A single graph proves that the birth of neoliberalism coincides with a dramatic loss of power for the working class
The
following graph depicts the radical divergence between productivity
and compensation of a typical American worker after 1973. It
essentially proves that the upper class has been overwhelmingly
benefited during the last four decades or so, at the expense of the
working class:
As
described by the source,
the hourly compensation of a typical worker essentially grew in
tandem with productivity from 1948 to 1973. After 1973, these series
diverge markedly. Between 1973 and 2014 productivity grew 72.2
percent, or 1.33 percent each year, while the typical worker’s
compensation was nearly stagnant, growing just 0.22 percent annually,
or 9.2 percent over the entire 1973–2014 period. Further, nearly
all of the pay growth over this 41-year period occurred during the
seven years from 1995 to 2002, when wages were boosted by the very
tight labor markets of the late 1990s and early 2000s.
This
divergence of pay and productivity has meant that the vast majority
of workers were not benefiting much from productivity growth; the
economy could afford higher pay but was not providing it.
Costas
Lapavitsas, professor in economics at the University of London School
of Oriental and African Studies, explains analytically how the
working class has lost dramatically with the rise of financial
capitalism and the accompanying neoliberal ideology during that
period depicted in the graph above:
Finance
is a sector of the economy in mature countries which has grown
enormously in terms of size relative to the rest of the economy, in
terms of penetration into everyday lives of ordinary people, but also
small and medium businesses and just about everybody, and in terms of
policy influence. Finance clearly influences economic policy on a
national level in country after country. The interests of finance are
paramount in forming economic policy. So that is clear. Finance has
become extraordinarily powerful. And that, in a sense, is the first
immediate way in which we can understand financialization. Something
has happened there, and modern mature capitalism appears to have
financialized.
Financialization
is basically a profound historical transformation of modern
capitalism that began in the 1970s, and it's now been running for
about four decades.
What's
happened to big business is very interesting. Two things have
happened to it. First, big business has become increasingly
capable of financing investment out of retained earnings. It retains
its profits, and on a net basis it finances investment pretty much
out of that. Of course, it still uses banks, but it doesn't rely on
banks on a net basis to finance investment. That gives it a certain
degree of independence from banks. In addition to that, big business
has made so much in retained profits - currently US big business is
sitting on piles of cash - that it can use those funds to play
financial games, to engage in financial transactions and financial
activities on its own account. So big business has financialized.
Large enterprises have acquired some of the character of financial
institutions, have become bank-like, and they engage in these
transactions, and they change the structure of their own organization
as they do that.
Second
economic change, and very, very important, too, relates to banks. If
big businesses is doing that, banks must do something else to make
profit. They lend less to businesses for investment and so on, and
they play more games in the financial markets. They become
transactors in financial assets, and they make profits increasingly
not from lending, but from fees, commissions, and trading. They
become traders in financial assets. At the same time, banks have
also turn households. Households have become a very profitable
activity of banks, a new activity. This is a new phenomenon in the
development of capitalism.
The
third change has to do with households, workers, ordinary people. And
what we see there in the last three to four decades is that
ordinary people have been drawn into the financial system like never
before. Households have become financialized. Finance has become
a fundamental part of household life.
Why is
that? Partly because wages have been stagnant. Wages have been
absolutely flat in [the US] for decades. Partly because of that,
people have turned to debt.
The
financialization of everyday life, of households, is a bit of a
complex story. What is actually happening is not simply that you
borrow in order to consume. That also happens. What is actually
happening is people need access to health, education, housing, and a
variety of other needs. Every country has systems of provision for
these things. These modes of provision have historically,
traditionally, incorporated public provision, some methods of public
provision. What we've witnessed the last three to four decades is a
retreat of public provision. Public provision has retreated, private
provision has taken its place. As this is happened, finance has
emerged as the facilitator of that. So we turn to private provision
to solve our housing needs, our health needs, our education needs,
and finance makes profits out of that, basically, without having any
skills in doing these things.
At the
same time, we've had changes in institutions and in ideology. The
changes in institutions are very clear. We've had wave after wave of
deregulation. Labor market has become more deregulated, and
financial markets have become more deregulated. And in addition to
deregulation what we've had is the rise of the ideology of
neoliberalism. Deregulation goes hand in hand with neoliberalism, the
idea that the market is good, the state is bad. In [the US], this is
a very powerfully held idea, more powerfull here than anywhere else.
It's extraordinary how powerful this perception is and how a lot of
social issues are understood in this way.
What
have we got after four decades of this? These changes, seen very
clearly in the United States, have created, firstly, a deeply unequal
country, a deeply unequal society. Financialization is fundamentally
about inequality. We see this inequality in terms of income, where
the top 10 percent and the top 1 percent draw an extraordinary
proportion of income annually, but we see it in terms of the
functional distribution, the distribution of income between capital
and labor. Labor has lost dramatically during the last three to four
decades in [the US] and in just about every other mature capitalist
country that has financialized.
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