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October 2003 • Vol 3, No. 9 •

The Jobless ‘Recovery’

By Nat Weinstein

A story about the phenomenal disappearance of 2.7 million factory jobs in this country in just the last three years was featured on the front page of the September 13, New York Times. While such stories have been reported with increasing frequency since the recession officially began in March 2001, they seem to have multiplied in the last several months.

The Times’ report is titled, “As Factory Jobs Disappear, Ohio Town Has Few Options.” It begins with a description of a typical working-class victim of what the media is calling the “jobless recovery.” Jim Greathouse is a 55-year-old tool-and-die machinist who was laid off in June after 30 years with the Hoover vacuum cleaner factory in Canton, Ohio. He had earned, at times, more than $50,000 a year making the precision metal molds that factories use to shape parts. Now, his skills, accumulated over years of hard work, are useless and his only immediate prospects are minimum-wage jobs.

He speaks for millions like him when he angrily tells the reporter interviewing him:

“What does it do when you take away all these jobs from people who support families, who raise families?” he asked. “Manufacturing has been the strength of this country. If we can’t make anything here anymore, what does that do? The fabric of this society is falling apart.… When you have CEOs who think of moving jobs offshore, what are you doing but terrorizing the people who lose their jobs. This is a form of terrorism, also. The country is getting weaker and weaker.”

This victim of the de-industrialization of America—the transfer of domestic manufacture to wherever wages are cheaper—is not exaggerating when he characterizes it as “terrorism.” Millions of workers have already been forced to accept pay cuts or see their jobs exported across the face of the planet. But it doesn’t end there. In too many cases, after a few years of squeezing superprofits from these workers, the bosses close down and move their plants abroad anyway.

In my book, that’s terrorism.

However, though we have been hearing such news for many years its full force comes through when it is known that the proportion of workers in higher-paid manufacturing jobs has fallen from 30 percent in the mid-1960s to 11 percent today.

The same edition of the Times (September 13) included another of the many reports promising an upturn of the economy just around the corner. But such reports have lately tended to be laced with uncertainty and ambiguity, as this one certainly is:

“The American economy finally seems poised to roar ahead at rates not seen since the late 1990s, but economists and some political analysts say the surge may not help President Bush’s reelection campaign next year. A wide range of data suggests that the economy will probably grow at an annual rate of nearly 5 percent in the final months of this year and nearly 4 percent next year—rates that would normally be spectacular news for an incumbent president. But in a disparity with no real parallels in the last half-century, most economists predict that unemployment will remain almost unchanged at nearly 6 percent through the elections in November 2004.” (Emphasis added.)

How the jobless “recovery” could remain jobless until Election Day 2004, while unemployment could remain unchanged at 6 percent is left unexplained. For one thing, the Labor Department reports that an average of 61,000 manufacturing jobs have been lost every month for the last 37 months. This figure, moreover, does not account for what the Department calls “discouraged workers” that are no longer counted as unemployed after exhausting their 26 weeks of unemployment insurance. Therefore, if there is no significant increase in hiring, the number of unemployed will continue to grow beyond the current 6 percent rate.

Also not included in the officially determined percentage of jobless workers, are the new workers entering the job market every year who could never get a job or got laid off before having worked long enough to qualify for unemployment insurance. Workers who have been unable to get jobs, after all, may be discouraged, but that doesn’t mean they don’t want a job and a regular paycheck—it only proves that they are still unemployed!

The effect of increased labor productivity on the economy

Let’s take a look at the evidence offered in support of the claim that the recession ended in March 2001 and the economy began recovering seven months later—that is, began growing again—even though the economy was still shedding jobs.

According to the U.S. Labor Department, labor productivity—how much work the average worker does in an hour—has been increasing since the recession was officially declared at an end in November 2001. That, and a reported increased rate of profit in manufacturing is the evidence offered in support of the claim that the economy has resumed growth. But, Department records also indicate that the rate of labor productivity has tended to increase well before, during and after the March 2001 recession.

To be sure, an increase in labor productivity, in a rational society at least, is always a good thing. After all, when workers produce more goods in less time, living standards, logically, should rise, the workweek should shorten without a reduction in pay, and full employment should prevail. But while labor productivity increased among a smaller section of the workforce—at least 2.7 million less manufacturing jobs than three years ago—it has resulted in lower living standards, a longer workweek, more unemployment and an absolute decline in total domestic labor product!

But in order to determine whether this is really good news or not, let’s see what makes labor productivity rise or fall in an economic system that is always either expanding or contracting:

A true, generalized, increase in the productivity of the domestic economy, of course, occurs only in periods of economic expansion. When more new factories are constructed than are shut down, the economy grows. Moreover, when capitalists decide to invest in new plant and equipment, they naturally tend to incorporate the most advanced productive technology available in their new factories. That, in fact, is how both labor productivity and gross domestic product grows fastest.

But when the domestic economy begins to contract, the least efficient factories are the first to be shut down. Thus the average productivity of the workers in the remaining, more competitive factories surviving, is greater. Thus labor productivity has risen, but the economy has contracted and total productivity—when measured in real dollars1—has fallen.

Moreover, as the economy contracts further and the market shrinks, the remaining factories, unable to sell all they produce when operating at full capacity, are compelled to cut production by laying-off a portion of their workforce. But when factories operate with less than their full complement of workers, all other variables remaining unchanged, productivity per worker also tends to fall. This is because the value incorporated in plant and equipment continues to figure into the cost of the commodities produced even though the full capacity of fixed capital in plant and equipment is under-utilized.

However, if the employer is able to force his remaining workers to take on some of the tasks previously assigned to those laid-off and is able to speed up the assembly lines, the smaller complement of workers might produce more per worker per hour than they had done when the plant was operating at full capacity. Thus, productivity and profits might rise for the capitalists surviving the shakeout of the least productive sectors of the economy that occurs during a recession.

In other words, increasing the intensity of the labor process and/or expanding the workday—without paying a higher wage, results in an increase of output per worker per hour, higher profits for the owners, but everyone else,
especially the workers—lose.

How bourgeois economists view the jobless recovery

Louis Uchitelle, one of the New York Times’ most capable popularizers of the workings of the capitalist economy describes in an article appropriately titled—“Good Economy. Bad Job Market. Huh?” (September 13)—how a good thing like rising productivity in capitalist society can have “nasty repercussions”:

Normally, a spike in productivity is accompanied by an even greater spike in demand. Simply put, productivity rises when workers produce more and sell more each year, and do so without putting in extra hours. The production part is working just fine. The demand, however, is lacking.

That, in turn, is having nasty repercussions for jobs and incomes. The increase in productivity has allowed many employers to cut payrolls or workers’ hours. Why pay six people to assemble 90 toaster ovens an hour when only four workers are needed to assemble the 60 ovens that can be sold? Better yet, why not speed up the line and cut the four workers to three, each one forced to work faster. But that leaves three workers unemployed, without income and unlikely to buy toaster ovens—or much else—until they get work again.

Gradually the demand for toaster ovens falls to 50, then 40, and another worker is laid off, or everyone’s hours and pay are cut. And demand falls even more, producing its own negative dynamic.

In other words, Uchitelle draws a short and sweet description of the vicious cycle set into motion by the unfolding of a crisis of overproduction. The most obvious conclusion to be drawn from his description of capitalism-in-action is that in the earliest phase of a contracting economy, individual capitalists’ rate of profit can rise, but the economy keeps contracting. After all, when a sizeable portion of the workforce is dismissed, the demand for goods falls accordingly, more workers are laid off and the vicious cycle of contraction gathers momentum.

To be sure, anyone who has ever looked at graphs charting the movement of the stock market from day to day and week to week, will note that the line tracing the movement of stock prices zigzags in the short run, but over time an expanding or contracting trend ultimately shows up. Thus, there is always a great deal of uncertainty over when a recession has ended and a new cycle of expansion has begun.

Thus, even though the so-called recovery is alleged to have begun in November 2001, the workers and the means of production—the two parts of the forces of production—continue to decline.

Noted economist, John Kenneth Galbraith, in his book, The Great Crash: 1929, cited case after case of short-lived indications of economic recovery during the 1930s that gave rise to repeated predictions that “prosperity was just around the corner,” however, failed to materialize.

The real state of affairs is dawning on the experts

As already noted, evidence is mounting of a growing sense among bourgeois economists and commentators that the U.S. and world economy is in far worse shape than many had realized. In the July 20 issue of the Times, Uchitelle deals with the negative consequences of the transfer of manufacture to other lands in a piece titled, “Producing Abroad Is Harming Recovery”:

[T]he forecasters seem not to grasp how much the American economy has deviated from the standard business cycle and the standard cures. A major reason for the deviation is the mobility of American companies, particularly the ease with which they now shift operations to China and India. “The wholesale movement of jobs and production overseas is handcuffing the recovery,” said Mark M. Zandi, chief economist at Economy. com.

In other downturns since World War II, the economy moved from healthy growth to contraction and back to healthy growth, all in less than two years. The downward swings were relatively easy to fix. The swings began when companies found themselves producing more goods and services than people bought. Inventories built up, particularly in manufacturing, and companies responded by cutting output until it was below demand. Rather than produce more, companies filled orders from stockpiles. As output declined, unemployment rose and wages stopped increasing. Capital spending also suffered. After all, why expand when the capacity to produce already exceeds demand?

These various remedies are being used now, and there is some strength in spending. Yet inventories have failed to diminish, so prices, production, hiring and capital spending do not rise. The difficulty is that companies have a choice that was not as available in the last downturn 12 years ago. Rather than halt production at home, they shift it abroad to cut costs, particularly labor costs.…

In the process, the mechanism for restoring our economy to healthy growth—by reducing inventories and excess capacity—fails to function properly. Inventories may seem to diminish when only “Made in America” is counted. But in the new global economy, what’s made in America and what’s made abroad both contribute to inventories and capacity. The total does not shrink and the economy flounders month after month.

Still, there is some relief. Super-low interest rates, mortgage refinancing, stepped up military spending and some of the Bush tax cuts augur a temporary pop in economic growth. But temporary is the operative word. The more enduring pressure on the economy is downward, not upward.

What is most significant about reports, such as this, is that it comes from bourgeois economists, who are highly respected by their peers for being more objective than most. Their mood, moreover, is one of growing pessimism about the future of global capitalism. This trend is a radical departure from the super-optimistic view of capitalism’s future that reached its height during the “new economy” bubble that burst in the spring of 2001. Now, instead of the expectation of an ever-expanding global capitalist economy that was prevalent in those years, the more common view is one of great uncertainty over the social, economic, political and military future of America and the world.

The problem that has always confounded capitalists is that they are unable to directly “regulate” the boom-bust cycles of capitalist production. That is, they cannot simply issue a command to increase production when demand exceeds supply, or order a decrease when supply exceeds demand. It’s supposed to happen automatically. That’s what market forces driving the capitalist economy means. But market forces are no longer doing many of the things that capitalism’s textbooks and experts say they should do.

Moreover, the only way capitalists are able to “regulate” the capitalist economy is by such indirect and circuitous methods as cutting interest rates to make borrowed capital for investment cheaper, encouraging an expansion of industry and jobs. But it hasn’t exactly worked out that way, this time around.

It is a measure of the plight of the U.S. economy that the benchmark U.S. short-term interest rate, the Fed Funds rate, has been cut to a 45-year low of 1 percent in less than two years. The 1 percent interest rate that is not enough to satisfy the stock market now, would have been unimaginable three years ago. A bookmaker would have given odds of hundreds or even thousands-to-one against rates being cut so low so soon after the U.S. economy had been judged miraculously strong.

In June, Ian Campbell, Chief Economics Correspondent for United Press International, discussed the quandary facing the economic experts on Wall Street and Washington. He asked: “How is it, then, that the low rates now are not enough to make either the markets or even one of the Fed’s own directors confident about economic growth? The question is this: After a stock bubble has driven up spending by consumers and businesses, should you do everything possible to keep them spending? Or allow their spending to fall back so that the impact of the bubble is eliminated, the distortion removed?”

The problem, as you can see, is that no one knows the correct answer to this question.

Another of the indirect ways by which capitalists attempt to regulate their economic system, is by artificially increasing the quantity of money in circulation when the market is glutted with unsold goods. This can be done in many ways; among them, by taking money from the federal treasury and putting it into the pockets of the people. Logically, it would seem, the most effective way to reduce the stockpiles of unsold goods would be to put cash into the pockets of those who are unable to buy the necessities of life. But while some cash is disbursed among the truly needy, the great bulk of public funds are handed over to the biggest and wealthiest corporations.

Why? It’s because there is a far more important reason to spur the economy with handouts to the rich rather than to the poor. It has to do with the falling rate of profit, which in the final analysis is the main reason for the reduction in capital investment and the consequent economic contraction.

When capitalists replace less efficient factories with state-of-the-art plant and machines, those capitalists that do so realize a higher rate of profit. But since it reduces the average proportion of capital invested in living human labor power, and increases that invested in the dead labor incorporated in plant, equipment and raw materials, labor productivity rises, more goods are produced per worker, unemployment increases, demand falls, the average rate of profit also falls, and the crisis of overproduction deepens.

Greenspan is revealed as mortal

Alan Greenspan, credited with having guided the economy successfully through the twin dangers of inflation and deflation has begun to appear fallible for the first time in his 14 years as chairman of the Federal Reserve Board. Another one of the Times’ featured financial commentators, Gretchen Morgenson, was among the first to comment on this development. In her July 20 column titled “Suddenly, Greenspan Is, Well, Mortal,” she wrote:

Like the statues of dictators, investment icons have toppled one by one since the stock market peaked in 2000. Chief executives, once lionized by their shareholders, are now often viewed with mistrust. Stock analysts who were once Wall Street’s equivalent of rock stars are now seen as carnival barkers.

But through it all, Alan Greenspan, chairman of the Federal Reserve Board, kept deity status. Not long ago, one lawmaker predicted that Mr. Greenspan would be remembered as the greatest central banker of all time … until last week, that is, when the bowing and scraping stopped. And from Washington to Wall Street, deep skepticism took its place.

Last week, Mr. Greenspan visited Capitol Hill for his regular testimony on monetary policy. It was not the usual love fest. He was questioned sharply by some lawmakers, who appear to have grown tired of waiting for the economic recovery that he has regarded as imminent for almost two years now.…

Ms. Morgenson’s contribution also tells us more about the nature of the system than might appear at first sight. Though she does not take anything away from Greenspan’s expertise—he does better than most in what he does—she notes that his magic appears to have stopped working.

But she also implies that no one can do more than adjust interest rates higher here and lower there, recommend a tax cut here and a tax increase there, and other such adjustments of the capitalist economic engine. But no one can abolish the fundamental contradictions of capitalist economy and cause a revival of a system that has over-extended its lease on life.

Sooner or later, capitalist economy, like any other living organism, exhausts its possibilities; attempted “cures,” like the latest military adventure in Iraq, are having a host of unintended and counterproductive effects. Thus, rather than the military victory over Iraq having gained a virtual monopoly over the world supply of oil and gas for American imperialism, it has become a liability contributing to the economic crisis now threatening to slip out of control. Instead of reinforcing imperialist control over a rebellious colonial world, the adventure in Iraq is sapping the global capitalist organism of its vigor. There is no cure; only palliatives and superficial tinkering with the links between the different parts of the system, while the living forces of production—are impervious to direct regulation.

Adam Smith, the theoretical Godfather of capitalist
economics, summed up the anarchic nature of the system based on private ownership of the means of production in his most famous work, An Inquiry into the Nature and Causes of the Wealth of Nations (1776). He wrote:

“Every individual necessarily labors to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it.... He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end, which was no part of his intention.”

The “invisible hand,” of course, refers to competition among capitalists everywhere for access to the marketplaces of the world in their unending search for places to sell their surplus goods, and invest their surplus capital. For capitalists, after all, unsold goods and idle capital are exactly the same as a reduction in the value of their invested capital.

The problem derives from the simple fact that while productivity can be expanded without limit, the world marketplace cannot expand proportionally—it’s finite. One capitalist can take over the markets of another; but that is no substitute for genuine expansion into new markets. When productivity expands beyond the capacity of the marketplaces of the world to absorb its increased product, the demand for goods falls, production is reduced, workers are laid-off—further reducing the capacity of the world market to absorb the products of industry.

Capitalism has no way out of its dilemma because Adam Smith’s invisible hand is indeed in command. And within the framework of the capitalist mode of production, there is no way to eliminate the fatal contradictions of capitalist economy.

That, of course, does not mean that the ruling classes of the world will not relentlessly attempt to find a way to postpone the inevitable for as long as they can.

But because the entire capitalist world is in crisis, whatever measures are used by one sector to increase its share of the world market reduces that of the others. Washington’s unilateral decision to conquer Iraq was a case in point. Consequently, dissension among them is inevitable, and is certain to at least impede their attempts to find a way to postpone the inevitable, or worse—make any significant extension of capitalism’s lease on life impossible.

In fact, there is only one force left in the world capable of equaling and surpassing the power of the American imperialist behemoth—which is both the strength and the weakness of world capitalism. And that is the world working class and its natural allies, all of whom are victims of capitalist social, economic and political injustice.

It is highly unlikely at this moment in history that there is any way to prevent the outbreak of a second Great Depression, which promises to be exponentially more destructive than the first.

This is because, in addition to the role of military spending, which aside from its obvious purposes, also serves as a means for maintaining the equilibrium of the global capitalist economy. Moreover, it has been accompanied by nearly 60 years of deficit spending that also served to keep the economy from descending into a major crisis of overproduction decades earlier. All of which was made possible by the decision of the world’s major imperialist powers at the end of WWII to separate the world monetary system from its metallic base in order to free it from the dictatorship of gold—a dictatorship that cannot be entirely abolished and which places sharp limits on how far credit could be expanded.

In fact, when future historians look back to ascertain when the Second Great Depression began, it’s not excluded that they will trace its origin to March 2001.

In any case, when the global economy slips out of control the entire world working class will indubitably suffer the worst of all worlds; that is, a world plagued by mass unemployment and hyper-inflation—leaving the exploited and oppressed of the world no choice but to fight back by any and all means necessary.

One thing is for sure. The coming struggle will end either in a revolutionary re-constitution of society at large or the end of civilization or worse—the end of human life on the planet Earth. There is no alternative, therefore, but for those who already understand the need for a mass revolutionary workers’ party to join together to lead the human race from capitalist anarchy to a socialist world order based on production for use, not profit.

1When more products are produced by fewer workers for less pay, all other things being equal, the total value in real dollars produced is lower. There may even be more widgets produced, but each widget has less labor power incorporated in it and thus less value. Capitalists calculate productivity according to value produced in the form of real dollars.

2 From The Communist Manifesto, by Karl Marx and Frederick Engels.





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