The New Class War

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Michael Lind, “The New Class War.” American Affairs, May 20, 2017.

Having just read Martin Ford’s The Rise of the Robots, with its very pessimistic outlook for American workers, I found Lind’s perspective to be an intriguing alternative. His article comes from what is for me an unlikely source. American Affairs is a new journal devoted to rethinking conservatism in the light of the Trump ascendancy. The way things are going, we may need another journal to make sense of a Trump descendancy. But let’s assume that at least some of what Trump represents may survive his mess of a presidency–in particular, his nationalistic concern about saving American jobs in an era of global competition. How will that impact the prevailing political ideologies?

Social class in the Cold War era

Unlike many mainstream conservatives, Lind is willing to acknowledge the reality of social class. Following scholars like James Burnham and John Kenneth Galbraith, Lind describes a “managerial elite” consisting of “private and public bureaucrats who run large national and global corporations and exercise disproportionate influence in politics and society.” This is a “mostly hereditary” class, since it draws its membership primarily from the children of the previous generation of the same elite. The class system has a semblance of meritocracy, since educational credentials are an important means of success, but access to the “right” education is itself very unevenly distributed.

As Galbraith argued, “countervailing power” can keep an elite from entirely having its way. This was especially true in the “golden age of capitalism from the 1940s to the 1970s, combining high growth with a more equal distribution of its rewards than has ever existed before or since.” In Lind’s view, the desire for national unity in the face of foreign threats was a major motivation for reaching a reasonable “settlement” of management and labor differences. Workers won the right to organize, more favorable wages and working conditions, and a stronger social safety net. The bargaining power of labor was strengthened by factors that kept the labor market tight, such as the immigration restrictions that had been passed in the 1920s, and the withdrawal of many women from the labor force at the end of World War II.

Multinational oligarchy and popular discontent

All of this changed after the breakup of the Soviet Union and the end of the Cold War. A new pattern of global production and corporate organization destroyed the existing accommodations between business and labor.

Through the empowerment of multinational corporations and the creation of transnational supply chains, managerial elites disempowered national labor and national governments and transferred political power from national legislatures to executive agencies, transnational bureaucracies, and treaty organizations. Freed from older constraints, the managerial minorities of Western nations have predictably run amok, using their near-monopoly of power and influence in all sectors–private, public, and nonprofit–to enact policies that advantage their members to the detriment of their fellow citizens.

Developed countries had long been accustomed to concentrations of economic power within domestic industries. Now those concentrations became more international, so that in many industries, a handful of giant companies controlled over half of the global market. While profits and managerial compensation soared, productivity slowed and wages stagnated. Lind believes that this was because transnational companies had other ways to pursue profits besides technology-driven productivity growth. It was easier to move factories from high-wage areas to lower-wage areas, or to take advantage of favorable tax policies. Apple not only made its iPhones in China, but channeled profits through Irish shell companies to shield billions from taxation. Transnational companies also worked to harmonize national laws in ways that favored capital, especially free trade agreements, while resisting efforts to set international standards for wages and working conditions or environmental protection.

Corporations that had to operate domestically were not as free to search the world for the cheapest labor or lowest taxes. But they did benefit from looser immigration policies that kept labor supply up and wages down in some markets. Marx had already argued in the nineteenth century that ethnic conflict divided labor and strengthened capital: “The ordinary English worker hates the Irish worker as a competitor who lowers his standard of life….His attitude towards him is much the same as that of the “poor whites” to the Negroes in the former slave states of the U.S.A….This antagonism is the secret by which the capitalist class maintains its power.”

As the income gap between the managerial class and the working class has widened, popular discontent has increased. But Lind does not think that populist movements alone will bring about very much change. Historically, oligarchies have usually been able to survive populist challenges. The populists have usually had to give up or sell out. In some places, such as the Deep South and much of Latin America, this pattern has repeated itself for a long time:

Most of the time, coteries within a nepotistic elite run things for the benefit of their class. Now and then, a charismatic populist arises, only to fail, sell out to the establishment, or establish a personal or dynastic political-economic racket. Formal democracy may survive, but its spirit has fled. No matter who wins, the insiders or outsiders, the majority will lose.

It is sobering to think that if we keep on as we are going, the country could deteriorate into a kind of banana republic with chronic and perhaps violent unrest and political repression.

Managerial elites are bound to dominate the economy and society of every modern nation. But if they are not checked, they will overreach and produce a populist backlash in proportion to their excess. By a misguided policy of suppressing wages and thus throttling mass consumption, unchecked managerial elites may inadvertently cripple the technology-driven productivity growth responsible for their rise….

This could even result in a more feudal type of society, in which the rich live off the “rents” from their accumulated wealth rather than creating new wealth by investing in higher productivity.

The multipolar challenge

So what would counteract the drift toward global oligarchy? Lind believes that peace among the international powers has been a necessary condition for managerial globalism. This has been the case “only in the decades immediately following the Cold War, when the United States was the ‘sole superpower’ and no credible ‘peer competitor’ had yet emerged.” But now, the rise of China and other powerful players may be a game-changer. Americans may have to rethink the idea that international boundaries no longer matter, and that the global economy benefits everybody in some kind of classless meritocracy. We must now ask tough questions about whether the cumulative effects of transnational capitalism on the United States are really in our national interest.

Lind sees the world becoming not borderless but multipolar, divided into several “great-power blocs,” most likely China, India, the US and Europe. Within each bloc, countries may trade very freely, but each bloc will need to be careful about giving up too much of its industrial capacity. On that may depend its ability not only to create new jobs and income, but to wage war. Strength, unity and internal harmony could become more prominent national values, as they were during the Cold War.

The elites may be too powerful to have much to fear from populism, but their division into competing power blocs may force them to fear one another. Policies that promote the wellbeing of business and labor as members of the same national team could have broad political appeal.

Unsatisfactory alternatives

Lind accepts part of Donald Trump’s critique of the United States, that we have let other countries produce too much of what we could have produced at home, creating unnecessary hardships for American workers. Our chronic trade deficit with countries like China and Germany is indeed a weakness, and their “parasitic export-oriented strategy” of development is better for them than it is for their debtors. Unlike Trump, however, he rejects the most conservative response, which he calls “radical renationalization” or “radical de-globalization.” He sees it as neither feasible nor desirable to retreat from the world by restricting the entry of foreign goods and forcing consumers to buy only what is produced at home. That would sacrifice the benefits of “supra-national economies of scale,” the efficiencies to be achieved by producing things for the largest possible market.

At the other extreme, Lind also rejects the idea that the ill effects of oligarchic globalization can be corrected by countervailing power exerted by global government, global labor unions, or other transnational institutions. He just doesn’t think that a multipolar world will produce the necessary degree of international cooperation. I thought that Lind was a little too dismissive there, since global agreements like the Paris Climate Accord may be needed, at least to address global emergencies.

A third unsatisfactory alternative is “neoliberalism plus”:

Neoliberalism plus, also called “inclusive capitalism,” is the preferred response of the transatlantic managerial class to the populist revolts in Europe and America. Essentially, neoliberalism plus is Reagan-Thatcher-Clinton-Blair neoliberalism with more subsidies to the “losers” of globalization. The disempowerment of non-elite citizens by the oligarchic capture of politics and the destruction of unions would not be altered. But the masses would be bribed into acquiescence by means of higher wage subsidies, like the Earned Income Tax Credit (EITC) in the United States, or perhaps a universal basic income providing every citizen a poverty wage.

That last measure is exactly what Martin Ford recommends in order to maintain the workers’ purchasing power as the robots take more and more of their jobs. Lind believes that such strategies will fail. As long as companies can rely on cheap labor at home or abroad, they do not need to invest much in new technologies. The full potential of those technologies cannot be realized, and the economy cannot generate the economic growth needed to pay for any new “bribes” for the masses.

I would only add that if “neoliberalism plus” is an inadequate solution, then “neoliberalism minus” is even worse. That may be a good term for the Congressional Republican agenda of more freedom and lower taxes for the elite, but benefit cuts for the struggling working class. That the President goes along with that strategy while claiming to champion the workers puts his presidency on very thin ice.

A “new developmentalism”

What Lind would like to see is a different strategy for national progress that he calls a “new developmentalism.” He describes it only in very general terms in this article. It would require new checks on the freedom of managerial elites, as well as a new “settlement” between business and labor for the sake of economic cooperation and national unity.

Lind wants great powers to compete in the global arena, but do it differently. I would describe what he wants as a “race to the top” instead of a “race to the bottom.” Public policy would discourage corporations engaged in international trade from seeking profits through lower wages and tax avoidance. For companies that operate domestically, it would encourage “tight labor markets for domestic service workers, achieved by immigration restriction, work-sharing, shorter workweeks, or other means.” High wages could boost productivity in two ways, by supporting the mass market for large-scale industries and encouraging labor-saving technologies, which themselves could be dynamic new industries. “If high wages lead to the replacement of fast-food workers by kiosks, the manufacture of the kiosks could become a new, capital-intensive, high-technology industry.”

Keeping labor markets tight and wages up, while at the same time investing in labor-saving technologies, sounds like a contradiction, and it requires a difficult balancing act. The key is productivity–using new technology not just to unemploy labor but to employ it more productively, so as to justify higher pay. That relates to what I wrote previously about favoring human-machine collaboration over the human replacement expected by Martin Ford. Replacement alone could destroy the working class and send the economy into a downward spiral.

The heart of Lind’s argument is perhaps best captured by this statement:

Great-power competition, even in the form of limited cold wars, is likely to reward nations whose economic model is based on developing productive technology and raising the incomes of domestic worker-consumers….In cold wars and trade wars, even if no blood is shed by the contenders, countries and blocs with empowered and patriotic workers are likely to do better than rival nations crippled by immiserated workforces and selfish, nepotistic, oligarchic elites.

The future may depend on how many of our leaders can figure this out.

One Response to The New Class War

  1. Thanks for your thoughts. I too read the article with great interest. What I consistently see is that those traditional economists continue to advocate the same elitist policies and support it by using theoretical models and vague optimism. The minority economists who are seeking to upend the neoliberal globalization model, however, rely more on empirical evidence. Ultimately the problem with economics is the ability to cherry-pick your data sets, as well as a horribly deficient amount of data sets altogether.

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