Liberal, Irreverent

Saturday, April 16, 2011

Ensnared by Our Illusions

Ensnared by Our Illusions

Posted: 15 Apr 2011 12:58 PM PDT

By Karl Reiner

According to Census Bureau data, the proportion of Americans living in urban areas rose from 93.2% in 2000 to 93.7% in 2010.  The bigger cities grew faster than small ones, most of the growth occurring in the suburbs. The data contradicts one of our cherished illusions.  We are not a nation of rugged individuals living in self-sufficient small communities.  Because urban societies have needs different than rural ones, we should now understand that governments running urban societies have more complex responsibilities. 

Thus far in the economic recovery, U.S. corporate profits have climbed, wages lag, and unemployment remains high.  In an outlandish reaction to the situation, there has been a flurry of activity at the state level aimed at curbing the collective bargaining rights of unions.  The recession was caused by a giddy combination of lax regulation and the excesses of financial sector corporations. It is difficult to understand how a curb on collective bargaining will do anything to hasten the recovery. 

Sweden, Denmark, Norway, Canada, Germany and Switzerland all have a larger percentage of their workforces unionized than does the U.S.  None of these countries are rated as economic basket cases. The level of unionization has not detracted from their ability to maintain functioning economies.  Nor has it destroyed the ability to produce.   Germany is a major economic force in Europe, ranking among the top five world   exporters. 

A large part of the American population has elected to ignore the basic requirements of good governance.  An efficient state, the application of the rule of law to all parts of society and the ability to hold leaders accountable are vital for long-term success.  This historic truism has been conveniently ignored by those espousing the ill-conceived illusion that unions are the cause of all economic ills.  The assertion that government is irrelevant to economic progress also flies in the face of historic reality. 

The concepts for the operation of successful societies were developed by trial and error over a long period of time.  One important change came with the idea that kings were subject to the law.  This once extremist notion became the foundation for the modern law-governed institutions we have in today’s secular states.   

The concept that companies are legal entities with rights is vital to the success of capitalism. But it does not mean that corporations need to have all same rights as individuals. The corporate role in fostering the conditions that led to the current recession clearly indicates that a degree of government control is necessary.  If the role of government is continually diminished, do corporations really want to assume the responsibility of pursuing social rather than business ends?  In an energetic society, the enlarged role would be seen by business interests for what it is, a distraction from business.  

The gloomy predictions of Karl Marx still hang over the world’s economies. As the industrial revolution progressed, he warned that the situation of workers would grow worse as capital accumulated and concentrated.  There have always been indications that corporations will squash competition, stomp the little people, abuse their rights and avoid their responsibilities if allowed to operate unchecked.  Marx’s dire warnings were negated in the western nations after a long and bitter process of accommodating competing interests.  Workers were eventually recognized as having rights and became consumers.  Governments assumed responsibility for regulation and providing safety nets, helping to maintain social cohesion.  


The recent economic fiasco has not resulted in calls to abolish corporations, although it appears that many would like to see the government’s role shrink and unions disappear.  In the U.S., productivity rose 83% between 1973 and 2007, but median real wages rose only 5%.  The result has been a troubling growing inequality in incomes.  For a long time, the Federal Reserve held down interest rates, boosting housing and propping up asset prices. It turned out to be a subsidy to the financial sector.  As the housing bubble developed, salaries in the financial sector outpaced the wages paid for other skilled jobs.   

We live in a world where the elites can easily move from country to country, to wherever their skills are in demand. It may be that the squeeze on wages and living standards is part of the nasty price we have to pay to climb out of recession.  A strong state, the rule of law and accountability remain necessary for economic growth and political stability. Those who think otherwise are fostering deadly illusions.  They will put the nation on a path to turmoil. It will eventually lead to a bitter relearning of the lessons of economic history.  

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