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What's wrong with the American economy?

Suppose you were asked to describe a good economy--not a perfect economy or one incapable of being improved, but one which would satisfy your idea of what is possible and desirable in the world of the late twentieth century. I doubt that many would argue that we actually have such an economy, but I do think there would be fairly widespread agreement on some of the basics it ought to incorporate. Let me list a few of these:

(1) There should be reasonably full utilization of available human and material resources.

(2) These resources should be used to produce and distribute the goods and services people need to lead decent, healthy, and secure lives. This does not imply equality, but it does rule out extremes of wealth and poverty.

(3) Everyone who needs and is able to work should have a reasonably secure job suited to his or her capabilities. This last phrase implies that those who display the desire and ability to advance to more productive and rewarding work (not only in a monetary sense) should have the opportunity to do so.

The list could of course be expanded, but these three desirable features of a good economy, on which I think most of you would agree, will be enough to serve our present purpose. The point is that all three are strikingly lacking in the present-day American economy. And this, I submit, is a good answer, even if not the only possible one, to the question what's wrong with the American economy.

Let me illustrate with a few facts.

The situation with regard to utilization of human and material resources is notorous, not to say scandalous. A few figures will remind you of what most of you probably already know. As of the beginning of this year, some 9 million people by official count were unemployed. This is just about equal to the total population of the state of Michigan. It amounts to 8 percent of the civilian labor force. And, as everyone agrees, it is a serious underestimate owing to the method used in collecting the statistics (a part-time worker is counted as equal to a full-time worker, and persons not looking for a job at the time the survey is taken are not counted as unemployed). A more realistic estimate of unemployment would be 12 to 15 million. The unemployment rate for blacks is more than double the national average, for teenagers close to two-and-a-half times the national average, and for ghetto youth it rises to catastrophic levels of 50 percent or more. The situation is not new, and it is not getting better. Apart from fluctuations related to the ups and downs of the business cycle, and making allowances for the effects of the wars in Korea and Vietnam, there has been a steady updrift of unemployment ever since the end of the Second World War, and all indications are that this trend will continue for the visible future.

As far as utilization of productive capacity is concerned, the picture is not too different. At the present time, after a year of cyclical upswing, 20 percent of industrial capacity lies idle. When the next recession hits--on the basis of historical experience this should be some time during this year or next--the proportion lying idle could well rise above the 30 percent level reached at the end of 1982.

Judged by the extent to which it utilizes available human and material resources, the American economy has a bad record indeed, one that except during wartime goes back for more than half a century.

How about the way it allocates the resources it does use? Are the goods and services being produced that enable the people to lead decent, healthy, and secure lives? Is distribution such as to avoid extremes of wealth and poverty? Here again the facts give clear answers. Many millions of people live below the poverty line as defined by the U.S. government itself, and only the rich can feel secure against the threat of catastrophic accident or illness. Most of you, I dare say, know in your own experience of individuals or whole families who have been wiped out by such misfortunes. Business failures which averaged around 10 thousand a year during the 1960s and 1970s tripled in the first four years of the present decade. Family farms which constitute the backbone of thousands of rural communities are going under in droves. A story in the New York Times of March 8th reports from Palmer, Nebraska:

When Elmer Stone first saw his family's new farm here, he was three years old. The President's name then was William Howard Taft. And there was no such thing yet as a World War.

Tonight, there is no such thing as an Elmer Stone farm.

This spring there is a new dimension to the farm bankruptcy problem. Among the hundreds going out of business are long-established farmers once considered largely immune to catastrophic financial difficulties. Despite optimistic talk out of Washington about adequate farm credit, three years of high costs and soft commodity prices have eroded farmers' equity so much that substantial operations are threatened. And the failure of men considered leaders by their peers adds to the fears of the remaining farmers. . . .

"I've never seen it like this," said Dale Frederickson, a neighbor of the Stones. "It's a blood bath out here this year." . . . "The banks are just clamping down all over," said Mr. Frederickson, who is worried about his own loan this year. "What do you think is gonna happen to food prices when all the small farmers are gone and the banks and big food companies control the land?"

Paralleling the crisis of the farmers who grow the food is a rapid increase in the number of the hungry who need the food. "Just recently," reports the Wall Street Journal (March 9th), "the U.S. Conference of Mayors released a report stating that demand for emergency food rose in 19 out of 20 major cities last year, by an average of 71 percent. And a report commissioned by the Harvard University School of Public Health concludes that 'hunger has returned to America.'" Nor has this problem spared relatively affluent members of the middle class. The following story, from the same Wall Street Journal article, could be duplicated, with minor variation in details, in many thousands of cases from all over the country:

In suburban Pittsburgh, Dorothy Herman stares blankly at the kitchen wall and fights tears as she remembers how good things were just three years ago. She and her husband John, 40 years old, took A caribbean cruise that spring. . . . Her $17,500 secretarial job at a Pittsburgh steel mill seemed secure, and John's independent trucking business was booming. "Everything was perfect," she says. "We were people who went to the fish house and picked up our lobster."

Now they are lucky to eat one meal a day. The steel mill cut Dorothy's job, and the trucking business is bankrupt, a victim of rate-cutting and John's medical problems. With Dorothy no longer eligible for unemployment insurance and saddled with steep medical-insurance bills each month, food stamps and charity handouts became routine. The Hermans celebrated their eighth wedding anniversary last September with bologna sandwiches. The combination of stress, illness, and lack of food has reduced the couple's combined weight by more than 100 pounds.

The problems of resource utilization which we have been discussing--personal insecurity, business bankruptcies, farm failures, growing hunger--are all related, partly as cause and partly as effect, to the incidence of poverty in the society at large. It should therefore come as no surprise to learn that the last few years have witnessed a sharp increase in officially measured poverty rates. The New York Times reported in a Washington dispatch of February 24th: "The Census Bureau said today that there had been a rapid increase in poverty from 1979 to 1982, even if the value of food stamps, public housing, Medicare and Medicaid benefits was counted as income." Counting only cash income, the increase in the number of poor people rose from 26.1 million in 1979 to 34.4 million in 1982, an increase of almost one third. The absolute numbers of course are smaller if noncash benefits are included, but the percentage increase is much larger, slightly over 50 percent, reflecting drastic cuts in welfare expenditures by the Reagan administration.

All in all it appears that the American economy has been doing a worse and worse job not only in putting available resources to work but also in devoting the resources it does employ to the production and distribution of the goods and services people need to lead decent, healthy, and secure lives.

We come now to the question of jobs, one which has to be of vital concern to all of you. We have already discussed the updrift in the rate of unemployment in the post-Second World War period. That is the quantitative aspect of the problem. What about the qualitative aspect? What sort of jobs can new entrants to the labor market look forward to? Are they challenging jobs that open the way to promotion and careers, the kind of jobs that I suppose all of us would think a good economic system should provide for its young people?

Some are, of course--jobs in the arts, sciences, and professions; in new high-technology industries; in public service. But unfortunately jobs of this kind are relatively few compared to a total labor force which now numbers approximately 112 million men and women. For the great majority the qualitative job outlook is bleak and, unhappily, deteriorating. Jeremy Brecher, a leading authority on the labor movement and labor relations, recently summed up the situation as follows:

The U.S. economy is going through a transformation that is fundamentally altering the situation of American working people. It is removing the majority of workers from relatively secure job structures and thrusting them into a semi-casualized labor market. It is destroying the existing bases of power for both union and non-union workers. (MONTHLY REVIEW, March 1984, p. 1)

Many of you know what this means from your own experience or that of others you come in contact with. More and more jobs are irregular, part-time, low-paying, and deadend. They are concentrated in services and retailing, by far the most rapidly expanding sectors of the U.S. economy. I could cite reams of statistics, but that would probably do more to blur than clarify the picture. I will confine myself to a couple of very striking facts that can serve as a sort of weathervane pointing the direction in which the wind is blowing. During the 1970s one relatively new "industry"--eating and drinking places--had an increase in employment greater than total employment in the automobile and steel industries combined. And that industry plus two others--health services and business services--employ more workers today than the following traditional goods-producing industries taken together: construction, all machinery, all electric and electronic equipment, motor vehicles, aircraft, shipbuilding, all chemicals and products, and all scientific and other instruments.

You will notice that I have been talking not only about the economic situation as it exists today but also about trends that have been in operation long enough to be clearly recognizable through the short-term ups and downs of the business cycle: unemployment is rising; small businessmen and farmers are going bankrupt in growing numbers; only the rich are protected against the increasing insecurity of economic life; the quality of the jobs most working people are confined to is getting worse.

Where is it all leading? I don't pretend to powers of prediction, but of one thing I do feel sure. All these trends are deeply rooted in the economic system as it is presently constituted. They are not self-correcting or self-reversing. They will continue to operate unless and until some powerful force generated outside the inner workings of the economic system intervenes and sets us on a new course.

This is not the first time the United States has been in this predicament. The 1930s were a similar period. If we take unemployment as the best available index of the overall situation, we find that despite the reforms of the New Deal--most of which were long overdue--there was no real progress during the decade in overcoming the Great Depression. True, there was a cyclical upswing from 1933 to 1937, but even at its peak in the summer of 1937, the unemployment rate was still around 15 percent of the labor force. And in the subsequent receission it quickly jumped back up to 19 percent. I recall very vividly the dismay and even despair that set in at that time. The New Deal had exhausted its bag of tricks. FDR, faced with electoral setbacks in 1938, was frantically casting about for some new way out. He appointed a high-level commission (the Temporary National Economic Commission) to hold hearings, undertake studies, and make recommendations. It produced many volumes of hearings and monographs and in the process churned out a vast amount of information on the history and functioning of the U.S. economy. But it was a classic case of the mountain laboring and bringing forth a mouse. FDR and the Democrats had nothing to offer, the Republicans only a return to the policies and practices of the 1920s which had brought on the debacle in the first place. Further deterioration seemed inevitable.

What turned things around of course was the Second World War. Economically the effects were little short of miraculous: a productive potential previously undreamed of was unlocked. In five years from 1939 to 1944, a very short time on history's clock, the country's Gross National Product increased by 75 percent. Unemployment plunged from 19 percent to 1.5 percent of the labor force. And all this happened at the same time that some 11 million men and women in the most productive age groups were being mobilized into the armed forces. The wartime experience proved conclusively that the gross underutilization of resources that characterized the 1930s had nothing to do with the country's physical capacity to produce the goods and services the people needed to lead decent, healthy, and secure lives. The fault lay in the arrangements in force for deciding what sorts of things were produced, in which quantities, and for what purposes.

Let me just add that this is as true today as it was a half century ago--only more so. The physical capacity exists to eliminate poverty from the United States within the lifetime of people now alive. This is something new in history. But it exists only in the form of possibility, not a probability, and still less a certainty. Still it is an important lesson which should help us to focus on the real nature of our problems.

After the war the wold capitalist system was effectively reorganized under U.S. leadership and entered a period of expansion unprecedented since its early history. But forces that generated this latest long wave of prosperity were gradually exhausted. Wartime damage and shortages were made good, new technologies were absorbed, new trading relations settled down into routines. What was in effect a great capital investment boom subsided, and the world's capitalist economies once again sank into a condition of stagnation similar to that of the 1930s.

This is where we are now. How will we get out of it this time?

Will a new war save the day as it did in 1939-45? Given the country's historical experience, the temptation to seek that way out is certainly there. And I wouldn't be surprised if some of those in Washington responsible for the vast military build-up now under way in this country have precisely such an eventuality in mind. If so, however, I think they are guilty of a pro-found miscalculation. A small war, even several of them, would hardly suffice. And an all-out war fought with the weapons now at the disposal of the superpowers would most likely bring not salvation for the global capitalist economy but the destruction of civilization as we know it. For better or worse, the A-bomb has ended the possibility of repeating the experience of 1939-45.

What other prospects are there? Prediction is of course out of the question, but one can offer certain hypotheses that are more or less plausible.

One such hypothesis is that there will be a long drawn-out degeneration and disintegration of the world capitalist system. Signs of such a process are evident enough in the world around us. And there are many historical precedents, including especially the "decline and fall" of the Roman Empire spread out over the several centuries that intervened between the end of Ancient Civilization and the Middle Ages. This, I think, is a hypothesis worth pondering. Even if rejected, it may suggest useful ways of thinking about the kind of future we face as the twentieth century draws to a close.

But there are other hypotheses too, including the classical Marxian one of successful socialist revolution leading--no doubt through a long and difficult series of struggles and crises--to the construction of a new collectivist social order which would utilize the resources of modern science and technology for purposes that have never figured in the capitalist scheme of things, that is to say, the satisfaction of the needs of people the world over for material sufficiency and human community. True, under present conditions the prospects of a regenerative revolution do not appear bright. The revolutions which have taken place in the periphery of the world capitalist system have important achievements to their credit, but their once promising forward momentum has been slowed or halted and in many cases their ability to survive the onslaughts of reaction is in serious question.

Meanwhile, in the center of the system where the ultimate power for good or evil resides, traditional revolutionary movements dating back to the middle of the nineteenth century are in eclipse with no indications of early revival.

History, however, is full of surprises. Stirrings of change for the better may coincide with, indeed be caused by, seemingly irreversible processes of degeneration. Everything new, whether good or bad, has small beginnings and can all too easily by ignored or misinterpreted. So it is, I believe, with one of the most hopeful developments of our time, the birth of movements of revolutionary protest within religious communities around the world. These movements take various forms (for example, the "base communities" of a number of Latin American countries), and express themselves in what have come to be called theologies of liberation. In the case of Christianity, the one with which I am most familiar, these theologies have emerged in three large population groupings (among which there are evidently significant overlaps): third-world peoples, especially Latin Americans; blacks, both in North America and in Africa; and feminists, in many lands. In its origins Christianity was of course a religion of the poor and oppressed, and modern theologies of liberation naturally hark back to those days, providing an interpretation of the scriptures--the Old Testament prophets and the teachings of Jesus--that is very different from the mainstream theologies of the last two millennia. Sin is seen as a social phenomenon, a sort of combination of oppression and alienation, and salvation is hence attainable not by individuals but by a collective struggle to achieve the Kingdom of God on earth, not in another world. Theology is thus joined with history and becomes the basis of a movement combining faith, hope, and sociopolitical activism.

In attempting to assess the meaning of these new developments, it is important to bear in mind the striking similarities between liberation theology and Marxism. The Kingdom of God, once it is given a this-world interpretation, is hardly distinguishable from the classless society of communism which Marx regarded as the ultimate goal of history. Faith is central to both world views: in the one case faith in a God of love who is also, in Gustavo Gutierrez's oft-repeated expression, the God of history; in the other case faith in the untapped potential of human nature. Both share the view, so concisely stated in Marx's eleventh Thesis on Feuerbach, that "the philosophers have only interpreted the world in various ways; the point however is to change it." From these similarities there emerges a relationship between liberation theology and Marxism of a different kind. Marx did not disavow the task of interpreting the world: the centerpiece of his thought was historical materialism, designed and developed to lay the basis for changing the world: the two are opposite sides of the same medal. Traditional Christian theology, on the other hand, since it was oriented toward an other-world reality, had no need of a science of history. But a theology which aims at historical change is helpless without a comprehensive understanding of history--an understanding of a kind which bourdgeois social science not only does not provide but even denies the possibility of providing. Under the circumstances, and given the far-reaching affinities with Marxism in other areas, it is hardly surprising that liberation theology is increasingly incorporating Marxian social science into its own world view.

These are all small beginning which may or may not ripen into a revitalized revolutionary movement in the capitalist world. But in any case, like the possibility of a prolonged process of decline and fall, they deserve our careful thought.
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Author:Sweezy, Paul M.
Publication:Monthly Review
Date:May 1, 1984
Words:3571
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