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Can Unions Prevent Austerity from Killing Off the Middle Class?



The AFL-CIO promises a wide-ranging and open discussion about the future of the labor movement at its convention in September.
With private-sector union representation approaching 5 percent of the labor force and public employee unions targeted by right-wing governors, the timing couldn’t be better.

Indeed, nowadays some union watchers are pronouncing the labor movement dead. Last year, union membership dropped by 400,000.
Will the convention truly mark the beginning of a turnaround for the labor federation? Let’s hope so.

“We’re going to open up our arms to people who want to join our movement,” said AFL-CIO President Richard Trumka, in an interview with C-SPAN earlier this year, pledging a new direction for labor. “Instead of saying to our community partners and the civil rights movement or the Latino movement, ‘That’s your issue and this is my issue,’ they’re going to be our issues, and we’re going to work together.”

To prepare for the September convention, the AFL-CIO has set up committees of rank-and-file members, academics, and representatives of African-American, Latino and religious organizations to chart a new course for labor.

On the AFL-CIO’s website, a rich discussion is taking place about key questions facing the labor movement: mobilization strategies, the inequality gap, community outreach, the use of social media tools, shaping the country’s political debate and building a more broad, diverse and inclusive labor movement.

Tucked away in the 2013 convention section of the website is an interesting 73-page white paper on the AFL-CIO’s economic agenda, “Prosperity Economics: Building an Economy for All.”

The paper attacks “austerity economics”–the conservative economic doctrine behind the decades-long attack on unions, working people and government–while offering a progressive alternative it calls “prosperity economics” to spark a union revival and lift the poor and middle class out of their economic malaise. The authors are Jacob S. Hacker, a political science professor at Yale University and author with Paul Pierson of the penetrating book “Winner-Take-All Politics: How Washington Made the Rich Richer—And Turned its Back on the Middle Class,” and Nate Loewentheil, a third-year Yale Law School student and editor of the 2008 book “Thinking Big: Progressive Ideas for a New Era.”

If the September convention lives up to the spirit of today’s internal debate and AFL-CIO pursues policies recommended by the white paper, it stands to be the most significant convention since the 1995, when John J. Sweeny and his backers ousted the old guard Cold War warriors.

The white paper’s first section does an excellent job of explaining the assumptions austerity economics. Its assumptions have provided the ideological justification for policies and practices that are wiping out the gains of the middle class since the New Deal more than half a century ago.

Unfortunately, millions of Americans have embraced and internalized free- market principles and meritocracy, which have allowed us to fall for anti-worker economic and political policies, which intensified during the Reagan presidency. Hence, you have millions of people voting against their economic interest.

Austerity: Economic snake oil

Austerity economics, Hacker and Loewentheil explain, is built around five myths:

• spending and deficits are our number one problem

• cutting taxes on the rich spurs prosperity

• inequality is not a problem because social mobility is high

• markets are smart, governments are dumb, and

• those at the top are the ones who create wealth and are alone responsible for their good fortune.

The assumptions collapse on their face when you look at the facts.

For years, “austerians” have used deficit hysteria to stir up opposition to “big government” and to create a bogus fear that it’s inevitable that our economy will collapse because of too generous entitlements.

But even with the increase in military spending, the costly Medicare prescription drug benefit and the massive tax cuts during the Bush administration, the deficit on average was only 1.5 percent of the GDP until the loss of revenue and stimulus that followed the economic crash of 2008. So, the ballooning of the deficit was a symptom of the bad economy rather than runaway government spending, Hacker and Loewentheil say. If anything, the government spent too little to try to stimulate the economy.

Far from spurring prosperity, the Bush tax cuts actually were followed by anemic economic growth. The richest Americans profited while the typical household ended the aughts with less income than at the beginning of the new century. The 2000s were a lost decade for most Americans.

Conservatives don’t believe inequality is problem because, they say, social mobility is high in the United States. Actually, social mobility has stagnated as inequality has risen, and the United Stated ranks lowest in terms of inequality and social mobility among rich countries.

The free-market bias of austerity economics ignores the important role government plays in supporting economic activity. It’s government—not the private sector—that has supported public education, highways, electrical grids, the Internet and scientific research.
Finally, the argument that the rich deserve their economic rewards because they are responsible for producing their wealth ignores how public policies, such as tax cuts, have helped them. As unions have declined, the wealthy have steadily accumulated a greater share of the economic pie.

“Over the last generation, the productivity of American workers—output per hour of work—grew substantially,” Hacker and Loewentheil write. “Yet, in a sharp break with the past, wages for most workers stopped rising in tandem with productivity. The gains of economic growth instead accrued disproportionately to affluent Americans.”

Between 1973 and 2011, median compensation was 10.7 percent while productivity grew by 80.4 percent, according to the Economic Policy Institute. Perhaps more than any figure, this one captures what’s wrong with our society.

Building an Economy for All

So, what is labor’s vision of a more people-friendly economic agenda? The central idea is that prosperity is a product of all of us. The role of government is to prevent the concentration of economic and political power while promoting prosperity and our social health, guaranteeing economic security and regulating the market.

Prosperity economics rests on three pillars:

• innovation-led economic growth, grounded in job creation, public investment and board opportunity

• security for workers and their families, for the environment and for public finances, and

• a vibrant democracy.

The most immediate task is job creation.

More than 12 million Americans are out of work. Millions more are stuck in part-time jobs or have given up. The employment deficit has cost us $3.6 trillion in lost productivity since the beginning of the recession, according to the Congressional Budget Office.

The authors call for a six-year, $250 billion jobs program. Other pro-growth steps include expanding government investment in research and development, reviving the manufacturing sector, pressing the Federal Reserve Bank to encourage growth and job creation by allowing inflation to increase modestly, immigration reform, increasing the minimum wage and investing more in education.
The decline of private-sector workplace benefits—health coverage and pensions—has created a looming retirement crisis, which can be addressed by strengthening and expanding Social Security and Medicare. Providing workers with paid family and sick leave, as well as affordable child care and flexible work schedules would ensure that the younger generations have greater economic security. Underwater homeowners should be encouraged to restructure their mortgages.

To protect the environment, government should put a price on carbon emissions, promote clean forms of energy technologies and promote sustainable technologies.

Prosperity economics would turn the conservative dogma on taxes on its head. It rejects that trickle-down theory, which argues that tax cuts lead to economic growth. Instead, increased revenues would be used to stimulate the economy. A more progressive tax structure would address income inequality. The Bush tax cuts would be scrapped, and capital and labor income should be taxed at the same rate.

Hacker and Loewenthiel back the AFL-CIO’s political agenda of winning federal legislation to make it easier for unions to organize. Unfortunately, they did not dig more deeply into the issue to suggest how unions can change their internal structure and culture to allow for a dramatic shifting of their resources into organizing.

Arguably, organizing is the greatest challenge facing labor—greater even than the right-wing assault on unions. The 1 percent will continue to succeed in its campaign to wipe out the middle class unless AFL-CIO unions organize more aggressively. Barring that, our only hope will be that independent labor groups fill the vacuum. Otherwise, we’re doomed.

Democracy and Prosperity

An interesting theme underlying the AFL-CIO report—one too often overlooked in blueprints for economic reform–is its recognition that a turnaround of the economy cannot occur without strengthening our democracy.

“A strong, open, participatory democracy is the bedrock of a strong, open and dynamic economy,” Hacker and Loewenthiel write. Pulitzer Prize winning economist Joseph Stiglitz similarly makes a connection between a more fair economy and democracy. He describes how inequality and economic concentration erode not only our democratic institutions but also our commitment to democracy itself.

We tend to regard unions as “bread and butter” institutions focused on collective bargaining and achieving wage gains for their members. In reality, of course, they are vital actors in our political system, though far less powerful than their enemies claim. Apart from government, the union is the only institution able to challenge effectively the notion that our democracy ends at the factory gate.

Unions need to be strengthened to force corporations to be more accountable and to curb their excesses. Working with shareholder groups, community organizations, and pension funds, unions can fight for improvements in labor practices, push for pay-for-performance through greater transparency and disclosure requirements, and demand curbs on obscene executive compensation packages.

In his book “Winner-Take-All Politics,” Hacker argued that the corporate interests and the economic elite have over the years seized control of government institutions and the electoral process. So, “shared prosperity” can’t happen without fundamental reform. These reforms include strengthening consumer protections; enacting a national public financing law for elections; creating a national voting day; blocking disenfranchisement efforts; eliminating the 60-vote filibuster barrier to passing legislation; improving regulations on credit cards and predatory lending; replacing 401(k)s with a mandatory public-private retirement plan; placing restrictions on lobbying; reinstating the firewall between investment banking and commercial banking; strengthening community banks, and granting greater bankruptcy protection to students with college debts and homeowners with unmanageable mortgages.

“Prosperity Economics” offers a refreshing blueprint for a way out of our economic malaise, sharpening class differences and broken democracy. Is there hope? This agenda will require strengthening the loose left-leaning coalition—youths, unions, liberal churches, women, blacks, Latinos and progressive whites—that backed Obama.

The Occupy movement, the striking fast-food workers and the budding rebellion at Wal-Mart are signs of hope. Add a more militant trade union movement to the mix, we might soon witness the emergence of a lasting coalition that will finally put an end to austerity.