Interview with noted economist, Richard D. Wolff: Part Two

An in depth examination of the current economic crises plaguing our continent and a closer look at the issues with capitalism itself

Interview by: Konstantine Roccas

Konstantine Roccas has an intimate conversation with noted economist, Richard D. Wolff, about a number of issues, spanning the current economic crisis,  a comparison of economic systems, and a discussion about the flaws of capitalism and their proposed solutions.

According to the Economic Policy Institute, real wages have flat-lined since the 1970’s while productivity has sky-rocketed, especially these past few years. Why are we not seeing the benefits of our increased labour?

Well you’re seeing them; you’re just not getting them. The productivity of the American worker is roughly a measure of the goods and services produced per hour of a workers effort. So when John and Mary come into work and spend an hour, the productivity statistic measures what on average is the flow of output that an hour of their work produces. [Or in simpler terms], what you give to your employer for every hour you work.

Keeping that in mind, let’s turn to the real wage: the bundle of goods and services that you can afford to buy with an hours’ worth of your pay. Your real wage represents what your employer gives you for every hour that you work.

Taking the numbers from the Economic Policy Institute, real wages had been constant over the last 30-40 years, and that’s pretty much correct. The average worker gets pay which allows him/her to buy a bundle of goods and services about the same as what he/she could do with an hour’s worth of pay in 1975; so the wage paid to workers by the employer has been constant. But the bundle of goods and services provided by an hour of a workers work has gone steadily up over the 30 years. It’s not rocket science to understand that if what you give every hour to your employer goes steadily up for 30-40 years but what he gives you remains flat, the employer is having the time of his life. Profits are skyrocketing. Not because of technology or because ‘capitalists are smart’ or ‘entrepreneurs are creative.’ They are skyrocketing for a much simpler reason. You’re not raising the wages of your workers and you’re getting more out of them. Not only by new and better machines and technology, but by working them harder, faster, longer, training them better, having them frightened about their job security, etc.

So there have been gains for rising productivity but they have accrued to the employers of America, not just on Wall Street, but right across on Main Street as well. Employers everywhere have been dancing the jig of rising productivity from their workers while they don’t have to pay their workers any rising real wage; which by the way they had to do for the workers for over a century up until the 1970s. This productivity shows but in what?

[First], a record stock market explosion from roughly 1980 to the 2000 mark, unlike any we had seen before. Secondly, we pay the top executives of our major corporations’ way more than they get anywhere else on Earth. That was not true in the 1970s and has become obscenely true ever since. A good bit of that extra wealth has found its way not only into the dividends and capital wealth of shareholders, but to the extraordinary pay packages we pay to the top executives of corporations down the line.

So yes, rising productivity and flat wages have produced enormous gains, but they have accrued to what we now refer to as the one percent and they have eluded the 99%, creating in the United States the following summary statistic. In 1970, the U.S. was less unequal in terms of rich and poor when compared to most of our competitors in Europe. In 2013, we are number one in this dubious race. We have greater inequality between rich and poor than do any countries in Europe. That’s a testimony to where the wealth went that got produced with rising productivity in the last 30 years.

Why have people in Europe been more ready to protest and fight back against austerity and inequality on a much larger scale as opposed to those of us here in North America? Where did that culture of protest vanish to here in North America, and did we ever actually have it?

Yes we had it and it didn’t so much as vanish as it was crushed. If you recall, what I mentioned before about how different the 1930’s were with Roosevelt compared to the present, I will start the story there.

What Roosevelt did in the 1930’s in the middle of a terrible depression was the exact opposite of the austerity programs that were imposed [at that time] in Europe and in parts of the United States. In the midst of the depression with unemployment at least three times what it is today, every level of government was hamstrung, because they were not receiving much income, because they couldn’t levy taxes on people who had no job. Every government was pleading poverty. So what did Roosevelt do? He created a social security system. This was an enormous outlay of money helping out average Americans in the midst of a depression. We have nothing remotely like that now.

[Secondly], he created the Employment Compensation System at a time when millions and millions of people were unemployed, [this was] a great deal of money helping those at the bottom of the barrel. We have nothing remotely like that now.

Finally, as I mentioned before, a federal jobs program more expensive than the other two. So how was that possible? The answer is a powerful movement from below. Exactly like what you are seeing in Europe today. If you go [back to the archives] or the internet, you can look at photographs of demonstrations in the 1930s across the United States [Konstantine’s note: In Canada too!] Major cities [and] everything in between were sites of constant strikes and demonstrations, the exact picture of Europe. That was the time of a mass movement in this country.

For example: the Congress of Industrial Organizations (CIO) mobilized to enlist American workers in unions. In the midst of a depression, millions of men and women who had never been in a union in their lives joined one. At the same time, powerful Socialist and Communist parties here in the United States worked together with the CIO on these organizing drives, [and so]a  revolution [began] brewing in this country.

Roosevelt understood that he was dealing with a mass movement that had real power. So he went to his friends among the rich and the corporate leaders and said, ‘you better give me the money to take care of the people at the bottom, because if you don’t the system that makes you rich and powerful is in danger of disappearing. So he convinced roughly half of the rich and corporate leaders of America and that was all he needed [to] cut a deal. He taxed the rich and the corporations very high and they went along with it. He then used the money to help [the] people. [He gave them] social security, unemployment compensation and jobs, but in exchange [the people] had to get rid of all that socialism and communism talk; no overthrow of the system.’ The three groups agreed to that deal too and that’s why we have social security and unemployment compensation to this day and how we got through the depression without turning fascist the way they did in Germany, Italy and Japan.

So what happened after World War II? The half of the rich and the half of the business class who had never bought Roosevelt’s argument – that thought the Unions, Socialists and Communists were not strong enough to pull off what they threatened – were furious at paying higher taxes and furious at having the government assume the huge role of the economy implied by social security, unemployment insurance and becoming the major employer in the country.  They went to work after the war to destroy the movement that they knew had brought Social Security, the labour movement and the jobs program into being. That was their target and that was their strategy.

They got rid of the Communists and Socialists by way of the anti-Communist hysteria we now call McCarthyism. [They] portrayed the two not as a movement for improving the conditions of Americans, but as a traitorous fifth column of the Soviet Union.

Next up was the labour movement; it started in 1947 with the Taft-Hartley bill that severely constricted the freedom of labour unions to function. Over the last 50 years the labour movement has lost membership every year. From representing roughly 35% of the private labour force in the United States, today the AFL, CIO and other Unions together represent less than seven percent of private sector workers. They have become weakened to the point of utter ineffectuality.

So it wasn’t that we didn’t have a movement here like in Europe, it was that the business community, the Republican party, the wealthy in America, the media that they owned all went to work to decimate those organizations, political parties and trade unions that were the backbone of what we got in the 1930’s. [These] are the same backbones of the demonstrations and strikes in Europe and that’s why our reactions so far are different, but that is only temporary.

What the Occupy Wall Street movement shows, is that all of that can happen again. It only takes the determination of people badly affected by this crisis to understand the history that I just recounted and to see the need either to rebuild those old organizations or to build new ones in order to get those changes in policy that our own history teaches us we can have, we did have in the past and that we can have again.

Richard D. Wolff is Professor of Economics, Emeritus, at the University of Massachusetts, Amherst and Visiting Professor at the New School University in New York. With frequent co-author, Stephen Resnick, he has published many books and articles on economic theory, economic history, and alternative economic theories. Their latest is Contending Economic Theories: Neoclassical, Keynesian and Marxian (Cambridge: MIT Press, 2012). Wolff’s recent work (books, articles, speeches, and interviews) critically analyzes capitalism’s severe global crisis since 2007. That work and proposals for solutions are gathered at rdwolff.com and democracyatwork.info.

Konstantine Roccas is an observer of local and international affairs and governance, but also writes about anything else that piques his ire. He enjoys a half kilo of Greek yogurt daily. He writes for the Arbitrage Magazine. More of his work can be found at myriadtruths.blogspot.caand he can be followed on Twitter @KosteeRoccas.