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Lessons Unlearned August 23, 2010

Posted by Dwight Furrow in Dwight Furrow's Posts, politics.
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Economics professor Teresa Ghilarducci reports:

The shocking story in this week’s Financial Times had this lead: “Call center workers are becoming as cheap to hire in the U.S. as they are in India.” High unemployment in the U.S. has forced down wages for low-paid workers in the U.S. so that in many cases Americans are cheaper to hire than those in a country where most people live on less than $8.00 per day.

She links this story to another about an ongoing strike at a Dr. Pepper/Snapple factory in upstate New York where workers are attempting to prevent cuts in wages and pensions despite healthy company profits.

Unlike other companies that have gotten drastic pay cuts from union members when they opened their books to prove their economic distress—GM, Ford, Chrysler, Goodyear tire company—Dr Pepper Snapple admits they can afford to pay; but they argue (I imagine some with some smugness) that unemployment is so high that competition between desperate workers will boost profits further as workers accept less pay to get and keep a job.

Of course, if you are a free market fundamentalist you will find nothing wrong with this scenario. Workers deserve only those wages that the market will bear. If an increased supply of labor suppresses wages so be it.

But as Ghilarducci argues:

Falling wages is a bad thing, a very bad thing. Even if you are channeling gilded age Jay Gould—who said, “I can hire half of the working class to kill the other half”—you must concede that if workers don’t buy stuff, there is more unemployment, which means even lower wages, leading to more unemployment, in a spiral downward of recession and depression that eventually means you won’t be able buy stuff, no matter how cheap it is.

The only antidote to downward pressure on wages is a strong union movement. But most Americans hate unions and the power of unions has steadily eroded.

We have been through all of this before. Capitalism nearly destroyed itself in the early 20th Century because the business community refused to pay workers enough to create demand for their products. One of the reforms that helped produce mid-20th Century prosperity was laws that protected the right of workers to organize. But anti-union sentiment and globalization have conspired to take that option off the table.

Will capitalism have to learn the hard way again?

book-section-book-cover2 Dwight Furrow is author of

Reviving the Left: The Need to Restore Liberal Values in America

For political commentary by Dwight Furrow visit: www.revivingliberalism.com

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