Bluestone and Harrison, professors
of political economy at Northeastern University in Boston and (until Harrison’s
recent, untimely death) at the New School University in New York, respectively,
collaborated on two previous books which charted the changes in the U.S.
economy —especially its manufacturing sector —that were severely affecting
America’s workers. In The Deindustrialization of America: Plant
Closings, Community Abandonment, and the Dismantling of Basic Industry and The Great U-Turn: Corporate
Restructuring and the Polarizing of America, Bluestone and Harrison described
the shift from an economy featuring high-wage, unionized jobs to one in which
corporations cut real wages, resisted union organizing, and shifted production
to low-wage sites overseas.
Now, in the last book of their
remarkable partnership, they consider what the overall economic
policy of the United States
should be in the new century. While
their conclusions provide a valuable framework for progressive policy advocacy,
the means by which they arrive at them are, unlike in their earlier works, quite
theoretical. They avoid any discussion
of the class conflicts and political struggles which will be at the heart of
any shift of the kind they advocate.
Whereas in their earlier books Bluestone and Harrison
clearly and straight forwardly presented the issues facing workers in their
conflict with globalizing capitalism, Growing
Prosperity is written in the abstract, dehumanized language of mainstream
economics. This style seems to reflect the sharp rightward shift in public
discourse during the 1990s, and it makes the book, while welcome, a frustrating
exercise in translation to the real world of workers and class conflict.
Bluestone and Harrison
devote the first portion of Growing
Prosperity to an examination of productivity growth, which they argue must
be at the heart of any improvement in the lives of America’s
working people. The central question
they address is the apparent abrupt drop in the growth of labor
productivity—the average output per worker
hour—starting
in 1973, and the consequent stagnation in the average worker’s standard of
living. They examine the possible
explanations for this shift, citing the work of mainstream economists such as
Dale Jorgenson and the late Edward Denison.
As they report, these analysts can explain only a small portion of the
shift, with as much as 60 percent of the change having some unknown cause.
Bluestone and Harrison
then report on the work of a number of younger economists, particularly Paul Romer, who suggest that the failure of productivity to grow
from 1973 on, and the resumption of growth since the mid-1990s, can both be
explained on technological grounds. In
this view, productivity rises when a new technology has been fully incorporated
into the productive process. No
significant new productive technology was available to propel growth, in this
view, from the mid-1970s until now. But
computer technology and the Internet, which were introduced during this period,
lie at the root of the explanation they offer.
Drawing on the work of the “New Growth” theorists, Bluestone and Harrison
suggest that the information revolution has finally been incorporated into the
economy, from manufacturing through office management to the sales process, and
is finally leading to the growth in productivity that had been promised all
along. This explanation seems plausible
but, as I will suggest in a moment, is not really adequate to explain the
dramatic shift during the early seventies or the much more modest upswing we
have recently witnessed.
The second portion of this book is
an examination and critique of the current reigning orthodoxy in economic
policy, what they term the Wall Street Model, or the Wall
Street–Pennsylvania
Avenue Accord. By this, they mean
a government policy that relies on monetary policy (the regulation of interest
rates and money supply by the Federal Reserve Bank and its chairman, Alan
Greenspan) to stabilize the economy, cuts in government taxes and spending,
balanced budgets (or even a budget surplus) to allow reductions in interest
rates and expanded private investment, deregulation, privatization, and a
regime of slow growth. This policy has,
they suggest, been
imposed by a “confederation” of forces—wealthy Americans,
bankers, financiers, money
managers—who
worry also that inflation might be unleashed if employment expanded too rapidly
and the economy grew too swiftly.
In critiquing this policy,
Bluestone and Harrison note especially that it relies on
spending by wealthy investors—its chief beneficiaries—to sustain the consumer
demand underlying the private investments which are central to the Wall Street
Model. The growing inequality of the
past two decades is a necessary consequence of a policy that favors high-income
people and wealthy investors over those low- and moderate-income families who
would benefit from the government programs that are slashed or eliminated and
from the increased employment that a more rapidly expanding economy could
generate.
The most important aim of their
critique, though, is to show that the prosperity which this policy seemingly
produced in the 1990s is fragile and unlikely to be the basis for any long-term
improvement in living standards. As they
write, “Surely real prosperity should be based on something more durable than
volatile capital markets and the bankers, financial managers, and hedge fund
speculators who run them” (p. 21). They
identify the trickle-down nature of consumption spending (only the wealthy have
seen their income grow in the last two decades), the dependence on lowered
interest rates to encourage investment, and the restrictions on growth and
employment that result from the focus on controlling inflation as reasons to
question the long-run viability of this as a growth policy. They see the Wall Street Model as having made
the rich richer but workers less secure.
Most tellingly, they point out that
investment decisions depend on far more than interest rates. Investors must believe there will be a
growing market for the goods and services their investment will make possible. Bluestone and Harrison
use this as the launching platform to present, in the third portion of their
book, their alternative policy: the Main Street Model. In contrast to current economic policy, this
approach would feature an expansion in government spending, a strengthening in
union protections, and growth in workers’ wages. In this model, prosperity would be fueled by
a combination of a rebuilding of the public infrastructure—highways,
air-traffic measures, research and development, workforce education and
training—and an expansionary fiscal and monetary policy that would encourage a
growth in spending by the average consumer. They contend that all of these
elements of public policy have been short-changed since the 1970s, and they
urge that the budget surplus be used to invest in the physical and social
infrastructure of the country. The
resulting rise in aggregate demand and the fostering of new technology would
encourage investment and, in their view, generate a broad-based, stable growth
that would benefit the entire population, not just those holding the majority
of investments. Bluestone and Harrison
note that the last period of rising standard of living, from 1947 to 1973, was
also a period in which government spending accounted for a rising portion of
GNP (that share has been declining ever since).
Their strongest point is to
contrast such a high-wage, high-productivity, high-growth path with the
low-wage, low-productivity, slow-growth path we are on today. And unions have a central role in this vision:
Bluestone and Harrison urge a role for the federal
government in “raising labor standards and restoring the ability of labor
unions to offer a viable collective voice to workers. This combination can boost
economy growth while reducing economic inequality” (p. 231). They see
the most desirable path as one of “wage-led growth based on strong unions,
higher minimum wages, and measures that improve job security” (p. 236).
The Bluestone and Harrison
presentation rests on the assumptions that facilitating growth should be the
most basic goal of economic policy and that productivity growth is the way to
achieve the goal. The issue they pose
is: Which policy, the Wall Street approach
or the Main Street
approach, is the best way to bring about growth in productivity and in the
overall economy? The problem is that
“productivity” and “growth” are too ambiguous and
arbitrary to serve as touchstones for an economic policy.
Clearly, something dramatic
happened to the American economy in the early 1970s. Figure 1, from the Economic Policy Institute,
shows average real wages for American workers since World War II. After 1973, something obviously caused wages
to stagnate, and even decline, until the very recent period. It seems most unlikely that anything dramatic
happened to the production process that could account for such a change—and, in
fact, as we have noted, economists have not found any cause within the
production process to account for it.
What they have left out is national
economic policy itself. In 1973 the
Nixon administration initiated a regime of wage and price control. The objective of this policy, as stated by
its director, was to “zap labor.” And
attack labor they did, first by freezing wages, then by encouraging employers
to hold down further wage increases and resist unionization. Then, with the coming of the Reagan
administration, the attack on the labor unions’ ability to achieve wage
increases accelerated. The firing of the
air traffic controllers and the support for the hiring of replacement workers
during strikes knocked labor out of the box for a long while. It is only recently, with unemployment
descending to historic lows around 4 percent, that both organized and
unorganized workers have felt strong enough to press for increased wages, and
employers have felt it necessary, in the face of labor shortages, to raise
wages to attract new workers into the labor force. It is likely that these public policies,
rather than anything that happened in the production process or in workplace
productivity, changed the character of the economy, as shown in figure 1, and
account for much of the missing 60 percent of the change in productivity
growth. (All of this is chronicled well in Bluestone and Harrison’s
earlier books.)
Reliance on productivity growth as
a measure of how well an economy is doing seems misplaced also, because of the
serious ambiguity underlying its definition.
If one is talking about the production of some standard product such as
wheat or steel, it is easy to define and measure the number of worker-hours
required to produce a bushel or a ton. But if the product changes (e.g., new models
of automobiles) or is completely new (e.g., personal computers) or is of a
completely different type (e.g., comparing manufacturing productivity with
productivity in the service sector), there are difficult problems of
measurement and comparison.
What economists have done to solve
this problem is to use the value of the output in any production process
(actually, the net value added after material inputs are deducted) to define
labor productivity, as dollars produced per worker-hour. However, the dollar output is very largely
determined by the wages of the workers involved in the production process (the
only exception is those special cases where firms can derive exceptionally
large profits from a monopoly position).
That is why workers in the low-wage service sector always appear to be
less productive than corresponding workers—with the same educational background
and skills—in the high-wage manufacturing sector.
This use of dollar output is
justified within mainstream economics by the assumption that workers are paid
what they are worth—or, to put it in economists’ language, that wages are
determined by the marginal product of the workers. It is this assumption that allows economists
to define productivity in terms of the output that workers produce in an hour.
Indeed, this definition of
productivity, which Bluestone and Harrison rely on, is
quite circular. It declares that wages
are determined by the value of the product the workers produce, but the cost of
the product is determined by the wages (and, of course, the profit and other
costs incurred by the employer—but the principal costs, through the production
chain, are wages).
This can be seen in Figure 2, taken
from the Web site of the National Association of Manufacturers. As this suggests, wages are proportional to
the productivity of the economy, the output per person (the horizontal line in
the graph). However, one could as easily
turn the graph around to suggest that the output per capita of an economy is
proportional to the wages paid to its workers.
In fact, it seems far more
reasonable to believe that wages are determined by the bargaining power of
workers than by a vaguely defined “productivity.” That is why unionized manufacturing workers
earn more than largely nonunion service sector workers, and why high-status
managers get paid many multiples of what the workers they oversee earn. And it is why, as unemployment has fallen to
levels lower than we have seen in three decades, workers’ wages have finally
started to rise. Telling workers they
are paid what they are “worth”—that is, their marginal product—is, of course,
one of the most important mystifications that capitalism uses to suppress
worker activism.
This is not to say that there are
not differences among societies and among production processes in the physical
productivity of work processes.
Certainly, far fewer man-hours are required today to mine a ton of coal
than was required even 25 years ago, much less 100 years ago. But such comparisons of physical productivity
are far simpler and clearer than attempts to compare productivity across
industries and between societies. The
journalist John Cassidy, in a New Yorker article entitled “The
Productivity Mirage,” examines a very modern example: the question of whether computers have
improved productivity as they have gotten faster and more powerful. In the United
States economists have adjusted the price of
computers to incorporate this increased value, using a method known as
“hedonic” pricing. (Since productivity
grows as the dollar value of output increases, while computer prices continue
to fall, hedonic pricing adjusts the nominal price of computers upward to
reflect the improved power.) European
economists reject this method. The
difference is important, since the technology sector accounts for much of the
apparent recent growth in productivity.
All of this is to say that judging
the success of an economic policy by whether productivity is growing—and, if
so, at what rate—has two major drawbacks. First, such a measure is difficult, if not
impossible, to define. Second, usual definition is circular and thus,
ultimately meaningless.
There is a further reason why
growth should not be the measure by which economic success is evaluated. Economic growth, as conventionally defined,
is not necessarily a fully desirable goal.
We can have economic growth galore without the lives of ordinary people
getting any better. There has been enormous economic growth since the 1950s,
but it now takes two working adults to maintain a middle-class lifestyle. Is this progress?
As many authors have pointed out in
the last thirty years, an increase in the gross national product (GNP) includes
an increase in “bads” as well as “goods.” Not only may environmental pollution be
growing as physical output increases, but the increased medical costs resulting
from this pollution (from cancer, emphysema, asthma, etc.) will contribute to
economic growth and certainly do not represent an improvement in people’s
lives. That is, what may be good for the
economy as measured by GNP may well be bad for people.
Figure 3, from the Web site of
Redefining Progress, a California-based think tank, shows the U.S.
gross domestic product for the past forty-eight years as compared with an
alternative measure, the genuine progress indicator, which attempts to describe
the quality of life yielded by the nation’s output. Growth in output has not, by this indicator,
produced a corresponding increase in the well-being of the American people.
As one example, the reliance of
Bluestone and Harrison on economic growth as the measure of progress leads them
to welcome the growing number of workers in the economy and even the longer
hours they work. Together, these have
contributed about half of all economic growth in the last decade. But is this good for people, is it good for family
life, is it really progress to have more people working longer hours? We used to think that increased productivity
could generate more free time and more leisure, but the world they envision
would have more of us working—and working longer hours—in the name of economic
growth.
Thus, in Growing Prosperity we have a line of argumentation questionable on
a number of grounds, both methodological and social, but a conclusion that is
still correct: An economic policy that
uses government to provide the physical infrastructure and education needed for
an improved society, along with support for union organizing and for higher
wages, will lead to a society that has greater equity in which the average
working person can lead a better life.
The problem, politically, of
course, is that as long as there seems to be continued prosperity—at least as
touted by the media, if not as felt in the average workers’
paycheck—theoretical argumentation alone will not lead to the kind of
far-reaching change in policy they advocate.
It is only through political action by forces aligned with the majority
of working people that a change from the current policy will be made. As long as the media proclaim, with near
unanimity, that prosperity is at hand, there will not be any popular upwelling
of support for a policy change. But when
the downturn comes and cannot be denied, then the country will be searching for
an alternative approach. It is here that
the prescriptions offered by Bluestone and Harrison will come into their
own. At that point, as they say, “the
notion that [the Wall Street Model] has contributed to prosperity rather than
threatened its sustainability” will be “recognized for the illusion it is” (p.
261). And the country will, at that
point, be ready to support a return to the “high road” envisioned by Bluestone
and Harrison.