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"America Beyond Capitalism comes at a critical time in our history-when we all know our system isn't working but we are not sure what can be done about it. This book takes us outside the confines of orthodox thinking, imagines a new way of living together, and then brings that vision back into reality with a set of eminently practical ideas that promise a truly democratic society."
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Table of Contents

Read a Sample Chapter

America Beyond Capitalism

John Wiley & Sons

Chapter One

For two decades economists concerned with inequality have debated the precise role global competition, changing technologies, sectoral balances, and other strictly economic factors have played in generating the worsening trends. Whatever the final resolution of the technical debate over how much weight to assign different forces, the important truth, as Barry Bluestone points out, is that none shows "the least sign of weakening."

Accordingly, what is of truly fundamental concern for those who care about equality has been the collapse of the political-economic strategies it once was hoped might counter the deepening trends.

And the central question is whether there are any other ways forward, even in theory.

The evolving progressive reassessment begins with a cold appraisal of the reasons traditional approaches no longer work. There is very little doubt about what has happened to undermine liberal redistributive strategies.

First and foremost has been the radical decline of America's labor unions. Always weak in comparison with other advanced nations, peacetime U.S. union membership peaked at 34.7 percent of the labor force in the mid-1950s; it was a mere 12.9 percent in 2003 (8.2 percent in the private sector). The downward trend is all butcertain to continue; responsible estimates suggest union membership in the private sector may sink below 5 percent by 2020.

The decline obviously weakens union bargaining power over wages. Far more important, however, is that historically labor's political power has played a central role in the passage of social legislation and redistributive programs. "The political consequences of high levels of unionization are ... straightforward," political scientist Michael Wallerstein observes. "[O]ther things being equal, union movements representing a large share of voters are better able to influence policy." Throughout the Western world, many studies show, greater unionization has been one of the best predictors of greater equality.

Labor has been the most important countervailing force (partly) offsetting conservative political power throughout much of the twentieth century. As labor has continued to decline, the way has been opened to a series of aggressive corporate and other campaigns that have challenged redistributive programs of all kinds-first by the Reagan administration, then by the Gingrich Congress, now by the Bush administration.

The globalization of economic activity also has played a role, and it has increased the already enormous power of the large corporation economically and politically. Globalization brings with it ever expanding opportunities for relocation to other countries-and this adds to corporate leverage and the capacity to threaten departure unless demands are met. Business in turn has used its increased bargaining power to win concessions from labor.

Worldwide competition for investment has added to the pressures, forcing government to reduce business tax rates, shifting more of the burden to low- and moderate-income earners. Globalization thereby also implicitly reduces the capacity of governments to spend on redistributive social programs. In 1945 corporate income taxes amounted to 35.4 percent of federal receipts. By 2003-as labor's political power decreased, as corporate power increased, and as globalization proceeded-such taxes had fallen to 7.4 percent of federal receipts. More than three-fifths of U.S. corporations paid no federal taxes at all in each of the years between 1996 and 2000!

The post-World War II social, economic, and cultural concentration of suburban political power and the urban exodus of the post-1960s decades have brought additional difficulties. Increasingly the largely white suburban middle class is simply no longer willing to pay for a progressive political agenda it believes will mainly benefit the black and Hispanic poor. At the same time, racial and ethnic divisions have weakened the capacity of the majority to unite behind redistributive measures.

Thomas and Mary Edsall document the radical implications in their book Chain Reaction: "Just as race was used, between 1880 and 1964, by the planter-textile-banking elite of the South to rupture class solidarity at the bottom of the income ladder ... race as a national issue over the past twenty-five years [broke] the Democratic New Deal 'bottom-up' coalition.... The fracturing of the Democrats' 'bottom-up' coalition permitted, in turn, those at the top of the 'top-down' conservative coalition to encourage and to nurture ... what may well have been the most accelerated upwards redistribution of income in the nation's history."

Finally, we may add the rise of the post-1970s Republican South-a change that has added force to each of the key factors and to conservative politics in general. By 1994-for the first time in modern history-Republicans constituted a majority of the Southern delegation in both the Senate and the House of Representatives. The new form of racialized Southern politics, political scientist Augustus B. Cochran III points out, inevitably produced "policies that favor political and economic elites to the disadvantage of the vast majority of average citizens."

Taking the various factors together, in fact, provides only a minimal estimate of the unfavorable prospects for traditional strategies aimed at reversing growing inequality-for several additional reasons.

First, there is very little evidence that inequality-related trends have ever been significantly altered because of progressive political strategies per se-that is, efforts to enact reforms in normal, noncrisis times. Inequality has been significantly reduced in the twentieth century mainly as a result of major crises like the Great Depression (which spurred unusual political and policy change), and in the context of war-related conditions that produced a special policy environment, tight labor markets, and a compressed wage structure (especially World War II but also, in other ways, the boom years of the Cold War, including the Korea and Vietnam wars). Even in the best of times, the capacity of traditional political strategies to achieve major impact on their own in "normal" circumstances has been far weaker than many commonly acknowledge.

Second, a close examination of traditional conventional measures makes it obvious that on its current path, real inequality will continue to worsen, no matter what. Most academic discussions of inequality are based on relative assessments. While useful for many purposes, such measures mask important relationships-especially of absolute political-economic power, and of cultural and social differences. If you have $1,000 and I have $50,000 this year, and next year you have $2,000 and I have $100,000, the relative measures widely used in conventional reporting will indicate that there has been no increase in inequality because the ratio of 1-to-50 is unchanged. However, absolute inequality-the real-world difference between us-obviously has gone from $49,000 to $98,000.

The absolute income gap between the top 5 percent and the bottom 20 percent exploded from $191,800 in 1979 to $419,700 in 2000 (in 2000 dollars).

Contributing to both the relative and absolute trends during much of the final quarter of the twentieth century was the fact that hourly wages of the bottom 60 percent did not rise as fast as inflation-with the result that the real income each person earned, hour by hour, was actually lower in 1995 than in 1973. For very large numbers of Americans, the only reason total family income rose-very modestly-was that people worked longer hours and/or spouses (mainly wives) went to work in increasing numbers.

Put another way: unless they worked more hours or someone else in the family went to work during these years, many would have been better off if the economy had simply stood still at the 1973 level. Economic growth not only did not increase the real pay that an hour of work earned, it brought with it price increases that reduced real income.

We also appear to be reaching a limit of those who can add to family income. The percent of wives working rose from 28.5 percent in 1955 to 42.3 percent in 1973 to 61 percent in 2002. Though spouses will provide a continuing contribution to family income, nothing like the qualitative shift that occurred during the second half of the twentieth century is ever likely to occur again.

Traditional redistributive political strategies which aim to deal with inequality are based on what are sometimes called "after-the-fact" methods. It is accepted that capitalist economic systems as a matter of course produce highly unequal distributions of income. It is hoped that "after the fact"-after the basic income flows have been generated-progressive taxation, combined with various social programs, can alter the underlying patterns.

No one would deny the possibility of some future tax changes, but there has long been little expectation that significant after-the-fact approaches for dealing with inequality can be revived-even before the administration of George W. Bush added to the difficulties. Galbraith's summary judgment of the well-understood realities is trenchant: "The only effective design for diminishing the income inequality inherent in capitalism is the progressive income tax.... That taxes should now be used to reduce inequality is, however, clearly outside the realm of comfortable thought."

Another Harvard economist, Richard Freeman, minces few words about the dead end that has been reached: "urrent 'strategies' run the gamut from inadequate to sham."

Some liberals continue to hope against hope that somehow a revival of progressive politics can one day reverse the decaying trend. But clearly, if serious after-the-fact redistributive measures are no longer viable, something much more fundamental is needed.

In recent years those who have confronted the issue squarely have increasingly come to the judgment that if change is ever to occur, an assault must ultimately be made on the underlying relationships that have produced the inequality trends in the first place-especially those involving ownership and control of the nation's wealth.

Freeman, for instance, urges, "If we were to start democratic capitalism with a blank slate, we would naturally divide the ownership of existing physical assets equally among the population.... Our main strategy-be we left or right-for fighting income inequality under capitalism, should be to assure a fair initial distribution of physical and human capital themselves." Freeman states the essential principle of such an approach in this way: "Equality of income obtained in the first instance via greater equality in those assets, rather than as an after-the-fact (of earning or luck) state redistribution of income from rich to poor, would enable us to better square the circle of market efficiency and egalitarian aspiration."

Former secretary of labor Robert Reich also urges a similar, wealth-related, shift in focus: "The asset elevator has been lifting America's wealthy to ever-higher vistas, without their moving a muscle (except, perhaps, to speed-dial their brokers). Current tax law is lifting them, and their children, even higher. Hence the case for allowing the rest of America on the elevator, too."

And former chief counsel to the U.S. Senate Finance Committee Jeff Gates holds: "[A]bsent an accompanying ownership-participation element, unbridled free enterprise is destined to throw both the social and economic system badly out of balance."

The emphasis on wealth (rather than simply income) by these writers and others involved in the quietly growing reassessment has brought with it a related emphasis on underlying institutions (rather than simply policies). One specific line of development stresses the possibility that workers might own their own companies, a straightforward idea that if extended and applied across the board implies a political-economic system quite different from both traditional socialism and corporate capitalism.

Radical economists Samuel Bowles and Herbert Gintis also begin their analysis by agreeing that political progressives need to reconsider failing traditional approaches: "[E]galitarian strategies should abandon what has hitherto been an exaggerated emphasis on ... tax and transfer policies." Not only is this a political dead end, but asset-based redistribution, they urge, "can use markets to discipline economic actors." Indeed, they hold that worker-owned firms ultimately may prove to be "more efficient than the capitalist firm, in the technical sense that the democratic firm uses less of at least one input to produce the same output."

"Workers frequently have access at low cost to information concerning the work activities of fellow workers," Bowles and Gintis point out, "and in the democratic firm each worker as a residual claimant on the income of the firm has an interest in the effort levels of other workers." The ordinary firm must spend a good deal of money monitoring work activity. Quite apart from the equities involved, this is a drain on economic resources.

Jeff Gates, drawing on his experience in the Senate, stresses the political possibilities of worker-ownership strategies: "The political potential in this area became obvious to me when, over the span of a two-week period ... I was asked to provide speech material for both Republican Senator Jesse Helms and Democratic presidential candidate Jesse Jackson." Gates and others have produced long lists of those endorsing the principle of employee-owned firms ranging from Ronald Reagan and George Will on the right, to Robert Kuttner and Robert Reich on the left.

Worker ownership clearly is not the only wealth or "asset-based" approach that flows from the argument that a new strategic principle beyond after-the-fact taxing and spending is necessary. Another major strategy begins with the observation of Washington University expert Michael Sherraden that the federal government already provides very large indirect tax subsidies to encourage asset ownership by middle- and upper-income Americans. The most obvious of these are the tax deductibility of home-ownership mortgage interest, tax, and other payments; and of savings contributions to Keogh, IRA, and 401(k) plans. In fiscal year 2004, public subsidies of $98 billion were projected to go to home-owners and another $113.8 billion to those who saved through any one of the plans; taxpayer costs for 2004-2008 were estimated to be more than $1 trillion.

Sherraden suggests that if such huge subsidies can be given to middle- and upper-income groups to encourage savings, incentives also should be used to develop asset holding among the poor.

Continues...

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Excerpted from America Beyond Capitalism by Gar Alperovitz Excerpted by permission.
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