Global Capitalism and the Decay of Employment Policy
Brand, Horst
Despite the highest unemployment rate since 1933, the German central bank has declined to reduce interest rates. To do so, its spokesman asserted, would in no wise affect...
...It has been forecast that by the year 2000 more than half of all service jobs in the United Kingdom will be filled by part-time workers...
...The chairman of General Motors has remarked that his firm invests in China because of market saturation in the industrial countries...
...To do so, its spokesman asserted, would in no wise affect unemployment...
...total output only doubled...
...Such equipment, more• over, is produced in factories boasting the latest design and efficiency standards...
...Many of these industries, for example, telephone communications and banking, are reducing employment as they automate, introduce self-service, and consolidate...
...European collective bargaining agreements resist such dispersal and pursue a solidaristic wage policy...
...Foreign trade is conducted mostly by multinational enterprises (MNEs) whose profitability derives not least from the multicountry scale on which they operate...
...in 1995, he averaged only 58 percent...
...In continental Europe, it would undoubtedly reduce unemployment...
...Back office workers and customer representatives of such large insurance companies as Aetna, as well as of commercial banks, earn $10 per hour or less...
...As noted, in both 60 • DISSENT The Decay of Employment Policy areas, nonstandard workers have proliferated...
...These developments have heightened international competition...
...Outsourcing was in many ways the most critical piece of understanding" at which G.E...
...What did we do...
...The priorities now being imposed by capital threaten to shatter this presumption of inclusiveness, which has lain at the base of democratic governments since at least the 1930s...
...But we know that poverty is parsimoniously defined in the United States...
...Labor has sought since the early post-World War II years to link the trend in real hourly compensation to the trend in productivity (the efficiency with which total output, as measured by the Gross Domestic Product [GDP], is produced...
...In Germany and France the maximum benefit duration runs to twelve and thirty months respectively, and is followed where needed by an indefinite period of unemployment assistance...
...Third, on the labor market supply side, a reason for the low unemployment rate in the United States has been the relatively brief duration of unemployment benefits and the low percentage of the unemployed actually entitled to receive them (40 percent...
...This further diminishes the demand for less-educated workers, but there is an additional job displacement factor...
...Part-time workers are far less likely to be covered by pension or health plans than full-time workers...
...And we outsourced...
...A large retail chain in the United Kingdom cut two thousand full-time jobs, and created three thousand part-time jobs in the early 1990s...
...In addition, unionized employers are exposed to greater labor cost competition, causing them to resist union demands and unorganized firms to balk at unionization...
...But low productivity growth is linked to stagnant real wages, and would seem to be symptomatic of barriers to broader social development, such as a decent distribution of income, a higher level of public services, and so on...
...In 1996, total foreign trade (exports plus imports) represented the equivalent of one-quarter of total output here, as against little more than one-tenth in 1970...
...But the network structure of global corporations has more deeply polarized the workforce between relatively well-paid skilled and professional workers and low-skilled, less educated, poorly paid workers, who are often employed on a contingent, part-time, or temporary basis...
...Its success in the United States and the United Kingdom cannot be doubted...
...New technologies, moreover, have tended to curtail jobs: in U.S...
...Expansionary opportunities, however, opened up or were created abroad: • in Latin America (including Mexico), import substitution policies as economic development paths foundered on the shoals of excessively high costs and debt burdens...
...Implicitly, it favors, or comes close to favoring, the "at will" hiring and firing practices prevalent in the United States...
...True, there has not been "jobless growth" over the past twenty-five years...
...The Jobs Study approves of the growing wage dispersal (inequality of earnings) in the United States...
...The proposed answer to the problem, more definitively formulated by the European Commission and the ILO than in the United States, is to accelerate economic growth...
...Over the preceding post-World War II span, productivity improvement accounted for more than half of a much more vigorous growth rate...
...The dear dollar or mark or franc attracts imports...
...It will not soon be possible to halt this shift...
...According to Edward M. Graham, writing in Global Corporations and National Governments, intrafirm trade by MNEs accounted for almost 50 percent of U.S...
...Such acceleration is impeded by the factors that brought about the slowdown in growth in the first place...
...In price-deflated terms, foreign trade tripled over the period...
...and 60 percent of employees of J.C...
...female workers have even less chance to be covered than their male counterparts...
...it is "structural," a term that encompasses notions of wage "rigidity" and the failure of unemployed workers to "adjust" to economic change...
...Flexibility of wages, deregulation of labor markets (that is, dispensing with long vacations, severance pay that seems too high, jobless benefits that replace too high a proportion of earnings) would facilitate "adjustment...
...for 11 percent of those in Latin America FALL • 1997 • 57 The Decay of Employment Policy in the earlier year, for 31 percent in the later...
...Keynesian policies were adopted to address anemic economic growth and relatively high unemployment by means of tax cuts and deficit spending...
...They are far more clearly linked to the compulsions exerted by intensifying global competition...
...More fundamentally perhaps, neither in Europe nor in the United States has labor market deregulation boosted the rate of economic growth or productivity...
...Its practice of outsourcing represents a kind of vertical disintegration that preserves core skills and jobs and farms out lower skills and standardized work to a periphery (or network) of supplier and service firms...
...Such entitlement, however, also makes for longer spells of unemployment...
...The "Uruguay Round" of GATT negotiations, as its stipulations come into full force, will result in a one-third decline in light-industry employment in the United States, according to a study published by ILO...
...Unemployment thus cannot ever be "Keynesian...
...This core-periphery phenomenon, to be sure, has existed since the beginnings of industrial capitalism but was not central to corporate enterprise organization (vertical integration predominated...
...A better definition would fix a family's subsistence income at no less than twothirds of the median family income, which is around $27,000 currently...
...His essential message was "that one cannot think in static work-force terms in a dramatic and fastchanging market...
...Thus, such growth industries cannot generate the additional domestic employment that was expected of them...
...Downsizing and restructuring are not clearly linked to rapid technological change...
...These forms of employment are termed "nonstandard," meaning that "the employment relationship is not governed by the standards concerning wages and working conditions and social security that apply to persons in full-time FALL • 1997 • 59 The Decay of Employment Policy employment" (Ana Romero in Multinationals and Employment...
...For example, in 1987, only 28 percent of male service workers on part-time schedules were covered by health insurance, and only 17 percent of female workers...
...In Germany, in France, and in Spain, temporary contract (fixed-term) work has proliferated...
...Alan Greenspan, chairman of the Federal Reserve, has stated that "in 1991, at the bottom of the recession, a survey of workers at large firms . . . indicated that 25 percent feared being laid off...
...Some economists, Paul Krugman among them, have tended to dismiss the impact of foreign trade upon the United States economy...
...as do 80 percent of employees of Marriott International, Hyatt Hotels, and McDonald's...
...Hugh Heclo has written, "If there has been a direction to our century's struggle, it seems to have been mainly a question of expanding .. . inclusiveness, of assuming that more people matter and that they matter as equals in aspirations for social welfare...
...firms affected by textile imports have been installing labor-saving equipment, so that productivity, for example in woven fabrics, doubled between 1972 and 1994 even as employment fell by half...
...Benetton combines "high-level design and development work in northern Italy with outsourced production in tiers of small suppliers, some of them sweatshops scattered around southern Europe...
...Though the minimum wage has been raised in recent years, "even these raises will not restore the purchasing power of the minimum wage to its 1981 level...
...Write to him c/o Dissent, 521 Fifth Ave., Suite 1700, New York, N.Y...
...In fact, compensation has lagged behind productivity gains since the early 1980s in the United States, the gap widening year after year, reflecting the growing power of capital to shift the terms of trade with labor in its own favor...
...Bennett Harrison, who thoroughly analyzes this development in his superb book Lean and Mean: The Changing Landscape of Corporate Power in the Age of Flexibility, cites an Italian economist who has described it as "decentralized Fordism," exemplified by the management style of Benetton...
...62 • DISSENT...
...Relations of ownership do not fully describe global business networks...
...Trade in manufactures has soared, at the expense of trade in agricultural products and raw materials...
...Service (or non-goods-producing) industries currently account for 70 percent of employment in the United States...
...There are now "lots of people at the lower end who no longer find those convenient jobs at General Motors, U.S...
...Steel, and G.E...
...Trade union density has declined as a consequence...
...DISSENT The Decay of Employment Policy The latency of overcapacity, together with the shrinking half-life of innovation and technical know-how on which the viability of MNEs hinges, are perhaps the major causes of restructuring and downsizing...
...He spoke as part of a commemoration of the fiftieth anniversary of the 1946 Employment Act, at Bard College...
...Suitability" has informed the rules of unemployment compensation since its inception in the OECD countries in the 1930s and 1940s...
...imports have exceeded exports by substantial amounts year in, year out since the late 1970s...
...Yet, the obstacles to the ILO's case for full employment are shown in by a key passage in its latest (1996-1997) report: "[Alt the same time as the social dislocations caused by increasing international competition are rising, the capacity, and even perhaps the will, of governments to take such compensatory or ameliorative action is weakening...
...manufacturing, for example, productivity rose at an average annual rate of 2.8 percent between 1960 and 1979, while employment grew at a rate of 1.2 percent...
...imports of merchandise in 1991...
...56 • DISSENT The Decay of Employment Policy The United States is held up as the outstanding example of the success of a deregulated—or nearly unregulated—employment policy...
...The ILO's recent World Employment reports implicitly polemicize against the notions of labor market rigidity and "structural" unemployment propagated by the OECD, the monetary authorities, the World Bank, and the International Monetary Fund...
...We downsized...
...Some of these companies, the Post reports, pride themselves on helping employees fill out forms for the Earned Income Tax Credit, thus relying on the public purse to sustain their lowwage policies...
...The extent of this exposure is shown by the growth in the volume of world trade, by the changes in its composition, and by the geographical shifts it has undergone...
...In the United States, the rate of growth of the real GDP dropped by more than half between the 1960-1972 and 1990-1996 periods, to an average annual rate of 2 percent...
...The priorities of capital are thus a threat also to democratic government, and hence must be challenged...
...We note some of them briefly...
...Competition rapidly erodes what he termed the "proprietary advantages" of capital, ideas, and resources, making it impossible to maintain a "protected position" for long unless the best product can be offered for the best price...
...Far-reaching reforms of labor market institutions are required, not monetary-policy tinkering...
...Globalization is being accompanied by a worldwide trend towards smaller government, manifested in reductions in public expenditure, lower taxes . . . and widespread deregulation of markets...
...Labor market regulation has been modified somewhat in continental Europe, and drastically so in the United Kingdom...
...The much increased inequality of earnings and incomes that has been documented since the late 1970s attests to this labor market dualism...
...Unemployment is the fault of the unemployed...
...Low-wage work has proliferated...
...currently, it is promoted by welfare "reform...
...Thus, imports, over the past fifteen to twenty years, have become part of the monetary authorities' struggle against domestic wage "inflation...
...They urge higher economic growth rates, not merely to reduce unemployment but to attain full employment— where all who are able to work and seek work will find it...
...What does this mean for working people...
...Labor market dualism is replicated throughout the employment structures of industry...
...It is attributable to a labor market that is too rigidly regulated and to a social insurance system too protective of income...
...Working conditions in such industries are nonetheless affected by such trade-related factors as the displacement of workers owing to import competition—all the more so as U.S...
...it has become common practice since the 1970s...
...Nonetheless, the American deregulatory model remains unacceptable...
...in 1989, close to half of the unemployed in the two countries had been without a job for at least a year (the proportion was higher in the early 1990s...
...Foreign trade and investment have been driven by competitive pressures that have intensified since the 1970s, in large part because of weakening economic growth rates in the industrial countries...
...Furthermore, the "comparative advantage" that industrial countries presumably enjoy in "high-tech" equipment over less developed ones has been narrowing...
...It is quite unlikely, FALL • 1997 • 61 The Decay of Employment Policy however, that the monetary authorities would tolerate the necessary policies...
...In the United States as well as in other member countries of the Organization for Economic Cooperation and Development (OECD), its salience remains undiminished, all the more so as resources for the welfare state's social benefits tighten...
...The enormous spread of fast-food restaurants has been made possible (and necessary) by the expansion of the female workforce, as well as by family disintegration attested by such data as high divorce rates...
...In fact, in formulating monetary policy, the Federal Reserve takes account of the sense of insecurity the practice creates...
...the institutions themselves come under pressure from noncapitalist sources...
...10017...
...It has also been argued that a large proportion of workers in the industrial countries—up to 70 percent—engage in "non-tradable" activities, such as health care, construction, and services...
...Those conditions are affected further by immigration, which, like trade, links the United States to global labor markets...
...Paralleling such downsizing was outsourcing—turning to outside suppliers because "low-end and low-skill jobs . . . could be purchased more cheaply than . . . internally...
...Greenspan believes that rapid technological change has been the chief impetus underlying corporate downsizing and restructuring...
...it has been put forward by other central banks, including the U.S...
...First of all, low unemployment here has been accompanied by low productivity advance...
...It is due to slackened demand, which in turn largely attests to saturation, and, as noted, steers the expansionary drive of business into foreign markets...
...the other three-quarters of growth has arisen from employment increases...
...These rules are increasingly rejected as breeding the disincentives that contribute to the labor market "rigidities" abhorred by all who would make wages more competitive and so ensure a large supply of low-wage workers...
...U.S...
...It is a prescription for depressing wage levels...
...The changed gender and occupational structure of the workforce must be taken into account...
...22 percent of South Korea's...
...in the United States they increased from 29 to 30 percent...
...That rate has indeed run about half as high as in continental Europe...
...Thereby the oversupply of labor, as manifested by high unemployment, would be lessened...
...Neither the "downward widening of the scale of wage costs" nor "a reduction in all other costs associated with taking on or maintaining labor, e.g., social security rules . . . is actually possible in the European economic and social context," writes the European Commission...
...nor is there any chance that fiscal policy will reverse the retreat of government from active macroeconomic intervention or undertake the large-scale public investment called for by people on the left...
...Competition, however, also makes for overcapacity, particularly in the more mature, capital-intensive industries...
...it is hard to see why they would not persist...
...It is hard to see why...
...The Washington Post (March 21, 1997) reports that 90 percent of the employees of Levi Strauss earn $8 per hour or less...
...Between 1950 and 1984, worldwide production rose by a factor of five...
...at present, some eighteen million families receive this credit...
...Heightened insecurity, however, relates to the much more rigorous application of the "at will" practice, which corporate firms, encouraged by the deregulatory, free-market ethos preached by government, now enforce...
...the added income generated by deficits partially "leaks" into the purchase of imported goods and services...
...Business today is conducted in a world of diminishing transportation and communications costs, financial-center controls over excessive foreign-exchange fluctuations, ample availability of capital, and ease of acquiring technological know-how...
...the ultimately successful General Agreement on Tariffs and Trade (GATT) negotiations have continually lowered tariff and non-tariff barriers, and, perhaps more important now, are facilitating access to foreign investment under the same rules that govern domestic investment—a significant advantage to foreign investors, who are often more powerful than domestic investors in developing countries...
...policies must be developed to deal with lessened employment security, eroding social protection, and labor market "flexibility...
...OECD maintains that legislated employment security provisions discourage dismissals, hence also cause reluctance to hire new workers...
...As we will see, they represent the private parallel to current public employment policy—the coldly calculated "adjustment" of the workforce, or large parts of it, to the pressures of worldwide competition...
...Labor market deregulation—the presumed need to adjust earlier gains of working people downward—has dominated questions of employment policy since the late 1970s...
...The value of sales of the foreign affiliates of MNEs now exceeds that of conventional arm's-length trade," writes the International Labor Office (ILO) in a recent report, World Employment...
...Rather, it has been a prescription for worker immiseration, uneasily balanced by such subsidies as the Earned Income Tax Credit...
...Penney...
...65 percent of employees of ConAgra Foods...
...exports and well over 50 percent of U.S...
...The non-wage costs associated with such workers are evidently low...
...Unemployment is "structural" in origin, it has nothing to do with deficient demand, its level will not respond to lower interest rates...
...Labor market dualism also partially explains the low unemployment rate in the United States...
...Job creation in growing industries other than service industries has not been sufficiently rapid to absorb redundant labor from declining industries or agriculture, as had occurred in the postWorld War II decades...
...G.E...
...In much of continental Europe, these agreements are binding even on firms not signatories to them...
...Let us consider some candid remarks made last year by the executive vice president of General Electric, Frank P. Doyle...
...Together with the virtual absence of any other income support entitlement, this has kept long-term unemployment to a very small proportion of the jobless...
...Federal Reserve, ever since the inception of quasi-Keynesian macroeconomic policies in the early 1960s...
...The developed countries still account for the lion's share of trade in manufactures...
...Over the preceding fifteenyear period, G.E...
...In its Jobs Study, the OECD urges that the "marketclearing role" of wages be emphasized by European governments as well...
...The institutionalizing of international trade and investment rules has undoubtedly strengthened, if not ensured, the dominance of capital, and reduced risk...
...had cut its direct employment from 435,000 persons to 215,000, that is, by more than one-half, even as its sales revenue nearly tripled...
...arrived in its restructuring effort...
...Between 1979 and 1995, however, while productivity rose at a rate of 3.1 percent per year, employment declined by close to 1 percent annually...
...Technological change, spelling greater output per unit of worker input, has always given rise to workers' fear of displacement...
...yet such trade accounted for 43 percent of the exports of South and Southeast Asia in 1970, and for 78 percent in 1990...
...The monetary authorities, avatars of resistance to the redistributional effects of full employment, keep interest rates at levels that require enormous proportions of public budgets, here and abroad, to be expended on interest payments...
...It has given rise to much praise of the American "job machine," but such praise is misguided...
...For example, equipment embodying information and communications technologies now represents 25 percent of Thailand's exports...
...The share of male workers (working full time the year round), earning $15,000 and under, increased dramatically between 1979 and 1995," writes the Council of Economic Advisers in its February 1997 report...
...q Sources will be furnished by the author on request...
...the decline accounts for 25 percent of the increase in wage inequality...
...the volume of foreign trade, by a factor of nine...
...more than three-quarters of them worked in the service sector...
...This is not to imply that all is smooth sailing...
...Given this retreat, policies that spur economic growth, seek full employment, and strive to ensure income and employment security are unlikely to be adopted, since they require strong public action and a measure of governmental autonomy...
...These practices have undoubtedly helped to moderate wage claims, thus also making workers more "flexible...
...However, while the capacity of some of these industries to absorb redundant or newly entering workers is becoming more limited, the expansionary potential of others hinges on the availability of a workforce compelled by its social situation and educational level to work at very low wages...
...Foreign trade is fueled by foreign direct investment in plant and equipment, which has risen more rapidly than trade...
...Such a labor force has also been available since the beginnings of industrialism...
...It is true that the Earned Income Tax Credit, in combination with the higher minimum wage, has lifted many people out of poverty...
...According to ILO studies (which, like other official labor statistics, do not use the concept), oneseventh of the workers in the OECD countries were employed part-time in the late 1980s...
...Although the wage replacement rate of these benefits is low in France, and little more than half in Germany, their duration permits the recipient to resist economic and administrative pressures to take an unsuitable job...
...In earlier years, "large corporations were overpaying low-end workers and underpaying high-end workers," resulting in a leveling of compensation unrelated to skill or to "the true market value at which people were producing...
...It can prevail, however, only in the presence of a large, low-wage labor force, largely non-union, with minimal social regulation of wages and benefits...
...Strategic alliances" between firms, often themselves competing, together with subcontracting agreements, add to networks of "integrated production systems...
...Only about one-fourth of economic growth since 1973 is attributable to rising productivity (output per hour of real GDP...
...Since the early 1980s, world trade has continued to rise at twice the rate of output...
...For them, as for most economists, the regulative principle of the economy is price (and wages are of course the "price" of labor), and price presumably adjusts so as to clear the market...
...One-tenth of these charges go to the support of the unemployed...
...In 1967, a male full-time, year-round worker with a high school education averaged 77 percent of the earnings of a worker with college education...
...The situation is unlikely to have improved since, considering that more than forty million persons, many of whom are working, remain uninsured...
...28 percent of Japan's...
...The traditions and politics of social democracy resist adoption of the American "model...
...Second, on the labor market demand side, employers are able to hire low-wage workers for activities that were once the province of households or of voluntary entities...
...Indisputably, more rapid economic growth would tighten labor markets and diminish the availability of low-wage and contingent workers...
...The central banks, however, feared the inflationary consequences, and this is their continued fear as guardians of financial values...
...High interest rates also defeat the income- or investmentsupporting effects of budgetary deficits...
...In the six years since, the proportions have unquestionably increased...
...58...
...This pattern repeats in many goods-production industries (and strikingly so in agriculture...
...OECD's advocacy of greater wage dispersal to stimulate more employment would erode such centralized bargaining— which has protected the living standards of the weaker strata of the work force...
...the "structural adjustment" policies of the International Monetary Fund and the World Bank, pressing for privatization of state-run enterprises and for export-based economic growth, engendered foreign investment and the trade associated therewith...
...ranked fifty-fifth among the top two hundred global corporations in 1995 sales...
...The expansion of commercialized leisure and recreation enterprises likewise depends on the availability of youth and other low-wage workers...
...The German central bank's argument is not new...
...According to a White Paper by the European Commission, "statutory charges on labor"—the sum of income taxes and social security contributions (which include unemployment tax) in the European Union rose from 34 percent of GDP in 1970 to 40 percent in 1991...
...It would be foolhardy indeed, however, to ignore the costs that unemployment imposes on welfare-state programs, on the use of tax revenue for public investment, and on resources for other social needs...
...And of course they do not reflect the revenue forgone from the losses of production and income due to unemployment...
...But they reinforce the trend toward globalization of business and labor markets...
...In 1996, despite the sharply lower unemployment rate and the tighter labor market, the same survey organization found that 46 percent were fearful of a job layoff...
...In some OECD countries, particularly the United States but also the United Kingdom, collective bargaining and trade unions have been targeted so as to intensify labor market competition...
...The nonfinancial MNEs employed seventy million workers in 1992, 20 percent of the nonfarm OECD labor force...
...As of the early 1990s, an estimated 40,000 companies owned or controlled 171,000 foreign affiliates...
...That has ended...
...The key fact about the situation of working people today is their widening exposure to the international division of labor...
...Possibly one-fourth to one-third of all families with one or more members in the workforce have incomes lower than that...
Vol. 44 • September 1997 • No. 4
