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.
Follow Robert Reich on Twitter: www.twitter.com/RBReich
Switch our transportation systems to American natural gas and immediately our mobility costs could decrease by 40 percent or more while improving air quality, decreasing national defense costs and improving national security. Truly a win win proposition simply by using what we have rather than what we don't have; ie sufficient crude reserves that require us to import around 400 billion dollars annually to meet our transportation fuel needs. Keping that 400 billion dollars here rather than in OPEC's coffers has the wherewithall to inject a trillion "extra" dollars into the US economy as well via the economic multiplier effect.
We have the resources to restore American prosperity if we have the collective national guts, brains and determination to demand a policy to get us out of the economic black hole we are sliding toward.
Thus, the answer is simple. Government spending and employment like crazy. And don't you dare "balance" the budget.
Don't believe those people with their silly talking points. You know better. You know history.
FDR's New Deal didn't pull us out of the Depression, WWII did. Collective bargaining rights have led to unsustainable benefit packages that companies can no longer pay for. Medicare, Medicaid, and SS are equally unsustainable and will soon be bankrupt. Minimum wage laws have served to keep youth out of the work force and gaining valuable experience, as well as less skilled workers. The Reagan revolution was about cutting the top income tax rate from 70% to 28%, and the economy took off in gang busters. Since then, taxes have slowly travelled back upwards, and economic growth downwards. Companies are sitting on a pile of cash not because they are greedy or don't want to "share", it is because they have no idea what the rules of the game will be in a year, a month, or even next week.
Reich has done nothing to further the conversation on the economy, other than Orwellian redefining of Socialism. Freedom, liberty and capitalism as defined by TRULY free markets is what works. We've tried redistributive capitalism for 8 decades and are now reaping the "rewards". Funny how punishing this "reward" feels...
How can corporations no longer afford to pay for our safety nets? Corporate profits are through the roof, a fact.
In fact, the more I read this the more convinced I am that you don't begin to begin to have the beginnings of a clue. Do you manage a business or are you an important manager in one?
You are welcome to your opinions about freedom, free markets etc. but you are stating things that are simply untrue. In fact, your two major points are factually incorrect.
Problem with you is that you don't go beyond your stats, and think about the "whys" behind the stats. Why is demand down, vid? Demand is down because we have a president and his party who have targeted those with money and constantly threaten to take that money away. We have a president and a his party who continues to add regulations to an already over-regulated market, making it harder to do business. The president's signature legislative accomplishment -- Obamacare -- hangs over the heads of business like a millstone on a frayed cord. Within this legislation are more taxes, regulations, and burdens on business. People are scared, vid, and scared people don't spend, they hoard.
Finally, my main two points are dead on correct. Despite spending historic sums of money (at that time) in the 30's, the nation remained in a depression while the rest of the world was already recovering. WWII provided the spark for production. If you check the balance sheets of nearly all major corporations ruled by the large unions, you will find that a great deal of their expense ledger has to do with paying benefits to people who no longer work. Those are facts, vid.
The mere fact of the matter is simply this, vid. There aren't enough "rich" in this country to tax us out of the problems we have. Small business startups are at their lowest point in our HISTORY, vid. And you want to make me believe there is no uncertainty? Government cannot spend a dime until it first takes it out of the private sector. That is not a recipe for sustained growth, vid. That is a recipe for politically advantageous temporary bubbles. Yet, after $5 trillion in spending over 3-1/2 years, we have a real UE of about 11%, and somehow, we just haven't spent enough????? You are proof of Einstein's definition of insanity.
FYI you say "Orwellian redefining of socialism", Orwell *was* a socialist and no socialism is *not* what Robert Reich is talking about.
Might want to try reading. Better for you than that Faux Noise swill.
But the problem is not necessarily in the most-skilled workers. It is clear that the least-skilled could do a lot better for themselves with better education and better job skills. Right now, people who graduate from college and don't have children before getting married are very likely to be in the top 20% in household income. Sure, this starts at 'only' $85K, but it is sufficient to live decently.
In my opinion, the first step is to get some improvement in the skills of the lowest-skilled. Sure, they'll never be in the top 1%, but getting them at least into the middle class would be a big help.
Really, vinyl1? Having capital gains taxed at a lower rate than wages earned from working doesn't factor in to your analysis? How about acknowledging how the tax code itself is filled with loopholes not available to the typical working person. It is one thing to be blessed with riches. It is another to conclude one is deserving of such blessings. A degree of humility is appropriate here. The halls of Congress are not filled with lobbyists seeking legislation to benefit poor and working-class people!
Secondly, the title of the article says we do not need socialism. His supporting statement,
"Additional public spending in infrastructure and research and development can make the economy more productive--- but more productivity DOESN'T NECESSARILY HELP help if a growing portion of the population can't absorb it." Thats it!
I am disappointed, he is not looking at the big picture, here are his remedies: Medicare for everybody. Higher marginal tax rates. A greater earned-income tax credit. A 35 hour work week to make room for more people. These are not new ideas.
Finally, the entire Military Industrial Complex (MIC) is an example of Socialistic Economic Policy. The government has businesses which make a profit. We make phantom jets and we sell them to the French for a profit. We make satellites and sell them to the Chinese. Government employees get jobs while PRIVATE SECTOR defense contractors make billions! The profits are not shared EQUALLY with the American people. This is wrong.
It is all about war. It is bad politics. What if the government sold peanuts to Africa? What if the government sold de-salinization plants to India? Socialism is when the government includes the American people in profit-taking. What do we want for our investment? In return we get our universal healthcare completely paid for!
Government has nothing to do with socialism; the system is merely ownership of the means of production; factories, machines, computer tools, assembly equipment, plants etc. by workers as opposed to investors. It is a purely democratized economic system.