he current apportionment of economic rewards in the United States, Beaudry notes, is similar to the pattern in America and England during the Industrial Revolution from 1780 to 1830, when workers struggled while factory owners flourished. With companies making record profits, one would expect a surge in new firms, Beaudry says. In normal times, new firms would compete for workers and drive up wages. In fact, the rate of new business formation in the United States has been cut in half over the past 35 years, according to a Brookings Institution study that was released in May. Continue reading the main story Beaudry also raised the question of whether the putative advantages of free market capitalism are failing in the context of global competition and the information revolution. “Something has been going wrong with the competitive system,” he told me. Other economists cite findings supportive of Beaudry’s thesis that the United States is undergoing a fundamental transformation. Loukas Karabarbounis, a professor of economics at the University of Chicago and co-author of “The Global Decline of the Labor Share,” wrote in an email “that it is worthwhile to think about trends in these objects jointly. 2000 seems to be a year where the labor share [of national income] decline started accelerating in the United States.” Similarly, Ezra Oberfield, a professor of economics at Princeton who has focused on the division of income between capital and labor, wrote that labor’s share of manufacturing income “fell about three times faster in the 2000-2010 period than the 1970-1999 period.” Further support for the inflection point thesis can be found in a Brookings paper, “The Decline of the U.S. Labor Share,” by three economists, Michael Elsby of the University of Edinburgh, and Bart Hobijn and Aysegul Sahin, both of the Federal Reserve. They write: “The substantial recent decline in the labor share that emerged at the turn of the 21st century appears wholly due to a slow-down in growth marked by a profound, and unprecedentedly sharp, stagnation of hourly compensation growth.” The authors argue that import competition is the driving factor: “Our data yield one robust correlation: that declines in payroll shares are more severe in industries that face larger increases in competitive pressures from imports.” This accounts for “3.3 percentage points of the 3.9 percentage-point decline in the U.S. payroll share over the past quarter century.” Their predictions of future trends are not optimistic: “If globalization continues during the next decades, the labor share will continue to decline, especially in sectors that face the largest increases in foreign competition.” The trends in globalization, wealth concentration, corporate profits, income and employment together raise a crucial question, one I first explored in a column a couple of years ago: Is the “legitimacy of free market capitalism in America facing fundamental challenges?” This question is even more salient now. A CNBC/Burson-Marsteller international survey released on Sept. 22 found that in the United States, the world’s free market leader, only 36 percent of the public described corporations as a source of hope, just under the 37 percent who described them as a source of fear. In China, a decisive 84 percent described corporations as a source of hope and only 7 percent said corporations were a source of fear. In addition, half (51 percent) of the United States sample said “’strong and influential’ corporations are ‘bad,’ even if they are promoting innovation and growth,” according to a summary of the survey by Don Baer, chairman and C.E.O. of Burson-Marsteller. Continue reading the main story Continue reading the main story Continue reading the main story Globalization and technological innovation have diminished the power of elected officials to control national economic trends, although politicians retain substantial influence over the allocation of the costs and benefits of those trends. At the moment, Republicans have the whip hand, empowered to prevent Democratic intervention to alter what is now a decisively upward redistribution of the benefits of economic growth. It is uncertain, however, whether the Democratic Party, even if it were empowered to set the agenda, would adopt policies to restructure the distribution of wealth. Those advocating such initiatives might well face an internal veto exercised by the party’s financial elite and by the party’s affluent constituencies. Discontent with central elements of capitalism is not limited to liberal elites, and it extends far beyond this nation’s borders. One of the most striking findings in the CNBC/Burson-Marsteller survey is that corporations and the free market are viewed far more favorably in developing countries, where capitalism is just emerging, than in advanced countries. On a basic question, “How favorable are you toward corporations?” the general public in emerging economies was markedly favorable, 72-24, while those in advanced economies were far more ambivalent, 52-40. Strong majorities, ranging from 58 to 65 percent of those surveyed in emerging nations, agreed that corporations pay their fair share of taxes, help achieve equality and encourage the government to treat citizens fairly. In developed nations, less than half of poll respondents held these positive views. Asked if corporations were humbled by the financial crisis and now act more responsibly, citizens of emerging nations were split, 44 yes, 41 no. Among those living in advanced economies, a strong majority, 55 percent, said no, while only 23 percent said yes. What this suggests is that free market capitalism arguably remains a vital source of growth and opportunity in nations like China and India, where people emerging from generations of poverty through the advance of global capitalism often see the problem differently. In developed countries like the United States, however, there are legitimate and growing doubts about the beneficence of the market and the ability of the system to distribute the rewards of growth to those who make growth possible.
Posted on: Wed, 24 Sep 2014 04:37:08 +0000
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