Has the business lobby been too clever by half?

Is what happened to Labor in the 1980s about to happen to Capital in the 2020s?

Photo by Royal Anwar on Unsplash

Most people around the globe today are better off than our ancestors because citizens and workers in early industrial societies organized, challenged elite-dominated choices about technology and work conditions, and forced ways of sharing the gains from technical improvements more equitably.
Daron Acemoglu and Simon Johnson, Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity 

If you ask the CEO of some major corporation what he does he will say, in all honesty, that he is slaving 20 hours a day to provide his customers with the best goods or services he can and creating the best possible working conditions for his employees. But then you take a look at what the corporation does, the effect of its legal structure, the vast inequalities in pay and conditions, and you see the reality is something far different.”
Noam Chomsky

“I think the wealthy have been getting wealthier too much in many ways, so middle-class incomes have been kind of flat for maybe 15 years or so, and that’s not particularly good in America.”
J.P. Morgan CEO Jamie Dimon

F. Scott Fitzgerald observed the ability to hold two opposing ideas in your mind was evidence of a first-rate intelligence. By this measure, neoliberals, who are much maligned nowadays, are deadset geniuses. All but the most disingenuous will acknowledge that Capital has comprehensively outplayed Labour for close to half a century now, with the result that almost all the benefits of productivity gains in recent decades have gone to shareholders and C-suiters (there’s a significant overlap in those Venn diagrams nowadays), rather than workers.

Nonetheless, neoliberals will insist that any moves to give Labour a slightly larger slice of the national income pie will inevitably result in an economic catastrophe that will ultimately just make low-income workers worse off. (Don’t like your insecure, soul-crushing minimum-wage job in the retail or hospitality sector? Try surviving on welfare when you price yourself out of the labour market, loser!)

For reasons only neoliberals are intelligent enough to understand, a relatively small number of C-suiters and shareholders making out like bandits for the last four decades is all to the good, but the hoi polloi possibly getting to belatedly share some of the productivity gains of last four decades is a recipe for stagnation or worse.       

It should be noted that “getting an education” isn’t enough for many people to escape the increasingly strong gravitational pull of the… well, underclass isn’t quite the right word, but certainly the class that survives from pay cheque to pay cheque and finds it difficult to accumulate capital.

If you lean Right and are starting to roll your eyes at this juncture, please bear with me as I explain why a conservative, or at least a one-time conservative, thinks squeezing the proletariat to (further) enrich the bourgeoisie has had some significant costs are now coming back to bite business and political elites in the arse.

Hell to pay
I’m not sure where on the political spectrum you’d place Michael Lind currently, but he started out well to the Right. A Texan, he began his career working for the Heritage Foundation (a prominent conservative think tank from which Ronald Reagan cribbed many of his policies) and claims to have ghostwritten a book putatively authored by conservative-libertarian superstar William F. Buckley Jr. Whatever his subsequent political peregrinations, it’s fair to assume Lind is not your stereotypical bleeding-heart Leftie.     

In recent years, Lind has expressed growing concern about the professional-managerial class pulling away (economically, politically, culturally and even geographically) from the rest of society. He has recently published Hell to Pay: How the suppression of wages is destroying America. Full disclosure: I haven’t yet read the book, but I have heard Lind discuss its core messages on several podcasts and read some thoughtful reviews of his tome.    

From what I gather, Lind spends some time detailing the evil genius of Capital (and its many faithful champions in political parties, university economics departments and the corporate media) in methodically undermining any bargaining power Labour once had.

Labour arbitrage – that is moving jobs from first-world nations to more ‘business friendly’ environs while simultaneously importing millions of undemanding migrant workers from developing countries – is what has gotten most of the attention, especially since the events of 2016. But as Lind details in his book, this is just one of many tools the bosses have used to suppress worker wages in first-world countries. A couple of the other techniques, which you’ve probably felt the effects of even if you weren’t aware of it at the time, include:

Explicit or implicit restraint of trade: The only way many workers have been able to get a significant pay rise in recent times is to jump ship to another employer. But what happens when it’s difficult if not impossible to move to another business, or at least one in the same industry or geographical area? Increasingly, employers – including fast-food restaurants – have been forcing employees to sign non-compete agreements that significantly reduce competition for labour.

Sometimes large employers will explicitly agree to no-poaching pacts, as Apple, Google and several other tech companies notoriously did to suppress tech worker wages. This is illegal, so what more frequently happens is a nudge-nudge-wink-wink implicit pact where companies either swear off employing workers from competing businesses or, at the very least, agree not to compete on the price of labour. (In the same way that Coke and Pepsi don’t seek to increase their market share by lowering the price of a can of Coke Zero or Pepsi Max, the likes of McDonald’s, Hungry Jack’s and KFC implicitly agree to pay their frontline workers more or less the same wages.)   

Banding: I was aware of employers’ labour arbitrage and restraint of trade lurks, but I’d never thought about ‘banding’ until I heard Lind discussing it. Lind argues that in a large business it’s difficult to gauge what any one person contributes. For example, at Google it’s not possible to determine with any precision how much a software engineer, or executive assistant, or Head of Marketing, or mid-level HR staffer contributes to the overall success of the company.

The solution to this problem is banding – an industry-wide or sometimes economy-wide implicit agreement that certain roles receive certain salaries. For instance, you could be the best executive assistant in the world, functioning as a co-CEO for your boss, and playing a crucial role in your employer landing multi-million-dollar deals, but you’ll still only get paid within the agreed band for executive assistants (around $80,000 – $120,000). On the other hand, you could be an inexperienced or not particularly effective CEO and you’ll still get paid in the agreed band for a CEO (at least several hundred thousand dollars and often millions).

Of course, those doing different jobs have always received different remuneration. But the point Lind (I assume) makes is that the bands for junior and mid-level employees have remained static while the bands for C-suiters haven’t.   

Is a day of reckoning approaching?
It’s not news that the top 20 per cent and especially the top 1 per cent of society have been doing very well for themselves thanks to the neoliberal policies that have been in fashion in the US and, to a somewhat lesser extent, other Anglosphere countries since circa 1979. As Sohale Mortazavi observes in this Quillette review, the only real bone of political contention in recent decades is whether or not the ‘left behind’ should get a little bit of assistance or no assistance at all:

Mainstream economists and political commentators on both the libertarian Right and much of the liberal Left treat low wages as an unfortunate but unassailable facet of the modern globalized economy. Low wages are the price we pay for free trade, efficient markets, and low prices. If liberals and libertarians diverge at all from this point of the neoliberal consensus, it is only in how to best respond to low wages. Liberals may support government welfare to supplement low wages while libertarians contend that redistribution disincentivizes workers from upskilling or moving laterally into industries and occupations in higher demand, but both accept low wages as the natural byproduct of technological progress (i.e., automation) and the global free markets of goods and labor that lower prices for everyone.

Lind makes two important points.

First, contrary to what is widely asserted, low wages aren’t the inescapable byproduct of “technology” or “globalisation” but a choice. Anglosphere politicians – centre-left as much as centre-right ones – have promoted policies that were always going to massively tilt the balance of power in favour of Capital.

(You could argue that the balance of power was tilted too much in favour of Labour by the mid-1970s and you wouldn’t necessarily be wrong. But few of the problems the world faces in 2023 are caused by out-of-control unions or overly indulged low-income workers. It’s probably not coincidental that many of the pathologies now afflicting Anglosphere societies are less of an issue in places where the national income pie continues to be divided up more equitably.)

This brings me to Lind’s second major argument, which is that while pushing down wages has had a few benefits for everyone and lots of benefits for those who own and/or oversee the means of production, it’s also had some major downsides. Downsides that were initially borne by the lower orders but which have now started to impact those further up the socio-economic ladder.  

To quote from Martazavi’s review again:

[Lind’s] contention is that low wages contribute not only to poverty but also declining marriage and birth rates, toxic identity politics, partisan polarization, moral panics, loneliness and social atomization, “deaths of despair” caused by depression and addiction, and more…

Aspirants to the beleaguered middle class find themselves mired in an expensive credential arms race despite diminishing prospects in the face of the slow proletarianization of the liberal professions… Colleges are putting out more graduates than there are good jobs, and the oversupply of graduates exerts downward pressure on wages for those lucky enough to find a professional job at all…

These economic conditions have more and more workers delaying or forgoing marriage and procreation. Much of the working class cannot afford to buy homes or raise kids without further impoverishing themselves. Those aiming for middle-class professions often spend much of their 20s and even 30s in college, internships, postdoctoral study, and the like.

Talkin’ bout a revolution    
I will end by pointing out that few union leaders in 1975 would have imagined how much different things would be in 1985 (let alone 1995 or 2005). As I and many others have observed, lots of under-40s have been drifting to the far left (in the Anglosphere) and far right (in Europe) and showing little sign of ageing out of their youthful radicalism as they enter their thirties and forties. And why would they if they can’t afford to do all the things that served to moderate previous generations’ radicalism, such as getting married, buying a home and having kids?

Business leaders in the mid-to-late 2020s may soon find themselves in a position analogous to union leaders in the early-to-mid 1980s. To quote Martavazi one last time:

Lind closes Hell to Pay with an ominous warning to business interests that a political order producing such harmful social outcomes cannot be sustained and that employers are better off negotiating with their workers than some future demagogue, “more effective and focused than Donald Trump,” who capitalizes on populist discontent.