Getting the Questions Right

This is the story of a Canadian woman who started to explore economic issues.  The difficulties she encountered along the way led her to the conclusion that there are certain questions that can’t be answered theoretically but only practically, by people like herself.  The same discovery could have been made by someone, male or female, somewhere else.

Economics: A Worldly Religion

It’s hard to find any other subject that is as ubiquitous as economics.  Broadcast media talk about economics in the same way they talk about the weather, implying that in both cases complex forces are out there that determine various phenomena — precipitation and temperature in the former and stock market prices, interest rates, and exchange rates in the latter.  Mass media typically equate economics with financial news.  Anyway, this news helps you prepare for the next day: it tells you to reshuffle your investments in order to seize next day’s profitable chances, like the weather report letting you know whether to get sunscreen on or your umbrella out.

At times, when either a hurricane approaches or a financial panic strikes unexpectedly, news is transformed into 24/7 coverage.  Excited predictions of the next move of the climatic or financial behemoth alternate with pitiful reports on the poor victims who lost all their possessions as a result of weather or financial storms.  However, this is strictly a spectacle.  You are not supposed to do anything, let alone ask questions about causes of the disaster and means to prevent future catastrophes.

You may get annoyed by sensational footage and smug talking heads who imply that you can’t think and act for yourself, and you may actually try to find out why there are recurrent disasters yourself — like the aforementioned Canadian woman, who wanted to explore the background of financial boom and bust.  We’ll follow her.

Our explorer has just left the role of a spectator behind.  Where can she go first to get answers for her questions about economic issues?  Let’s see if there is something at the newsstand.

A number of daily papers, just as sensationalist as TV news, and lots of magazines loaded with ads for clothes and make-up, cars and boats, and other fancy things obstruct her view, but eventually she finds some publications dedicated to economics: Financial Times, Wall Street Journal, Business Week, and The Economist.  No sensations this time — just boring numbers and the same message that she has already heard from talking heads on TV: politicians, union bosses, and special interest lobbies held back companies from investing in jobs and production capacities and forced them into risky financial speculation.  Plus this one: a stock market crash has to be understood as a necessary correction of speculative manias.  Sounds a bit like Freudian psychoanalysis, doesn’t it?  According to this view, the human desire to maximize profits, like Freud’s id, has to be kept under control by market forces playing the role of the super-ego. 

Our explorer of economics is confused: why do economic pundits, who present themselves as embodiment of reason, represent human beings as thoroughly driven by desire, leaving no room for the self-confident ego?  Besides, aren’t there desires other than the pursuit of profit?  Has Eros completely turned from the love of other human beings to that of money?  Finally, what are these “market forces,” which pundits make them seem like puppeteers who run the economic show, losing control over their marionettes only on rare occasions?  She leaves the newsstand with no answers but a number of new questions.  Dedicated to get them answered, she enrols in college classes and reads economics textbooks.

There she hears and reads about supply and demand, market equilibrium, and the distorting effects of political intervention.  Again, it’s the same story she already got twice, from talking heads on TV and the business press, just presented in fancier terms on campus.  The question of what market forces actually are is left unanswered.  The seeming unwillingness of journalists and professors to answer regular folks’ questions creates the impression that they aren’t educators but preachers.  The different linguistic styles used by journalists and professors actually resemble the division of labour between high priests and lay preachers in the Catholic Church and leads us to think that economics is actually not a set of tools that helps us understand the world, and possibly change it according to our wishes, but a religion that wants us to accept the world as it is.

Economics has come full circle.  Originally it was part of the Enlightenment project in Europe in the late 18th century that considered religion as an ideological veil over feudal exploitation and oppression, which enlightenment thinkers sought to replace by a harmonious society of equality based on the natural rights of each individual.  Liberalism, comprising political and economic philosophies, in those days was a rallying cry of merchants, craftsmen, and peasants — “the people” — against the worldly power of feudal masters and the ideological power of churches.  Since then, a minority of “the people” have developed into a new powerful class: the owners of large companies and financial wealth.  To justify their position at the top of a different, now capitalist, society, they have come to use economic liberalism in ways similar to feudal masters’ use of religion.  Liberals argue that the divinely ordained order of the past has been replaced by the modern world of equal opportunity, which is governed by market forces.  The difference between the God-given and market-given orders is that in the former every individual was born into a certain social position within feudal hierarchy whereas in the latter everybody is free to position himself where he wants.  Each one of us, the gospel of economic liberalism goes, has the chance to get to the top if she only works her way up the social ladder.  The happy few who are born into power and wealth, by the way, are seldom mentioned in this new gospel.

Unfortunately our economics explorer feels totally lost now.  Equally unhappy with economic journalism and economics professors, she now hears from an offstage voice, the author of this text, something about Enlightenment, religion, and liberalism.  The intrepid explorer doesn’t lose her nerve, though.   Actually, it suddenly occurs to her that she might not be the only one who is trying to find out why there is financial talk in the media all of the time and spectacles of crises some of the time.  But where can these other explorers be found?  Among unionists, perhaps?  Maybe the economic-religious complex of academia and mass media either ignores or represents unionists as distortion in an otherwise perfect market because they are dissenters?

Trade-union Keynesianism

If you happen to work in a unionized workplace, it should be easy to find out whether unions can answer your questions about economics.  Ask a shop steward, look up your union’s publications or Web site, and find out about the union’s educational program.  What if your workplace is not unionized, so there’s nobody around you who has a mandate to educate workers?  If you are lucky, you have, or one of your co-workers has, heard about labour studies programs offered by some colleges and universities.  But beware the programs’ economics components: more often than not, labour studies programs’ economics classes are taught by the economics departments of the institutions that host the programs.  This reliance on economics departments indicates the low priority labour studies gives to economics in general and the promotion of dissenting views in particular.  The same is actually true for union-delivered education.

In fact, both union education and labour studies put a strong focus on legal issues like organizing and bargaining rights, grievance arbitration, and the right to go on strike.  The concentration on labour law in education is due to unions’ core business, which is to win recognition as a bargaining unit, achieve a collective agreement, and enforce it.   (The content of collective agreements clearly deals with economic issues, among which wages, benefits, working time, and working conditions are the most important ones.  However, the dispute between unions, or workers in general, and companies about wages, hours, and other issues assumes the legal form of a contract.)  If there is no right of workers to organize, it’s almost impossible to act as a group.  There were, and still are, attempts of workers to pursue common goals in the absence of legally recognized unions.  However, they are very hard to maintain since the workers who are involved risk persecution for engagement in illegal activity.  If unions are recognized, but only on very unfavourable terms, they will still have difficulties in winning good contracts.  For this reason, unions not only work to apply actually existing labour law but also advocate more favourable legal rights, which, in turn, could help them organize more workers and win better contracts.  Thus they become political players beyond individual workplaces.

Unions’ reliance on labour law and political lobbying, however, impacts the view that most union officials and staff take on economic issues and thus their educational efforts in this field as well.  Their view is certainly different from the free-market gospel promulgated by the economic-religious complex.  For starters, it doesn’t see generous labour law and collective bargaining as a market distortion.  Quite to the contrary, they are seen as political complements necessary to stabilize a market-driven economy.  This perception rests on Keynesian economic theory, according to which the individual pursuit of profit leads to idle production capacities because companies, who see wages exclusively as a profit-belittling cost-factor, don’t pay their workers enough to make them busy consumers.  However, if labour law enables unions to win higher wages, workers’ incomes, and thus their consumer demand, will go up.  Therefore, Keynesian economists conclude, a politically regulated market economy creates a true win-win-situation.  Although companies have to pay higher wages than in an unregulated market economy, they make higher profits because the full utilization of their capacities allows them to sell more stuff than in a situation of insufficient demand and idle capacity.  At the same time, workers enjoy higher wages, and some of the unemployed can get back to work.

This sounds much better than the hate speech the economic-religious complex uses to denounce unions and political intervention in the economy, our economics explorer thinks while taking a union class on Keynesian economics.  However, she has second thoughts: why aren’t these great ideas applied to reality?  Are business leaders so prejudiced against unions that they can’t understand that they would actually benefit from supporting generous labour law and paying higher wages?  Or have they never heard about Keynesian economics?  Not at all.  It’s been a conscious strategy of business owners to discredit Keynesian ideas, political regulation, and collaboration between bosses and unions, she is told.  But why wouldn’t they take the chance to make more profit through the pursuit of such corporatist policies?  For rational calculating business men, shaking hands with union leaders and their social democratic friends should be a price worth paying if it allows them to make more money.  Why don’t they do it?  Before this question gets discussed, the Keynesian economics class is over. 

Never mind, our economics explorer says to herself.  I understood that there is more than one way to think about economics, so I may find an answer to that question for myself.  To do so she tries to see the world through the eyes of a business owner.  This is not so easy for someone who has to follow bosses’ orders at work and never meets the fattest cats personally.  Thus, her “business imagination” starts with imagining herself in the position of a small business owner — like the guy who runs the corner store in her neighbourhood and with whom she chats occasionally.  She knows that he is scared that he may go bankrupt, losing customers — some of whom are now unemployed or hurt by wage cuts — to big malls and box stores offering deeper discounts.  She feels sorry for the guy, but a new idea also strikes her: an economic crisis actually helps the owners of big stores take customers from little shops.

Yes it does, and not just in the retail sector.  In every sector, the owners of big companies, who have sufficient financial reserves to make it through a period of low revenues, are actually quite happy when a crisis pushes smaller companies towards bankruptcy.

What is more, economic crises come with increasing levels of unemployment, so even workers who still have jobs are in fear of losing them, which makes them cautious about advocating unionism or making any other claim against their bosses.  Thus, companies, large and small, use economic crises as a means to discipline their workers.  Full employment, their owners think, would encourage workers to ask for ever higher wages and shorter hours that couldn’t be paid out of increasing productivity but would eventually lead to a profit squeeze.

Unions can resist concession on incomes and working conditions during a crisis if they can build sufficient organizational strength during an economic upswing that can allow them to fight back once boom turns to bust.  However, their reliance on labour law and their advocacy of Keynesian policies, both of which have to be enforced by the state, do not help unions mobilize their members or other workers who might be drawn into the unions through more rank-and-file-based activity.  In terms of the style of politics, free-market liberalism and Keynesianism are actually quite similar.  In the former case, the show is exclusively run by top managers and company owners; in the latter case, this exclusive club of deciders is joined by union leaders and state officials; workers’ involvement isn’t on the menu in either of these.

By the end of the day, our economics explorer concludes that Keynesianism is a good idea to solve the economic problems of wage pressure and unemployment but also that bosses don’t like it because it may eventually lead to a profit squeeze.  She also thinks that it doesn’t really matter whether it’s a good idea or not, as long as there is no way to build powerful unions that have a chance to put it into practice.  She also notices that her original question about the causes of financial crises has been replaced by a new one: how to build a movement that can defend workers’ working and living conditions even under difficult circumstances such as an economic crisis.  But that’s a question for another day.

The Answer Is in the Question

If Keynesianism is a kind of alternative to free marketism, but has only little chances to be tested in reality because there is no powerful social base that demands it, the formation of such a base is at least as important as the elaboration of new ideas.  Workers’ day-to-day experience on the job, as well as their experience of unemployment, is a good starting point for that.  Taking these experiences serious actually leads to questions that are different from those raised by liberal or Keynesian economics.  Those two types of economics are both concerned with the pursuit of profit above all.  The only disagreement between them is about whether this requires an unregulated market economy or corporatist agreements among businesses, unions, and governments.  Neither liberalism nor Keynesianism is really concerned with workers’ experiences and ideas because their respective models of society are either governed by the market, another word for big corporations, or an assembly of economic and political leaders, not by ordinary people.

Back to square one, our economics explorer tells herself when she realizes that the answers to her questions she got from the union educational are not totally convincing and that she is now asking different questions anyway.  However, labour movements and working classes were mentioned at the union hall, in a way that reminded her of her grandparents, who were with the Communist Party during the Great Depression in the 1930s.  Did they know about class and class struggle?  Maybe some educational materials from those days are left in the attic where lots of old stuff is collecting dust.  In the attic, she happens on an old pamphlet on Workers, Wages, and Profits.  Let’s see what it says.

It starts with a sharp distinction between workers and bosses and argues that the former depend on the latter.  Having no other source of income, workers have to find somebody who pays them for their work.  Bosses are in the position to either hire, or not hire, workers because they own all the factories, stores, and offices.  Ownership of the means of production gives them control not just over their own property but also over the workers they hire and the commodities they make.  This really is different from liberals’ focus on markets and Keynesians’ on the political regulation of markets.  For the first time since our explorer began her search, she finds the production process discussed at length.  She was already wondering why those other economists talked about market exchange, politically regulated or not, of commodities but never said a word about the origin of those commodities, let alone the workers who made them.  Her pamphlet calls them direct producers because they actually make everything.  But direct producers can decide neither what kinds of things they make nor which production technology to use.  Those decisions are made by the owners of the means of production, called capitalists in the CP pamphlet.  They are also the ones who sell the commodities, which they haven’t made themselves, for a profit.

Compared to today’s business-speak about markets, investments, and returns, terms like classes, workers, capitalists, and means of production are quite unfamiliar to many people, and that’s enough to make the terms suspect to them.  In some history classes, you hear about the Communist Party and their role in organizing millions of workers in the 1930s’ Great Depression.  But then they miraculously disappeared from public perception in the 1940s, around the time when unions won legal recognition in Canada, and have rarely appeared in the media since then, and if they did, they were presented as Soviet spies, Moscow’s fifth column, or some other evil.

Suddenly, questions beyond production, markets, and profits come to our economics explorer’s mind.  What did those Communists do in the 1950s?  Why was their existence either kept secret or presented as a threat to liberty and prosperity?  And why don’t we get answers even if we ask about them?  She remembers that she heard about her grandparents’ activity in the CP but it was never talked about how and why that ended.  This part of her family history was half taboo and half forgotten.

During the post-war boom, her family, like so many others, was busy leaving her grandparents’ proletarian past behind.  When times got tougher in the 1970s, due to the recurrence of mass unemployment and the spread of precarious jobs, they still tried to maintain a standard of living that would distinguish them from the new proletarians who became visible in some declining neighbourhoods.  There was neither time nor sympathy for the 1970s’ protestors who claimed that the end of prosperity put class struggle back on the agenda or articulated concerns about ecological limits to economic growth.  But isn’t it ironic, our economics explorer asks herself, that there was a wave of protests and strikes in that decade when the social safety net was in much better shape than it is today?  Shouldn’t we be seeing much more labour activism today, where even workers who have decently paid jobs aren’t sure if they can keep their jobs?

True, today’s economy hasn’t collapsed as it had done in the 1930s, and poverty levels are still lower than they were back then.  However, other parts of the world look pretty much like the world that is described in her old CP pamphlet.  If I don’t let myself scared off by an unfamiliar, language of radical labour organizations or the way they are represented in the media, our economics explorer muses, I might learn quite a bit from the Marxism that is advocated by them.  Isn’t it true that only a minority of people are born into a rich life and that the vast majority have to perform wage labour to make a living?  Yes, considerable numbers of workers work hard, study, and save to either get into well-paid middle-class professions or start their own businesses.  However, even these ambitious workers need a little luck to reach their goals.  And most workers stay within the ranks of the working class into which they were born.  Thus, our economics explorer concludes, the Marxist focus on workers, capitalists, and the conflict between these two classes is a good starting point to come to terms with current economic developments.

According to Marxian economics, financial crises, her original concern, are the result of speculative investments to which capitalists turn when they can’t find profitable investment opportunities in the real world of commodity production.  They can’t find such opportunities because the profit-driven rationalization of the production process leads to the replacement of wage-claiming workers by super-productive machines.  Moreover, it often turns out that these machines are still too costly compared to the productivity increases they yield.  Then, the profit rate might even fall due to investment in expensive technology.  Moreover, wage cuts that lower production costs may also reduce profitable investment opportunities: wage cuts lower workers’ purchasing power, so companies may not be able to sell everything they produce.  All these problems lead the wealthy towards financial speculation, which promises to increase their wealth directly, without the impediments of cost-factors such as wages, machines, and technology or demand-factors such as lack of solvent customers.

At some point, however, some investors realize that their expected capital incomes exceed the surplus value produced be workers and realized through sales in commodity markets, which is the ultimate source of dividend, interest, and rent payments.  Once they do, they start selling assets, eventually triggering a panic in which most shareholders try to liquidate their assets — the financial crisis our economics explorer was hearing about in the news.  Finally she got an answer to her question as to why financial crises hit capitalist economies.

Our economics explorer finds the starting point of Marxian economics, conflicting interests between workers and bosses, useful: it not only speaks to the experience of workers but also helps explain why financial crises recur.  However, something else starts to bother her: workers are often treated as a passive, undifferentiated mass in literature of Marxian economics.  This was the case in not only her old CP pamphlet but also much of more recent Marxist literature.  Workers have not only different jobs and qualifications but also individual identities, whose expressions mix languages of class with those of gender, nationality, religion, and so on in many different ways.  The theoretical concept of a working class loses much of its potential explanatory power if it skates over different self-perceptions of actually existing workers.

Moreover our economics explorer remembers that originally she was not just interested in the causes of financial crises — she was also motivated to begin her process of exploration because she was annoyed by the media treating her like a passive receiver of infotainment.  Studying Marxian economics, however, she still feels like a passive receiver, though her suspicion that something’s wrong in a world of overabundance for some and misery for many has been confirmed by it.  Her interest has changed from understanding economics to actually changing the economy, so she is now not only looking for convincing analysis but also searching for ideas that can guide such social changes.

However, she finds few immediately useful political tools in her Marxist study materials.  Where political action is addressed directly, as in her old CP pamphlet, workers are asked to join and follow the party.  That’s actually not very different from her experience with union education.  Whether I follow a party or a union leadership, our economics explorer grumbles, doesn’t make much difference to me.  Either way, the rank-and-file are just the entourage of an enlightened leadership.  In contrast, politics are avoided like a plague in more recent Marxian texts.  Mostly produced by academics, this school of Marxism either passes over the question of political action in the real world or makes an explicit argument why the power of the bosses is so pervasive that workers, as much as any other oppressed and exploited group, have no chance to change their fate.  That is of course even more discouraging than the CP’s or union’s praise of leadership, which at least implies the hope that the rank-and-file might eventually reclaim and democratize their party or union and their society.  Never mind, our economics explorer concludes, Marxism at least helped me get the questions right, it even gave me a few answers.  Equipped with these theoretical tools, I can find answers by myself if I apply questions that I have to my actual experience.  If I can find a few like-minded co-workers or friends to explore our experience through Marxian lenses together, we may even be able to move from exploration to political activism.

Ingo Schmidt teaches economics at the University of Northern British Colombia in Prince George.  He also works as a labor educator.