Monopoly Capital Blocks Rational Policy of Wage-led Growth


Paul Jay: So we’ve been talking about macroeconomic policy, the G-20, austerity.  And there was one little line in the G-20 document I thought was interesting, and it’s sort of buried in amongst everything.  It said countries could facilitate wages going up proportional to productivity, which is rather interesting, ’cause it’s the only time I’ve ever heard it even mentioned by these guys.  There’s quite a big section about how wages need to go up in China.  There they understand the need for increasing demand.  And we’ve heard President Obama say, we can’t be the consumer engine of the world anymore, you guys have to do it, looking at China.  And they talk about increasing the social safety net in China.  They even talk about allowing strike struggles in China so wages can go up, but they sure don’t talk about it when it comes to their own places.  So talk a bit about the relationship of wages to austerity and the crisis.

Robert Pollin: We’ve had a crisis in terms of wages and employment relations in the US for over a generation now, because the average wage in the US is today about 12 percent below what it was in 1972, whereas the amount the average worker produces has almost doubled.  So when workers produce twice as much as they did nearly 40 years ago and are getting paid 10 percent less, somebody is getting the difference.  And, of course, that somebody is the upper tier of the income distribution, the wealthy, who are grabbing, you know, gigantically increased shares of overall income.  And that in turn, by the way, has been instrumental in facilitating the hyper-speculative financial market, because the wealthy have so much more money proportionally to put into hyper-speculation than they did 40 years ago.  So that’s been part of the story.  Now, in terms of a revival out of the recession, yes, of course what we need is businesses to think that there are vibrant markets — not just vibrant financial markets, not just vibrant banks, but vibrant markets where people can come to buy things.  And you need a vibrant public sector as the underlying source of stability, such as where I’m sitting here in western Massachusetts, where my own institution, UMass, is faced with very substantial cuts, and that will spill into the entire regional economy.  So we need to stabilize the public sector, and then we need to put more money in the pockets of ordinary people so they can go out and buy things.  And then small businesses will see the opportunity for market expansion, and that will encourage them to go back to the banks and say, come on, guys, give us a loan so we can expand our car dealership, so we can expand our gas station, so we can expand our restaurants, and so forth, so that the people who are out spending will actually have money in their pockets to spend.

Paul Jay: So the problem is — and this is where it becomes a political problem.  I mean, it’s not that difficult to sit down and kind of envision a rational solution to all of this — you just can’t pass it anywhere.  The way that the politics is controlled and the small gang of people that actually own the commanding heights of the economy, starting with the banks, they don’t allow any of this to actually get passed, so you get to an impasse.  You can talk rational visions, but you can’t execute on it.

Robert Pollin: Well, you know, we need to, obviously, transition — and this is a very, very large transition — out of what had been, you know, the neoliberal model of economic growth that has prevailed for over a generation.  The neoliberal model was based on basically restraining wage increases in the name of inflation, letting the financial markets do whatever they want to do because they’re efficient and they’re smart.  And we need to return to something akin to what existed under the New Deal and Great Society and the equivalent social democratic models in Western Europe, where you had wage-led economies, where wage growth matched productivity growth and the economy expanded around that and businesses sought investment opportunities around that.  Now, that has to happen.  That has to be the underlying premise of a new growth model.  It’s important to remember, if we go way, way back to the 1930s in the US during the depths of the Great Depression, one of the important pieces of social legislation was the first national minimum wage.  So the notion, in the middle of a depression, when you have 25 percent unemployment, that you would actually improve conditions for workers is totally contrary to what we hear today, that of course today we wouldn’t want to raise wages, because that would discourage businesses from hiring.  In fact, what will encourage businesses to hire will be vibrant markets.  Vibrant markets happen when people have money in their pockets to spend.

Paul Jay: Is the process of monopolization in the economy that so few people own and control so much of the economy that you can’t pass this stuff politically, at least within the kind of politics as we know it now, like, so much of what you’re saying in terms of proposals and other proposals we’ve heard, which seem a no-brainer?  Like, it seems so obvious that there’s a train going off a cliff, and you would think you would want to steer away from the cliff.  But the powers that seem to be looking at short-term gain seem so powerful that the train just continues on the same tracks.

Robert Pollin: Except that we’re at a point at which there is a convergence between, you know, I think, the short-term interests of a revival, of an economic revival, and the long-term transition to an egalitarian growth model that would benefit even very large sectors of the financial industry.  I think we’re at that point (not that everybody recognizes that yet).  But let me give you one practical example.  Senator Sherrod Brown of Ohio introduced a measure that I helped them with that would create very large incentives through loan guarantees for small-business lending.  Now, we’ve already been through the whole bailout of the big, big banks that were given guarantees.  Now we’re going to say, okay, small businesses get loan guarantees in order for them to start lending to non-financial businesses, who will then do hiring and be a major source of economic expansion and job creation now.  So I don’t know what’s going to happen with this bill, but on what basis would most politicians oppose such a bill?  I mean, everybody says they’re all for small business.  Small businesses can’t get loans.  This is a way for the government to promote business lending to small businesses in all our communities, and I think it has a chance of passing.

Robert Pollin is Professor of Economics at the University of Massachusetts in Amherst and Founding Co-director of the Political Economy Research Institute (PERI).  His books include A Measure of Fairness: The Economics of Living Wages and Minimum Wages in the United States and Contours of Descent: US Economic Fractures and the Landscape of Global Austerity.  This video was released by The Real News on 24 July 2010.  The text above is an edited partial transcript of the interview.  See, also, Robert Pollin Interviewed by Paul Jay, “Productivity Is Up, So Why Cut Social Programs?”

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