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Financial Capitalism and US Labor


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For many, it is pretty obvious that the 1970s and 1980s were a disaster for America’s labor movement. Well, it did not get much better in the 1990s and even up until today. There is no improvement in sight. 

Union members continue to decline unabated. NPR’s interactive video map shows as much. Despite declining membership, the author of Labor in the Age of Financial Capitalism argues that all trade unions have three types of power: 

  1. organized power, 
  2. bargaining power, and 
  3. political power. 

One of the reasons for the decline of trade unions in the USA is the fact that the gap between wages of unionized workers and non-unionized workers is getting smaller. Between 1983 and 1992, unionized workers received a 26% higher wage; between 1993 and 2002, that gap declined to 24%, and to 21% during 2002 and 2012; between 2013 and 2018, it shrank to 20%. This trend continued even as trade unions became shareholders.

During these years, the hallucination of shareholder capitalism as a means to democratize shared ownership remained a mere ideology designed to support neoliberalism. Among US households in 2016, the top 1% owned 53% of all stocks and mutual funds. For the top 10%, the figure was 93%. 

As a consequence, stock markets are mostly irrelevant for 80% of US households, except to exacerbate wealth inequality. In other words, if there is shareholder capitalism and democratized share ownership, it is a plutocracy run by a few wealthy people – well, mostly middle-aged white men!

Yet, one reason for the anti-unionism of US businesses may lie in the fact that if a firm is unionized, executive pay is reduced. This is a powerful incentive for CEOs to fight trade unions. The CEO Pay Machine outlines, at times in great details, how this works. Reverse all this and it means that wherever there are trade unions, CEOs receive somewhat less stratospheric incomes. 

It gets even worse for workers when one considers that CEOs who have risen through the ranks have greater sympathy for fellow employees – and less for shareholders – than do CEOs hired from the outside. It explains why corporations prefer to hire MBAs from elite business schools.

Perhaps all this is the outcome of a long history of capitalism. There have been three waves of capitalism starting with Industrialization (1890 to 1929). This indicates that the USA is a late developer. By the 1890s, British industrial capitalism, for example, was already well-developed. By 1890, Adam Smith’s classic Wealth of Nations was over 100 years old and the fourth edition of Karl Marx’s Das Kapital was published in Hamburg. 

The second wave was that of the New Deal (1933 to 1973). Finally, the third wave of Neoliberalism stretches from 1974 to the present. Some might argue that neoliberalism started in the 1980s when Margret Thatcher married Ronald Reagan and Hayek visited the electro-torturer Pinochet in Chile (1977 and 1981) to complete the four headless horsemen of the neoliberal apocalypse.

Contrary to this view, one might argue that the most significant change of capitalism occurred after the anti-Semitic and anti-union hard-man Henry Ford introduced the $5 Dollar Day, on the 5th of January 1914. Ford not only moved mass-manufacturing to new heights, his $5-day also gave workers the means to engage in what we call today as mass-consumerism. It moved liberal capitalism on. 

Capitalism became consumer capitalism. From now on, workers no longer wanted to destroy capitalism but fought for higher wages to buy more cars and more TVs. It changed capitalism for ever. As trade unions fought for higher wages everywhere during the 1920s and mass consumerism flourished, those years became known as the Roaring Twenties with wealth for some, but not all, as well as prohibition and Al Capone. All of this was turbo-charged by the New Deal during the 1930s.

Meanwhile, corporate management was not yet developed into a full ideology mutating into today’s Managerialism. Yet, during this time executives and, to a lesser extent, unions were key governance actors. Still, executives remained the core part of corporate governance. By mid-20th century, US management remained staunchly anti-union. 

From the 1980s onward, management converted a mid-20th century ideology – Hayek’s Road to Serfdom – into companies and corporations. Simultaneously, the ideology of Managerialism paved the way by creating a hegemony that made neoliberalism acceptable inside and outside of companies and corporations.

Today, the evil twins: Neoliberalism and Managerialism are fully-established and one might indeed call both a Wall Street dictatorship that is run by the Junkers of Wall Street. They were behaving like the original Prussian Junkers who were a landed aristocratic group of Eastern reactionaries. How all this works ever since capitalism became financial capitalism has been explained in Rudolf Hilferding’s Das Finanzkapital. 

Hilferding was not the only one concerned about the rising power of financial capitalism, as US Supreme Court Judge, Louis D. Brandeis also shares the same sentiments. And, Jacoby dedicates several pages to Brandeis. What might be mentioned is Brandeis’ famous statement,

We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we cannot have both.

Management expert Berle already made it clear in the 1920s that one-third of the nation’s wealth was produced by two hundred corporations dominated by 1,800 men – yes, mostly men. Until recently, the Banking Act of 1933 – known as Glass-Steagall Act – limited the power of finance capitalism, somewhat. 

It came before the labor movement scored a trifecta in the 1940s and 1950s when membership, strikes, and political influence – labour’s sources of power – flourished as never before. In other words, the 1950s were not only the years of rampant anti-communism under McCarthyism, it was also a time of trade unionism.

Yet, by the mid-1950s, management also began to increasingly re-affirm its power with the concept of management rights, and as the pro-business lobby NAM saw it, that’s how the American system works. By the 1960s, the public regarded business as too powerful in politics. Hence, we got Galbraith’s idea of organising labor as a countervailing power. 

Twenty years on, the very opposite was powerfully installed when neoliberal Ronald Reagan fired over 11,000 government-employed air-traffic controllers signaling the arrival of a full-scale neoliberalism. It was followed by Thatcher’s dirty fight against the British miners.

A few years after that, the Exxon Valdez’ corporate scandal – often framed as a “disaster” to imply it was something like a natural disaster – gave us the so-called Valdez Principles. This is yet another tool in the CSR arsenal of Managerialism. Next to such ideologies, Harvard’s Michael Jensen even claimed that executives were overpaying workers, the exact opposite from what has happened since neoliberalism started to hold sway.

One of the key tools in a CEO’s pay has been the 1990s move towards stock options replacing salaries for CEOs. Yet, the “failure” to document a consistent and robust relationship between executive pay and equity returns has frustrated scholars and practitioners for over three quarters of a century. This was no failure at all. 

In reality, this so-called “failure” is a deliberate policy of Managerialism and compliant business school academics to hide the truth for over three quarters of a century. What is taught in business school is performance management which applies the following: the lower your rank in the managerial hierarchy is, the more exposed you are to performance management; and: the higher you are, the less exposed you are until performance management vanishes into thin air when it comes to CEOs. The task of Managerialism is to camouflage this and to make it appear as normal, if not natural.

Meanwhile in corporate finance, Managerialism means that shareholders gained primarily because stakeholders lost, i.e. workers. At the same time, neoliberalism assured that collective bargaining – the most important source of power in holding corporations accountable – has been weakened for decades. The fact that unions became active owners of mutual funds had only a marginal influence on what neoliberalism had set in motion.

Corporations and businesses depend on a functioning state to not only weaken labor law, but also to re-regulate legal matters into pro-business matters. To camouflage their dependency, neoliberal ideologies such as deregulation, less state, less bureaucracy, no red tape, etc. are frequently wheeled out. Their lobbying has been masked as taking the state out of the free market. 

Not surprisingly, during the 2015-2016 election cycle, businesses outspend labor by a ratio of 16 to 1. This means that for every leaflet labor could print, corporations could print 16, for every TV advertisement labor can run, corporations can run 16. Victory is virtually assured in a system called democracy.

Labor Law: 16 to1 and 62.5 to 1

Worse, the same was true for lobbying. All national unions, taken together, spend about $48 million a year for lobbying in Washington, while corporate America spends $3bn. Virtually, the same applied to London, Brussels, Berlin, etc. In other words, corporations outspend labor 62.5 to 1. 

It means that when labor can invite parliamentarians once, a business can invite them 62.5 times, and when labor hires one expert, a business can hire 62 experts, etc. Meanwhile, corporate mass media make sure that facts like these remain largely unknown while the belief in democracy is cemented. In any case, this is how democracy under the conditions of media capitalism works.

Of course, with the appropriate election success, you can stack up the US Supreme Court with compliant judges and voilá, you get Citizen United. Unlimited corporate “campaign financing” (read: buying elections) allows corporations and big businesses to make sure that we have the best politicians money can buy, as evil heretics might say. 

Given all this, the hallucination that shareholder activism is corporate democracy sounds almost pathological. Still, having union members on pension fund boards is associated with better portfolio performance – for some. Even Murdoch’s staunchly pro-business and pro-neoliberalism Wall Street Journal reported that 2.5 million people at the top of the income hierarchy received more money than the 100 million people at the bottom. This is what inequality means. 

Unsurprisingly, just 26% of Americans say that big corporations are honest in their dealings with consumers and employees. To improve this, capitalism likes to put in more pro-business regulations and laws that give the appearance that politicians are doing something while letting capital off the hook big time. Manage this and you can make it into politics. 

A good example of that was the Sarbanes-Oxley Act (SOX). Surprise, surprise, SOX had more bark than bite. Worse, for ten years that followed its enactment, just five criminal cases were pursued. Of course, the key word is: “pursued”.

At the same time, US unions shrank and lost a significant amount of bargaining power. On parallel, the size of what workers received in wages decline. Today, workers’ earnings no longer track productivity; the gains go to CEOs and to shareholders instead. In other words, labor’ share of a country’s wealth declines while the rich get richer. This is a key source when creating inequality. 

Today, Drucker’s proposal to limit the CEO-worker pay ratio between 15:1 and 20:1 is a distant dream. In reality, a CEO’s pay has skyrocketed by a whopping 1,322% since 1978. Today, the CEO-worker pay ratio stands at 351:1. In other words, when an American worker buys one pizza, the CEO can buy 351 pizzas. 

On the global financial crisis (GFC) of 2008ff, one might like to argue that the failure to prosecute, much less punish, those who had committed fraud rankled the public. What is traditionally framed as a failure wasn’t a failure at all. It was the exact opposite. The capitalism works by offloading its costs onto others, preferably to the taxpayers. The legal system that furnishes capitalism is not set up to prosecute – much less punish – white-collar crimes. The opposite is the case. 

The raison d’être of pro-business laws and regulations is to protect capital while, simultaneously, aiding the appearance that the state is after criminals. After all, those bankers who caused the GFC did not steal a can of tomato soup at a corner store, otherwise they would be, as Jacoby says, prosecuted and punished.

To make sure that capital – particularly when things go wrong and criminal acts are uncovered – remains protected, capital needs supportive politicians like Obama. Unsurprisingly, Obama told a group of bankers, my administration is the only thing between you and the pitchforks. 

Not long after Obama’s pep-talk to bankers, multi-billionaire Hanauer explained how this works. Most importantly, Obama told bankers which side he is on – their side. In short, the point of government is to protect capital and not those who lost their houses.

In the end, not just the financial crisis was devastating for working people and for the labor movement as unions lost 1.2 million members in the private sector between 2008 and 2012. In 2019, 6% of corporate employees belong to a union, fewer than in 1929 – the year of the Wall Street crash. 

The lessons from labor’s involvement in corporate finance are these: unions became wary of devoting diminishing resource to corporate campaigns. Eventually, labor drifted away from shareholder activism. Still, for unions, putting employees on boards was second-best to collective bargaining, labour’s preferred method of changing pre-distribution outcomes.

Finally, American unions became alchemists during the age of finance, seeking to transform the power of money into power for workers. For more than forty years, the winners have been the executives and owners, sometimes both, sometimes only one of them. Workers usually have lost. 

One might not blame trade unions for this. Outgunned by the hegemonic ideology of neoliberalism that defined the ideological atmosphere during the last forty years, trade unions also suffered from neoliberalism’s staunchly anti-union fanaticism. Unions also faced hostile corporations and an even more hostile politics – Reagan, Bush I and Bush II, Trump, as well as many Republican governors, senators, etc. 

Perhaps even worse, labor and unions also faced antagonistic corporate mass media. All in all, trade unions aren’t to blame for having tried to be alchemists for workers. But even trade unions couldn’t make gold out of thin air – just like the alchemists.

Eventually, one might not underemphasize “our” common blind-spot when examining how labour’s involvement into corporate finance and into pension funds works. In the end, labour’s involvement into finance has only very marginally improved the life of the American working class. 

So, was it all worth it? Faced with the overwhelming corporate, legislative, regulatory, ideological, and the corporate media power of Media Capitalism, the American labor movement fought a fight well worth fighting for. A recent book – Labor in the Age of Finance – has outlined this to perfection. But, with so many cards stacked against labor, it never even had a chance in the first place.

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