Power in Community – and Cities

Notes from American Labor at a Crossroads Conference, January, 2015, Washington, DC

The popular vote for local public officials still carries a lot of power, including power over money. This is especially true for big city elections (and, unfortunately, for small state elections well). At a time when American workers’ democratic workplace voice is in sharp decline, the case can be made, as American Federation of Teachers (AFT) President put it at the January “American Labor at a Crossroads” conference in Washington, DC, that “community is the new density.” To the extent that community-labor alliances affect city elections, workers’ votes in non-labor elections can bring about real changes that benefit the working class, not only dues-paying members.

Weingarten’s observation was the virtual theme of the day-long conference featuring national and local labor leaders and writers. Union activists and scholars highlighted the growing success being found through organizing neighborhood-based voters, along with union members, to achieve gains like a higher minimum wage, stronger public employee union contracts and worker-and-citizen-oriented government in general– even as traditional membership-only organizing or contract campaigns continue a long decline. (A number of community-labor successes, including campaigns in Seetac and Seattle, Washington; Richmond and Los Angeles, California; and New Haven, Connecticut, have been featured in this blog.) Another AFT speakr at the Conference, Jessica Smith, described bringing parents and other community members into contract negotiations with city management, and even leading off successful negotiations with community demands.

One question not directly addressed by the Conference speakers was WHY the base of popular power is shifting away from the workplace and toward the residential base, especially cities. One answer to that question can be derived from a 1981 article on collective bargaining by authors Samuel Bachrach and Edward Lawler, which defines power in an ongoing relationship as a function of the NEED of each party for the other party or something they control. In general, the side in a relationship that needs the other side less, has more power (whether for good or ill).
Unfortunately, capitalists’ need for the U.S. workforce has been drastically lessened over the past fifty years by a combination of global outsourcing and automation (and aided by labor’s failure to follow capital around the world.) In the 1930’s, when the Detroit-area workforce for America’s Big Three auto manufacturers – tens of thousands of manual laborers in densely-manned factories – walked out, production shut down. Today, as Charley Richardson and others have noted, workers typically are relatively few, widely separated in their workplaces, and harder to organize; and, of course, autos and most other items are produced by many brands, and quickly available to countries around the world. The power of a strike in one location is generally much less than was once the case – even if the withdrawal of local labor is total. And, solidarity from a massively non-union U.S. population is rare and dwindling.

Cities, by contrast, are still densely populated – and citizens’ votes cannot be outsourced or automated. Local office-holders – and, to a lesser extent, state and national leaders – still NEED their voters to keep their jobs. When class-conscious activists, like the Chicago Teachers Union or socialist organizers in Washington State, reach out and educate their residential communities, wise local officials respond. Ignoring an isolated teachers’ Local is one thing, but if the community stands with the teachers, an arrogant Mayor may find that wealthy and powerful friends are not where the ultimate power lies. Increasing the minimum wage, or the living wage, or environmental protections – or approving a better union contract — is something a Mayor can do, and ignores at his or her peril (perhaps even in Chicago.)

Successful organizers are finding the power structure’s vulnerability and need – and it’s growing in the neighborhoods as it declines in the workplace.

Can the urban base fill in for the falling workplace membership base? Certainly not indefinitely. Union members pay dues that can sustain an independent power base around defined economic and workplace benefits. Taxpayer money still goes first to political and governmental leaders, not to labor. Organized urban residents may sometimes vote as urged by class activists, but, as SEIU super-organizer David Rolf noted at the conference, “We are at rock bottom now in terms of class consciousness… Most people don’t even know what collective power is.”

And workers’ wealthy opponents can perceive and target power bases as well as progressive organizers. Urban gentrification is widespread, and of strategic value to the ownership class. Pushing low-income residents out of powerful central cores to a disorganized plethora of suburban jurisdictions, does more than raise landlord incomes in cities. It divides and weakens the progressive power base as well.

Another weakness: cities, like (free) workers, but in contrast to property-owners and States, have no place in the U.S. Constitution. No U.S. city has the independent power of London, Paris or Tokyo, and some, like Boston, contain only a minority of the metropolitan population. Wyoming, Mississippi and Alaska each have two U.S. Senators. New York City and Los Angeles have none – and a semi-rural, mostly white state population like Pennsylvania can punish a predominantly black city like Philadelphia at will.

Can the Constitution be amended to balance power with population? Probably not in our lifetime.

Still, popular votes matter, and they are most concentrated in the relatively progressive urban jurisdictions that form the core of America’s majority. As even the professional “class” – and their children – are pushed down toward proletarian status, the potential for a conscious urban majority rises. Labor must reach out to educate its urban working class and intellectual base, oppose gentrification and disenfranchisement, and build more alliances where power is still found – in our dense, geographically-based neighborhood, city (and national) communities.
Where organized workers are needed – and only where they are needed — whether for labor or for votes, they have power.

Why Capitalist Economies Need Government Management

Capitalist economies need strong central management for many reasons. One reason: to modify the wild swings from “boom” to “bust” that result when many risk-taking competitors pursue their different economic interests. Only a national government can manage a national economy in a way that most competitors will accept as reasonably fair. And as corporations and the private economy grow larger, only a strong government, able to invest and spend enough to make a difference in overall economy, can do the job.

It took the United States about one hundred fifty years to understand the need for central economic management, and still longer for most economists and politicians to learn how to do it right. For many years, everyone believed the government could only print an amount of money equal to the gold bullion it held, at Fort Knox or elsewhere. Economic Panics and Depressions came and went, with the government doing little or nothing to make things better. Then during the Great Depression of the 1930’s, we learned a couple of new things, mostly by accident.

First, people saw a national government help get us out of a Depression by spending more than it had in bullion, and more than it collected in taxes. For the first three years of the Depression, Republican President Hoover had done what the “experts” of his day thought he should do: he cut government spending sharply, because the government was collecting less in taxes. And things got worse and worse. One quarter of the former workforce was out of work. Many thousands hit the road as “tramps,” hitching free rides on freight trades, and sleeping in corn cribs. And many banks didn’t have enough money to pay all their debts.

When he ran against Hoover for President in 1932, Franklin Roosevelt promised more of the same cost-cutting as Hoover – but when he took office, he did something dramatic and different. He began by closing ALL the banks for a few days, and then allowing only the solvent banks to reopen. Now, people who had some money felt safe to put it in a bank again, where it could be loaned out to buy goods or grow businesses. And, the U.S. went off the “gold standard” altogether, with the government spending as much as was needed to address the nation’s problems. It turned out that a dollar was still worth a dollar as long as retailers and bankers gave you goods or interest for it. Trust was what mattered. Gold became just one more product.

Even more importantly, FDR also did what he had done on a small scale as Governor of New York when he saw a lot of people out of work: he hired them to work for the government, and put money in their pockets. They cut trails through forests, built dams and produced electricity, built a lot of train stations and public buildings. Of course, the workers on those projects spent every penny they earned as fast as they could. That meant other Americans had money in their pockets, and usually, they also spent it as fast as they could, and so on. In that way, over the course of a year, each new wage dollar added multiple dollars to the economy.

The Roosevelt Administration and the Congress also started other new programs that put more money in the pockets of ordinary people.  These included Social Security, a minimum wage, unemployment insurance, and a National Labor Relations Board. These programs, besides boosting the economy, addressed the radical inequality between huge corporations and individual workers, and between people of property who could live without work, and former wage workers who had no income in old age or unemployment. With all this new purchasing power in people’s pockets, the economy began to GROW again. The government had “primed the pump,” and the private economy began pumping again. With all the new economic activity, tax collections also rose.

By 1937, people figured the Great Depression was history. All that spending by the government was no longer needed! So the Roosevelt government cut spending way back – and we went back into recession! It turned out we had cut government spending too soon and too far for an economy that was still in recovery. At this point — unfortunately for the world, but fortunately for the U.S. economy – Hitler, Mussolini and Tojo launched a war to take over the world. To build weapons and pay soldiers and sailors, the U.S. returned to really huge levels of deficit spending. The economy recovered for good this time, and grew quickly, year after year. We were finally out of the Depression.   By 1945, we began thirty years of growth (with occasional short recessions), which was widely shared with a new kind of people – the American Middle Class: blue collar and service workers with money in their pockets.

Before and after Roosevelt and the war, a British economist, John Maynard Keynes, had written books explaining how a government should manage the economy, and why. His new theory, “Keynesian economics,” called for deficit spending as a way to get out of recessions, just as the Roosevelt Administration had done for its own reasons, without really knowing what to expect. (He also said government deficits should be cut when the private sector was booming.) Now, confirmed by Roosevelt’s actions, Keynes’ theory became the guide to government economic management from that point forward.

Many business people, and other conservatives, were offended by the idea that government could borrow and print the money it needed to pay its debts. They saw that government “make-work” tended to increase the wages they had to pay to hire employees. They worried that government might have more power than they did. But as the new system prevented downturns from becoming Depressions, and let workers earn enough to buy what they produced, it benefited business along with everyone else, so they grumbled all the way to the bank.

Since the 1930’s, the Federal Government generally spends more than it has (deficit spending) in hard times, and then cuts back spending once the private sector grows strongly again.  In the 1960’s, Republican President Nixon settled the issue for most people when he said, “we are all Keynesians now.”

In my next blog, we’ll look at some pictures of how this system works.

MANAGING CAPITALISM: THE PICTURES

As promised, here is a picture of how capitalist economies, like ours, work over a long period of time. “GDP” stands for Gross Domestic Product, which is the common way of measuring how much total wealth national economies like ours produces over the course of a year. All capitalist economies go through “cycles” of growth (“boom” economies) and decline (“recessions” or “slumps” or “busts”)

simple biz cycleIf you are a few decades old, you’ve seen this happen more than once. For a few years, the economy grows, it’s easy to find a job, wages rise, and companies make good profits. When things are going well, we expect that to continue, and we take more chances on borrowing and spending, and sometimes we get in over our heads. Usually, prices rise as well when economies are growing (“inflation”[i].)

Then something happens. People and businesses realize they have to repay all the money they borrowed, and when they buy new items, they notice that prices have (usually) gone up as well during the “boom.” At some point, businesses and consumers (the “private sector”) start borrowing less and cut back their spending. As more and more spenders cut back, there is an economic effect like a snowball growing as it rolls downhill. Consumers buy less, so businesses lay off production workers, then those laid-off workers buy even less, so businesses invest less, and so on. Unemployment, low wages, low investment and low profits spread through the whole economy. Some businesses close, some laid-off workers can’t pay their mortgages, and may face foreclosure, and so on. The economy is in recession.

Eventually, after a couple or a few hard years, most debts are paid down, bankruptcies are settled, people start to buy again, companies start hiring, and the “cycle” repeats.   This has been happening for the past two hundred years in all capitalist economies, so we may as well get used to it, and plan accordingly.

Most people and most businesses, of course, would prefer steady and predictable growth. This is where the national government can step in and make a difference. Smart governments (beginning with the Roosevelt Administration in the U.S.) have learned to spend less (or at least run smaller deficits) when private businesses and individuals are spending more – and then spend more (hiring workers directly, or paying higher unemployment benefits, and so on) when the private sector slows down.

Chart below shows how government spending (green line) SHOULD move in opposite direction from economic growth (black line).

bizCycle2

When the private economy is “booming,” government spending or deficits should fall; and when the private sector is in recession, government should make up for that by spending MORE. Countries that do this find their boom periods are a bit less exaggerated, inflation doesn’t get out of hand, and sometimes the boom may even last longer. Then, when the inevitable recession comes along, increased government spending can keep lost jobs and business failures to a lower level than they otherwise would be – and eventually help the economy to recover faster and start growing again.

On the whole, when governments do this, total national spending doesn’t rise and fall so much; it stays closer to the straight line in the center of the graph: steady as she goes.

This is called “counter-cyclical” government spending, because government spending goes in the opposite direction of the “private sector” – it counters that spending cycle.

Why is it that a national government can spend more when it is collecting less in taxes? This is the opposite of what most of us must do, and it seems contrary to “common sense”. But national governments are unique, all over the world, because they can actually create money and wealth, up to a point. That is one of their indispensable roles – printing money. They are NOT like individuals. “Common sense” comparisons of governments and individuals are just wrong, as history has proved over and over. By printing and spending more in hard times, governments can actually help re-start economic growth.

And, on the flip side, by spending less when more money is available, and the economy is growing fast, they can prevent the economy from “overheating,” or creating inflation.

Finally, here is a picture of what should result when government spending moves the opposite way from private spending. While the economy still goes through up and down cycles, over the long run, the economy (the straight, dotted line) generally moves up. It grows.

bizCycleGrowthBy smoothing out the boom-and-bust “cycle,” smart governments make the economy more predictable, make advance planning more realistic, prevent a lot of dumb gambles and painful bankruptcies, and generally help the economy to grow more over a long period of time.

By the way, if you think about what the Obama Administration did during the “Great Recession” that started with the financial crisis of 2008, and what the government has done recently as the economy has been growing –they did what we just described. The federal government “stimulated” the economy right after the crisis with a lot of deficit spending, and is now cutting the deficit as the national economy gets back on a good track.

Most Presidents since World War II, including Republicans Eisenhower and Nixon, and Democrats Kennedy and Johnson also did this. President Eisenhower, for example, started building the very expensive Interstate Highway System as a way of getting the economy out of recession in the 1950’s. Presidents Reagan, the first Bush and Clinton also generally understood the rules. One exception: President George W. Bush, who took office in 2001, when the economy was already growing fast – and then stimulated the economy still further by increasing spending to pay for wars in Iraq and Afghanistan (while also cutting taxes, another way of increasing private spending). This dangerous spending increase in an already hot economy encouraged the excessive risk-taking in the financial sector that resulted in the economic crash at the end of his term.

Some more examples of how these ideas really work? Well, look at what happened after the financial crisis of 2008. The governments of the European Community did NOT follow the U.S. example of stimulating the economy (increasing spending) following the collapse of Wall Street banks around 2008. Instead, led by Germany, they cut spending during the recession. They prescribed austerity, instead of stimulus.

What was the result of these opposite policies in the U.S. and Europe? Europe is still in recession, while the U.S. is well out of it. In effect, the world just tried a big experiment as to which government policy – stimulus or austerity – works best in a recession. And the U.S. was right.

Newspapers recently are reporting that Europe has recognized its mistake. The European central bank is starting do what the U.S. Federal Reserve did seven years ago. They have begun to encourage borrowing and spending more money – and if what you have read here is right, Europe will now begin an economic recovery. In the next recession, let’s hope they get it right the first time.

Governments and nations that don’t learn from history, pay a high price.

[i] A little inflation (say, 1% to 3%) is not bad news, but if prices grow too fast, workers’ raises may disappear.