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Apocalypse Now for Productive Economy


Apocalypse Now in the Industrial Midwest

The Katrina of all recessions

 

 

While Obama administration spokespeople crowed about the "green shoots" of recovery and orthodox economists declared an end to the recession, this discussion among elites could not be further removed from the realities of life in the once-bustling factory towns of Middle America and the desperate survival strategies of their inhabitants. Three facts dramatize the depth of the crisis.

First, working families are being hit with the greatest wage-slashing wave since the 1930s. This pay-cutting frenzy reflects not only increasing poverty and inequality, but also Corporate America’s waning interest in the domestic market. As Louis Uchitelle, author of The Disposable American, notes in the New York Times (10/14/09), slashing wages has become ubiquitous, with even skilled professions like airline pilots now targeted. "In recent decades, layoffs were the standard procedure for shrinking labor costs. Reducing the wages of those who remained on the job was considered demoralizing and risky: the best workers would jump to another employer. But now pay cuts, sometimes the result of downgrades in rank or shortened workweeks, are occurring more frequently than at any time since the Great Depression."

Moreover, this follows a period in 2007 in which American workers’ real wages were 18 percent less than they were in 1973, as Les Leopold points out in his book, The Looting of America. The U.S.’s richest 1 percent collects 23 percent of all income and the even richer 1/10th of 1 percent earns more than the bottom 150 million Americans.

Second, the loss of America’s productive base as more capital has been shifted into high-profit, high-risk finance. The NYT reported (11/19/08) that the top U.S. Export to Asia is waste paper: "The inventory glut in Long Beach is not limited to imported cars [coming from the Far East]. There has also been a sharp drop in demand for the port’s single largest export: recycled cardboard and paper products." This material typically goes to China where it is used to make boxes for electronics and a wide range of other products that are then sent back to the United States.

Third, home foreclosures are occurring at four times the rate of the last major recession. A Coldwell Banker online post of 7/17/09 states: "Unemployment stood at 9.5 percent in June and is expected to rise past 10 percent well into next year. The last time the U.S. economy was mired in a recession with such high unemployment was 1981 and 1982…. But the home foreclosure rate then was less than one-fourth what it is today." The inability of the Obama administration to stem the foreclosure crisis is adding to the air of hopelessness.

Midwestern factory towns are not just undergoing a temporary downturn in employment, but are permanently losing their most critical high-wage employers, especially in the auto industry. The much-touted auto bailout has entailed more downsizing of U.S. domestic production (about 24 plants closed) combined with more off-shoring of production to Mexico, China, and Japan.

"This is not your ordinary dip in the business cycle," explained Professor Van Horns of Rutgers, who conducted a recent survey of 1,200 jobless workers. "Americans believe that this is the Katrina of recessions. Folks are on their rooftops without a boat." Nor are there any boats on the horizon capable of holding all those in peril. Traditional unemployment benefits reached only about 43 percent of workers today, but aided 67 percent during the 1975 recession. Likewise, the prospect of re-training for a good job is largely a hollow consolation prize, much like providing swimming lessons when the swimming pool is dry.

"They [layoffs] are the opposite of life-giving; they literally deplete life," declared Kim Carmon, an organizational psychologist at the University of Michigan, in a powerful distillation of what unemployed workers go through. Precisely at the moment that suddenly idle working people need to muster all of their resources to find new work in an environment with few opportunities, they tend to feel their self-esteem ebbing away.

 
Magical Misery Tour

The resulting level of distress suggested by the Great Depression-level unemployment is found in cities discarded by the auto industry and other manufacturers:

> Flint, Michigan: Memorialized in Michael Moore’s Roger & Me documentary, Flint has lost well over 20,000 GM jobs, 40 percent of its population and businesses, and continues to decline, undergoing a "planned shrinkage of its territory to make delivery of city services more efficient." It has an unemployment rate of 24.8 percent.

> Pontiac, Michigan: The British Guardian reported this spring that "tax revenues have fallen so far that the city council is in a financial crisis, prompting the governor of Michigan to appoint an emergency financial manager." The only business doing well is a pawn shop. "A steady trickle of gold rings bearing the letters GM has found their way through the doors of the Main Street Pawn Shop in the heart of the scruffy motor manufacturing city of Pontiac. General Motors veterans have been pawning once treasured company rewards in distress or disgust at the state of America’s biggest carmaker." According to CNN (10/7/09), the city is doing some pawning of its own: "The hard-hit city of Pontiac, Mich. is auctioning off the Silverdome, a stadium of more than 80,000 seats that once played host to the Super Bowl." With GM eliminating its line of Pontiac cars, conditions are growing even more desperate. Some 700 families lost their homes to foreclosures in 2008 and the median income for a family is now $31,207, far below the national median of $44,334. The current unemployment rate is 35.2 percent.

> Janesville, Wisconsin: This community of 54,000 underwent the closing of its 2,800-worker GM assembly plant at the end of 2008. Family violence almost tripled, with women requiring 640 nights of shelter in March 2009 (compared with 232 shelter nights the previous March). Home prices plummeted, while foreclosures soared. "Each 1 percent increase in the unemployment rate means a 6 percent increase in foreclosures," says Professor Russell Kashian of UW-Whitewater. "So when unemployment goes up 3 percent in Janesville, foreclosures go up 18 percent." Janesville’s official unemployment rate is 12.1 percent.

> Milwaukee, Wisconsin: The city lost about 65 percent of its manufacturing jobs from 1977 to 2002, sinking from 91,400 to 34,900. Industrial suburbs suffered a 42 percent drop in manufacturing jobs, from 62,000 to 31,600 by 2002, according to Professor Marc Levine of the Center for Economic Development. Many of Milwaukee’s most prominent local employers—Master Lock, Allen-Bradley (later Rockwell), Briggs & Stratton, AO Smith (later Tower Automotive), and Johnson Controls—relocated significant sections of their production to low-wage Mexican plants where independent unionism is repressed. People of color have been especially hard-hit. In 1970, the median African-American family income was 19 percent above the national black average; 30 years later, it was 23 percent lower, according to RC Longworth, author of Caught in the Middle: America’s Heartland in the Age of Globalism (2008). With the supply of jobs drying up, Milwaukee has the second-highest black male unemployment rate in the nation, calculates Levine, affecting 64.5 percent of black males aged 16-24. Over the past three decades, Milwaukee has lost 9 of its 20 central-city hospitals. Perhaps related, "An African-American infant in Milwaukee is at a greater risk of dying in his or her first year than an infant in Malaysia, Jamaica, Panama, Costa Rica or Chile," the Milwaukee Journal Sentinel reported in 2006.

> Kenosha, Wisconsin: Lawrence Summers and other Automotive Task Force figures assured Wisconsin officials during a conference call on April 30 that Chrysler would maintain its engine operation there, as pledged in a concessionary 2006 deal with the UAW. On the very next day, the UAW learned that Chrysler was planning on using some of its federal bailout money to move Kenosha’s remaining 850 jobs to a new low-wage plant in Saltillo, Mexico (Progressive Populist). Twenty years ago, Kenosha’s sprawling auto plant employed 7,000. Soon it will employ no one. The current jobless rate is 10.7 percent. Judy Jensen, the Labor Council secretary-treasurer, notes: "The food pantries have really seen a spike in demand, but we also now see people who used to volunteer and donate to the food banks coming in for food."

> Racine, Wisconsin: This factory town of 80,000, where the heavy equipment company Case New Holland (CNH) is located, has just 680 workers producing tractors, down from 3,400 in 1979. Racine AFL-CIO Secretary-Treasurer Ron Thomas, who led a successful UAW campaign to block a plant closing in 1982 when the unemployment rate was 19.8 percent, commented, "With globalization, the free-trade agreements and cutbacks in the safety net, we’re wondering about the future. Racine’s resources for health care, housing for the homeless, and food pantries are all under strain right now." Unemployment stands at 14.5 percent.

> Motown to Notown:Detroit, the crucible of both mass production techniques and class-conscious mass unionization, is now a badly-cracked vessel leaking jobs. Manufacturing jobs in the 7-county region that includes Detroit have fallen 51 percent since the beginning of the decade, and auto-related positions have fallen 65 percent, reported the NYT (6/10/09). Unemployment stands at a staggering 27.9 percent. Once a dynamic international symbol of American industrial might, Detroit now has a ghostly quality.

> Muncie, Indiana: This factory town of 118,000 has been hammered by massive layoffs and job relocations. But even with its surplus of skilled auto workers, Muncie residents were excluded from applying for jobs when Honda located a new plant in the southeastern part of the State. Although receiving $150 million in subsidies for the plant—including tens of millions from workers in Muncie and Anderson and other towns with a strong UAW tradition—Honda blocked them from applying by setting up a hiring radius that included 20 counties, 19 of which have a combined African-American population of 4 percent. "The corporations have shipped out the good-paying jobs to China and Mexico, but we’re giving lower-paying auto companies the moon to locate here," State Representative Dennis Tyler fumed. "They know we won’t argue and fight because we’ve got to have the jobs." Both Honda and the State declined to provide any information on the racial composition of its new workforce to Tyler, other state legislators, or the author.

 
Roots Of The Crisis

Excessive financialization. While profits from the financial sector accounted for less than 2 percent of domestic corporate profits in the mid-1950s, they soared to 27.4 percent by 2008, according to The Looting of America. The financial sector produced $313 billion in profits in 2003, compared with just $119 billion for manufacturing, as economist William Tabb has noted. Most incredibly, as Leopold documents, the ratio of manufacturing workers to financial-sector employees shifted from 7.7 to 1 in 1960 to a mere 1.6 factory worker to each financier in 2008. Tabb aptly describes the process: "Money could be made solely out of money, without the intervention of actual production. The new secret was presumed to be leverage and risk management, which allowed the purchase of assets that promised higher returns even if they carried a higher risk."

Nomi Prins, author of It Takes a Pillage and veteran of ten years at Bear Stearns and Goldman Sachs, describes the process this way: "Finance is based on the principle of continuously pushing nothing for something throughout the system as long as someone else is around to pay for it." Prins and her researchers have been following the total amount of bailout capital granted to Wall Street. While the media continues to repeat the $800 billion from a year ago, that figure fails to incorporate funds granted by a variety of other federal agencies—the FDCI, Treasury, and a host of others. Prins currently totes up the Wall Street bailout as costing $17.5 trillion.

Depleting the productive base. What does it mean when the number one export by the U.S. to the Far East is waste paper and cardboard rather than some product requiring a combination of American innovation and skilled production? Two decades ago, Business Week wrote about the "Hollow Corporation," where companies would use the U.S. as their headquarters for high-level administrative work while shipping manufacturing operations offshore. Under this concept, the corporation would be more divorced than ever from viewing itself as a maker of products and instead see itself more as solely a maximizer of profits.

Under the present economic formula, Americans are supposed to passively purchase products made under near-slavery conditions in China, while we export cardboard for the products’ containers. Over the last three decades, numerous corporations have decided to seek higher profits in finance, real estate, or energy than were available in manufacturing. For example, although U.S. Steel mills were on average 17 years old compared to 10 years old for its fast-rising Japanese competitors, U.S. Steel devoted $6.2 billion to buying up Marathon Oil instead of going for long-term competiveness in steel by updating its mills.

Off-shoring. Senator Sherrod Brown (D-OH) in The Myths of Free Trade has documented that U.S. investment is increasingly shifting toward authoritarian nations, where independent labor unions are crushed, critical journalists imprisoned or "disappeared," and government policy is focused on attracting foreign investors through holding down wages and offering tax subsidies. Two of the primary recipients of U.S. corporate investment and jobs are Mexico and China, both of whom systematically repress independent unionism. Mexico offers pay levels at about 10 percent of the average in U.S. manufacturing, while in China wages amount to about 3 percent of U.S. levels, according to Jeff Faux, author of The Global Class War.

Barack Obama made opposition to the unrestrained export of jobs a centerpiece of his campaign. But once in office, the policy of off-shoring jobs had the blessing of his administration, despite his fervent denunciations during the campaign. During the re-shaping of the auto industry, the Obama administration readily acceded to GM’s desire to produce more cars in low-wage and low-cost plants. Uchitelle reported, "General Motors is engaged in negotiating a reorganization that could increase vehicle imports from its plants in Mexico and Asia while closing factories and cutting the work force in the United States."

In response, the United Auto Workers strenuously argued the use of taxpayer dollars should obligate GM "to maintain the maximum number of jobs in the United States." However, Uchitelle writes that the Administration "appears to accept the proposition that to return to profitability as quickly as possible, GM must import a significant percentage of cars from its plants in low-wage countries, like Mexico and China, or low-cost countries, like Japan."

Conventional economists both inside and outside the White House have finally acknowledged some problems with corporate globalization. But most still argue, on balance, that it is the basis for prosperity. These economists have failed to confront Princeton economist Alan Blinder’s calculation that up to 42 million highly-technical U.S. jobs—from computer programming to medical transcription to accounting—are "highly offshorable."

  
The Human Cost

Dr. Harvey Brenner has been studying the relationship between unemployment and social outcomes. Brenner has found that there is a direct and predictable connection between rising unemployment and a set of tragic consequences. According to Brenner:

  • A 1 percent rise in unemployment sustained over 6 years results in an additional 47,000 deaths
  • About 26,000 of these deaths will come from heart attacks
  • Approximately 1,200 jobless workers will commit suicide
  • Roughly 831 will commit murders
  • At least 4,000 will be admitted to state mental hospitals
  • Over 3,300 will be admitted to state prisons
  • There will be about 635 excess deaths related to alcohol consumption

Additionally, as Peter Dreier of Occidental College explains: "A 2004 study by the National Institution of Justice found that the rate of violence against women increases as male unemployment increases. When a woman’s male partner is employed, the rate of violence is 4.7 percent. It is 7.5 percent when the male partner experiences one period of unemployment. It increases to 12.3 percent when the male experiences two or more periods of unemployment." Barry Bluestone and Bennett Harrison, in their 1982 book The Deindustrialization of America, cited one study of displaced workers that found a suicide rate "30 times the expected number."

Unless and until workers and jobless people begin to fight back with strategically-disruptive actions as they did during the Great Depression, the Obama administration appears ready stand by its increasingly hollow claim that it is saving Main Street by rescuing Wall Street.

Z


Roger Bybee is a Milwaukee-based freelance writer and a frequent contributor to Z. The editor of the official Racine labor weekly for 14 years, his work has appeared in a number of publications, including American Prospect, In These Times, Dollars and Sense, and Monthly Review.

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