Can We Look It In the Eye?

When capitalism took over the world roughly 200 years ago, it vastly increased society’s productivity but at the cost of immense human suffering. Millions of people were displaced and dramatic cycles of boom and bust rendered workers vulnerable to starvation and disease. Over time, the imbalances have been modified and corrected.

Henry Ford had the idea about a hundred years ago that if his workers were paid adequately they would be able to buy the cars they assembled in his factories. More sales, more demand, more work – and the link between work and consumption quickly became one of the celebrated aspects of a more balanced capitalism.

The logic still holds, but globalization has put a big dent in this bargain. Not only do big multi-national corporations search for the best tax breaks they can find throughout the world, starving governments of revenue in the process, – the topic I addressed in last week’s blog post – they search for the cheapest labor they can find around the world.

Daniel Gross noted in Newsweek: “Corporate profits have soared from $1.1 trillion in 2008 to $1.95 trillion in 2012—up 77 percent. The amount of cash on companies’ books has risen from $1.39 trillion in 2008 to $1.79 trillion in the fourth quarter of 2012—also a record.” Nonetheless, corporations are reluctant to hire more workers or increase wages. Gross went on to note that “Since the recession, companies have realized that if they freeze, or even cut, wages, workers will still show up and toil just as productively.”

The problem, though, is that then they don’t have money to spend. “Where are all the customers?” read a plaintive email from a Walmart executive that leaked in early February. “And where is all their money?”

“’Workers are consumers, and when they aren’t paid enough to buy goods, the economy can’t grow,’ said Amy Traub, senior policy analyst at the Manhattan-based think tank Demos.” She adds: “We end up trapped in a vicious cycle of low growth, and companies that persist in trying to cut labor costs further only make matters worse for themselves.” (See, “Apple Too Clever By Half.”)

The unbridled pursuit of profit in this phase of Investor Capitalism is pushing corporations into a destructive process. Not only are they not hiring, preventing the distribution of wealth, those who cannot get jobs are increasingly squeezed as governments cut back their safety nets.

A member of a recent panel at N.Y.U’s business school, argued that “current publicly traded U.S. companies were ‘actually obliged to maximize their externalities’ — economist-speak for behavior that harms the wider community — if that would increase their bottom line.” The panelist noted that “paying the lowest possible taxes is not the exceptional policy of one particularly greedy chief executive — it is what every executive seeks to do to keep his job. According to The New York Times, reporting on the panel: “the grim title of the session was “Can American Capitalism be Saved?”

In a new book, a University of Michigan sociologist, Mark S. Mizruchi, contends that the forsaking of responsibility for the wider community is a big shift in the behavior of U.S. business and a central reason for the country’s political and economic malaise. (See, “Aligning With the Greater Good.”)

“The current American corporate elite seems to be leading us toward the fate of the earlier Roman, Dutch and Habsburg Spanish empires, starving the treasury and accumulating vast resources for itself.”