Archive for the ‘Labor’ Category

When profits and productivity aren’t enough

July 9, 2014

Losing Sparta by Esther Kaplan on VQR tells the following story.

A Philips lighting fixtures plant in Sparta, Tenn., was named by Industry Week in 2009 as one of the 10 best factories in the USA.

Workers and managers had worked together to increase output on some lines by 60 percent, lower changeover time between small orders by 90 percent, and reduce defective parts by 95 percent.  As a result the plant generated a good profit.

Yet in 2010 an executive showed up from corporate headquarters in the Netherlands and announced that the plant was closing, and its operations moved to Monterey, Mexico.

To people in Sparta, this didn’t make sense.  Local business leaders did a study that showed that any savings on wages (which generally are no more than 10 to 15 percent of manufacturing costs) would be offset by increased transportation costs of Philips’ markets in the Northeast and Midwest.  They were unable to make contact with anyone in Philips who was willing to listen or who had authority to make the decision.

Esther Kaplan thinks that the decision probably was based not on study of the Sparta plant specifically, but on an overall policy of centralizing manufacturing in low-wage countries.

I know from reporting on business years ago that there are fashions in management.  In one era, the fashion was diversification, so that your business is not dependent on any one market; in another, it was divestment and concentration on core competency.  And I know there are managers who think that willingness to cause human suffering is a sign of realism and tough-mindedness.

I also know from my own experience that when managers tell employees it is necessary to do X in order to keep their operation going, they almost always will do everything humanly possible to achieve X—provided that they think the statement is being made in good faith.

Workers in Sparta did everything management asked of them, but to no avail.  Kaplan wrote that this is the story of American workers as a whole.   Americans by many measures are the most productive workers in the world, and U.S. productivity continues to increase, but this does not keep manufacturing jobs in the USA.

The logic of being required to pay union dues

July 1, 2014

At first glance, it seems wrong to require people who don’t believe in labor unions to pay union dues just to be able to work for an employer with a union contract.   Here’s how I see the logic.

unionsShould workers have the right to bargain collectively and make contracts with employers?  Under U.S. law, workers have that right.  It would be absurd to say that investors have the right to join together to form corporations, but workers do not have the right to join together to form unions.

If there is a union contract, should the union have the power to say who is hired and who isn’t?  Under U.S. law, unions do not have that right.   If they did, they would, in effect, be the employer.

Should everyone who is hired by a union employer be covered by the union contract?  Under U.S. law, they are.  If not, the contract would be meaningless.

Should someone who gets the benefit of a union contract pay the same dues as fellow employees for union representation.  I would say, “yes,” but yesterday the U.S. Supreme Court said “no,” at least as regards home care workers and public employee unions.

LINKS

Supreme Court rules against home care workers unions by Laura Clawson for Daily Kos.

Supreme Court: It Could Have Been Worse by David Cole for the New York Review of Books.

Alito and the expected pretzel on Psychopolitik.

Six Groups That Are Reinventing Organized Labor by Josh Israel for Think Progress.   In the light of recent Supreme Court decisions restricting labor and empowering business, some worker groups are organizing without the protections and restrictions of U.S. labor law.

Reflections on Piketty’s inequality argument

June 14, 2014

 

The novels of Jane Austen, Honore de Balzac or Henry James, in which civilized life was confined to a small percentage of the population and the only way most people could acquire significant wealth was to inherit it or marry it.

According to Thomas Piketty’s Capital in the Twenty-First Century, there is nothing to stop that kind of world from coming back.

1_percent_decomposed_2.png.CROP.promovar-mediumlargePiketty’s basic argument goes as follows:
•    If the rate of return on investment is a higher percentage than the rate of economic growth, which he expresses as r > g,  the owners of investment property will get an ever-larger share of national income.
•    R > g is the normal state of affairs.
•    Ownership of wealth is distributed even more unequally than income.   The higher the share of income that comes from wealth, the more unequal it will be.
•    The larger the amount of wealth you own, the faster it is likely to compound.   So not only do the rich become richer at a faster rate than ordinary people, the super-rich become richer at a faster rate than the ordinary rich.
•    At some point the process levels off, but the leveling-off point may not come until inequality reaches a point that we associate with 18th century Europe or the Third World

The economic prosperity and relative equality during 1945-1975 were made possible by the destruction of capital during the Great Depression and the two World Wars, according to Piketty.   Of course war and depression left everybody worse off, not just rich people, but when economic growth resumed, a lesser share went to the economic elite.

Piketty’s conclusions are backed up by archival research that traces income and wealth distribution in France, Britain and the USA for two centuries and many other countries for shorter periods of time.  That research shows that r > g is the typical state of affairs in most countries and most periods of history for which information is available.

One striking finding is that there is just as much inequality among the elite as there is among the public at large.  In the USA, the top 10 percent have about half the wealth, the top 1 percent have about half the wealth of the top 10 percent, and the top 0.1 percent have about half the wealth of the top 1 percent.

Another finding, based on comparisons of American university endowment funds, is that the larger the amount of wealth you have to invest, the higher your rate of return is likely to be.   This is probably because the richer you are, the better financial managers you can hire, the better able you are to diversify your investments and the better cushion you have when you make high-risk, high-return investments.

chart_2.png.CROP.promovar-mediumlargePiketty proposes to deal with inequality by means of a graduated tax on wealth to go along with graduated taxes on inheritance and income.  But there are other ways.

You could figure out ways to increase the rate of economic growth, for example.  Or you could figure out ways to achieve a wider distribution of wealth, such as through employee stock-ownership plans or worker-owned enterprises.   Or you could strengthen labor unions, increase minimum wage or take other measures to increase the incomes of the middle class, working people and the poor.

It’s important to keep in mind that Piketty only deals with one specific issue, the concentration of income and wealth in a small elite—an important issue, but not the only one.   Piketty does not tell us how to raise people out of dire poverty, nor how to achieve better productivity, or economic growth, or better education, or a cleaner environment, or any other goal.

And taking money away from the economic elite will not in and of itself make anyone any better off.   A lot of financial wealth was destroyed during the Great Depression and and a lot of tangible wealth was destroyed during World War Two, but this did help anybody at the bottom of the economic scale.  Piketty thinks that destruction of wealth cleared the way for the prosperity of the 1950s and 1960s, but I don’t think anybody who lived through the 1930s and 1940s would have said it was worth it.

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Piketty’s inequality argument in six charts

June 14, 2014

Thomas Piketty’s book, Capital in the Twenty-First Century, has stirred up a lot of controversy.  As well it should.  If he is right, there is nothing to stop a tiny elite from growing richer and richer at the expense of the rest of us.

The important thing to remember of Piketty’s argument is that it is not based on economic theory.   It is based on years of research on sources of wealth and income through history in different countries.   And, as quantitative information, it lends itself to charts.

I think Piketty’s research is important to understand for the future of our country and the world.   I’m reproducing six charts based on Piketty’s data from an article by John Cassidy in The New Yorker, which sum up Piketty’s findings well.

The first chart shows the share of American income taken by the best-paid 10 percent.

chart-01The chart shows that half of the income earned by all Americans went to the top 10 percent just prior to the stock market crash of 1929, that their income share fell to between 30 and 35 percent between 1945 and 1975 and now it is going back up again to 1920s levels.

Piketty explained this with his equation, r > g.   When the rate of return on investment is a higher percentage than the rate of economic growth, the holders of capital will get an ever-increasing share of income.   For the purposes of his book, Piketty has a special definition of capital, which is different from economists’ standard definition.  He defines capital as anything you can own that will give you an income, including agricultural land, government bonds, houses (which you can rent), common stocks or anything else.   In the Old South, prior to the Civil War, slaves were a form of capital.

Income distribution in the 20th century USA became more equal for a time partly because the Great Depression destroyed the value of so many financial assets, but mostly because of the high rate of economic growth following the Second World War.

Of late the pay of financiers and corporate executives has gone up much faster than the pay of middle-class and poor people, but, as the following chart shows, inequality in ownership of financial assets is a bigger factor in the income share of the top 1 percent than inequality in wages and salaries.

top1%sharechart-02

The next chart shows that same trend exists among the top 1 percent in all the major English-speaking countries.

chart-03

The next Cassidy chart shows the income shares of the top 1 percent in some of the developing countries.

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Amazon is bad for writers and book lovers

June 12, 2014

 Amazon’s tactics against the book publisher Hachette are not just bad for publishers.  They are bad for writers.   And, in the long run, they are bad for lovers of books.

What’s going on is part of a familiar pattern.   A powerful company uses its power to squeeze the profit margins of weaker companies.   This means the weaker companies can’t afford decent pay for the people who produce the work.   But the producers can’t get at the powerful company because it is buffered by the intermediaries.

That is how it works with fast-food franchisers such as McConald’s, their franchisees and low-wage fast-food workers.   That is how it works with electronics companies such as Apple and Sony, their sub-contractors in Asia, and the low-paid sweatshop workers.  That is how it works with Walmart, its suppliers and their low-paid employees (aside from what Walmart pays its own employees)

Hachette Amazon LogoAnd this is how, apparently, it is going to work with Amazon, book publishers and authors.

Jeff Bezos of Amazon refuses to provide good service to buyers of Hachette books unless the publisher submits to his terms for distributing their books.  In an earlier dispute with the publisher Macmillian, he simply deleted the “buy” button from all Macmillan books listed on Amazon.

One of my favorite authors, Charles Stross, who is published by Hachette, explained what is at stake.

Amazon’s strategy … is to squat on the distribution channel, artificially subsidize the price of e-books “dumping” or predatory pricing to get consumers hooked, rely on DRM on the walled garden of the Kindle store to lock consumers onto their platform, and then to use their monopsony buying power to grab the publishers’ share of the profits.  If you’re a consumer, in the short term this is good news: it means you get cheap books.

But if you’re a reader, you probably like to read new books.  By driving down the unit revenue, Amazon makes it really hard for publishers—who are a proxy for authors—to turn a profit.  Eventually they go out of business, leaving just Amazon as a monopoly distribution channel retailing the output of an atomized cloud of highly vulnerable self-employed piece-workers like myself.

At which point the screws can be tightened indefinitely.  And after a while, there will be no more Charlie Stross novels because I will be unable to earn a living and will have to go find a paying job.

via Charlie’s Diary.

There is an old tradeoff:  Speed.  Price.  Quality.  Pick any two.  The business model being pushed by Jeff Bezos would pressure publishers into signing up authors who are prolific and cheap.  That literature has a value in and of itself doesn’t enter into his thinking.  As Stross said:

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People vs. money: the playing field is tilted

June 9, 2014

A labor union is a group of working people working together for a common purpose.   A corporation is a pool of money which has been combined for a common purpose.

In American history, going back to when Thomas Jefferson was Secretary of State and Alexander Hamilton was Secretary of the Treasury in George Washington’s cabinet. there have been two sources of power—people and money.

People power is irresistible when it has been mobilized, but people are prone to be apathetic and short-sighted.   Money power is constant.   It never is bored and never is blind to its own interests.  It is able to tilt the playing field.

Public opinion polls show that a majority of Americans want policies that are the opposite of what millionaires want, yet Washington officials and pundits accept the corporate agenda and treat those who represent public opinion as a lunatic fringe.

minimum_wage_onpageGovernment strictly regulates the internal workings of labor unions to make sure that they are operated honestly and democratically.   No such regulation applies to corporations.

Attorney-General Eric Holder has admitted that the Obama administration has not investigated financial fraud in the biggest banks and Wall Street investment firms because they are too important to the economy.   Imagine someone in the Kennedy administration saying this of Jimmy Hoffa and the Teamsters!

Right now a battle is going on for the rights of low-wage workers who frequently are, among other things, victims of wage theft.  Owners of fast-food restaurants commonly withhold pay for hours worked.  This is illegal.  Progressives are trying to put a stop to it.   Corporate executives are trying to change the laws to make it more difficult to sue.

The big problem for organized workers is that their immediate employer is not always the source of the problem.  Fast-food franchisees operate on extremely narrow profit margins, because of the conditions set by the franchising companies, and (arguably – I don’t really know) may not be able to afford to pay more than they do.  But the battle of the unions is with the franchisees, not with the real decision-maker.

Contract manufacturers in Asia operate under the same conditions.  Their profit margins, as set by their customers in North America and Europe, are so small that (arguably – I don’t really know) they may not be able to pay more than they do.   This is another way that the playing field is tilted against workers and their unions.

Another corporate abuse is the use of private equity to loot corporations at the expense of workers.  The basic idea of private equity is that investors buy out a company’s stockholders and operate it themselves.  In principle, there is nothing wrong with this, if they think they can manage the company better than the previous owners.   Sometimes they succeed in doing this, which is fine.

In practice, private equity investors frequently are looters.  The investors have the company pay themselves or their other companies big fees for management services, consulting services and other fees.  Typically they buy the company with borrowed money, so their own cost is small.  They sell off assets for a quick profit, lay off employees and pocket quick profits while leaving the company a mere shell.   Jimmy Hoffa would never have been allowed to get away with stuff like this.

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‘Never tell anyone how much you make’

June 9, 2014

Another of my father’s favorite admonitions was that I should never tell anyone what my income was.   If I did, some people would envy me because of how much I made, and others would look down on me because of how little I made.

This is one of the few instances in which I think my father was wrong.  You can’t stand up for your interests if you don’t know where you stand in regard to others.

stock-vector-vector-employee-or-boss-presenting-a-paycheck-illustration-5251492I broke that rule when I joined the Newspaper Guild, the labor union representing reporters on the Rochester (NY) Democrat and Chronicle.  I agreed with the Guild that there was no way to determine whether we were being paid fairly until and unless we knew what each of us were paid.

I was surprised to learn that my salary was on the upper end of the scale.  I was paid more than a number of reporters that I thought were better than I was.

The probable reason was that, when I applied for the job, I was undecided whether I really wanted to leave my old job, and so, almost unconsciously, negotiated a high starting salary.   Pay raises were usually a percentage of base pay, so my higher starting salary meant my income was higher than it otherwise would have been for the whole 24 years I worked for the D&C.

I didn’t think I was overpaid; I thought they were underpaid.  But it was interesting as an example of how random a pay system can be even when, like ours, it is supposedly based on merit.

A labor reporter named Steven Pearlstein wrote a good article on this topic for the Washington Post.  He pointed out that many companies discourage or even forbid employees to discuss their pay among each other.  At the same time corporations conduct wage surveys and share wage information so as to avoid getting into a bidding war for good employees.

Knowledge is power, whether for the employer or the employee.  I think it makes sense for employees to share information readily with each other, not so readily with future employers.

My idea of a just society is one in which every person could post his or her annual income, and the sources of it, on a bulletin board, and nobody would have any reason to feel embarrassed at what was revealed.

The U.S. jobs market has recovered (or has it?)

June 7, 2014

jobs.recovery.am

The number of Americans with jobs has at long last gotten back to where it was before the state of the recession.

As the chart above shows, this has taken much longer than after any previous recession since World War Two.

But this doesn’t mean the U.S. economy is back to normal.  The population has grown since then, and so we still have a higher number of Americans than before who are out of work.

Economists define a recession as two quarters of a year in which GDP (output of goods and services) has fallen, and a recovery as two quarters in which GDP has risen again.

In theory this would automatically mean an increase in jobs.  If the output of goods and services is increasing, then supposedly more people are being put to work to produce these goods and services.  But this time around, there is a disconnect.

The percentage of working-age Americans with jobs is far below pre-recession levels.  Most Americans, based on their personal experience, think the United States is still in a recession.

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David Graeber on Communism’s achievement

June 4, 2014

I have a lot of friends who grew up in the USSR, or Yugoslavia, who describe what it was like.  You get up.  You buy the paper.  You go to work.  You read the paper.  Then maybe a little work, and a long lunch, including a visit to the public bath…

David Graeber

David Graeber

If you think about it in that light, it makes the achievements of the socialist bloc seem pretty impressive: a country like Russia managed to go from a backwater to a major world power with everyone working maybe on average four or five hours a day.

But the problem is they couldn’t take credit for it.  They had to pretend it was a problem, “the problem of absenteeism,” or whatever, because of course work was considered the ultimate moral virtue.  They couldn’t take credit for the great social benefit they actually provided.

Which is, incidentally, the reason that workers in socialist countries had no idea what they were getting into when they accepted the idea of introducing capitalist-style work discipline.  “What, we have to ask permission to go to the bathroom?”  It seemed just as totalitarian to them as accepting a Soviet-style police state would have been to us.

via David Graeber – Salon.com.

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Slavery and racism did not benefit most whites

May 29, 2014

American slavery and white supremacy were crimes against humanity.  At the same time I doubt that most white Americans, in the past or present, got any benefit from slavery and racism, aside from the psychological benefit of having someone we could hate and despite.

I know that I as a white person had been treated better in almost any situation than a black person would be.  But if black people were treated better, I don’t think this would caused people like me to be treated worse.

In contrast, I know that I as a white person benefit from the force and fraud used to take the North American land away from the American Indians.  It is because of that crime that I am able to live in the house I own.   I don’t see any such cause-and-effect relationship in the crime of slavery.

SlavesAmerican slavery at its peak was of enormous economic importance to the United States.  The monetary value of American slaves exceeded the value of all American factories and railroads put together.   Slaves cultivated and picked cotton, which in 1840 accounted for nearly 60 percent of U.S. exports.   The whole industrial revolution was based on the textile industry, which was based on cotton.

But I ask: Did anyone benefit from this except for a wealthy elite?  The average white person in the South were better off than the average black person, but not never as well off as the average white person in the North.  Foreign travelers reported going down the Ohio River, and noticing the clean, prosperous, well-maintained farms on the Ohio side and the dirty shacks on the Kentucky side.  The difference was that white farmers in free states didn’t have to compete with slave labor.

Suppose there had been no slavery.  Cotton would have been picked somehow by someone.  It might have cost more, and some other nation might have had a comparative advantage over the USA.  But the United States would have been spared the death and destruction of the Civil War.

The economic development of the United States might have been more rapid without plantation slavery.  Southern planters opposed the interests of Northern manufacturers.   Under the Lincoln administration, Congress passed the Homestead Act and the Land Grant College Act, and granted subsidies for transcontinental railroads.  Without Southern opposition, these things might have happened years earlier.

Little_Rock_integration_protestThe appeal to white racism was a technique to divide and rule.   Poor black slaves and white indentured servants rebelled in Virginia in 1676 and nearly overthrew the colonial government.  The powers-that-be responded with laws enforcing legal distinctions between white and black.  Poor black and white sharecroppers in the South joined forces again in the Populist movement of the 1880s.  This was broken up by an appeal to the racial pride and Confederate nostalgia of the whites, and was soon followed by the Jim Crow laws.

Industrialists in the North also encouraged ethnic and racial divisions among their work forces—not just between whites and blacks, but among different immigrant groups.  Blacks were relegated to low-wage jobs and excluded from majority-white labor unions, which enabled employers to use them as strikebreakers.  This continued until the rise in the 1930s of the CIO unions, which opposed racial discrimination.

In more recent times, political propagandists such as Lee Atwater and Karl Rove have successfully split the working-class vote by subtle appeals to racial antagonism.   All these things work to the advantage of a small minority of rich people, most of them white but not representing the interests of most white people.

Yes, there are black people who are prejudiced against white people.   I don’t think they benefit from their prejudices either.


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