Collective Conscious

We’ve dis­cussed the insti­tu­tional dri­vers that favor cap­i­tal­ists over labor in our econ­omy. Let’s see how those have con­trolled the direc­tion of the cur­rent recov­ery. Ezra:

As you can see in the graph above, Amer­ica has done a bet­ter job keep­ing GDP up than almost any other devel­oped nation affected by the Great Reces­sion. But it’s done a far worse job keep­ing unem­ploy­ment down. Why?

Var­i­ous eco­nom­ics blogs have prof­fered var­i­ous answers in recent days, but I think David Leon­hardt has a good take on it today: Amer­ica has a very weak labor union move­ment. That isn’t respon­si­ble for the high unem­ploy­ment directly, but it indi­rectly led to fewer poli­cies that would’ve saved jobs and more poli­cies that focused on boost­ing demand through tax cuts and spend­ing incen­tives. In Ger­many, by con­trast, there was an imme­di­ate effort to pay employ­ers not to fire work­ers, and it seems that was extremely successful.…

Even Robert Rubin has come to endorse it. “If you believe in a market-​​based sys­tem,” he said, “the sys­tem is a nego­ti­a­tion between two peo­ple who can really nego­ti­ate with each other. If one side has no nego­ti­at­ing power, that isn’t really a market-​​based sys­tem. Its an impo­si­tion of one on the other.”

NYT:

One obvi­ous pos­si­bil­ity is the bal­ance of power between employ­ers and employees.

Rel­a­tive to the sit­u­a­tion in most other coun­tries — or in this coun­try for most of the last cen­tury — Amer­i­can employ­ers oper­ate with few restraints. Unions have with­ered, at least in the pri­vate sec­tor, and courts have grown friend­lier to busi­ness. Many com­pa­nies can now come much closer to set­ting the terms of their rela­tion­ship with employ­ees, let­ting them go when they become a drag on prof­its and rely­ing on remain­ing work­ers or tem­po­rary ones when busi­ness picks up.

That’s cap­i­tal­ism for you. Pro­duc­tiv­ity is way, way up — fewer peo­ple are work­ing, but they look to be pro­duc­ing exactly the same amount of stuff as before — but busi­nesses aren’t hir­ing because the pro­duc­tiv­ity of their cap­i­tal is already max­i­mized. They don’t care about work­ers. They don’t have to.

Pol­icy, like the labor-​​boosting “Kurzarbeit” in Ger­many, can do a lot to relieve this prob­lem in the short term. But it won’t effec­tively trans­fer power or  money to labor in the long term; to do that there needs to be an insti­tu­tional change. Labor must have a real invest­ment in the econ­omy, oth­er­wise every reces­sion will have it look­ing to the gov­ern­ment for sup­port and instead see­ing cap­i­tal­ists get the big bailout.

This means an own­er­ship soci­ety. Not a per­sonal own­er­ship and con­sump­tion soci­ety, but one in which work­ers own the cap­i­tal they work on in a mean­ing­ful way. This can be some­thing as sim­ple as profit-​​sharing within a firm (ie, salaries/​bonuses cor­re­late to prof­its, just like on Wall Street) or full-​​on col­lec­tive own­er­ship where work­ers own a major­ity of the com­pany stock and elect its man­age­ment. Some peo­ple call this a type of social­ism, but it’s not — there is no cen­tral con­trol, no gov­ern­ment inter­ven­tion. It’s a market-​​based collectivism.

When you have real employee own­er­ship and profit-​​sharing, recov­er­ies are more robust. It’s a built-​​in stim­u­lus pack­age, since recov­ery in cap­i­tal also means a recov­ery in wages, and con­sump­tion, and pro­duc­tion, and employ­ment. But it also ensures that labor has a col­lec­tive voice in pol­i­tics, since they have a high level of eco­nomic power within the firm. Work­ers are fun­da­men­tally con­nected to the eco­nomic for­tunes of their employ­ers with­out resort­ing to the adver­sar­ial bar­gain­ing strat­egy a union implies.