There is little disagreement that consumer spending is a critical driver of American economic growth. The recession that began in 2007, while precipitated by the meltdown in the financial sector, is at root a crisis of aggregate demand. The halting recovery has been punctuated by disappointing monthly job reports and -- just as important -- by gloomy predictions from the Conference Board's monthly survey of consumer confidence. Even business surveys admit here & here) that anemic consumer demand (not "job-killing regulations") is holding back new job creation and economic recovery.
Yet, despite worries about sagging consumer confidence and shrinking paychecks, business leaders seem unconcerned about the declining standard of living of middle class America, or about the growing number of American families slipping into poverty. Over the last generation, wages for middle-class workers haven't budged, while compensation for corporate executives and owners are reaching stratospheric levels. Middle-class Americans are having a harder and harder time making ends meet. Most have little savings to take them through a bad patch. They are saddled with skyrocketing health care and education costs. They are underwater on their mortgages. Indeed, borrowing (on credit cards beginning in the 1980s, on home equity in more recent years) is often the last-best option to cling to a higher standard of living. Worse yet, most jobs created today don't bring workers into the middle class. Nearly three-quarters of the jobs added during the recovery are in lower-wage; occupations, like cashiers, stocking clerks, or food preparation workers.
Higher wages mean more consumer spending and more growth, but corporate America is focused, with increasing intensity, on driving wages further down. Important wage-stabilizing policies -- minimum-wage laws and collective bargaining, among others -- are under assault. Republican governors have declared war on unionized teachers, firefighters, and police officers -- all solidly middle-class jobs. And they are looking to extend the reach of so-called "right-to-work" laws that strip private-sector workers of the ability to bargain for decent wages and benefits. Hostility to unions has become so intense that a simple proposal for workplaces to post information about the right to collectively bargain under federal law (as they already must do for minimum wage, OSHA and other worker protections) unleashed a torrential assault by the Chamber of Commerce.
It wasn't always this way.
To be sure, business lobbies throughout the twentieth century fought minimum-wage laws and unions. But this opposition was tempered by business voices that articulated the importance of American purchasing power through higher wages and the stabilizing force of union collective bargaining.
As early as 1914, Henry Ford famously raised his workers' wages so that they could purchase his cars. How, Ford wondered, could we make "20,000 men prosperous and contented rather than following the plan of making a few slave-drivers in our establishment multi-millionaires?"
Ford's experiment was short-lived but instructive. In the decade after the First World War, as in our own time, productivity steadily outpaced wages, slowly eroding (as the Brookings Institution titled its 1934 study) America's Capacity to Consume. "The chief point is this," the economist Irving Fischer wrote in 1933: "the total value of products is greater; the total national wage bill is smaller. Then how can the wage- and salary-earners of the country buy back what they produce? They cannot."
This dilemma was acutely appreciated by many business interests, especially the nation's retailers who needed customers with enough income to purchase their goods. Boston-based retailer Edward Filene argued tirelessly for policies that would not only sustain a floor under wages but give workers the bargaining clout to bid them up. "We cannot operate this American machine," reasoned Filene during the debate over the National Labor Relations Act in 1935, "...unless the masses can buy on a scale which was never before heard of." And this was clearly not possible, in his view, unless "wages are removed from competition and organized business and organized labor cooperate on seeing how high those wages can be made."
Indeed, during the debate over the Fair Labor Standards Act of 1938, which set minimum-wage standards and overtime protections, businesses lined up on both sides. The National Association of Manufacturers (NAM) and other business organizations claimed that the legislation represented "a step in the direction of communism, bolshevism, fascism, and Nazism." But a number of industries testified in favor of the legislation. For example:
· Donald Comer of Avondale Mills of Alabama told the committee, "I favor Federal legislation, fixing by enacting minimum wages, maximum hours and a minimum wage." He argued for wages "high enough to stop flagrant exploitation."
· Jay Hormel, President of George A. Hormel meatpacking company, said "My father, founder of our company, was one of the early advocates of shorter hours with higher pay as a cure for unemployment and as a means to provide every American with the opportunity to enjoy a high standard of living."
· C.O. Sherrill, president of the American Retail Federation, testified in "favor of the objectives of [the FLSA] in desiring to secure an increase of the standard of living," and said that the retailers "do believe thoroughly in decent wages."
The second problem identified by many employers in the 1930s, and one which fed the downward spiral of wages, was cutthroat competition -- often fought over wages. The problem was not that labor standards were too high, but that they were too low on the competitive margins -- in small firms, in sweatshops, and in the low-wage South. Business leaders, including executives at General Electric and General Motors, were at the forefront of efforts to use federal power to force higher labor standards on the nation's marginal competitors and low-wage states. "In the judgment of this committee," as a working group in the Chamber of Commerce concluded in 1933, "payment of excessively low wages by a minority of an industry constitute acts of unfair competition with competitors, which should be prevented through the exercise of governmental authority."
This was the problem tackled by the National Recovery Act, passed in 1933. Its "codes of fair competition," as Secretary of Labor Frances Perkins wrote in the Chamber's monthly magazine Nation's Business, "would protect the reputable businessman against sweatshops and other forms of vicious competition which force down prices and wage scales." Edward Filene echoed this view, arguing that even those employers who "had come to see the economic necessity for high wages" might not pay them "for fear of losing a trick to some competitor."
The NRA, of course, accomplished little during its unhappy tenure, and was struck down by the Supreme Court in 1935 (in the Court's last assertion of a limiting commerce clause, at least until this year's ruling on the Affordable Care Act). But the business response was telling: some resented the heavy hand of government but others argued that the hand wasn't heavy enough. "A majority of industrial employers have faith in the validity of establishing maximum hours and minimum wages," as one manufacturer noted during the NRA's demise, "and have experienced some of the very practical benefits of stabilized costs."
Where Have You Gone, Edward Filene?
Why doesn't anyone in corporate America talk like this anymore? Why has business opinion and strategy, instead, coalesced around an unrelenting assault on the standard of living of American families?
First, conditions changed. The logic of high wages, sustained and regulated by collective bargaining, was stronger in a closed economy in which the marginal competition came from Mississippi. It became a harder sell when the low-wage competition came from Malaysia. As markets -- along with jobs -- are increasingly off-shored, corporate interests are no longer tightly aligned with those of American consumers. In a global market, of course, Henry Ford's dilemma (how will my workers buy my cars?) loses its urgency -- because the workers, or the consumers, or both are no longer presumptively American.
The New Deal appreciation for the importance of American purchasing power has been displaced by short-sighted greed and rent-seeking. Filene's has been displaced by Wal-Mart, whose business model is to grind down prices rather than bid up wages. The staid financiers of mid-century have been displaced by Bain Capital and its ilk, which see the wages of American workers as impediments to short term returns on global investments.
Second, the grand bargain represented by the New Deal fell apart. As long as labor was gaining in strength, even some anti-union stalwarts could be convinced that union contracts would take wages out of competition. As late as 1967, business leaders saw that unions added strength and stability to the U.S. economy. William May, CEO of the American Can Company, said, "Despite occasional breakdowns, the collective bargaining progress has been an important stabilizing influence in our industrial system, and we take this opportunity to reaffirm the need to preserve rather than destroy it."
But, as labor's share of the private workforce collapsed -- from near 40 percent in the 1950s, to half that by the end of the 1970s, to less than 7 percent today -- so too did the notion that bidding up wages made as much sense as bidding them down. And, of course, conservative strategists convinced the business elite of the additional political benefits of union busting. Smaller and impoverished unions would translate into less money and troops for Democratic candidates for office.
Finally, in service of all of this, corporate America developed a more coherent -- and more resolutely "low road" -- ideological consensus. Beginning in the 1970s (as captured by the infamous Powell memorandum to the Chamber of Commerce), business leaders, believing that capitalism was on the ropes, began a decades-long organizing and political mobilization program. Faced with the steady erosion of U.S. international dominance, the push by the civil rights and feminist movements to generalize the gains made by white male workers, and the threat posed by the environmental and consumer movements, business leaders pushed back. The postwar compact over collective bargaining and labor standards was suddenly recast as a dangerous assault on American values. The pockets of business opinion that had helped build and sustain that compact, in turn, disappeared.
Signs of Change?
For most of the last century, many large industry-leading firms worried about purchasing power and low-wage competitors. Today, business lobbies make no bones about protecting the bottom feeders. In the Chamber of Commerce's notorious 2011 Report, The Impact of State Employment Policies on Job Growth, the exemplars of state policy are not (as they might have been in 1940) Massachusetts or New York or Wisconsin; they are Mississippi, North Dakota, and Tennessee.
The recession and slow recovery have hardened these views, but there are some hopeful cracks emerging in the "low road" consensus. As organizations such as the Chamber and National Federation of Independent Business (NFIB) have become more partisan and strident in their attack on labor standards, new organizations -- including the Main Street Alliance, Business for Shared Prosperity and the Small Business Majority -- are speaking out for a renewed social contract that recognizes the importance of wages to purchasing power.
This year, over 1,000 businesses are supporting a federal minimum-wage increase as well as proposed increases in New York, Maryland, Illinois and the city of Long Beach, California. For example:
· Mark S. Jaffe, President and CEO of the Greater New York Chamber of Commerce, recently wrote,"[A] minimum wage increase will improve our business climate, not hurt it," He added, "It will help local businesses grow and prosper."
· Jim Senegal, CEO of the retail giant Costco ($87 billion in sales in 2011), said, "Paying your employees well is not only the right thing to do but it makes for good business."
· Margot Dorfman, CEO of the U.S. Women's Chamber of Commerce, representing over 500,000 businesses and business leaders in the nation, testified earlier this year before the Connecticut legislature that "The business owners with whom I talk every day believe that, far from hurting their businesses, raising the minimum wage in fact helps small businesses, women workers and the broader economy."
For the moment, these are courageous dissents from powerful business voices -- the Chamber, the NFIB, the American Legislative Exchange Council -- that promote the low road at every turn. And the dissenters are right -- for the same reason that Edward Filene and his colleagues were right in the 1930s. The inescapable conclusion then was pretty simple: "Rockefeller, Ford, and Schwab and their brother multimillionaires cannot eat twenty beefsteaks a day, or ride in fifty Packards, or inhabit seventy villas each." The solution, as Irving Fischer put it in 1933, still seems just as relevant today: "the people who wanted to consume all did not have the means, and the people who had the means could not consume all. Hence our reduced domestic purchasing power." The only question today is whether American business cares.
Colin Gordon is a professor of history at the University of Iowa. Donald Cohen is the director of the Cry Wolf Project.
Cross-posted from Dissent Magazine
Leftists continue to perpetuate the lie. Ford raised his workers' wages because he wanted better workers. If you want a drone that stands around all day saying "Welcome to WalMart" pay WalMart wages. If you need a PhD mathematician pay Banker wages.
And you have evidence that directly supports this claim? Didn't think so.
"Interns" are literally paid nothing in many industries, but they do actual work that benefits the company that "hires" them.
Businesses may be concerned about purchasing power in the aggregate, but they care more about their own bottom line. "Let the other guy overpay his workers."
And employees will earn what the market will tolerate. You forgot the part where the supply of labor is an upward sloping curve.
You do get half credit for recognizing that the demand curve for labor slopes downward.
There are a small few in each large corporation who have the choice to offshore and house their profits in foreign banks (Romney prime example). And the political structure of most corporations are aligned to force all employees to lockstep in time or be terminated. Fear drives their silence and compliance.
These small few are human people who pose themselves as moral, ethical, loving spiritual people who are deserving of their social status. It's a lie. Their lives are a lie and ignorance keeps the lie alive.
They worship greed not God, not goodness or fairness.
Accordingly the system of orientation of the business-minded views the person as an independent self-determining being and as such exists on his/her own. Hence those in authority within our corporations haven’t any sense of responsibility to society—the collective ‘we’—their sense of responsibility begins and ends with their own skin. Ask any business-minded person and he/she will tell you that the business of business is profit—what the business can gain irrespective of the cost to others is what counts. Our economic system rests on the belief that it is just if those who don’t benefit sacrifice for those who do.
There is little to no sense of stewardship. What is not understood is that it is not an either/or world; it is not the individual versus the collective, it is the individual and the collective. Until the system of orientation of business changes then the business-minded will move us closer and closer to our own destruction.
http://forprogressnotgrowth.com/2012/06/03/the-stewardship-imperative/
http://forprogressnotgrowth.com/2012/05/08/parasite-or-partner/
http://forprogressnotgrowth.com/econome/
You are wrong. There is considerable disagreement that consumer spending is a critical driver of economic growth. Real Autonomous Private Sector Growth is predicated on SAVINGS and INVESTMENT, which is wealth accretive, not CONSUMPTION, which is wealth dilutive. No country has ever consumed itself to prosperity. We need more savings, less consumption, and people forgoing purchases today to save and invest…which ultimately leads to MORE wealth and economic growth in the future.
You then go on, ‘The recession that began in 2007…’
Even the Fed has admitted that the recession of 2007 is a classic credit bubble boom-bust. Dropping aggregate demand is a natural and welcomed result. Capital, labor, and resources that were misallocated during the bubble need to be repurposed toward sustainable uses at sustainable prices and that is a painful and time consuming process, one that is retarded by efforts to dump stimulus on a mis-structured economy.
And of course businesses say that the lack of demand is hurting their business, but lack of demand is a symptom of a bad economy, not the cause; just like a prolonged fever is not the cause of a disease and treating it without treating the underlying disease is NO USE to the body.
Finally, minimum wage laws kill jobs. Demand curve for labor slopes downward, just like it does for all goods and services with demand elasticity. You cannot hide form that simple economic truism.
Kai
And savings and investment go down as well.
It is not a coincidence that our "standard of living" and our per capita income are the highest in the world. The United States did indeed "consume itself to prosperity." Likewise any country with huge oil reserves that uses those reserves to benefit the consumers in those countries.
The US ranks between sixth and eighth in GDP per capita, but it is our income per capita that determines our standard of living, and we are about 3rd in that category.
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita
http://www.aneki.com/income_countries.html
Take away that income, and we become more like Qatar (assuming that international demand remains stable - a dubious assumption. We might be more like any other impoverished nation.
I guess the United States is a third world country then.
No. We need to save and invest, not consume. And our best years were always predicated on savings and investment, whether that was in the 1880's or the 1950's.
To consume more today by borrowing, not producing, as we have for the last few decades, we are setting ourselves up for lest prosperity in the future.
Kai
http://jokerpresents.blogspot.com/2012/08/decline-of-us-capital-stock-not-seen-in.html
Corporations have one obligation - to their shareholders (the owners).
Employers pay based on the value of the work, in relation to the success of the business.
I realize that many on the left want a 'living' wage. So, perhaps you can tell me something.
What would that wage be?
Not in semantics. But in hard numbers.
What would the 'living' wage be per hour?
And what effect do you think that would have on businesses large and small?
This has nothing to do with religion.
I am speaking from a strictly business/economic point of view.
You can trace the Government and the Banks on these things but the chamber is a little harder and does not get the coverage needed to get them to stop doing it.
Such an effort to keep prices and wages stable certainly seems well-intentioned and moral. And it probably helped lengthen the Depression by years!
Maybe instead of simply trying to artificially counter market forces by setting arbitrary prices for labor, we should explore the reasons that such forces exist (monetary? fiscal? structural?) and try addressing the disease rather than just the symptoms.
Absurd. He raised wages to attract a greater pool of labor to choose from and thus increase efficiency, productivity and profits.
http://en.wikipedia.org/wiki/Efficiency_wage
"Raff and Summers (1987) conduct a case study on Henry Ford’s introduction of the five dollar day in 1914. Their conclusion is that the Ford experience supports efficiency wage interpretations. Ford’s decision to increase wages so dramatically (doubling for most workers) is most plausibly portrayed as the consequence of efficiency wage considerations, with the structure being consistent, evidence of substantial queues for Ford jobs, and significant increases in productivity and profits at Ford. Concerns such as high turnover and poor worker morale appear to have played a significant role in the five-dollar decision. Ford’s new wage put him in the position of rationing jobs, and increased wages did yield substantial productivity benefits and profits. "
That's the difference between a luxury and an item that everyone feels that can and should own. Affordability.
My family owned and operated a grocery stores for more than 50 years; we always wanted our employees to be able to buy their groceries at our store. We were a union store, paid fair wages and full benefits for our employees. When a non-union store opened up the street our store died and our hearts broke and 60 workers were suddenly unemployed.
American businesses do a diservice to themselves, economy and nation when they drive wages down. When Americans can no longer afford to buy homes, own cars and trucks, send their kids to college we will become a failed nation. I am afraid we're well on that road.
o computer programmer
http://www.liveleak.com/view?i=4ea_1195705444
LiveLeak.com - "30 Days: Outsourcing" (2006) (Part 1/2)
The "star" is Chris Jobin, a programmer whose job was outsourced to India. He traveled to India and stayed for 30 days as an employee of a call center.
o accountant
o architect
o engineer
o radiologist
o car designer
o legal services:
http://www.manufacturingnews.com/news/10/0126/outsourcing.html
Outsourcing Firms And Foreign Countries Target More American Service Industries, Especially U.S. Law Firms