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The Rich Get Richer... and Everyone Else Gets Poorer

A Commentary on Growing Economic Inequality
By Masao Suzuki |
June 22, 2011
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On June 19th the Washington Post published “With Executive Pay, Rich Pull Away from Rest of America” by Peter Whoriskey. This very informative article connected the rise in corporate executive’s pay with the growing economic inequality in the United States, using the example of a large U.S. dairy company combined with recent research by economists on high incomes. At the same time the article only offered very vague explanations for why the rich are winning out at the expense of almost everyone else.

Based on a recent study of tax returns, the top one-tenth of one percent (0.1%), or 152,000 income earners, now make over 10% of all income, the highest level since the 1920s. While income for this group has gone up more than four times (385%) between 1970 and 2008, the income of the bottom 90% of the population has actually fallen 1% (both figures take inflation into account). The economists’ study was also able to point out who these rich are: 60% are corporate executives, managers and highly paid financial professionals.

The article offered the explanation of supporters of growing executive pay, who say that today’s corporations are much larger and more complex - in other words, the CEOs deserve their massive paychecks. The only other view that the article offered was that “social norms” have changed.

While it is no doubt true that a culture of greed has been spread by Wall Street and the corporate media, there are very clear political and economic changes that are behind the increase in economic inequality. The two most important, in my opinion, has been the growing movement of capital from the midwest and northeast to first the south and southwest in the United States, and then to Third World countries, all in search of lower wages and less regulation. The second is the decline in union membership and the even larger drop in mass strikes by workers.

Starting in the 1970s, there was a movement of businesses from the more unionized, higher wage midwest and northeast, to the largely non-union, low-wage areas of the U.S. south and southwest. This so-called Sunbelt Strategy can be seen in the shift in auto production from the midwest to the south.

By the 1980s, under the guise of ‘free trade,’ U.S. corporations more and more shifted their production to Third World countries where wages were even lower than the U.S. south or southwest. This so-called ‘globalization’ continues to this day, as big U.S. companies have shed about 4 million jobs in the United States but created more than 3 million in other countries over the last ten years. For example, General Electric (which by the way paid no taxes on their almost $15 billion of corporate profits last year), cut almost 16% of their workers in the United States will expand their workforce in other countries by 1.3%.

The result has been lower wages for workers in the United States, as the jobs are created in low-wage areas or industries and higher paid jobs are lost. But even workers whose companies stay put see the wages stagnate under pressure from the growing number of unemployed and the companies’ threats to shut down and move their jobs.

This first trend, capital mobility (and running over the worker, so to speak), is closely related to the second trend of de-unionization. Companies are continuing to move to less or non-union areas, as seen in the struggle of unionized Boeing workers in the state of Washington to block the company’s shift of work to non-union South Carolina.

At the same time the turn to the right in national politics with the Reagan administration had a clear anti-union policy. President Reagan’s breaking of the airport flight controller’s union, PATCO, in 1981, ushered in an era of declining union membership and mass strikes. As union membership fell from about 25% in 1979 to less than half that (11.9%) in 2010, workers lost their bargaining power and wages and benefits have suffered.

Today the last bastion of union membership is among public sector workers, where more than 36% are union members, as compared to less than 7% for private sector workers. Now these unions and the benefits that they have won, especially retirement security, are under attack by the right-wing in Wisconsin and other states. Instead of going after the fat-cat CEOs and Wall Street tycoons, the corporate dominated media, led by the notorious Fox media conglomerate, is attacking this last large group of unionized workers.

A capitalist economy leads to economic inequality, especially between the 90% of us who have to work for others (the working class), and the top 1%, who own most of the wealth and who hire us and lower and lower wages to increase their profits (the capitalists). This can only come to and end with the replacement of the current capitalist economy with a socialist economy, where people’s needs, not profit, drive the economy.

But the struggle here and now to defend public sector workers in Wisconsin and other states, and to block the free trade proposals for South Korea and Colombia that will further undermine the strength of labor in the United States are important for the well-being of all workers.