Let me begin by saying what I think this crisis is not. It is not a financial crisis. It is a systemic crisis whose first serious symptom happened to be finance. But this crisis has its economic roots and its effects in manufacturing, services, and, to be sure, finance.
From 1820 to around 1970, 150 years, the average productivity of American workers went up each year. The average workers produced more stuff every year than they did the year before. They were trained better, they had more machines, and they had better machines. So productivity went up every year.
And, over this period of time, the wages of American workers rose every decade. Every decade, real wages – the amount of money you get in relation to the prices you pay for the things you use your money for – were higher than the decade before. Profits also went up. Americans began to think of themselves as successful if they lived in the right neighborhood, drove the right car, wore the right outfit, went on the right vacation.
But in the 1970s, the world changed for the American working class in ways that it hasn’t come to terms with – at all. Real wages stopped going up. As US corporations moved operations abroad to take advantage of lower wages and higher profits and as they replaced workers with machines (and especially computers), those who lost their jobs were soon willing to work even if their wages stopped rising. The real hourly wage of a worker in the 1970s was higher than what it is today. Meanwhile, productivity kept going up. If what the employer gets from each worker keeps going up, but what you give to each worker does not, then the difference becomes bigger, and bigger, and bigger.
Employers’ profits have gone wild, and all the people who get their fingers on employers’ profits – the professionals who sing the songs they like to hear, the shareholders who get a piece of the action on each company’s profits – have enjoyed a bonanza over the last thirty years.
The only thing more profitable than simply making the money off the worker is handling this exploding bundle of profits – packaging and repackaging it, lending it and borrowing it, and inventing new mechanisms for doing all that. That’s called the finance industry, and they have stumbled all over themselves to get a hold of a piece of this immense pot of profit.
The Working-Class Borrowing Binge
What did the working class do? What happens to a population committed to measuring people’s success by the amount of consumption they could afford when the means they had always had to achieve it, rising wages, stops
Americans undertook more work. The number of hours per year worked by the average American worker has risen by about 20% since the 1970s. By comparison, in Germany, France, and Italy, the number of hours worked per year per worker has dropped 20%. American workers began to work to a level of exhaustion.
Then American working class had to do a second thing to keep its consumption levels rising. It went on the greatest binge of borrowing in the history of any working class in any country at any time. Workers could consume ever more; profits exploding in every category. Underneath the magic, however, there were workers who were completely exhausted, whose families were falling apart, and who were now ridden with anxiety because their rising debts were unsustainable.
This was a system built to fail, to reach its end when the combination of physical exhaustion and emotional anxiety from the debt made people unable to continue. Those people are, by the millions, walking away from those obligations, and the house of cards comes down.
If you put together (a) the desperation of the American working class and (b) the efforts of the finance industry to scrounge out every conceivable borrower, the idea that the banks would end up lending money to people who couldn’t pay it back is not a tough call. The system, however, was premised on the idea that that would not happen, and when it happened nobody was prepared.
Two responses
The conservatives these days are in a tough spot. What about the liberals and many leftists too? They seem to favour regulation. They think the problem was that the banks weren’t regulated, that credit-rating companies weren’t regulated, that the Federal Reserve didn’t regulate better, or differently, or more, or something. Salaries should be regulated to not be so high. Greed should be regulated. I find this astonishing and depressing.
In the 1930s, the last time we had capitalism hitting the fan in this way, we produced a lot of regulation. Social Security didn’t exist before then. Unemployment insurance didn’t exist before then. Banks and insurance companies were told: you can do this, but you can’t do that. They did all sorts of things that annoyed, bothered, and troubled boards of directors because the regulations impeded the boards’ efforts to grow their companies and make money for the shareholders who elected them.
The self-destruct button
You don’t need to be a great genius to understand that the boards of directors encumbered by all these regulations would have a very strong incentive to evade them, to undermine them, and, if possible, to get rid of them.
The crucial fact about the regulations imposed on business in the 1930s is that they did not take away from the boards of directors the freedom or the incentives or the opportunities to undo all the regulations and reforms. The regulations left in place an institution devoted to their undoing.
But that wasn’t the worst of it. They also left in place boards of directors who, as the first appropriators of all the profits, had the resources to undo the regulations. This peculiar system of regulation had a built-in self-destruct button.
Over the last thirty years, the boards of directors of the United States’ larger corporations have used their profits to buy the President and the Congress, to buy the public media, and to wage a systematic campaign, from 1945 to 1975, to evade the regulations, and, after 1975, to get rid of them.
And it worked. That’s why we’re here now. And if you impose another set of regulations along the lines liberals propose, not only are you going to have the same history, but you’re going to have the same history faster.
The right wing in America, the business community, has spent the last fifty years perfecting every technique that is known to turn the population against regulation. And they’re going to go right to work to do it again, and they’ll do it better, and they’ll do it faster.
A socialist alternative
So what do we do? Let’s regulate, by all means. Let’s try to make a reasonable economic system that doesn’t allow the grotesque abuses we’ve seen in recent decades. But let’s not reproduce the self-destruct button. This time the change has to include the following: The people in every enterprise who do the work of that enterprise, will become collectively their own board of directors.
For the first time in American history, the people who depend on the survival of those regulations will be in the position of receiving the profits of their own work and using them to make the regulations succeed rather than sabotaging them. This proposal for workers to collectively become their own board of directors also democratises the enterprise. The people who work in an enterprise, the front line of those who have to live with what it does, where it goes, how it uses its wealth, they should be the people who have influence over the decisions it makes. That’s democracy.
Maybe we could even extend this argument to democracy in our political life, which leaves a little to be desired – some people call it a “formal” democracy, that isn’t real. Maybe the problem all along has been that you can’t have a real democracy politically if you don’t have a real democracy underpinning it economically.
If the workers are not in charge of their work situations, five days a week, 9 to 5, the major time of their adult lives, then how much aptitude and how much appetite are they going to have to control their political life?
Maybe we need the democracy of economics, not just to prevent the regulations from being undone, but also to realize the political objectives of democracy.