income inequality

Breaking Good

In today’s economically class-cleaved America, ideological resistance continues unabated to the deployment of government as a force for good especially in contentious change scenarios such as solving growing wealth and opportunity divides and the future of organized Labor (to name just two). Too often, progress is facilitated mainly through the prism of trickle-down tax code set asides to inspire transformational behavior which doesn’t materialize to the desired extent.

This disconnect between theory and practice leaves out working class populations most needing more direct inclusion to uplift the starkly narrowing middle class consumer base that is threatening the end of commonly understood consumption-driven capitalism. As a result, there may be a small opening for policy innovation starting with the tax code (“Changing the tax code could help curb inequality,” Lawrence Summers, The Washington Post). (more…)

We Need More Employee-Owned Businesses | U.S. News

By David Brodwin

Worker-owned businesses are on the rise. The number of worker-owned business in the U.S. is growing robustly, around 6 percent per year, and these businesses now account for about 12 percent of the private sector workforce. Yet, worker-owned business are frequently disparaged as “not quite capitalism.” Skeptics repeat the cliché that worker-owners bog down seeking consensus on the most minor points.

The skeptics should keep in mind that some the world’s most respected business organizations are in fact, owned entirely by their staff. It’s true for top tier law firms and accounting firms. It’s true for leading management consultants like McKinsey. And top investment banks like Goldman Sachs were partnerships until relatively recently in their history.

Members of worker-owned co-ops may not think of their businesses as having anything in common with top-tier professional services firms, but there are several important similarities between the two structures:

In both cases, the partners (or employee-owners) have a vote in electing the managing partner or president.
In both cases, the managing partner or president must exchange information extensively with other partners or owners, in order to maintain support and buy-in to the firm’s plans.
In both cases, compensation is shared among the partners or owners. This keeps incentives aligned.
In both cases, compensation is variable, based on a combination of individual and overall performance. This makes the firm more robust, since in tough times it has less of a payroll to meet.
In both cases, there are clear-cut rules for how a person newly entering the firm can become a partner or owners. This promotes a meritocratic culture that rewards performance and discourages cronyism.

Because of these characteristics, worker-owned businesses were, on average, better at maintaining their fiscal health during the last recession.

Read the whole article via usnews.com.

Corporate & Capitalist Transition & Transformation Models

Paper submitted by Michael Peck (Mondragon USA), Steve Dubb (The Democracy Collaborative, University of Maryland), and Rob Witherell (United Steelworkers Union) for the “Corporations in a Great Transition: Visions, Models, and Pathways for Transformation” event hosted by the Tellus Institute & MIT Sloan School of Management, in Boston on October 31st & November 1st, 2013.

Capitalism at a Crossroads

Although the theme of this roundtable is “Corporations in a Great Transition,” the authors would argue that corporations, especially those in the financial sector, mostly have not transitioned at all. Instead, the increasing wealth inequality and diminishing social mobility experienced by the United States reflects a capitalist system protecting shareholder-centric relics of past century technology and socioeconomic realities rather than the empowered stakeholder movements we see and in which we participate. In this anachronistic context, shareholder value is measured more on perception and popularity than on actual long-term performance and real wealth creation. Meanwhile, share ownership for the vast majority of people means little more than legalized gambling with an account balance.

  • Case in point: Apple’s market capitalization recently increased by $10 billion overnight simply because of a report the CEO had dinner with a prominent investor.

Alarmingly, the traditional capitalism concept of building value over the sustainable long term has been tossed aside and replaced with maximizing short term profits at the great expense of anything sustainable, starting with the basic right of people to “life, liberty, and the pursuit of happiness.”

  • Case in point: A major pharmaceutical company recently announced it would lay off thousands of its employees and abandon a number of research and development projects to focus on higher profit margin drugs because their profit margin wasn’t perceived to be high enough.
  • Case in point: Vulture capital firms scoop up undervalued, but profitable companies either to doctor their income statements so the acquired business can be resold at a higher price, or suck out as much cash from continuing operations as possible until the carcass of plant, property and equipment can be sold off for a few dollars more.

In these cases, the cure is visibly worse than the disease for those left disenfranchised and behind. Jobs are eliminated and shipped to whichever place can offer the lowest poverty wages for workers coupled with the least restrictions on safety and environmental conditions. This is because global labor arbitraging has become the predatory capitalist market mechanism instrument of choice. We have replaced “slavery based on race and color” with a new form of slavery based on lack of ownership, viable options and means. (more…)

Time to Make Job Creation a Team Sport | Huffington Post

By Frank Islam and Ed Crego

The American jobs machine is broken. To fix this, we need to bring more cooperation to capitalism and make it a team sport.

In our previous two blogs we looked at the condition of labor and workers in the United States and recommended worker cooperatives as a means to address that condition. In our final blog in this series, we explore why this is an essential action at this point in time and what cooperatives of all types can bring to the table.

America has always prided itself on rugged individualism and the benefits of the free market system — as well it should for the contributions that many individual entrepreneurs and capitalism have made to advance the American dream over the past half century or so. Times have changed.

Now, we live in an era when self-centered individuals and extreme capitalism are extracting rather than adding value for society. As a result, the American dream is at risk for the vast majority of workers.

Stagnant wages, high unemployment and increasing income inequality have been the standard bill of fare for workers since the end of the Great Recession and the beginning of the ever-so sluggish recovery…

“It used to be,” as Jia Lynn Yang points out in a masterful article for The Washington Post, “a given that the interest of corporations and communities such as Endicott (birthplace of IBM) were closely aligned. But no more. Across the United States as companies continue posting record profits, workers face high unemployment and stagnant wages.

Driving this change is a deep-seated belief that took hold in corporate America a few decades ago and has come to define today’s economy — that a company’s primary purpose is to maximize shareholder value.”

Ms. Yang examines this transformation in detail in her article and traces its origin to Milton Friedman and the “Chicago school” of free market economists. We don’t know if the University of Chicago economists deserve the credit — or blame — for this change.

We do know that it used to be that workers bled IBM blue, John Deere green, or International Harvester red. Today, workers are “free agents” and disposable — they just bleed.

The question becomes what do you do to stop the bleeding? We don’t expect most large corporations to grow a conscience. We know that many small businesses can’t get loans or credit. We know that government at all levels is shedding jobs rather than creating them.

So, we need to turn elsewhere. One of the primary answers, as we proposed in our previous post, is for workers to take matters in their own hands by forming worker cooperatives and becoming business owners. In that post, we featured the Mondragon Corporation from Spain, the world’s largest industrial, worker-owned and run cooperative with more than 80,000 employees world-wide and revenue in excess of $14 billion euros.

Cooperatives may sound like an un-American or unrealistic proposal or solution. Nothing could be further from the truth. They are as American as mom and apple pie…

Read the entire article via The Huffington Post.

Our Broken Social Contract | The New York Times

By Thomas B. Edsall

Many Americans think that their country has lost its way. But when they try to make sense of what’s happening, they disagree about whether the problem is essentially economic or whether it stems from cultural and moral decay.

Charles Murray, the provocative author of “Coming Apart” and “The Bell Curve,” argues that the cultural insurgencies of the 1960s yanked crucial underpinnings out from the social order and undermined traditional norms of self-restraint, responsibility, family, faith and country. Murray’s latest portrayal of America’s social deterioration focuses on the long-term impact of these insurgencies, notably on a typical, though fictional, working-class community he calls Fishtown. Fishtown is made up of whites who “have no academic degree higher than a high school diploma. If they work, their job must be in a blue-collar, service, or low-level white-collar occupation.”

Murray continues:

Now let us return to the relationship of Fishtown’s decline with America’s civic culture. The decline of industriousness among Fishtown males strikes at the heart of the signature of America’s civic culture — the spirit of enterprise, stick-to-it-iveness, and hard work to make a better life for oneself and one’s children. The divergence in marriage and the rise of single-parent homes has cascading effects. The webs of civic engagement in an ordinary community are spun largely by parents who are trying to foster the right environment for their children — lobbying the city council to install four-way stop signs at an intersection where children play, coaching the Little League teams, using the P.T.A. to improve the neighborhood school. For that matter, many of the broader political issues in a town or small city are fought out because of their direct and indirect effects on the environment for raising children. Married fathers are a good source of labor for these tasks. Unmarried fathers are not. Nor can the void be filled by the moms. Single mothers who want to foster the right environment for their children are usually doing double duty already, trying to be the breadwinner and an attentive parent at the same time. Few single mothers have much time or energy to spare for community activities.

An eloquent description of American social dysfunction comes from my colleague David Brooks, writing about Edward Snowden, who leaked information on domestic surveillance. Brooks argues that Snowden is the product of an upbringing lacking “gently gradated authoritative structures: family, neighborhood, religious group, state, nation and world,” who thus became party to a

rising tide of distrust, the corrosive spread of cynicism, the fraying of the social fabric and the rise of people who are so individualistic in their outlook that they have no real understanding of how to knit others together and look after the common good.

A very different assessment of where and how America has lost its ethical and moral moorings comes from Alan Krueger, the chairman of President Obama’s Council of Economic Advisers. Krueger has argued in two recent appearances, at Oberlin College and more recently at the Rock and Roll Hall of Fame (of all places) that the uncritical worship of the free market in the 1980s allowed the nation’s corporate elite to abandon longstanding constraints in its treatment of labor, especially in shifting the rewards of rising productivity from employees to the owners of capital.

With the blessing of the new right, Krueger argues, corporate America has abandoned its commitment to the commonweal over the past three decades. It no longer honors norms of fairness and equality. To Krueger, it is in the economic sphere that American integrity has been eroded and its ideals corrupted.

At Oberlin, Krueger put it this way:

In considering reasons for the growing wage gap between the top and everyone else, economists have tended to shy away from considerations of fairness and instead focus on market forces, mainly technological change and globalization. But given the compelling evidence that considerations of fairness matter for wage setting, I would argue that we need to devote more attention to the erosion of the norms, institutions and practices that maintain fairness in the job market. We also need to focus on the policies that can lead to more widely shared – and stronger – economic growth. It is natural to expect that market forces such as globalization would weaken norms and institutions that support fairness in wage setting. Yet I would argue that the erosion of the institutions and practices that support fairness has gone beyond market forces.

As the point man for the Obama administration on economic policy, Krueger has become the leading opponent of those who believe that growing inequality and middle-class stagnation are the inevitable consequences of technological innovation and the disruptive force of globalization.

Read the whole op-ed at The New York Times.

No Longer The “Gimme Election”

This year is no different from any other national election year in recent memory. Primal political party strategies emerging before November’s archetypal vote continue to mark strong differences between “prosperity gospel” versus compassionate conservatives on the right pitted against “divine left” elitist class versus working class progressives on the left. The principal similarities between the two inner party schisms are that both the “prosperity gospel” and “divine left” wings have dominated when governing while the themes of compassionate conservatism and working class justice serve to win elections. Choosing to honor what wins elections while ending this equally flawed dichotomy within either party will create the next decade’s governing mandate.

Similarly, juxtaposing campaign contradictions with economic reality, this year’s presidential candidates confront two principal problems trying to drive a political and philosophical schism between “an opportunity society, where free people and free enterprise thrive and success is admired and emulated,” and an activist, more efficient and effective government working to promote equal opportunities to “ensure that all Americans have a fair shot if they work hard.” First, really smart and competitive nations know how, eclectically, to converge both so that the whole exceeds the sum of the parts. Second, unmistakably skewed U.S. income inequality statistics show that the voting public knows that neither of the two approaches is working correctly either independently or together. (more…)

“O’er the Land of the Cruel and the Home of the Saved”

All across the nation, rustbelt wasteland cities and rural fly-over counties beg for justice and renewal. From unending industrial abandonment to newly fracked regional residential superfund-sites-in-waiting oozing out of gas-land drill-belts, today’s manna from policy heaven consists of austere and unforgiving catch-22 budgetary recession ironies – we’re going to defund what you need – to save you from what you don’t have that already you can’t afford. This new “American Disconnect” between our recollected sense of historical frontier shared sacrifices and real-time absence of practicing shared rewards exposes the inherent “best and brightest” fallacy of elites providing disinterested, altruistic and enlightened leadership by personal example to a country of payday borrowers, middle class refugees, and incoming immigrants from sea to shining sea.

It’s time to rewrite the final line of our national anthem. In a “star-spangled” banner society overtly dedicated to increasing unequal wealth exponentially, national qualifiers such as “land of the free” and “home of the brave” seem like oxymoronic luxuries priced out of reach for the vast majority of “repurposed” Americans bargain hunting in their neighbors’ yard sales for any logical metaphor to explain the past decade’s economic headwinds that capsized their lives. (more…)

Income Inequality Economics 101

Perhaps the two greatest sociopolitical myths of our time, those holding that America was moving first towards a post-industrialist and then towards a post-racist society, require a proper epitaph which may be written electorally this coming November. In retrospect, it turns out we are going nowhere with either.

On a positive note, manufacturing is coming back although a shadow of what it was and needs to be for a more complete economic recovery. Mrs. Merkel, while dead wrong on austerity policies as a way to help anyone but elites who thrive on passive income and want their loans paid back while working overtime to deprive paycheck serfs of any means or justification to do so, was right that her nation has emerged relatively unscathed to date from the 2008 financial sector-induced recession because “Germany is a country that still makes things.” It seems that in our national urge to invent complex social formulas to justify extreme positions that serve narrow interest groups, we have moved into a “post-shame” society where excessive getting justifies unconscionable gutting and the responsible pipers are not compelled to face public perp-walks or personal bank account claw-backs for the siren songs that have ensnared us all. (more…)

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