Capitalism Offers No Guarantee of a Middle Class

Reuters global editor at large Chrystia Freeland wrote in a 2011 column, Capitalism is Failing the Middle Class, what many of us have been complaining about for years, but what may finally be sinking in to skulls of the policy wonks that have influence with the movers and shakers of global capitalism. She sited two studies, one written by Michael Spence, published by the Council on Foreign Relations, and the other David Auter, published by the Brookings Institution. Both papers warn of the long term national consequences of lower wages and fewer job opportunities caused by shipping jobs overseas. From Chrystia Freeland:

Globalization and the technology revolution are increasing productivity and prosperity. But those rewards are unevenly shared – they are going to the people at the top in the United States, and enriching emerging economies over all. But the American middle class is losing out.

To Americans in the middle, it may seem surprising that it takes a Nobel laureate and sheaves of economic data to reach this unremarkable conclusion. But the analysis and its impeccable provenance matter, because this basic truth about how the world economy is working today is being ignored by most of the politicians in the United States and denied by many of its leading business people.

It’s becoming increasingly clear that capitalism by itself is no guarantee of the kind of large, prosperous middle class that used to define Americans as a land of opportunity. Businesses in this world can find poor grunts to work long days under terrible conditions for enough food to keep from starving. Businesses should remember that working customers will spend more if they're paid more.

Do people work for the economy or does the economy work for people?

The middle class was brought to us by those who fought for a combination of government policies and labor contracts: compulsory education and the schools that needed to be built, the Land Grant College Act, child labor laws, the minimum wage, workers compensation, social security, unemployment benefits, Medicare, Occupational Safety and Health Administration (OSHA), the eight-hour day, weekends, collective bargaining, anti-discrimination laws that were all passed despite fierce opposition from conservatives and corporations.

And they’re still at it.

The Steady Devaluation of Human Labor

Over the years, inflation has generally gone up and the minimum wage has been adjusted periodically to bring it in line with the higher cost of living. Raising the minimum wage usually involves a big political fight.

In 1970, minimum wage was $1.60 per hour. Now it's $7.25 per hour, an increase of 453%.

However, due to inflation, it takes about $9.28 in today's dollars to buy what used to cost $1.60 in 1970, an increase of 580%. Minimum wage statistics are found here and an inflation calculator is available here. 

The graph shows that the minimum wage, in constant dollars, has had its ups and downs since 1970 but the overall trend indicated by the straight black line is down. The numbers show that the American economy puts less value on the entry level worker than it did in 1970. Why is that? Are minimum wage workers less intelligent now than they were forty years ago? Are they lazier?

The reason probably has a lot to do with the rise of the global economy and cheaper Chinese labor. It may also have to do with basic attitudes toward labor. Some see labor as a commodity, while others believe it is not.  

Here are some remarks made by Representative Steve King (R-IA) on the floor of the House of Representatives last year:

"Labor is a commodity just like corn or beans or oil or gold, and the value of it needs to be determined by the competition, supply and demand in the workplace."

That very attitude toward workers was a powerful motivator during the early days of the labor movement. The idea that people were on par with animals, equipment, and raw materials was offensive and demeaning to workers who wanted a better life for themselves and their families.

  

Samuel Gompers, cigar maker-turned-labor organizer and founder of the American Federation of Labor in the early 20th Century, had a different business ethic related to labor and said this: “You cannot weigh the human soul in the same scales with a piece of pork.”

Labor advocates actually managed to insert a statement affirming the status of human labor in the 1914 Clayton Antitrust Act:  “The labor of a human being is not a commodity or article of commerce.”

So, is labor a commodity or not? The recent remarks by Rep. Steve King stand in direct opposition to the those of Samuel Gompers and the Clayton Act. The fight has gone on for decades, but, based on the above chart, it looks like King's side is winning.