In today's economy, in which the real unemployment rate is in excess of 16 percent, with over 40 percent of the unemployed out of work for half a year, it's easy to see hard times in the streets. Even residents of relatively prosperous communities must now pass the time at traffic stops trying to avoid eye contact with people begging, who would give anything for a job paying a modest $30,000 a year. But for the other end of the class structure, that's petty cash. Among the modern financial elite, hedge fund traders have become notorious for building absurdly large estates, with floor plans frequently approaching those of the Taj Mahal. In the homes of the ruling class, that $30,000 gets spent in a single room—on curtains (Vanity Fair, "Greenwich's Outrageous Fortune," 7/06).
Last November, Obama made a major trip to India, signing arms and commercial deals. Traveling with him were CEOs of several major U.S. corporations, including Honeywell, PepsiCo, and McGraw-Hill. Among the agreements reached were relaxation of dual-use restrictions on trade with India and ending bans on arms-capable material, mostly imposed after India's first nuclear detonation. Obama went on to headline a meeting of the U.S.-India Business Council and met privately with the CEOs, carrying forward what the Wall Street Journal called his "new role: salesman-in-chief for American business" ("Trade Moves Up White House Agenda," 11/14/10). This was seen as a turn for the Administration, ending a "war of words" that had soured relations. Even before the 2010 election, Bloomberg BusinessWeek had reported that "the White House wants to make amends and will make its relationship with business a priority" although "by many objective measures, most businesses are thriving and should have little to complain about. Corporate profits rose to a record $1.38 trillion" in the second quarter of 2010, five months before the poll.
But the mid-term election did crystallize the situation, with one business analyst suggesting you "can't shut business out anymore or they're going to take you down." Despite backing Obama's campaign in 2008, the investment community experienced what is often and openly referred to in the business press as "buyer's remorse" about a Democratic Washington. Business organizations, particularly the Chamber of Commerce, reacted aggressively to Obama's audience-dependent anti-business rhetoric, as well as fears of taxation and new environmental regulation. Unleashed by the Roberts Court decisions, in the latter half of the year, corporate donors poured a massive flow of campaign dollars into mostly Republican campaign funds. The corporate world dealt with "buyer's remorse" by heavily escalating the buying, just on the other side of the aisle.
And how had the Administration "shut out" business in the first place? Business Week, in reporting on corporate reactions to Obama's early days, points first to "Obama's populist campaign rhetoric, which often became stridently anti-corporate in tone." Further, when the finance "reform" bill was passed, "only a handful of bank CEOs were invited to the elaborate signing ceremony" ("The Changes Business Wants from Obama," 11/5/08; "Big Business Takes on Obama," 6/21/10). More significantly, JP Morgan Chase CEO Jamie Dimon famously presented a chart to a White House meeting showing that Obama's administration had the lowest proportion of staff with business experience in 50 years.
Yet the fears of rampant Democrat regulation and taxes were clearly overblown. While finance did face (quite modest) re-regulation, this was almost inevitable under any Administration after the 2008 finance crisis demonstrated the failure of deregulation. And the business community was generally happy with Obama's insurer-friendly health reform; the bill, unpopular with the public after hysterical news coverage, "met with enthusiasm from U.S. corporations struggling to pay for soaring employee health-care costs" (BBW, "Obama's Business Report Card," 4/29/09). Further, Obama backed down several times on ending overseas tax shelters after heavy Republican opposition and cracked when the GOP held an extension of unemployment benefits hostage to renewing the Bush upper-class tax cuts—just before Christmas. It is a true testament to economic power that after the 2008 financial crisis, the Deepwater Horizon disaster, and the tsunami of mortgage fraud by the great banks, all within two years, the business community is outraged when government figures issue hostile rhetoric or threaten mild re-regulation.
And, finally, we can only hope Dimon will consider his expectation of heavier corporate staffing of the state to be fulfilled now that William Daley, a former senior executive at Dimon's banking megalith, has joined the Administration as chief of staff. Evidently, Obama's other corporate advisors weren't quite enough, despite including ex-bankers like Larry Summers and ex-Citigroup advisor Robert Rubin's protégé Christina Romer.
Of course, the Obama administration's political fortunes have depended on more than the concentrated wealth available to the owning elite and its institutions. Many hard working American activists summoned enormous effort to boost underserved constituencies, in order to get a centrist Democrat back in the White House. Along with the continuing job market stagnation and the swings in corporate fancy, heavy working-class disappointment in the Democrats is generally accepted as a principal cause of the 2010 landslide. This trend closely tracks the decline of popular organizations, centrally the labor movement.
Foreclosing the House of Labor
For a labor movement struggling just to avoid losing further ground, a recent set of contract negotiations has brought a major defeat in a traditional center of working-class organization. Three major Milwaukee-Chicago area manufacturers—Kohler, Harley-Davidson, and Mercury Marine—have recently locked in permanent two-tiered contracts. Usually seen only temporarily in dire recessions, as in 1981 when unions were eager to avoid striking, these contracts mean new hires to the workplace will receive far lower pay and benefits than the other union employees. Essentially, it means large parts of union gains are surrendered for the next generation of workers. Working-class organizations therefore usually resist them strongly.
But the manufacturers eagerly turned to their trump card, capital mobility, threatening to shut down the plant and move production to cheaper, typically non-union or "right-to-work" shops. In addition to the wide array of traditional antiunion tools normally used by corporations to discourage worker organization, "Harley-Davidson and Mercury Marine…publicly declared that they would move factory operations to lower-cost American cities…if the unions failed to accept the concessions set forth in remarkably similar contracts." The organized workforce had previously refused to accept lower pay and benefits for their younger union brothers and sisters and "voted last fall to reject such terms, but a few days later, they voted again and accepted them. They reversed course after the company announced that its headquarters in nearby Fond du Lac would be closed and operations consolidated in Stillwater. The Stillwater factory is now being closed instead" (NYT, "Unions Yield on Wage Scales to Preserve Jobs," 11/19/10).
Local leaders openly describe the development as "a surrender" to employers, but say the union rank-and-file membership democratically approved the contracts since they are convinced that "the companies are prepared to move factories from the Milwaukee area." The union leadership had balked at negotiating so early in advance and in a recession, but "conceded after the company insisted it would otherwise use the intervening months to prepare to move operations elsewhere, perhaps to Kansas City."
In a connected development, right-wing Wisconsin governor Scott Walker and several other Republican governors are making major moves to "weaken the bargaining power and political influence of unions, including private sector ones." The fear is these governors, GOP statehouses in tow, will push to spread (RTW) "right-to-work" laws from the Southern and Western states. These laws disallow unions from obliging union members to pay dues to fund their collective representation. They are akin to forcing banks to allow mortgage recipients to "opt out" of payments. They significantly weaken unions in states where they've been enacted and their alleged dividends in unleashed growth have consistently failed to materialize.
Walker has played on the public's suppressed class consciousness, blaming public-sector employees for the economic hell created by the ruling class: "We can no longer live in a society where the public employees are the haves and taxpayers who foot the bills are the have-nots" (NYT, "Strained States Turning to Laws to Curb Labor Unions," 1/3/11). Indiana Governor Mitch Daniels called them the "new privileged class in America," an impressive feat for incomes typically in the $30,000-40,000 area, a far cry from the $250,000 made annually by the richest 2 percent nationwide. These scapegoating moves show an elite recognition of the enduring class consciousness of Americans, which they evidently hope to twist to justify their own elite policies.
Notably, the scapegoating is at least partially effective. The Times reports that, "In interviews, several blue-collar workers said they had voted Democratic in 2008 but switched to Republican this time—mimicking the blue-collar political shift throughout the Midwest—because the Obama administration, in their view, had failed so far to help them." It's also amusing that even in these national articles, specifically about labor union decline, with headlines referring to labor reeling under heavy blows, the unions are quite routinely described as "powerful." By comparison, it's relatively rare for far more powerful corporate power centers to earn that descriptive.
Strike vs. Strike
Besides election-buying, this concentrated economic power wields political strength through financing government borrowing. As governments have retreated from progressive taxation and the tax burden on the rich has shrunk, governments rely increasingly on deficit spending. Here the government issues bonds—promises to pay later with interest—in order to borrow to cover budget shortfalls.
This creates significant government vulnerability to "the bond market"—those investors and institutions that buy bonds. Bond ownership is highly concentrated, as are stock ownership and wealth in general. According to the Federal Reserve, while only 14 percent of U.S. families own bonds in the middle quintile by income, nearly half of those in the top 10 percent do, and their median holding is $250,000 (FRB, "2007 Survey of Consumer Finances").
This concentration of bond ownership means that the wealthy families and institutions constituting "the bond market" can to a significant extent dictate policy to the state. If the government makes fiscal decisions that reassure the bond market that they'll be repaid, the prices they're willing to pay for bonds will increase. But if the state takes action the market interprets as fiscally risky, the market will sell bonds and the price will fall. This means the state must sell more bonds to meet a fiscal target and the effective higher returns on the bonds will put a new burden on the budget. So the government must appease the bond investors, otherwise its bonds may lose favor and the costs of maintaining the government's debt will get even worse. This means cutting deficits, even when they are playing a valuable role supporting employment and demand in a recession or weak recovery.
On top of that, since bond ownership is so concentrated among the wealthy, it favors particular types of deficit-reduction policies. While re-taxing the rich could plug very large budget holes, this is never the advice communicated by the investment banks who organize the sales of government bonds to rich investors. The underwriters will instead insist upon aggressive cuts to social services. This regime of elite bond market power has come to be recognized as the new business as usual. For example, the New York Times quotes Ed Yardeni, an insurance-industry economist, approvingly discussing the "bond vigilantes" who pushed down the price of government bonds during the 1980s under Reagan's deficits, making the state pay dearly for its deficits ("The Bond Vigilantes Have Moved to Dublin," 12/4/10). A similar course was followed when President Clinton floated a possible stimulus bill in 1993. Yardeni summarizes, "If the fiscal and monetary authorities won't regulate the economy, the bond market will," acknowledging the awesome power of investors to dictate to the state.
But while the "bond vigilantes" are evidently at bay in the U.S., thanks in part to the Federal Reserve's policy of massive bond purchases, Europe is not so lucky. There, persistent deficits run by governments of countries with relatively small economies, like Greece and Ireland, have become targets for the bond market. Investors have pushed down the prices of their bonds, and in turn pushed up the budget burden the state faces in managing its debt, subjecting them to a "capital strike." This has forced governments to cut back, democracy or not: "The markets have been pressuring European policy makers to take measures that are painful and, often, politically hazardous…. Despite fierce street protests, the Greek government agreed in May to embrace harsh fiscal austerity measures" in return for a bailout.
More recently, the process began again when Irish public bonds dropped in price drastically, leaving Dublin "forced to enact deep cuts in social welfare programs in return for multilateral assistance," usually cheap loans from healthier economies or bodies like the IMF or EU. While the enormous clout of the bond market may be reduced as the European Central Bank adopts its own "easing" program of buying Eurozone bonds, pushing up their prices, the press reasonably suggests "policy makers are likely to be trying to mollify bond traders for some time to come." Thus, popular organizations working to limit tuition increases in London and Los Angeles, and food prices in Tangiers, must struggle against the massive economic power wielded by the concentrated bond investor community. Strikes of people often lose to strikes of capital.
Holiness From the Cheap Seats
While the ruling class is routinely building personal homes the size of the Taj Mahal, it's also overhauling historical treasures to better accommodate their lifestyle. Consider the center of the Islamic faith, Mecca, where the Grand Mosque is being incorporated into what the press calls a "gargantuan shopping mall" complete with "Numerous luxury high-rises and hotels" and "a kitsch rendition of London's Big Ben" (NYT, "New Look for Mecca: Gargantuan and Gaudy," 12/29/10). The abrupt construction boom in Mecca caters to the world's super-wealthy and reflects a new desire of the Saudi royal family "to profit from some of the most valuable real estate in the world." While the traditional Hajj pilgrimage is among the most holy Islamic tenants, the "Vegas-like aura" of the new developments has brought "highly visible class lines" to the Kaaba: "Like the luxury boxes that encircle most sports stadiums, the apartments will allow the wealthy to peer directly down at the main event from the comfort of their suites without having to mix with the ordinary rabble below…. The issue is not just run-of-the-mill class conflict."
Indeed, the practice of class conflict has constantly evolved through the modern period, from the enclosure movements in 18th and 19th century England that threw the rural majority into the cramped crucible of the Industrial Revolution, to the tony 21st century bond bourses that route capital around the world and batter stubborn efforts for worker organization. With major world religions becoming the sport of the ruling class, the current fierce street protests will need to evolve into fierce global movements. The fear of employers moving factories could subside if plants in the next state or nation were also organized, forming a power center rooted in the population rather than state and capital. At least then the class war would be a fair fight.
Rob Larson is assistant professor of economics at Ivy Tech Community College in Bloomington, Indiana. He writes for Z Magazine and Dollars & Sense and is active in Indiana Jobs With Justice's fight against Indiana RTW legislation.