USA - A 25-year slide in workers' living standards

Apr 1999

The British media and politicians often quote the US economy as a model of "success" and "prosperity". Business experts claim that the "strong" expansion of the US economy has pulled the world away from the recession threatened by the financial crises of the past two years. And Labour politicians use the American "model" as a blueprint for their own welfare reforms which, they claim, are supposed to pull the British working class out of poverty once and for all.

One the basis of all this, one would expect that the standard of living of American workers should have improved over the past period, all the more so as, in addition US productivity has increased substantially over the past 25 years.

Yet official statistics show that, today, workers' real wages and benefits in the USA are about 10% lower than they were in the mid-1970s. The decline for more poorly paid workers has been even steeper, with the real value of the minimum wage down more than 16% in that same period. This is part of a general decline, which includes working conditions, as well as social conditions outside the workplace, along lines very similar to the experience of the British working class over the past two decades.

A typical explanation by business specialists for this lower standard of living in the USA can be found in the 1999 "Economic Report of the President" submitted to Congress by the executive with its annual budget. Clinton's economic advisors say that this drop is due to the functioning of an increasingly "competitive market-driven economy".

Of course, what they mean by this is nothing but the law of the jungle that rules capitalist society - the economic war between the capitalists themselves and the social war that all of them wage against the working class to increase the profits they screw out of its labour.

But how much profit the capitalists can extract from workers depends on the relationship of forces between the two classes - that is on the forces that the capitalists are able to muster against workers and the forces that workers are able to mobilise to defend their own interests. In this respect, regardless of what they say, the capitalists do not trust their prosperity to the "law of the market". Despite the prevalent myth of an American society where the state "doesn't interfere", every administration, whether headed by Democrats or Republicans, has brought the capitalists substantial and decisive support in forcing down the workers' standard of living.

The social safety net up to the 70s

Up until the mid-1970s, that is, well into the recession that began in late 1973, the workers' standard of living had been rising, although, of course, not anywhere near as quickly as profits. This was the price that the capitalists paid in order to maintain social peace.

The black movement and the various other movements that it spawned were still very fresh in peoples' memories. There was a degree of restiveness and rebelliousness in many sections of the working class - a product of the influx of black workers who came out of or were influenced by that movement, and of the younger generation of Viet Nam veterans. There were wildcat strikes over working conditions, speed-up and firings. And oppositions flared up in various unions - as in the coal miners', steelworkers', teamsters' and car workers' unions. As late as 1976, that is despite two recessions in six years, union contracts still sported a few gains. In the car industry, for instance, workers who in the previous contract had just gained a full pension after 30 years of work, regardless of age, now won free eye care and nine extra days off a year with no loss in pay (the so-called "paid personal holidays"), which union leaders were trumpeting as the first step toward winning the four-day week. Most importantly, contracts included various cost-of-living protections so that workers were shielded, to an extent at least, against the rising inflation rate.

At the same time, there were a series of social programmes that acted as shock absorbers against the devastation caused by unemployment and chronic joblessness.

These included first of all, income maintenance programmes. There was Social Security disability pay: the number who were drawing it had shot up from 455,000 in 1960 to 2.5 million by 1975. For impoverished families, the majority of whom were headed by single mothers, there was a programme which served three million families. Single men could also get welfare as a stop- gap protection against long-term unemployment. Food stamps, enacted in 1965, reached 16 million recipients. Even striking workers could get food stamps and in some states, they could draw unemployment benefits.

At the same time, those of the unemployed who remained in the labour market and continued to seek a job could get unemployment benefits. In 1970, Congress had passed two extensions to the basic 26-week unemployment coverage: 13 more weeks and then an additional 26 weeks. These extensions were triggered when unemployment reached specified levels in the states concerned. Thus workers could receive up to 65 weeks in unemployment benefits if local unemployment was high. And workers could receive unemployment benefits for two years under another programme, if their unions made a convincing case that the job losses were due to imports. As a result, two out of three unemployed workers received benefits during the prolonged 1973- 75 recession. To fund the increased coverage of unemployment insurance, Congress had increased the insurance tax on employers from 0.5 per cent to 0.7 per cent.

Altogether this meant that workers had certain protections during the 1973-75 recession. It is certainly one of the factors which explains why, despite the sharp rise in unemployment, blue collar wages did not fall in that period. The section of the working class which was less protected, however, especially those workers in the service sector, did see their wages lose out to double-digit inflation.

The first attacks - some of them repulsed

For the bourgeoisie, the 1973-75 recession ushered in a new period of uncertainty. Not only were profits down, but no-one knew if the recession would lead to a deeper, more generalised downturn. To prop up and secure higher profits during this crisis, the bourgeoisie went on a general attack against the working class. And they relied on their state machinery to play a key role in this attack.

In 1975, the largest municipality in the country, New York, went bankrupt, owing huge debts. This debt had been accumulating over the years as the city government handed out a large variety of corporate subsidies, including huge tax breaks and subsidised utility rates to "encourage" big companies to remain in the city and build office towers. Once the recession hit and the financial markets slumped, the accounting tricks previously used by officials were no longer able to hide the city's mounting deficit. The city could not pay its bills. The federal government, headed by Republican President Gerald Ford, refused to back a bailout (the New York Daily News's famous headline read "Ford to NY - Drop Dead"). The state government, headed by Democratic Governor Hugh Carey, stepped in and put New York City into a kind of receivership. Carey appointed a committee headed by representatives of the big banks which then took direct charge of the city's finances. They demanded that the big municipal unions shoulder the major part of the sacrifices. There were mass redundancies, almost unheard of for municipal workers, along with major wage and benefit cuts. Taxpayers were hit with big tax increases, as well as a severe cutback in city services.

Of course, at first these sacrifices were presented as emergency measures, with the implication that once the recovery was secured, the workers would be repaid for the sacrifices which they had made. This illusion was soon to be dispelled.

The period's first major confrontation between capital and labour came in the coal mines during the winter of 1977-1978. During contract negotiations, the coal companies, which were owned by oil, steel and electric power companies, demanded cuts in real wages and benefits from the miners' union, threatening that if the miners did not agree to their terms, they would have no choice but to close the mines. The miners rebuffed the coal operators and went on strike.

The miners went into this confrontation armed by over a decade of mobilisation and struggle. A large movement in the 1960s had forced the government to grant benefits for black lung disease. A fight inside the union had forced out the old corrupt union leadership. Miners had also carried out fights that enabled them to unionise non-union mines in the East and Midwest. And less than a year before, the miners had had a three-month strike over safety issues. When the strike over the contract began, the miners immediately went onto the attack. They not only closed down union mines, they sent out pickets who closed down non- union mines while staging demonstrations at state capitals.

Very early on the government intervened against the miners. Members of the Carter administration began to float stories about how the strike would soon force electric power to be cut back, leading to as many as three million layoffs! This became the justification which Carter made for openly threatening that the government would either seize the mines, in order to declare the strike illegal, or else invoke the Taft-Hartley law and order an 80- day cooling-off period.

It was under these threats that mine operators made their first contract offer, which was accepted by the leaders of the mine workers' union. But the miners strongly opposed it. Almost a thousand miners made the trip to the union's Washington headquarters and invaded the union council meeting which was supposed to consider the offer. That offer was never submitted to the miners. When a second offer was submitted to them, they turned that down by a 2-to-1 margin.

At that point, the Carter administration invoked Taft-Hartley. Included was a court injunction barring miners from stopping anyone from going to work. But the miners would not be cowed, and pretty soon a federal judge ruled in exasperation that since the miners were not obeying the injunction anyway, he was revoking it. After 110 days, the miners finally ratified the third contract offer, in which most of the company demands had been revoked. And even then, the majority for accepting the deal was only 54%. Many miners were quoted as saying that they could have done better if they had held out longer.

The workers inflicted an important defeat not only on the coal companies, but on the government, a defeat that millions of other workers watched, since it was often the first item in the TV news. In the months that followed, Carter's anti-inflation czar, Alfred Kahn, and the chairman of Carter's Council of Economic Advisors, Charles Schultze, warned that the coal contract should not be taken as a blueprint, and that companies might have to face many more strikes before they could lower wages. According to Kahn, lower wages were a necessity if inflation was to be tamed. In fact, it was the accumulation of private and public debt that was behind the inflation. Cutting labour costs was merely the way for companies to secure higher profits.

Government-led offensive

The government broadened its offensive against the working class. The Carter administration targeted the extensions on unemployment insurance. First of all, the extensions were costly. The swelling unemployment had led many individual states to use up their insurance fund, leading to deficits. Of course, there was no mention of the fact that the programme was seriously underfunded, since employers were taxed on only the first $6,000 per year of workers' earnings - a ceiling that had been raised only minimally since the programme was started in the 1930s.

But for the capitalists, there was an even bigger problem with the extensions in unemployment insurance: they allowed workers a bit more time to search for work and to turn down low-paid jobs. This buffer had led several prominent bourgeois economists to bemoan the fact that capital's ability to depress wages and enhance profits by the traditional means of intensifying economic insecurity, especially by taking advantage of high unemployment levels, had been weakened.

In 1978 the Carter administration carried out several "reforms" of unemployment insurance. First, it let the 26-week extension lapse completely, so that workers in high unemployment states were entitled to only one 13-week extension after the standard 26 weeks. Second, the reforms changed the way unemployment was counted; as a result, a much higher level of unemployment was required to trigger the 13-week extension. Third, the Carter administration made a rule change, so that workers collecting on their 13-week extension could no longer turn down a job which paid less than the one from which they had been laid off. Fourth, the Carter administration made unemployment benefits taxable if a worker who collected them had earned more than $20,000 in the year.

Generally, it is Reagan, the Republican, who is blamed for the major cutbacks in social programmes. But it was under Carter, the Democrat, that this process actually began.

A law against workers' gains

The Carter administration played the leading role in the Chrysler dispute, which very quickly shifted labour into reverse gear. In 1979, Chrysler, the smallest of the "Big 3" car companies, was losing money and taking on debt, as much as $1.5bn. There was talk that Chrysler might go bankrupt. The banks said that they would refuse to extend further loans without some kind of guarantees.

The Carter administration stepped in. In August 1979, just when the new auto contracts were being negotiated, Carter's secretary of the Treasury, Miller, announced that the US government would provide $750m in loan guarantees. However, he stipulated that sacrifices would have to be made by the Chrysler workers.

At first, all this talk seemed like the usual posturing that takes place during contract negotiations. Doug Fraser, president of the car workers' union UAW, balked at the government demands. The UAW had never agreed openly to cuts before. But faced with a chorus of government demands and bank threats, the UAW began to agree to give in on a series of gains it had won in the past. The first concessions they made were the smallest, amounting to $203m in wage and benefit cuts. This came in the Chrysler contract, which deviated from the pattern set at Ford and GM. When that contract was presented to the workers and ratified in October, it was a signal that the biggest unions would not follow the miners' lead. The threats of dire consequences increased. Most politicians proclaimed that the government shouldn't give loan guarantees and that if it did, it should be only on the condition that workers agree to still more cuts. A parade of federal, state and local officials threatened that hundreds of thousands of jobs, not only at Chrysler, but at all the other companies dependent on Chrysler's business, would be lost. And the UAW agreed to renegotiate the contract it had just signed.

A final agreement was worked out by Congress in the House and Senate banking committees. The Loan Guarantee Board was set up to administer the plan. An actual federal law spelled out the sacrifices that Chrysler workers were to make: $462m in wages and benefits cuts from union employees and $125m from non- union staff. The new contract was ratified three months after the first, in January 1980. Twelve months later, the Loan Guarantee Board came back and demanded a third round of concessions: this time amounting to $673m, including a $1.15 cut in hourly wages. These new concessions were ratified in January 1981. The rapid collapse of what had seemed to be the most powerful union in the country proved that workers could be made to agree to lower their own standard of living.

Other smaller unions, like the URW (United Rubber Workers), had previously agreed to similar packages. But this collapse of the UAW before the government and corporations proved to be the wedge that opened and generalised the drive for cuts. The UAW's agreement to concessions at Chrysler brought pressure to bear on other unions to do the same.

In the railways and haulage industry and even local and state governments, the bosses could not wait for labour contracts to expire. They lined up to demand that contracts should be re- negotiated and that cuts similar to those agreed at Chrysler should be included. Workers gave up COLA (cost-of-living allowance) and other wage increases - and at a time of high inflation, this resulted in a real decrease in their standard of living. Benefit cuts became standard. Blue collar workers began to join white collar workers in seeing their real wages fall, and even more rapidly.

A Democratic president, working together with a Democratic- controlled Congress, had imposed concessions on Chrysler workers which opened the way to a vast drive for concessions by all the corporations. They also presided over a new economic downturn, with more high inflation and unemployment. In protest, the union machineries sulked during the 1980 elections, and many workers voted against the Democrats, that is, for Reagan.

Reagan slices the safety net

Reagan came into office in 1981, during the deepest recession since the Great Depression of the 1930s. Unemployment and inflation reached levels that were even worse than in 1973-75. To immunise business, Reagan slashed their taxes, as well as the taxes for wealthy individuals, under the guise that this would encourage them to begin to invest, get the economy going again and provide jobs. At the same time, military spending was boosted substantially, an open subsidy to the biggest companies.

As a result of these handouts, public deficits widened, thereby providing Reagan with a justification to demanded huge cuts in social services. One of the engineers of these cuts, Reagan's director of the Office of Management and Budget, David Stockman, later wrote in his memoirs that government deficit was merely a Trojan horse to demand major cuts in social programmes. It certainly provided a fig leaf to the Democratic Party majority in Congress which dutifully supported these demands.

The cuts hit a broad spectrum of government programmes. Training programmes, like CETA (the Comprehensive Education and Training Act), which had enrolled 400,000 people in job training, were eliminated. The disability rolls were slashed. Changes were made in the food stamp programme - for instance by delaying various inflation-linked adjustments and reducing maximum benefits. Besides that, food stamps were no longer available for workers on strike. At the same time, welfare was "reformed". That is, the responsibility for welfare was transferred to the states, and federal grants to the states to run the programmes were then reduced. This forced states to reduce benefits, or more typically, limit eligibility. As for unemployment, all of Carter's "reforms" took full effect and were extended further. As a result, 1.5 million workers dropped from the dole register between 1982 and 1984. The proportion of unemployed workers covered by unemployment insurance which had already fallen to 44 per cent in 1980, fell again to 29 per cent by 1984. As for those still collecting benefits, Reagan made those payments fully subject to taxation.

The millions of unemployed workers thrown into the streets and the deepening poverty among the poor brought ever more pressure on the employed.

Patco - the key test of force

Not long into the Reagan administration the government undertook a new test of strength against organised labour, this time among a more privileged sector of government employees - the air traffic controllers. Controllers were much more highly paid, and they believed that their skills made them irreplaceable. It was assumed that without them, the air traffic system would come to a halt.

For many years prior to the strike, the government had allowed working conditions, especially with regard to the huge amounts of forced overtime, to deteriorate. The air traffic controllers' union, PATCO, had become so frustrated with the Carter administration, which had opposed all the controllers' demands, that it threw its support behind Reagan, who, as a presidential candidate in 1980, spoke at their convention, making many promises.

When came the time for the Federal Aviation Authority (FAA) to negotiate a new contract with PATCO, however, election rhetoric was forgotten. The FAA demanded a whole range of concessions. In August 1981, PATCO threatened to strike and bring the country's air traffic system to a standstill. The FAA told the controllers to go ahead. The government had prepared for this event: a year before, under Carter, the FAA had set up a "Management Contingency Strike Force". When the 12,000 controllers walked out, the FAA implemented the task force's plan to run air traffic without the controllers. Four hours after the strike broke out, Reagan announced, on television, that a strike against the government was illegal and the strikers had 48 hours to return to work or they would be fired. When the controllers predictably did not give in to Reagan's threat, he announced that they were all fired. The FAA then brought in military personnel to run the system, along with management personnel. Gradually, the air traffic system handled more and more traffic. At the same time, there were plenty of applicants for the open positions, and the training process was accelerated. The air traffic controllers were being replaced. Reagan had made his point: no-one was indispensable.

The AFL-CIO responded to these attacks with some big rallies and parades. In early September, the AFL-CIO sponsored its first Labour Day Parade in New York City in decades, with over 100,000 workers marching in New York, joining the 100,000 who traditionally marched in Detroit. Two weeks later, the AFL-CIO sponsored "Solidarity Day", a demonstration in Washington, DC. Around half-a-million people marched there, representing all unions. Marching at the head of all these demonstrations were the striking air traffic controllers.

The rallies served as a denunciation of Reagan, the Republicans and the budget cuts, but the unions also took some distance from the Democrats. After all, workers attending an earlier union rally at a Washington Stadium had booed Democratic speakers off the stage. No Democratic politicians were invited to speak at Solidarity Day. Nor were they invited to march with the unions. Some individual Democratic Party politicians watched the demonstrations from the sidelines or sent messages of greetings, but they weren't welcome guests.

These big labour rallies gave the impression that the unions might be preparing some kind of response to all the attacks. But there were no further mobilisations, nor follow-up to Solidarity Day. Instead the union officials put all the blame for the attacks on Reagan and the Republicans, and patched up their relations with the Democrats. "Solidarity Day II" turned out to be Election Day 1982, for which the AFL-CIO carried out a union campaign to defeat the Republicans - by voting for the Democrats, of course. The AFL-CIO also backed the Democrats' call for money with a one million dollar contribution.

The air traffic controllers were left in the lurch. What this said to the workers more generally was that there was no use in trying to fight cuts. Still today, when someone proposes a strike, some workers say: "Remember PATCO."

A wave of defeats

With the PATCO defeat coming on the heals of the concessions imposed on Chrysler workers, the government had taken the lead in imposing a fundamental shift in the balance of forces. Before this reversal, workers had generally looked forward to new contracts, because they usually brought gains. But now, workers began to dread new contract negotiations because they knew this meant the company would be coming for them.

After Chrysler and PATCO, the bosses were left with a stronger hand. Individual companies took on individual unions. Bargaining became much more fragmented; employers were more able to play off plant against plant; and they were more capable of resisting pressure from one national union to conform to the pattern of a national contact obtained by another union. Wage agreements for both blue and white collar workers became more "individualised," as some bourgeois economists said.

What this brought was shown soon enough. Towards the end of 1982, production was beginning a partial recovery from its deep slump and company profits were bouncing up again; the rate of unemployment, however, was falling much more slowly. Workers remained under pressure to accept cuts which diverted billions of dollars from their pockets into the bosses' coffers.

Of course, all companies tried to cash in on the concession bonanza. They no longer even bothered to make a prepense that they were in danger of failing. In the car industry, first Ford, then GM forced an early negotiated contract, both of which resulted in major cuts (two billion at Ford; three billion at GM). Ford argued that when Chrysler won cuts, it gained an unfair advantage; GM argued that when Ford won cuts, it gained an unfair advantage over GM. It was the final blow. Cuts could be demanded, and agreed, just for the sake of giving companies a competitive advantage.

The concessions spread like wildfire: to truck companies, airlines, the rubber and steel industry, the railways, government workers, etc.. The steel companies re-negotiated their contracts three times within six months, each time extracting new concessions.

There seemed to be no stopping this push. The concessions came not only at national level, but also in individual plants. They involved benefits as well as wages and widespread changes in work rules designed to allow managements to squeeze out more productivity.

At first, the workers had agreed to the cuts on the basis that once companies recovered, the cuts would be withdrawn. This never materialised. When companies returned to profitability, they paid out fat dividends to shareholders and fat bonuses to their executives. Not only did they fail to return anything to the workers, they also went on demanding more cuts. Workers expressed open discontent. At Chrysler in 1983, car workers voted down a company-wide contract offer for the first time in UAW history. Feelings against the contract were so high that the UAW failed to conceal them. But there was no real organised opposition and workers finally ratified an agreement which was hardly better than the original one.

In some cases, the unions were forced to call for strike action, just to respond to the workers' anger - for instance at AT&T, General Dynamics and General Tyre and Rubber.

But the strikes they organised were kept isolated from one another. There was no attempt at unifying them. The strikes did nothing to stop the cuts. The bosses just upped the ante. In several key strikes the companies threatened the very existence of the unions themselves - sometimes succeeding in breaking the unions. The companies brought in scabs to operate the mines. Attacks by state police turned protest demonstrations into running battles with the police. At one point, Arizona Governor Bruce Babbit ordered in the National Guard, complete with tanks and helicopters, to occupy small miners' towns. The copper companies fired the workers and pushed through a ballot to derecognise the unions. During long and tough strikes at Iowa Beef Processing and Caterpillar, threats to break the union were withdrawn at the last minute, but only in exchange for further big concessions from the workers.

As these strikes failed, union officials began to push the message that strikes no longer worked and were outdated. The number of strikes fell steadily from a high of 424 in 1974 to 51 in 1989.

During those same years, as workers' resistance weakened, real wages of blue collar workers fell by almost 10 per cent, while white collar workers saw their wages fall slightly more slowly.

Government intervention in the 1990s

The number of strikes continued to fall in the 1990s to a low of 34 in 1998. The strikes that did take place were for the most part longer and harder. The stakes became higher, as the three strikes at Caterpillar and the three-year old Detroit newspaper strike show.

The government has not hesitated to step in, when it deemed it necessary, to impose the workings of the "free market" on the unions and the working class. At UPS in 1997, there was a somewhat successful strike, for which the leadership of the Teamsters Union had carefully prepared far ahead of time. When workers walked out, they were organised. And in fighting for decent jobs for everyone, they made an appeal that struck a sympathetic chord in the working class. The Teamsters won their demands, modest as they were. In contrast to what had gone before, however, even this seemed like a big victory, and was perceived as such by other workers.

However, immediately after the union won the strike, the receiver appointed by the Clinton administration intervened and had the president of the union, Ron Carey, removed on charges of corruption. Other union officials did not challenge this. There was no effective response, no follow-up to the Teamsters UPS strike. A year after the strike, UPS management felt strong enough to renege on the contract provisions it had signed up the year before.

At the same time, with the all-encompassing 1996 welfare reform passed by the Republican Congress and signed by the Democrat Clinton, the government has continued to remove even more of the few social protections which still cushioned the workers. By replacing old welfare provisions with a temporary welfare programme which includes work requirements, the government has assured companies of a steady flow of hundreds of thousands of poor women into the low-paid end of the labour market, competing with those who are already there. The government set up workfare programmes through which private employers receive substantial tax credits and often subsidies paid for by welfare "grant diversions." Often, these workers are not covered by state and federal labour laws; they are not entitled to the minimum wage, unemployment insurance, or other protections. In other words, they constitute a virtually indentured labour force, a reservoir of exceedingly vulnerable labour for employers. Cities and states themselves more and more use this reserve force to do work previously done by much higher paid government workers.

The threat of competition with vulnerable and cheap welfare workers is likely to worsen conditions for people who do have jobs, by depressing wages and displacing workers.

In this way, the government continues to cut its outlays for social programmes and its own public services, freeing up more money for the capitalists, while providing fresh low-paid workers at the same time.

Nothing is inevitable - except the class struggle!

The US capitalist class has increased its wealth stupendously. One year after another, US companies announce that their profits have set another new record. The wealth of their shareholders is getting increasing swollen by growing dividends and share prices. And their directors look increasingly like the godfathers of capital.

It was claimed that higher profits would spell more investment, a growth in production and more jobs. In fact, investment and production have stagnated. The increases in employment have been due to low-paid service jobs, as well as part-time and temporary jobs. From year to year, the number of better-paying manufacturing jobs decreases. Last year alone, the seventh year of this current "expansion", 234,000 more manufacturing jobs were lost across the USA.

No, this "market-driven economy" has not pulled the US society - let alone the world economy - along behind it. What it has done is inflate the financial markets. There has been an explosive growth of speculative markets of all sorts, from real estate, to commodities, to all the various markets in stocks, bonds and mutual funds. Out of the profits produced in such great quantities in this "market-driven economy" have come ... more and more profits, and more and more of these are speculative ones.

On the other hand, poverty is spreading and deepening in the US today. Living conditions in some areas have been pushed down so far that they begin to resemble those of the Third World. Widening impoverishment in the richest (and increasingly so) country in the world - this is the end result of what Clinton's economic advisers call a "market-driven economy", that is, capitalism. It is an irrational and revolting economic system.

"Market-driven economy" - what a convenient and misleading choice of terms! We are supposed to believe that this increase in profit and wealth - and the way it is used - is inevitable, that it is part of the natural order of things and there is nothing to be done about it.

This is a lie. These vast amounts of profit made in the last decades were made because the capitalist class was able, with the help of whichever party was in control of the government, to beat down the working class. It is the unfavourable relationship of forces in the class struggle which has impoverished the US working class today, just as it has in Britain. And only the conscious action of the working class to change this relationship of forces will reverse this increasingly catastrophic situation.

4 May 1999