Making American Public Sector Workers Pay Instead of Greedy Corporates

In a bizarre, post-crisis turn of events, public sector activities, in general, and public sector workers, in particular, have become the targets of rightwing attacks in the US. Government spending is unsustainable it is being argued, and therefore, the public sector must be trimmed, by reducing jobs and slashing wages and benefits. It is indeed true that government spending as a percentage of GDP has risen sharply by around seven percentage points from 35 per cent to 42 percent (see Chart). But this occurred during the years after the crisis, when the government was pumping billions of dollars to bail-out the financial system that had speculated its way to failure and the firms that were damaged by the recession that ensued. It was the “subsidy” to capital rather than payments to workers that increased public spending to significantly higher levels.

It is to ostensibly address that problem, that the US House of Representatives recently approved a bill cutting spending this year by $61 billion. But the cuts don’t fall on the rich. Spending cuts, as is well known, fall heavily on social spending for the poor. Reduced social security for the poor and middle classes are the first consequences of austerity. But the impact soon goes further. It begins to adversely affect public sector employment and the benefits accruing to public sector workers.

At the moment, the attacks seem sharper in the states. In Wisconsin, for example, public sector workers are protesting an effort by Republican governor Scott Walker to reduce their benefits and limit their collective bargaining rights. Governor Walker wants workers to contribute more to their pension and health care plans, to roll back wage increases and limit the length of employment contracts. He also wants to bar most state and local government employees from negotiating on issues like benefits and work conditions. In addition, he is working to weaken unions by requiring them to face an annual vote to retain recognition, while pressuring workers to stop paying union dues and resign from union membership.

The reason for the attack is a budgetary deficit that is projected to touch $3 billion. The argument is that public sector pay and benefits are now way out of line with that in the private sector, necessitating some sacrifice on the part of these workers to redress imbalances in public finances. This is an argument that is being pursued in other states as well: New Jersey, Ohio, Tennessee and Indiana among them. And these states see the standoff between the unions and government in Wisconsin as the test of whether they can get their own public sector workers to accept austerity to resolve at least partly their fiscal problems.

Budgetary shortfalls are not, however, engineered by workers. They reflect the fact that governments have not been able to keep revenues buoyant as expenditures rise. One reason is the increasing reticence of governments to tax their citizens and their proclivity to offer huge tax concessions, especially to the more well to do among them. This inability to get citizens, especially the rich, to finance through taxes the social services and infrastructure they benefit from is one among the many failures inherent in a neoliberal ethos that celebrates the market and the wealth derived by a few from its workings. Seen in that light the attack on public sector workers is not the solution to the public sector crisis, but a way of diverting attention from its real sources and origins.

This reasoning is supported by the fact that judging by relative circumstances, Wisconsin should not be a state that should consider forcing public workers to tighten their belts to resolve the fiscal crisis and release resources to support a recovery. The state’s deficits are nowhere near the top of the league table in the US. Its unemployment rate is, at 7.5 percent, below the national average. And, its pension fund is assessed as being relatively robust. Ideologically, the attack on the public sector in the state of Wisconsin originates elsewhere and not in a fiscal crisis.

The attack on public sector workers is not a marginal issue. Such workers in state and city governments and educational institutions total 19.4 million and account for close to 15 per cent of the workforce in the US. Their significance does not stop here. Over the last four and half decades, the unionised segment of the non-agricultural workforce has collapsed from close to a third to just above 12 per cent. Much of the decline has been in the private sector, which has managed to push workers out of unions. According to figures from the Bureau of Labour Statistics, in 2009, the number of unionised public-sector employees (7.9 million) rose above that of private-sector employees (7.4 million), even though public sector workers are a minority even in the non-agricultural sector. Attacking unions in the public sector is, therefore, a larger attack on collective bargaining.

That attack comes at a time when workers are at the losing end of a sharp shift in the distribution of incomes. Workers wages and benefits have stagnated in real terms in the US for a long time now. On the other hand, incomes of the super-rich have exploded. According to University of Massachusetts economists Robert Pollin and Jeffrey Thomson, “during the economic expansion and Wall Street bubble years of 2002–07, the average incomes of the richest 1 percent of households rose by about 10 percent per year, more than three times that for all households. The richest 1 percent received fully 65 percent of all household income growth between 2002–07.”

Rather than tax these surpluses at the top of the pyramid to help resolve the crisis, the right has decided to shift attention to a small segment of the workforce they mistakenly claim is pampered. It is indeed true that the public sector is the standard bearer for the terms and conditions that constitute decent work. But that standard is not extravagant. For similar qualifications and experience public sector workers in the US earn less than those in the private sector. And even those terms have not been garnered with ease. Using the unavoidable public accountability of government, to sustain unions in the public sector, has ensured them. That union strength has in turn been used to win and retain better employment terms and conditions.

This points to points to the real factors explaining the effort to bash the public sector and its workers. It is part of an effort to weaken unions and dilute the standards to which private workers would aspire for. This would make stagnant real wages, deteriorating work conditions and high unemployment appear to be the unavoidable lot of the many, who will not have options to turn to and better conditions to look to and aspire for. Even when there is enough money to dole out concessions to the rich.

What is shocking is the context in which this occurs. America’s government has just poured billion of dollars to buy up worthless toxic assets, render banks that speculated their way to near bankruptcy solvent, and offer cheap credit to speculators who put their institutions and the country’s economy at peril, so that they can bounce back to profits and pay themselves big bonuses. The attack on public sector unions is only an effort to cover up these unjustifiable actions.

By CP Chandrashekhar/thehindu.com

Keynes And The The Paradox Of Capitalism

Once upon a time, economic downturns were looked on as inevitable. Or incurable. Or even a morally justified, righteous cleansing of an economy burdened by the sins of excess. One result of this thinking was the policy mistakes that contributed to the Depression. One of the few good developments to come out of this experience was perhaps the most important economic breakthrough in the 20th century: John Maynard Keynes' 1936 book, 'The General Theory of Employment, Interest, and Money.'

Keynes pointed out that in a downturn, an economy simultaneously has idle factories, unemployed workers and too little spending. This creates the possibility of a virtuous circle: Getting people to spend more will put the factories back to work, staffed by the previously unemployed workers. Put another way, in the short run, when the economy is operating below its potential, expanding demand can create supply.

Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal actions by the government to stabilise output over the business cycle.

Keynes argued that the solution to depression was to stimulate the economy (“inducement to invest”) through some combination of two approaches: a reduction in interest rates and government investment in infrastructure. Investment by government injects income, which results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth.

The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment. Not surprisingly, Keynesian theory is being touted as a mantra in these recessionary times when government “stimulus packages” are being hailed as the best way to save capitalism from itself.

Though bourgeois in his outlook, Keynes was a remarkably insightful economist. But even his insights could not fully comprehend the paradox that is capitalism. Indeed, our own experience belies the Keynesian optimism about the future of mankind under capitalism, writes Prabhat Patnaik in this insightful article.

In a famous essay 'Economic Possibilities for our Grandchildren' (1930), Keynes had argued: “Assuming no important wars and no important increase in population, the economic problem may be solved, or be at least within sight of solution, within a hundred years. This means that the economic problem is not, if we look into the future, the permanent problem of the human race.” (emphasis in the original)

He had gone on to ask: “Why, you may ask, is this so startling? It is startling because, if instead of looking into the future, we look into the past, we find that the economic problem, the struggle for subsistence, always has been hitherto the most pressing problem of the human race… If the economic problem is solved, mankind will be deprived of its traditional purpose.” He had then proceeded to examine how mankind could fruitfully use its time in such a world.

True, after Keynes had written there has been the second world war, but thereafter mankind has had six-and-a-half decades without any “important war” of the sort that could interrupt what he had called the “era of progress and invention”. And the rate of population growth has also not accelerated to a point that can be considered to have invalidated Keynes’ premise.

And yet if we take mankind as a whole, it is as far from solving the economic problem as it ever was. True, there has been massive accumulation of capital, and with it an enormous increase in the mass of goods available to mankind; and yet, for the vast majority of mankind, the “struggle for subsistence” that Keynes had referred to has continued to remain as acute as ever, perhaps in some ways even more acute than ever before.

To say that this is only because not enough time has passed, that over a slightly longer time period Keynes’ vision will indeed turn out to be true, is facile. The fact that the bulk of mankind continues to face an acute struggle for subsistence is not a matter of degree; it is not as if the acuteness of this struggle for this segment of mankind has been lessening over time, or that the relative size of this segment has been lessening over time. We cannot therefore assert that the passage of more time will lift everybody above this struggle.

Dichotomy Structurally Inbuilt In Capitalism
Likewise, to say that while enormous increases have taken place in the mass of goods and services available to mankind (the increase in this mass being more in the last 100 years than in the previous 2000 years, as Keynes had pointed out), its distribution has been extremely skewed and hence accounts for the persistence of the struggle for subsistence for the majority of the world’s population, is to state a mere tautology.

The whole point is that there is something structural to the capitalist system itself, the same system that causes this enormous increase in mankind’s capacity to produce goods and services, which also ensures that, notwithstanding this enormous increase, the struggle for subsistence must continue to be as acute as before, or even more acute than before, for the bulk of mankind.

Keynes missed this structural aspect of capitalism. His entire argument in fact was based on the mere logic of compound interest, i.e. on the sheer fact that “if capital increases, say, 2 per cent per annum, the capital equipment of the world will have increased by a half in twenty years, and seven and a half times in a hundred years.”

From this sheer fact it follows that output too would have increased more or less by a similar order of magnitude, and mankind, with so much more of goods at its disposal, would have overcome the struggle for subsistence. The reason Keynes assumed that an increase in the mass of goods would eventually benefit everyone lies not just in his inability to see the antagonistic nature of the capitalist mode of production (and its antagonistic relationship with the surrounding universe of petty producers), but also in his belief that capitalism is a malleable system which can be moulded, in accordance with the dictates of reason, by the interventions of the State as the representative of society.

He was a liberal and saw the state as standing above, and acting on behalf of, society as a whole, in accordance with the dictates of reason. The world, he thought, was ruled by ideas; and correct, and benevolent, ideas would clearly translate themselves into reality, so that the increase in mankind’s productive capacity would get naturally transformed into an end of the economic problem.

If the antagonism of capitalism was pointed out to Keynes, he would have simply talked about state intervention restraining this antagonism to ensure that the benefit of the increase in productive capacity reached all.

The fact that this has not happened, the fact that the enormous increase in mankind’s capacity to produce has translated itself not into an end to the struggle for subsistence for the world’s population, but into a plethora of all kinds of goods and services of little benefit to it, from a stockpiling of armaments to an exploration of outer space, and even into a systematic promotion of waste, and lack of utilization, or even destruction, of productive equipment, only underscores the limitations of the liberal world outlook of which Keynes was a votary.

The State, instead of being an embodiment of reason, which intervenes in the interests of society as a whole, as liberalism believes, acts to defend the class interests of the hegemonic class, and hence to perpetuate the antagonisms of the capitalist system.

Antagonisms In Three Distinct Ways
These antagonisms perpetuate in three quite distinct ways the struggle for subsistence in which the bulk of mankind is caught. The first centres around the fact that the level of wages in the capitalist system depends upon the relative size of the reserve army of labour.

And to the extent that the relative size of the reserve army of labour never shrinks below a certain threshold level, the wage rate remains tied to the subsistence level despite significant increases in labour productivity, as necessarily occur in the “era of progress and innovation.” Work itself therefore becomes a struggle for subsistence and remains so.

Secondly, those who constitute the reserve army of labour are themselves destitute and hence condemned to an even more acute struggle for subsistence, to eke out for themselves an even more meagre magnitude of goods and services.

And thirdly, the encroachment by the capitalist mode upon the surrounding universe of petty production, whereby it displaces petty producers, grabs land from the peasants, uses the tax machinery of the State to appropriate for itself, at the expense of the petty producers, an amount of surplus value over and above what is produced within the capitalist mode itself, in short, the entire mechanism of “primitive accumulation of capital” ensures that the size of the reserve army always remains above this threshold level.

There is a stream of destitute petty producers forever flocking to work within the capitalist mode but unable to find work and hence joining the ranks of the reserve army. The antagonism within the system, and vis-à-vis the surrounding universe of petty production, thus ensures that, notwithstanding the massive increases in mankind’s productive capacity, the struggle of subsistence for the bulk of mankind continues unabated.

The growth rates of world output have been even greater in the post-war period than in Keynes’ time. The growth rates in particular capitalist countries like India have been of an order unimaginable in Keynes’ time, and yet there is no let up in the struggle for subsistence on the part of the bulk of the population even within these countries.

In India, precisely during the period of neo-liberal reforms when output growth rates have been high, there has been an increase in the proportion of the rural population accessing less than 2400 calories per person per day (the figure for 2004 is 87 per cent). This is also the period when hundreds of thousands of peasants, unable to carry on even simple reproduction have committed suicide.

The unemployment rate has increased, notwithstanding a massive jump in the rate of capital accumulation; and the real wage rate, even of the workers in the organized sector, has at best stagnated, notwithstanding massive increases in labour productivity. In short, our own experience belies the Keynesian optimism about the future of mankind under capitalism.

But Keynes wrote a long time ago. He should have seen the inner working of the system better (after all Marx who died the year Keynes was born, saw it), but perhaps his upper class Edwardian upbringing came in the way.

But what does one say of people who, having seen the destitution-“high growth” dialectics in the contemporary world, still cling to the illusion that the logic of compound interest will overcome the “economic problem of mankind”?

Neo-liberal ideologues of course propound this illusion, either in its simple version, which is the “trickle down” theory, or in the slightly more complex version, where the State is supposed to ensure through its intervention that the benefits of the growing mass of goods and services are made available to all, thereby alleviating poverty and easing the struggle for subsistence.

But this illusion often appears in an altogether unrecognizable form. Jeffrey Sachs, the economist who is well-known for his administration of the so-called shock therapy in the former Soviet Union that led to a veritable retrogression of the economy and the unleashing of massive suffering on millions of people, has come out with a book where he argues that poverty in large parts of the world is associated with adverse geographical factors, such as drought-proneness, desertification, infertile soil, and such like.

He wants global efforts to help these economies which are the victims of such niggardliness on the part of nature. The fact that enormous poverty exists in areas, where nature is not niggardly, but on the contrary bounteous; the fact that the very bounteousness of nature has formed the basis of exploitation of the producers on a massive scale, so that they are engaged in an acute struggle for existence precisely in the midst of plenitude; and hence the fact that the bulk of the world’s population continues to struggle for subsistence not because of nature’s niggardliness but because of the incubus of an exploitative social order, are all obscured by such analysis. Keynes’ faith in the miracle of compound interest would be justified in a socialist order, but not in a capitalist one.