The Future of Labor and The Middle Class
THE FUTURE OF LABOR AND THE MIDDLE CLASS
October 19, 2012
By Arthur Fox[1]
Introduction
Unions, workers, and the middle class are on the ropes as a consequence of off-shoring jobs, the Great Recession, fundamental changes in our economy, and the slow erosion over the past 30 years of their legal rights and protections resulting from “a thousand cuts” inflicted by Congress and regulatory agencies. Arguably, until the economy hits bottom and begins to come back, enabling unions to achieve gains once again on behalf of workers at the collective bargaining table, rather than presiding over the process of limiting give-backs that might otherwise have been greater in the absence of union representation – a hard sell – it will be tough for many unions to persuade members to keep the faith.
Of course, certain sectors of our economy are not subject to being off-shored and do not compete directly with foreign imports. They include, for example, much of the health-care, hospitality, construction and other uniquely indigenous sectors, including public employment. These jobs will remain within our boundaries and unions will have a decent shot at attracting and holding onto these employees. Unfortunately, the same cannot be said of our shrinking manufacturing sector and significant portions of our huge service sector.
There is another way by which unions might resuscitate themselves in the meantime, and provide an enormously valuable service to our democratic society and economy which I will propose in this article. First, I must ask you to bear with me while I trace some of the trends in our society and economy that have transpired over the past 40 years that are responsible, at least in part, for the mess in which we find ourselves today.[2] Only by understanding the roots of our troubles can we come up with possible solutions.
Decline of the Middle Class and Unions Over The Past Thirty Years
During the three decades following WWII, our nation had a progressive tax structure, citizen activism, collective bargaining, and broad government policies that produced democratically shared prosperity where all boats floated on our rising economic tide. Meanwhile, business leaders balanced the competing interests of management, employees, and investors and shared the profits. And our citizenry considered themselves to be members of a single national community where all would sink or swim together.[3]
Watergate marked a turning point in our nation’s cultural life. By putting his own personal interests ahead of the nation’s interest, I would argue that President Nixon initiated the “me” culture, albeit with some help from Ayn Rand. After all, if the man in our national pulpit can do it, why not the rest of us. Our society began to lose its moral compass. Every man, woman and child for him or herself no matter whom one had to step over, or on, in order to grab the golden ring. Altruism has subsequently become a quaint notion in our culture, having been replaced by selfish libertarianism.
A few examples to demonstrate my point. Top management at companies in bankruptcy quietly taking huge bonuses and creating private pension plans for themselves while simultaneously eviscerating their employees’ contracts and pension plans. British banks manipulating the LIBOR in order to pad their own treasuries. Flim-flam salesmen and their mortgage companies making millions by handing mortgages to people knowing they could not afford them, then flipping those mortgages to Wall Street banks which bundled and sold them, also at great profit, to unwitting investors, creating the house of cards that came down during our Great Recession. Taking advantage of, and pilfering what rightfully belongs to others has become endemic. Even Harvard students think it’s OK to cheat these days because “everyone else is cutting corners” and if they don’t do so as well, they’ll be left behind in their quest for fame and fortune.[4] Everyone for himself. Social/economic Darwinism. Lord of the Flies. Is this what we’ve become?
This new culture took hold with a vengeance during the Reagan era when every self-respecting citizen had to own and conspicuously drive an expensive BMW. Greed became the hallmark of our times. Rising economic tides that had previously floated all boats no longer floated wage increases for ordinary workers. Managers put their own interests first, shareholders second, and employees last. Let us not forget the Madoff scandal and Dennis Kozlowski who looted Tyco’s treasury to pay for his lavish personal life style.
During the post-war era of economic growth and shared prosperity, unions served as a vital counter-balance to unbridled capitalism and “persuaded” corporate managers to share profits with their employees who could then afford to purchase the products corporations were manufacturing, thereby reinvesting in Corporate America and fueling our nation’s economic growth. However, just as President Nixon had set in motion the ethical/moral decline in American culture, President Reagan launched union-busting in 1981 by firing striking air traffic controllers represented by PATCO. Suddenly, labor consultants sprang up like weeds and convinced corporate managers that paying the meager, slap-on-the-wrist, statutorily authorized “fines” for violating labor laws was much kinder on the bottom line than having to pay collectively-bargained wage increases. And Corporate America promptly declared all-out war on union organizing – and on good-faith collective bargaining in the unfortunate event a company’s employees were already represented by a union.
Meanwhile, Corporate America was quietly on a march to rein back legislative and government “excesses” launched in the 1960's.[5] Justice Lewis Powell’s 1971 “corporate manifesto” advocated that Corporate America adopt the tactics of the labor, consumer, environmental, and civil rights movements and sponsor think tanks to churn out objective-appearing but slanted studies to be hustled in the halls of Congress by newly minted armies of lobbyists claiming to represent ordinary citizens and the national public interest. “Institutes” and “foundations” bearing such names as Heritage, American Enterprise, Hoover, Cato, and Mountain States Legal, to name just a few, suddenly appeared on the political landscape. And what they lacked in terms of ordinary citizen constituents, their corporate benefactors made up with dollars. And those same benefactors also began increasingly to share their economic largesse with Washington politicians. Just one decade after Justice Powell’s “call to arms,” President Reagan declared on behalf of Corporate America that “government is not the solution, government is the problem.”[6]
By the late 1970's, the economic tide had begun to turn against working people, our middle class employees of large corporations, and in favor of corporate managers and wealthy investors. In 1978, Congress amended the U.S. bankruptcy laws to enable companies to abrogate collective bargaining agreements, health and pension plans. And in the 1980's, Congress began reducing the tax rate on dividends and capital gains “earned” by investments of the wealthy based on the assumption that their enhanced wealth would then, somehow, “trickle down” the economic ladder to those dependent on wages paid for their labor.
Of course, looking back we now recognize that the trickle-down economic theory was nothing but a hoax.[7] But it surely worked to the advantage of the wealthy who became able to retain almost all of their investment income and buy yachts, vacation homes and open Swiss bank accounts, rather than send any of their wealth downstream into the middle class. Trickle-down economics enabled the well-to-do, top one-percent to become hugely wealthy and to open an economic chasm between themselves and the rest of us whose wages have essentially remained stagnant now for decades.
Meanwhile, corporate managers, whose compensation became based on the price of their corporate shares, have come to focus on, and not infrequently manipulate their books to show, short-term profits, boosting stock prices, rather than on the long-term welfare of their companies, their employees, communities, and 401(k) investors. And they have been wildly successful. Thus, in the 1970's, CEO pay was roughly 40 times an average full-time worker’s pay. By the turn of the century, CEO pay had rocketed up to 360 times the pay of an average worker, catapulting corporate titans into the top one-percent, overtaking most of the inherited rich.[8]
At the same time, cheap labor in developing countries enabled corporate managers to shut down domestic operations and ship them abroad, “off-shoring” jobs formerly held by our middle class, all to maximize profits for themselves and their investors. Until the labor costs in those developing countries get to the point where, together with the cost of transporting products to markets, it is no longer cheaper to manufacture the products abroad, those jobs may not return to American workers. Unless, of course, the former American workforce should agree to accept significantly lower wages to perform their old jobs. Then again, those jobs may never return if the burgeoning middle classes in developing nations become able to purchase the products our languishing middle class can no longer afford, enabling Corporate America and investors to continue to thrive while abandoning the American middle class to find its own way to survive, if at all, without the safety nets our tax-starved government can no longer afford to provide.
The injustice inflicted on the middle class is perhaps best illustrated by the following. Consider the billionaire Koch brothers whose taxes on their capital gains and stock dividends were reduced from 28% to just 15% over the past 30 years, and the highest tax rate on their other income was reduced in the 1980's from 70% to just 28%, leaving ordinary taxpayers in the middle class with responsibility for making up the difference, i.e., the lost tax revenue needed to fund our government.[9] Moreover, some of the savings the Koch brothers have enjoyed as a consequence they have poured into lobbying and right-wing political “foundations” and they are most likely deducting these “charitable contributions” and “business expenses” from their personal and/or corporate income, reducing their tax burden yet again. And, once again, it is the rest of us who will have to make up the difference.
Not only have middle class assets been “redistributed” to the wealthy over the past three decades, but those assets are now being used by the super wealthy to purchase our democracy and convert it into a permanent plutocracy – a government “of, by, and for the one-percent and corporate Citizens United.”[10] If this doesn’t amount to rubbing salt into the wounds already inflicted on the middle class and carrying out class warfare, what does?
The Way Forward for Unions and The Middle Class
Unless and until, “we the people” revolt against the status quo in Washington, and collectively demand that our government promote our interests rather than the interests of the wealthy one-percent and the Supreme Court’s newly minted corporate Citizens, we may become permanently subjugated by the one-percent.
Sadly, we have lost our sense of community where everyone sinks or swims together in America. We desperately need articulate and charismatic leaders to climb into public pulpits and reunite our citizenry, instilling a common sense of hope, purpose, and destiny, while leading the way forward. Leaders who can harness and direct the anger harbored by so many of us who have been left behind and energize the many more who are dispirited and disenfranchised.
The Occupy Wall Street crowd had much going for it but, unfortunately, it lacked leadership along with clearly articulated and relatively simple demands that would resonate broadly with the public and spawn a genuine, populist, Take Back America movement akin to the anti-war movement of the 1960's.
Certainly there are leaders in the environmental, consumer, civil rights, religious and many other single-focused interest groups who might play this role but none would be more qualified to take on Wall Street and corporate greed and ethical corruption than the priests of the working people’s church. Labor leaders need to go out into the world and embrace a much broader sense of purpose and agenda than just the wages and hours of a very limited group of dues-paying members in government-certified bargaining units. Our middle class is hurting in their pocket books. So many have lost the only real equity they had been able to accumulate, namely their homes which are now either “under water” or owned by banks, seized in foreclosure proceedings. Overall, they have lost trillions of dollars in home equity and ravaged pension and retirement funds. Potentially, they are an army waiting to be united and called to action.
Unions need to look back into their own history and relearn how they won broad public support in the early days of the union movement, fighting not just to improve the welfare of their own members, but also for the downtrodden in our society which today includes a vast segment of unemployed, under-employed and underwater members of the middle class. Unions need to organize beyond the boundaries of their bargaining units around issues afflicting the middle, working class.[11] They need to form alliances with like-minded civic organizations, harness and direct public anger, articulate and demand specific solutions from politicians in state houses, the White House and Congress. They need to empower “we the people” once again and build the sort of ground swell achieved by movements in the 1960's, perhaps under the roof of a third, broadly based “Take Back America Party.”
If such a movement were to develop, our political leaders would be terrified; but they would also listen and ultimately respond to its politically compelling demands. People, rather than dollars, must assert and reclaim ownership of this country and oust the plutocracy that has seized control of it. There is an important role for unions to play in this struggle and it would certainly enhance their standing among our citizenry.
[1] Arthur Fox is a Washington, DC-based, public interest labor lawyer.
[2] In Who Stole The American Dream (Random House, September 2012), former New York Times Washington bureau chief Hedrick Smith has presented a near-encyclopedic account of events, beginning with Justice Lewis Powell’s 1971 “corporate manifesto,” that have eviscerated the union movement, undermined the middle class, enabled the aggrandizement of enormous wealth by the “one-percent,” and created extraordinary inequality between rich corporate and Wall Street barons and the rest of our society in the intervening years. I commend this prodigious tome to all serious students of American history seeking to understand who pulled the plug on our economy and converted our democracy into a plutocracy. In the next section of my article, I summarize a number of Smith’s extensive and carefully documented facts in his very readable book.
Other excellent books are: The Fine Print: How Big Companies Used “Plain English” to Rob You Blind by David Cay Johnson (2012); and The Betrayal of the American Dream by Donald L. Bartlett and James B. Steele (2012).
[3] This understanding may have been inspired in part by the country’s unification behind its WWII war effort.
[4] Howard Gardner, “Why Kids Cheat at Harvard,” Washington Post, A29 (9/7/12).
[5] During the 1960's, Congress enacted an ambitious legislative agenda to protect the public from dangerous products and promote public welfare. For example, it enacted Medicare, the Occupational Safety and Health Act, the Employee Retirement Income Security Act, and the Civil Rights Act, and it created the Environmental Protection Agency, the National Highway Traffic Safety Administration, and the Consumer Product Safety Commission, to name just a few legislative initiatives which Corporate America considered to be unduly burdensome.
[6] One Republican solution for this problem, originally launched in the 1980's, has been to cut taxes – albeit primarily for the rich – in order “to starve the beast,” namely the government, and thereby prevent it from implementing and enforcing “corporate-nuisance laws.”
[7] The non-partisan Congressional Research Service very recently confirmed, after conducting an in-depth analysis of the past 65 years of economic data, that tax cuts for the rich have not led to economic growth, jobs, or middle class wage increases. Rather, it has only benefitted the rich and produced enormous inequality within our country.
So, we might ask, who was left to make up the loss of government revenue caused by the tax cuts for the rich? You guessed it, middle class taxpayers.
For a scholarly treatise concluding that there is no rational justification for imposing a lower tax rate on income from investments than on income from labor, see A Tale of Two Subsidies by Robert Cassanos, Tax Notes, pp. 595-649 (April 30, 2012).
[8] Just between 1993 and 2008, the top one-percent managed to abscond with a full 50% of the nation’s overall economic growth and two thirds of the gains of the country’s income growth from 2002 to 2007, twice as much as the other 99% of our citizenry. In 2010, alone, 93% of the year’s gains went to the top one-percent. And today, the one-percent possess more than the bottom 90% of our citizenry, combined.
[9] In subsequent years, the top income tax rate was increased to 35 percent.
[10] Between 1998 and 2010, Corporate America outspent labor on lobbying by a margin of roughly 60 to 1. And in light of the Supreme Court’s decision in the Citizens United case, we may never know how much Corporate America and the one-percent have spent to purchase Washington politicians.
[11] Most national unions have research departments that should be monitoring and blowing the whistle on proposed legislation that would further weaken the middle, working class and redistributing wealth to the already wealthy.