This Labor Day as we honor the workers of America we
should also be mourning the loss of the middle class that was almost single-handedly
created by Henry Ford in 1914.
Ford understood that he could sell more Model Ts if
his own workers could afford them. So he
dramatically increased the pay of his employees and demonstrating to other
industry leaders the benefits of economically secure workers—they turn into big
consumers that drive the economy.
We’ve lost this sustainable economic model with a
race to the bottom in investing in the middle class worker in exchange for
massive corporate profits. The
unraveling started in the 80's with Reagan union-busting and continues today
with the failed supply-side economic model that says we must protect the mega
wealthy and multinational corporations from paying their fair share of taxes so
they can create jobs.
Hedrick
Smith’s op.ed in today’s New York Times (below) tells this sad story of how
we have broken the “virtuous circle of growth: well-paid workers generating
consumer demand that in turn promotes business expansion and hiring.”
While corporate execs and some wealthy shareholders
have gotten embarrassingly rich, the middle class worker and Main Street small
businesses that depend on them are suffering.
If we don’t once again find our way back to the “virtuous
circle”, someday soon the meaning of Labor Day will only be a memory for those
of us who lived when the American economy was truly thriving.
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The New York Times
September 3, 2012
By HEDRICK SMITH
IN the rancorous debate over how to get the sluggish economy moving, we have
forgotten the wisdom of Henry Ford. In 1914, not long after the Ford Motor
Company came out with the Model T, Ford made the startling announcement that he
would pay his workers the unheard-of wage of $5 a day.
Not only was it a matter of social justice, Ford
wrote, but paying high wages was also smart business. When wages are low,
uncertainty dogs the marketplace and growth is weak. But when pay is high and
steady, Ford asserted, business is more secure because workers earn enough to
become good customers. They can afford to buy Model Ts.
This is not to suggest that Ford single-handedly
created the American middle class. But he was one of the first business leaders
to articulate what economists call “the virtuous circle of growth”: well-paid
workers generating consumer demand that in turn promotes business expansion and
hiring. Other executives bought his logic, and just as important, strong unions
fought for rising pay and good benefits in contracts like the 1950 “Treaty of
Detroit” between General Motors and the United Auto Workers.
Riding the dynamics of the virtuous circle,
America enjoyed its best period of sustained growth in the decades after World War II, from 1945 to 1973,
even though income tax rates were far higher than today. It created not only
unprecedented middle-class prosperity but also far greater economic equality
than today.
The chief executives of the long postwar boom
believed that business success and workers’ well-being ran in tandem.
Frank W. Abrams, chairman of Standard Oil of New
Jersey, voiced the corporate mantra of “stakeholder capitalism”: the need to
balance the interests of all the stakeholders in the corporate family. “The job
of management,” he wrote, “is to maintain an equitable and working balance
among the claims of the various directly affected interest groups,” which he
defined as “stockholders, employees, customers and the public at large.”
Earl S. Willis, a manager of employee benefits
at General Electric, declared that “the employee who can plan his economic
future with reasonable certainty is an employer’s most productive asset.”
From 1948 to 1973, the productivity of all
nonfarm workers nearly doubled, as did average hourly compensation. But things
changed dramatically starting in the late 1970s. Although productivity
increased by 80.1 percent from 1973 to 2011, average wages rose only 4.2
percent and hourly compensation (wages plus benefits) rose only 10 percent over
that time, according to government data analyzed by the Economic Policy
Institute.
At the same time, corporate profits were
booming. In 2006, the year before the Great Recession began, corporate profits
garnered the largest share of national income since 1942, while the share going
to wages and salaries sank to the lowest level since 1929. In the recession’s
aftermath, corporate profits have bounced back while middle-class incomes have
stagnated.
Today the prevailing cut-to-the-bone business
ethos means that a company like Caterpillar demands a wage freeze and lower
health benefits from its workers, while posting record profits.
Globalization, including the rise of Asia, and
technological innovation can’t explain all or even most of today’s gaping
inequality; if they did, we would see in other advanced economies the same
hyperconcentration of wealth and the same stagnation of middle-class wages as
in the United States. But we don’t.
In Germany, still a manufacturing and export
powerhouse, average hourly pay has risen five times faster since 1985 than in
the United States. The secret of Germany’s success, says Klaus Kleinfeld, who
ran the German electrical giant Siemens before taking over the American
aluminum company Alcoa in 2008, is “the social contract: the willingness of
business, labor and political leaders to put aside some of their differences
and make agreements in the national interests.”
In short, German leaders have practiced
stakeholder capitalism and followed the century-old wisdom of Henry Ford, while
American business and political leaders have dismantled the dynamics of the
“virtuous circle” in pursuit of downsizing, offshoring and short-term profit
and big dividends for their investors.
Today, we are all paying the price for this
shift. As Ford recognized, if average Americans do not have secure jobs with
steady and rising pay, the economy will be sluggish. Since the early 1990s, we
have been mired three times in “jobless recoveries.” It’s time for America’s
business elites to step beyond political rhetoric about protecting wealthy “job
creators” and grasp Ford’s insight: Give the middle class a better share of the
nation’s economic gains, and the economy will grow faster. Our history shows
that.
Hedrick Smith, a former
correspondent and Washington bureau chief of The New York Times, is the author
of “Who Stole the American Dream?”
http://www.nytimes.com/2012/09/03/opinion/henry-ford-when-capitalists-cared.html?_r=1&nl=todaysheadlines&emc=edit_th_20120903
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