianism 107
and tbe,
.58
5
58 109
60
62 Econonlic Processes 109
1"he N-ature of the Business Cycle l IO
63 Keynes's ll2
Kc;vc;esrnn Policies and Replacetnent lnvestrn_ent ll4
versus Deepening 116
67 Policies and the Ageing of the Capital Stock 118
Monetary and Renevval 121
68 High Interest Rates and the Economics of a Short Time
and the :r:~·.conon11c Decline 70 l-Iorizon 122
'I'he I»:c:c:1ine Hl Pubiic Educaüo11 as a ·cumulaüve Process ]'he Econornics of the Chinese Wall 124
'l"F:s~ Scor;;s .;u-1d the EcortOffilC Decline 7A ·The Costs of an Ageing Capital Stock 126
75 The -Econonnics of P2itcl1rn,g 128
lffvectt111g for Rapid Pay-back during the Depression 130
On the 1\geí.11g of the U,S- Capital Stock 131
'fhe ])elenoraúorr1 of the Public 78 The Short Pay-back Period and the Decline in U.S.
'The S·ociai ';:ost of 79 Con1petítiveness 133
81 C'rísis and Corripetition in the U.S. Economy 135
The of Phantorn Capacity 137
83 The EHrrünation of Phantorn Capacity 138
Irrfirastructu.ral Decline as Part ot tbe General Decline 85 Creative Redep-loyment of Old Capital Goods 140
F1:.H-urc Tnfrastructural J:Jeeds 36 The E!iminanon of Productive Capaclty 142
,-fhc Erosi1on of the Stock of Pub!ic ])ata for the ~J,S. The Big Quesüon 143
88
90 6 Fim:mce, the F'alling Rate of Profü am:I
Economk Devastation 145
l'lu: Role of tlie .Mífü:•ry in !.he Ecmwmk Decline '13 Finance and the Momentum of the Decline 145
as Class Warfare 93 Falling Profits and Rising Interest Rates 146
fV!::l1lary Povver 96 The Falling Rale of Profü and focreasing Risk 147
'f'he _Econornic Failure of m:"mct1V Kc:yrtes;a¡nism 98 \Vhat Banks Ideally Do 149
100 On the of the Financia! System 150
C"anfents Xl
a.nd Proteclionisrn 204
of during the
205
209
210
in an International Context 211
Unions Can Prornote P1ucluc:tP1itv 212
Ho\~' '1Jood Can. Prod Labour to Work
liard 2í5
and the: Structure of _Oe-lndustnahzation 216
C1e111iv11v and. Economics 217
¡f)g Creaüve Destructlon a.nd Destructive C1eath"'' 220
\70
9 O:md1.1si1.1n 221
172 Bibliography 222
., i./.
!l!dex 247
179
132
185
191
192
:)S HJdusaiahzatio_n l.9?.
"f'.he l"','r~-, t:• 11~;;::s -rri Ma11agen.1.e1•1t·L21bcm1 .R.elations ,!_ 'C:;}"_;l;
'Th::', .l1it ;_cri¿-cf f'o-LH ics of 2111ai1as•croem Lilt)(llU Re!ations 195
lOVJard l~abOUl" 198
199
201
202
Introduction
1
r~L0 Perfon:nance Gf the tJ.S Posl-V..i2f 'This book ínsists that systen1at]c problcn1s pJague the lTnited States ccon
18 orny. Piecen1eal rrefonns, ratber than offcring relief, end up doing littlc, if
·C)trJov1th f"irofi(: Rates for Nofl~f1\nancia.l Cc>tpvnítl<ms anythlng, to correct the underlying n1alaise.
-~(caí .in 197'7 ,;JoHars 22 AJmost every ad111inistration since the rnid-l 960s has satisficd itself
\vlth 1ninor ueforn1s. In fact, much that has been passing for rcform is
)- -·-'!11 S6
rsz nothirig rnore than a cruel attempt to shift thc burden of adjustment onto
A.gt, fJi:stribuüon of Maclúnc 'l'ools iri the 11Jnited Statcs
the backs of the \.veakesi and lcast powcrful elen1ents in our society
J_~-1\t;::rnatíor;,z.t lJi.stnbution of Iv1acbl.~·)e 'I'oo-~
The Reagan administration stands as the single exccption, with its
137:
single-rninded. ahnost fanatical insistcncc ü1a1 vve should take revolu
tionary action and aban.don ali governmcnt intcrvcntion in the economy.
Kcep in mind lhat the Reagan adrnínistration on1y sclcctively adhered to
its rhetorlc. When the tinH: can1c to pare back governrnent subsidies to big
PubHc In.vesünent 1.0 <3-DP f{aüo 84 business, the budget cutters V>lere notable by U1eir absence.
180 While Reagan was personal1y popular, his pohcies were not Nor, for
that matter, \vere they effective in restoring cconomic healtb.
The Bush administratíon only half-hcartcd!y continued the Reagan
legacy_ Tire<l of this market-orlented approach, even the watered-do\vn
Bush version, the electoratc responded posilive!y to Bill Clinton's cal! for
changc, clcspiic considerable qualins about Chnton bilnse!f
The Clinton administration atternptcd two rr1ajor reforms. First, it set
out to lower the cost of labour arid govcmment expenditures by reforming
thc health care systen1. What began as a bold proposal, soon becan1e a
corr1phcatecl scheme that could accon1p1ish littlc other than handing
control of hcalth ca.re over to a small core of giant insurance cornpanics,
Not surprisingly, i1 carne to naughL
TI1c sccond thrust of the Clinton adnlinistration was to expand demand
_r;rancis, R.obert O'Brien and David El<lrí<lge for the]r
by integrating the Uníted Statcs econorny n1ore deeply tnto the interna
tional cconomy through the North American Free Trade Agrccmcnt and
the General Agreernent on Taríffs and Trade. These treaties may well
cxacerbate the crisis< Certainly, they will accclcratc the transfer of jobs to
countries whcr.: v,,1;:igcs are lower. Perhaps more omlnously, thesc treatics
thrcntc::1 lü eHminate considerable economic discrction that might poten
tially be used to hclp reverse the declíne
xii Xlll
/996 f{eprfn!
1
A Preview of Khe Book
s_rc 1 en be:nt on '.iiJJirtg eve:n furthcr U1n\1 1_he
'fh.is book 1-ells ttk~ 2tocy nf the deieáoraüon of the TJ.S. econo1ny. Tn this
a \~ork., I con1end :J~ar. rhe difficuhles r~bat tbe U.S econom.y faces today
ill iC!C (>~j -U)> ([o.e. 'l(.:2;0Lng Of rl.2-C!-lib·t1·ahsrn. OC \Nb3-t l for many decades. We
u-:::1 :-1!-F< '--¡ :h :_; book. ··be 1---t:i.itlan road :e ,,vdl prove: dis&s- short-tenil.
to k:1cate tbe root crf the cun·ent economic ills to be
an excess of the selfishness tbat characterized the 1980s, l ca1111ot accept
tht n!idcfk: cL1::;¿;, fhe poo1· hac,'e: so littlc icJl lo that riartO\N e-f the decEne. J v..1ill argue that 'Nlnat
r.exc sragc v-nrt the p:;: ::ssure on !':he vve see as a ··ece:Thr. TL1psurge FJ. of selfishness is more of a predlctable
reaction to the decline rather than a cause
Of course, selfishness bas contributed te the decline, We shall see that
thc l}C'11c1ec: of t:'he 1JrHled States ,e,_;_; J a number of groLJps ha ve been so that they became blinded to their
1·:c,cpl: --,:.1c; ·:;>:.pece to scc ccor_1oroies cornpenng roore :.:ind rnorc on dv-: Por business that it will profit in the
LY'·' --- "':.1dg_~ c::;ductions unül c:,tht:r lh1°; cl1nElte ~t1ifts lo short-n1n .rnvrn"'° in its povver to cut ;vages Business leaders are
intent on fo!tbNit 'The Füiüiari Road to Deve]opment' When
Lhe Ffaitían roact Jn the short run the maJ(mtv of businesses JJternpL to cut \Va.ges, reduce the incorne of
their custorners. 1\-iore they the labour force
and therc·hr 1111dei:m1ne its In the end, profits wili suffer along
with "'vages
We see a sirniiar on the part of the govern1nent
During the post--war fearing a repeat of the Great Depression,
both business and the supported the government's attempt to stabi-
Hze the economy. Although stabihzation policy initially helped to reduce
the of the business it also reduced competitive pressures<
We wiH see that, as a result, stabilization pollcy in1peded the economic
moderniz.ation, preparing the way for an economic decline. Again, a policy
backfired beca.use those in control failed to understand how the economy
works.
As the decline mo1nentum, business, as well as the pubric at large,
perceived that they would benefit cutting taxes and lirniting government
activity As a they to create a 1ax reguJatory structure, which
<
led to instability and chaos> The savings and loan bailout alone may eat up
much of the saviílgs from the tax cut fa-,,_gai11, we .see a failure to
m:og.nb:e self-ínterest.
To cope with the drop iíl revenues, the government Jet the public
The Setting of the Decline 3
to depression:s, in tun1, create widespread hardship and suffer-
1ffb:0s1xcc1_D;"«;-, s;;I- roacJ.s a.nd to hobble the
ing
cnvrny Edvcauoni s1.rffe¡·ed, f~Jnl·,1e'- and l recommend that we pursue a different form of competitive pressure;
suJ JJlüthe1. ..: ;xz;rnpie -cf" narne!y" high v1ages. Increasing v-;ages can provide the pressure to coerce
1-111muu¡:,c; tlusnnes; anJ finns to adopt tbe best available technologies. Sorne individual firms will
be unable to cornpete on 1:he basis of higher wages, but other firms can
emerge to tak~ their
My suggestion runs counter to our current economic policíes. The
Haitian road that we presently follo\v leads to a dernorahzed Jabour force.
The road I arn suggesting !eads· to an irnproved labour force capable of
lifting econorrüc Ido not pretend that this road will be smooth.
Market econornies are by nature contradictory beasts that irnpose frequent
hardships, but the road that I arn recommendi11g certainly is superior to the
·1f-::->1t(;~_s-. ~hhi. fr011i_ the process o'.' econorn¡c deciine
liaitian road, -,,,vhich threatens to destroy our society unless it is reversed
-:,¡v,~, V1'::n se·e that thes,;::~ forces, as vh;:H 2:; the declü1e ilse~f, are part of ~-he
S001'L
rr.01-r11 \-1¡ 0_cocts.::. of 21 rnarket econorny In :Jdditiort, l shO\i! thac, eveni
Tite Roots of Ernnomic Mism¡magement
de:structive F1rst,
Although the annihilation of the U.S. economy is not preordained, it is
bt;si.nes& ancI ~eaders have f:üled \o wcog11m1 rhat the decline
not beyond the realm o-f possibility, This book will explore sorne of the
LenTl fCüCE:SS 'This 1ed rhern to think that a pressures that are threatening to push the U.S. economy to the
point of destruction, I realize that the notion of economic seif-destruction
11mrledv report or üie next election
of the economy is not very popular
appnnc i-i is Llnfortunate beca use a
fev1 trained economists jr¡ the United States today accept
Jidvz¿;~;cedl e:conorny on i.nvestrnenl'. in ch.irJb1e Marx's contention that capitalisrn. is inevitably destined to self-destruct.
S01ch E1vesj_n1'e11t de-cls10!·1'.;
Indeed., has preved to be far more resilient than Marx had ever
m1pprü¡Jnate econc-ri_;.i.;; decr~.ions c.af\ .;car the 1abourr force f.-::ir
irnagined.
The U.S. economy, in particular, stands as a stark testimony to the
S;:-:cOli'9d, ecotJornnsts bave saddled us \tv'ith a pervasive be!ief in a 1.Hopian
resilience of In the United States, capitalism has withstood an
\1 \sio~~ c,:f a rr;arket ,eo.corior:íly, In the rnarket is not frie hannonious epidemic of political and economic mismanagement. In fact, everywhere
!:hat absüacr econorrHc market
you look you 'A1i!l see signs of misrnanagement. l'ou will see n1ismanage
ment of the labour force, of resources, of corporate assets, as well as general
financia!, política! and economic mismanagernent. The U.S. economy·has
fihe cornext of a rnarket econorny, the shou!d anow
surrendered its lead in sector after sector. Still, even though tbe econorny
foirces rv r~d the econon1y of inefíicient lnvestments and
may not work -v.,1ell, despíte widespread mismanagement, it has avoided
m:cm1gé:mwi practicos, 'Nhfle nidividua!s to to the dislocation
self-destruction.
\Vhi(;h iD D8Jt and o-fa market econorr1y. lnstead, policies
Although capitalism has not self-destructed, it does give signs of losing
~note-et b~siness ü~effic~encies and le.ave \NOrkers rnore or !ess to fend for
its vitality, In addition, many of the signs of mísmanagement, which seem
ü1effiSellves "\ii!lheri. forces uproot theiir
to be responsible for the decline, are, in fact, an understandable response
pressures should lbe arnowed to sweep away
to more fundamental forces,
in-efDc1w:ncJ,e~;, •Ne shouk1 1Jnderstand that these ¡pressures caíl take two
This book looks at these underlyíng forces that have sapped the strength
fon-r:s, .r:;-;_rs::, finJrn can1 ·ellgi'ige in. c.ut,tfffOBJ v1hich can lead
The of the Decline 5
econorny thai nf tbe lJnlted States -· ralher School accepts the need for sorne kind of piecemeal economic manage
Vlhole 'T'he progressrve ecvnomnc fragility of Che ment., bui. would ha.ve us believe that a weH-rnanaged econorr1y with the
f:COfJG011y rs üs own the size of appropriate economic controks can function about as weH as the Ci'ücago
Schoo1 ideal of an market
thal: üüs book \Mil! aJ:so cast sorne In contrast to the F,conon'!ic fviaraagement School, the Chicago School of
laissez faire econon1k;;s urH1erstands i:.he need to understand the economy
no1Js1ic;rn°1. H realizes that auempts to manage one part of the economy
ust as a foi_est
\Vh1k~ ·\nd,\°c1Ád.i!J1al ~.rees the Cü\.Jrse of the IJ<S. econonr.ry ere.ate · effects t.he economy, I-Ience piecemeal reforms
cannot adequate solutions_ 'Unfo11unateJy, the Chicago school
''"1ccss;uiii; determ~ne the future Df Nonethe"iess. the:
L:1tt; c·i i_ne 1LS. econorny rr1ay fvreshadovv ü1e ÚülJre of those ecoriomies incorTectly draws the conclusion froxn this realization left
ifnat ;i-·· tte -~J_S to its own devíces, the rnarket funcüon.s perfectly.
In fact, the market is far froin a perfect mechanism. A care-ful st.udy of
the history of the U.S. economy bears out my corntention. During the
post-war period, the Economic Man.agen1ent Schoo1 was predorninarot. In
we can trace thís pervasive belief that piecemeal reforms could
econorni .ts teacties therri that an econorny
significantly our society to the unique history of the post-World
irraüoria) u-iterfere \.vith the non-nal
nnarket. GJvc~n th_is rnany econorrusts see War II economy.
We shall see that the sequence of a depression foUowed by a wartime
Z!S pursuu~g die seai:ch for \V?(¡tS to rioot OlJt those that
prevc~"ix the i)ne t1cl'100~ of r;;c:onornic tli1ought. boom, created a povver-ful economic momentum. Each time a new problem
emerged, confidently devlised new programs to cope with the
H~SIS[S
problem. Each carne with grand promises of future benefits.
w11r1:rn•" of the rnarket con--
By 1970, the nlomenü.1rr1 of the post-war boom had dissipated, 1eaving
su.tutes ~~ market econo1ny
·,1/ích0tü :a.ny govenJtl]e.nt ~1-~terfen:~Hce 'Noti.!d perforrn mi0<)té:lv the ecoílomy tottering 011 tbe brink of crisis. From that poínt on, most
:-:u1d al! concerned such an ideal, poiicies, whether 1nclfeased or decreased government involvement
efficie11li econorny ns 110 rmot·e tb.an a fricüonless i.n.achine. in the ecor~on1y. proved to be dismal failures, or at best, patchwork
'T!1e Di.her rnai.n schoo~ of ecorioniic.. rniJi;;m• ¡et u.s caH the '·Econornic solutío11s
Tlüs crisis discredited the Economic Management School and prepared
Scboor -- accepts ü12t the m::regulaled n1arket has so1ne
the way for the renewed ascendancy of the even more dangerous medicine
•rr:pi::fwlmns .. but this schoo! contends tbat 8. ¡1Jd11oic>m dose of proper
prescr!bed by Chicago schoot Yet, as deregu1ation an.d the market carne
cconorrfiic nia.nagement can rH:I the econorny of those in1p1orfectiofü
to be the watchwords of the day, the economy moved even closer to the
::ake isstK:; \vith both schools o-f thought Sp,ecifü1ally
precipice. The public becarne n1ore aware that neither school was capable
'·""·""ls'"' suffer frorrr-· a of misrnana~emt1nt
of the eco11omy. Economist jokes became rampant.
schooi i2 m.<Jpin;; iJ'3J tbe extre:i.ne.
t!he JE-c~r .;n--or-r-;ic, "tv' 1anagerri.e11t ,',",,.,-:uh oo', i· s no 1e ss ut op1· an reu an v--1e are ioathe to recognize the hopelessness of our simplistic policy
nostnJn1s. :Niany peop!e in the Uf!ited States still carry the conviction that
:-he Scl:iool, It rrtarket as ep;jphenorm,na
prosperity is the norm. a.re still confident that sorne po1icy - maybe
isolated that ase urorelated to each of the other syrnptoms
deregulation., rnaybe sorne fine tuning here and there, or even a routine
r2the1_- thar; part of a systen1ic malaise, ir assumes that proper
overhaul - wi!l get the economy running smoothly once again_
~'f1.s!l'1agerf'.ent can treal these ancl that a few
Ever hopeful, await a new Moses to lead them, into the promised
poiicics vv1!I suffice to eJl!Slrre the heal_th of a inarket econon1v<
For tht'. EcüfflOlT~JC School, a governrnent th~t either -fa!Js land of econornic More often. than not the public becomes
disenchan.ted with its leaders as quickly their policíes prove inadequate
ro adóress e'"'''"'"· market mtpt:1i,eci1ons or addresses thern in an irn.proper
fz:.s.b.ion ·~A1n·íl be accused of mrsrnanagem.ttnl 'fhe Econon11c Management !o the task.