Raising of the Middle Class
In a recent research report (Addressing the Problem of Stagnant Wages) Frank Levy and Tom Kochan note: " In the three decades after World War II, a central feature of the American economy was a mass upward mobility in which each generation lived better than the last, and workers experienced earnings gains through much of their careers. In short, the American Dream was alive and well."
The report explains that following the end of World War II government--both democrat and republican administrations--and organized labor played an active role in enabling the correlative movement of worker productivity and wages--a rise in productivity is accompanied by a rise in wages. Also important is the fact that America was the only one left standing with an intact manufacturing base. And so, by default, America became the world's producer. Demand was high and work was plentiful; the production-consumption cycle was at work.
Moreover, a critical element to the rise in the middle class following WWII was the Servicemen's Readjustment Act of 1944 (i.e. the GI Bill). The GI Bill afforded education, training, loan guarantees for home, farm and businesses and unemployment pay thus significantly contributing as a cause of the rise of a middle class life style. It should be noted that the post World War I era had corporations managed with 20 th century management practices but it did not have the GI Bill and there was no rising middle class.
Self-Interest Usurps Viability
As Levy and Kochan noted, "since the 1970s, large corporations have dramatically increased their economic power and political influence". Consequently t he role of government and organized labor began to diminish as corporations sought deregulation as a way to enable socially riskier activity in their efforts to maximize profit. Levy and Kochan claim, " the results have been substantial legislative changes that deregulated major industries, liberalized banking rules, undercut labor-law enforcement and reform, prevented increases in the federal minimum wage, and fostered an ideology of free-market liberalism and the "maximization of shareholder value" at the expense of other stakeholders"...and hence " 'the focus of investment activities has shifted--from investing in productive, value-added enterprises to extracting money from companies for re-investment in higher-yielding activities."
Clearly if the business of business is profit, then corporate management will choose those activities and employ assets of the company in a way that offers the greatest (monetary) return in the short-term, without too much regard for unintended consequences and collateral damgage. Recent dramatic evidence of this orientation can be seen by the record profits realized along with exorbitant levels of CEO compensation (reaching up to 1000 times that of the lowest paid employee) in the post-2008 Great Recession while unemployment increased in an anemic economy. Why? Not only where corporate executives squeezing the most out of labor they were also employing the instrumental value of the enterprise in financial transactions to make profit--the interest was not in making things, just making money.
According to Levy and Kochan "prior to these changes, American business practiced a managerial capitalism that shared the returns on investments in new goods and services among the firms' investors, science and engineering professionals, managers, and other employees. Today, American business emphasizes a form of financial capitalism that rewards financial innovations, transactions, and restructuring." In the former productivity and wages are strong correlates but in the latter they are not.
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