Editorial

Class War in the USA

Corporate America's coffers are overflowing with cash. "In company after company, we're seeing huge buildups of cash," Jeffrey D. Fotta, CEO of Ernst Institutional Research in Boston told BusinessWeek in February. General Motors ended 1996 with more than $17 billion in cash, Ford with $15.4 billion, Chrysler with $7.8 billion, Microsoft with $9.2 billion and Intel with $8 billion.

For big business, current earnings are an embarrassment of riches. "The worry is that many companies are taking on cash so fast they can't spend it efficiently," explains BusinessWeek.

The source of the cash buildup is soaring U.S. corporate profitability, which has exceeded market analysts' expectations for 16 straight quarters. And there is little doubt as to the source of the rising profits: corporate downsizing and stagnant wages.

There is an important question about about why wages remain stagnant, however. With the U.S. unemployment rate dropping to around 5.5 percent over the past two years, why has there not been substantial upward pressure on wages?

When unemployment rates fall, the law of supply and demand says wages should go up -- fewer available workers should push up workers' pay. But wages haven't risen.

The reason is job insecurity, a fact widely understood -- indeed, practically celebrated -- by economists, government officials and corporate executives.

"A typical restraint on compensation increases has been evident for a few years now and appears to be mainly the consequence of greater worker insecurity," crowed Federal Reserve Chair Alan Greenspan in February testimony before the Senate Banking Committee. Greenspan touted stagnant wages as the central explanation for the "low-inflation environment" which he called critical for maintaining "sustainable economic expansion."

Increased capital mobility and foreign competition, widespread corporate downsizing, a politically weak labor movement, unenforced labor laws and technological innovation have all combined to strengthen business power. Employers have used their power to intimidate and threaten workers, so that they fear unionizing, asking for a raise or even quitting and looking for another job.

In recent weeks, impeccable sources have explained the story in straightforward terms.

Greenspan told the Senate Committee that corporate downsizing and rapidly changing technology have contributed to job insecurity. "Technological change almost surely has been an important impetus behind corporate restructuring and downsizing," he explained. "Also, it contributes to the concern of workers that their job skills may become inadequate."

The February 1997 Economic Report of the President notes additional reasons workers may fear for their jobs and be less willing to demand higher wages. First, "although imports meet only a small fraction -- around 13 percent -- of total demand, the fact that much of the U.S. manufacturing sector faces potential import competition may provide significant wage restraint." Second, "changes in labor market institutions and practices may also have had some salutary effects on inflation, whatever their other impact." (For "changes in labor market institutions and practices," read "declining unionization and union power.")

A ruthless employer class blends these multiple sources of job insecurity into a whole greater than the parts. Employers use threats of plant relocation to bust unions; they rely on weak or non-existent unions to permit downsizing; they capitalize on technological changes to speed restructuring and to shift production abroad.

Consider the enormously important findings by Cornell University labor researcher Kate Bronfenbrenner in her suppressed study for the NAFTA labor commission (the basis for "We'll Close!" in this issue). Bronfenbrenner shows that employers threaten to close the plant in more than half of all union organizing drives. Employers regularly refer to NAFTA and Mexican maquiladoras to prove how easy it would be for them to move operations. ITT Automotive in Michigan even parked flat-bed trucks loaded with shrink-wrapped production equipment -- accompanied by signs reading "Mexico Transfer Job" -- in front of the plant for the duration of a union organizing drive. Most astoundingly, where union organizing drives are successful, employers do in fact close their plant, in whole or in part, 15 percent of the time -- triple the pre-NAFTA rate.

The causes of job insecurity and the resulting stagnant wages are not primarily impersonal. U.S. employers have accumulated the piles of money which now burden them by waging a vicious, all-out assault on workers for the past two decades.

Promotion of NAFTA, the World Trade Organization and other trade deals, elaborate campaigns to defeat union organizing drives, break strikes and bust unions, ruthless corporate reorganizations -- all were well planned by big business. The only hopeful message to extract from this bleak assessment is that concerted actions can reshape the political economy, and that well-planned campaigns by organized labor and it allies can shift a larger portion of corporate income back to the workers who truly earn it.