The Broken Social Contract Between Wages (Workers) and Profits (Business)

Peter Radford has a good post over at the Real World Economic Review.

Excerpts (bold emphasis mine):

For a long time after World War II, up through the late 1970′s at least, there was an unwritten but clear ‘social contract’ operating in the US. Originally this was driven by the benevolence felt towards those returning GI’s from WWII, but then it became generally accepted. The deal was that big business was free to innovate and make profits as long as workers shared fully in the productivity surge that innovation would create. So even as technology threatened some jobs the overall workforce benefitted from rising wages and those who became unemployed were protected by things like unemployment assistance and the other aspects of the New Deal, and could find their way back into the workforce quickly because the economy was relatively dynamic.

This dynamism was not a function of the devastation of America’s competitors – they were also our markets – but was more a function of a positive feedback loop within the economy. Rising wages fed demand, which fed profits, which created opportunities for business, new jobs and boosted demand. The economy rumbled forward on a self-sustaining path as long as neither wages nor profits crowded out the other.

This was neither a worker’s paradise nor a capitalist’s dream. It was a compromise.

But this mutually-beneficial contract broke down, in large part due to Reaganism, as Radford explains:

Just as the Republicans have waged war on big government by attempting to ‘starve the beast’, thus robbing government of the funds to address social issues. So too has business starved another beast: the middle class. By hammering wages and by squeezing employment in order to boost profit the business community has eroded the very machine upon which it thrives. It has robbed the workforce of the funds needed to propel business forward. It has dampened demand. It has starved itself.

To get back on track we need to return to that post-war social contract. We need to abandon Reaganism. We need to put business back into a box.

Read the full article here: “Robots don’t buy stuff”

Further Resources

The following graph vividly illustrates the way in which worker real wages no longer tracked productivity starting in the late 1970s. Thereafter, the economic benefit of increased productivity accrued disproportionately to the 1%.

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2 Responses to “The Broken Social Contract Between Wages (Workers) and Profits (Business)”
  1. RickD says:

    While this article places all the blame on Republicans the old saw stands; “it takes two to tango”. We live, unfortunately, in a two party system. Further, we live in a political system in which it takes huge sums of money to run for national office. Both parties court large campaign donors furiously, making promises to woo the money necessary to wage successful campaigns. Thus both parties must share the blame for our slide into fascism, and that is exactly how the merging of corporation and government is defined .

    The deregulation we see that robs our coffers of tax monies, that increasingly threatens our environment, that shrinks our middle class and makes our working class less affluent is a problem that cannot be pushed off on one party. We live in an era of perpetual war for endless profit, wherein all the discussion seems to be about taming the cost of entitlements to our populace while ignoring the tremendous welfare we give to corporations.

    Barack Obama, no less than Ronald Wilson Reagan, is responsible for his own administrations lack of backbone and failure to address the real and devastating reasons for our economic slide, the migration of money to fewer and fewer that slowly turns our nation into a third world country. The tepid attempt to solve the health care dilemma, which almost alone would turn our economy from its brinksmanship, illustrates best how Obama refuses to battle those industries supplying the fuel for the election nightmare.

    Ultimately it is up to the electorate to refuse to believe the hyperbole from Washington and to turn from the two party system that is , in reality, one corporate owned system.

  2. Don Pelton says:

    Good points, Rick, I agree.

    Clinton led the way in undoing Glass-Steagall. The catastrophic deregulation of the financial industry was truly a bipartisan effort.

    There’s no denying, though, Reagan’s zeal and key role in attacking the good work of government.

    I voted for Nader in 2000, so I do buy the reality of, as you say, the “one corporate owned system.”

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