Tag Archives: Pensions

How The U.S. Became An Oligarchy. And Some Thoughts On How To Change It.

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Over the past five decades, the American economy has dramatically changed for the benefit of the wealthy and large corporations in ways many don’t understand. This led to the hollowing-out of the middle class and an ever-increasing number of working poor.

Unfortunately, the few politicians who fight for American workers have necessarily focused on trying to deal with the symptoms of our rigged economy by funding food shelves, food stamps, school lunches, homeless shelters and more. But they have been unwilling or unable to address the underlying causes.

If we are to ever develop real solutions, we first must acknowledge how we got into this mess. This requires an understanding of economics and history beginning with the 1970s and 80s.

Trickle-Down Theory. It was in the 80s when one political party convinced voters that, if they wanted to prosper, they needed to embrace the widely disproved concept of trickle-down economics. A concept based on the belief that if you cut taxes on the wealthy and corporations, enough money will trickle down to the workers. So, the highest personal income tax rate was cut by 20 percent. And the highest capital gains tax (the source of funds for the wealthy) was cut by 8 percent.

At the same time, the IRS did away with tax write-offs for interest on car loans and other personal loans, except for mortgages. Of course, that had little negative effect on the wealthy. But it cost working Americans plenty. In addition, the government permitted credit card companies to dramatically increase interest rates – yet another blow to the working class.

Buying The Competition. Around the same time, large corporations found that it was often less expensive to buy their competition than to compete with them. That resulted in large corporations swallowing up small and mid-size companies, which led to less competition, higher prices, fewer jobs, and the destruction of the middle of our economy.

Compensation Based On Share Prices. At about that very same time, CEOs convinced their boards of directors to base their compensation on stock performance. The higher the company’s share price, the more they get paid. That, in turn, led to CEOs like Chainsaw Al Dunlap, a supposed “turnaround specialist.” In reality, he was a brand killer and a job killer. After taking control of companies, he almost immediately sold off resources and laid off employees. That drove up share prices, profits soared, and he padded his bank account. Unfortunately, it was all a fraud. Most of the companies were sold or closed their doors.

Exporting Jobs. The 1970s and 1980s also marked the beginning of the mass exodus of manufacturing jobs to Mexico, China and elsewhere. After all, in order to pump up stock prices, CEOs needed to cut costs. In developing countries, workers could be hired for a fraction of the cost of American workers. Moreover, there were no labor unions, and most workers were willing to work without healthcare and retirement benefits, which in the US roughly equaled salaries. Again, corporate and CEO profits soared.

End Of Pensions. Yet another development at the time was the 401(k). It was sold to voters as a supplement to traditional employee pension plans. But, almost as soon as it was passed by Congress, corporations began eliminating pensions. That left most workers with less retirement funds and benefits.

Consequences. The consequences of all this are the continuing consolidation of industries, increased prices, worse customer service, the disappearance of the American middle-class and the redistribution of wealth upward.

Also, the repeal of the Fairness Doctrine has led to many news outlets becoming megaphones of propaganda for those politicians supported by the wealthy. And several decisions by the Supreme Court of the United States have permitted corporations and the wealthy to spend whatever it takes to buy the government they want. Putting this all together, it’s easy to see why our nation has become an oligarchy. But, instead of addressing these fundamental problems, politicians keep us distracted by their culture wars.

Possible Solutions. Now that you know how we got here, we can start to formulate solutions.

Personally, I’d begin with reinstating some form of Fairness Doctrine for electronic media, so we can all make decisions based on the same set of facts.

Next, following the lead of Teddy Roosevelt, I’d break up the most dominant corporations in every industry to increase competition and create jobs. I’d limit the number of brands and the percentage of sales for each corporation. And that would be quickly followed by increased taxes for the wealthy along with some sort of controls for executive compensation. (Incidentally, the best way to tax the oligarchs is to increase the capital gains tax on large sums.) Of course, that would also require doing away with tax shelters, both in the US and offshore.

I’d reinstate usury laws limiting the interest rates on all personal loans, including credit cards. I’d also require corporations with more than 50 employees to have employee representatives on their boards of directors.

And that’s just for starters.

The Conservative War Against Labor.

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In the years following the Great Depression, labor unions were popular and thriving. The Wagner Act of 1935, also known as the National Labor Relations Act, guaranteed workers the right to collective bargaining and the right to strike. As a result, union workers, particularly those in mining and manufacturing, experienced dramatic gains in salaries and benefits, along with safer working conditions.

Corporations didn’t give up these things without a fight. But public sentiment was temporarily on the side of workers and World War II demanded unity between corporations and unions.

The end of World War II and the beginning of the Cold War gave corporations a new opportunity to undermine unions with the rise of Sen. Joseph McCarthy (R-WI) and his House Un-American Affairs Committee (HUAC). Likely emboldened by President Truman’s loyalty program intended to discredit Democratic rival Henry Wallace (former V.P. to FDR, nuclear disarmament advocate and pro-labor candidate) prior to the 1948 presidential election, McCarthy launched a witch hunt in search of communist sympathizers. News of the Soviet Union’s growing nuclear capability spawned a national paranoia that allowed McCarthy to portray labor unions as a communist front .

By the time McCarthy’s lies and un-Constitutional tactics were exposed, hundreds of Americans had been imprisoned, thousands more had lost their jobs and tens of thousands had been investigated. The victims included those who had supported Wallace, civil rights leaders, union leaders…even the unions’ rank and file.

The unraveling of the HUAC may have posed another setback for corporations and the wealthy, but McCarthy’s accusations left many suspicious of organized labor, even as labor unions continued to help build the middle class. Finally, in the 1980’s, anti-union forces suceeded in electing a president sympathetic to their cause – Ronald Reagan. When the Professional Air Traffic Controllers Organization (PATCO) went on strike, violating a law banning strikes by government workers, Reagan fired all 11,345 members who failed to return to work.

Reflecting on the event, former Federal Reserve Chairman Alan Greenspan commented, “His [Reagan’s] action gave weight to the legal right of private employers, previously not fully exercised, to use their own discretion to both hire and discharge workers.”

The war against unions resumed in earnest.

Corporations began sending jobs offshore in search of labor willing to work for low wages and without benefits such as health insurance, disability insurance and unemployment insurance. The export of jobs also eliminated the need for worker pensions. (In the years since Reagan’s election, more than 85,000 defined benefit pension funds have been eliminated.) Many of the jobs that can’t be exported, like those at Walmart and McDonald’s, now pay so little that their employees require public assistance. And with fewer workers eligible to pay dues, many labor unions have been weakened.

Meanwhile, management compensation has soared. The savings on labor costs has resulted in million dollar annual salaries and bonuses for executives.

With money comes influence allowing corporations and industries to successfully lobby Congress for subsidies, tax write-offs and lower tax rates. In addition, many corporations have been allowed to avoid taxes by creating Post Office box “headquarters” in off-shore tax havens. The resulting drop in tax revenue led to increased deficits and greater debt. But, rather than rewrite the corporate tax code and raise taxes on those who could afford it, conservatives have seized the opportunity to cut social programs. They not only cut food stamps. They have targeted Medicaid, Medicare and Social Security, as well.

Not surprisingly, conservatives have also taken aim at the labor unions which represent government workers, such as teachers, firefighters and police. In particular, they want to eliminate government pensions. The argument is that, if private workers don’t have pensions and benefits, why should government workers? If successful, conservatives will have turned the clock back to the gilded age; the days prior to labor unions; the days of extreme wealth and extreme poverty.

Some say that we already have two Americas. I would argue three.

One is the America of the one percent; those who make lots of money and pay little to no income tax; those who can buy influence by donating to political campaigns and build new businesses with government subsidies financed with the taxes paid by others.

The second is the America of hard work, limited upward mobility and shrinking investments. In this America, you work ever longer hours in order to meet the corporate demands of increased productivity. Each year, you are forced to do more with less. For you, retirement may be little more than a dream. And for your children, college will become a financial burden they may never be able to repay.

The third America is one in which people work for so little money they can’t afford many of the necessities of life. According to the Working Poor Families Project, one in three American families are now among the working poor. One in six Americans and one in four children don’t know where the next meal is coming from, or even if there will be a next meal. In this America, more than 630,000 are chronically homeless and 3.5 million will experience homelessness in a given year. For many of these people, there is little hope that their circumstances will change. They not only lack political influence, many face new laws and obstacles intended to discourage them from voting.

Both President Obama and Pope Francis have recently called economic inequality the biggest problem we face. But President Obama can’t reduce inequality in America by himself. We will need a Congress that represents all Americans. We will need a sympathetic and unified citizenry. And we will need organized labor.

(As a footnote, I should make it clear that, having become part of middle management almost immediately following college graduation, I was ineligible for union membership. But, like most Americans, I was able to take advantage of the improved working conditions, salaries and benefits negotiated by labor unions.)

Conservatives Take Aim At Government Labor Unions.

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This year, conservatives are gathering lumps of coal for most Americans’ Christmas stockings. We can soon expect to see multi-million dollar assaults on many of the nation’s remaining social institutions and programs. At the federal level, conservatives in Congress are seeking to cut another $4 billion to 40 billion from the Supplemental Nutritional Assistance Program (SNAP), better known as food stamps. They are also targeting Social Security, Medicare, Medicaid, and unemployment insurance. And they are fighting attempts to increase the minimum wage despite the fact that large corporations have raked in record profits since the beginning of the Great Recession, and that wage growth is our main impediment to economic growth.

Conservatives are facing a severe time crunch in order to accomplish these goals. You see, the economy is finally showing signs of real growth. That means more Americans are working and paying taxes, thereby reducing the drain on social programs and lowering the deficit. As the deficit disappears so, too, does the conservatives’ primary argument for slashing social programs and cutting spending.

If conservatives are going to force more austerity and “personal responsibility” on poor Americans, squash labor unions, slash corporate taxes and head off a growing environmental movement, they have to do it now while the deficit is still inflated due to the effects of the Great Recession.

That’s why, as The Guardian reported, the State Policy Network funded by the Koch brothers is coordinating an all-out assault on government and social institutions in 34 states beginning early next year. The focus is on cutting pensions and wages for government workers, cutting budgets for public schools through voucher programs, and combatting attempts to reduce greenhouse gases. But, undoubtedly, the primary goal of the campaign is to rid the country of labor unions, particularly those in the public sector.

Of course, virtually none of their goals are actually good for our country. They are, however, great for large corporations, their executives and their investors.

None of this should come as a surprise to anyone. Conservatives have been fighting organized labor since the 1800’s. Labor unions grew in the 1930’s following the Great Depression when workers realized that the economic collapse was caused by the rich and their insatiable appetites for more wealth. But labor unions have been under attack ever since. The attacks accelerated during the Reagan administration leading to a decline in union membership, the elimination of more than 85,000 pension plans since 1980, and the export of hundreds of thousands of American jobs. As more high-paying labor jobs were sent offshore, union membership further declined. At the same time, large corporations like Walmart fought to block the unionization of their workers. As a result, union membership declined 11.3 percent in 2012 alone. Simultaneously, corporate profits have soared. But that largess has not been shared with workers.

There is, however, one sector of our economy in which labor unions are alive and well. The percentage of union membership among government workers is now 5 times higher than for workers in private companies. Given their contempt for unions and government, that figure makes public sector unions a tantalizing target for people like the Koch brothers. Their control of workers and the disassembling of government won’t be complete until labor unions no longer exist, corporate taxes are eliminated and the federal government is reduced to the Department of Defense. (After all, somebody has to defend them from those who would like to claim part of their wealth.)

Want to learn more about the attacks on American workers? I highly recommend The Betrayal of the American Dream by Barlett and Steele.