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Newsletter: From Furloughs to Factory Closings

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This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here.

Coronavirus Hits Industrial Economy

Factory furloughs across the U.S. are becoming permanent closings. Makers of dishware in North Carolina, furniture foam in Oregon and cutting boards in Michigan are among the companies closing factories in recent weeks. Caterpillar said it is considering closing plants in Germany, boat-and-motorcycle-maker Polaris plans to close a plant in Syracuse, Ind., and tire maker Goodyear Tire & Rubber plans to close a plant in Gadsden, Ala. Those shutdowns will further erode an industrial workforce that has been shrinking as a share of the overall U.S. economy. While manufacturing output last year surpassed a previous peak from 2007, factory employment never returned to levels reached before the financial crisis, Austen Hufford and Bob Tita report.

WHAT TO WATCH TODAY

Atlanta Fed President Raphael Bostic speaks on the Fed’s coronavirus response at 12 p.m. ET and Chicago Fed President Charles Evans speaks on the economy and monetary policy at 12:30 p.m. ET.

President Trump and administration officials hold a press briefing on coronavirus testing at 4 p.m. ET.

China’s consumer and producer prices for April are out at 9:30 p.m. ET.

TOP STORIES

Not Drawn to Scale

News stories often describe the coronavirus-induced global economic downturn as the worst since the Great Depression. This is likely to be literally true. Yet for many, the comparison does more to terrify than clarify. Economists say there is likely to be a big difference between a downturn that is the worst since the Depression and conditions as bad as the Depression. Many find a scenario rivaling the Great Depression in severity and duration hard to imagine. By most estimates, the current downturn is likely to be comparable in scale and duration to recessions in the early 1980s and from 2007-09, Josh Zumbrun reports.

Layoffs

Corporate America unveiled another wave of layoffs and warned of additional reductions. The burst of job-cut announcements two months after officials moved to shut the economy to halt the spread of the coronavirus indicates many companies are bearing down for a sustained slowdown as the economy searches for traction. Some are also using the moment to accelerate strategic shifts, Micah Maidenberg reports.

“Based on the current situation, we now believe that some of our colleagues may not return to work this year.” —MGM Resorts acting Chief Executive Bill Hornbuckle

Nearly a third of Kentucky’s labor force has filed for unemployment insurance, the largest share of any U.S. state. The numbers partly reflect officials’ encouragement to apply and an early move to expand workers’ eligibility, combined with a high concentration of factories and the postponement of the Kentucky Derby, Kim Mackrael reports.

Saved By Zero

Federal Reserve officials are unlikely to consider using negative interest rates to stimulate economic growth. The topic resurfaced Thursday after investors in futures markets began betting the Fed’s benchmark federal-funds rate would go below zero by year-end, which sent yields on two-year Treasury securities to an all-time low. But Fed leaders see negative rates as a very last resort—and a remote one, still—worrying they would have harmful effects on financial markets and the banking industry. More broadly, there is little political support for the policy in the U.S., Nick Timiraos reports.

Take the A Train

Cities around the world are butting up against an intractable problem as they emerge from their coronavirus lockdowns: It is almost impossible to make their mass transit systems comply with social distancing during the rush-hour crush. Keeping passengers several feet apart in buses, on train platforms and on board subways could reduce ridership by as much as 80%, according to officials and public transport companies. Some operators warn that stringent requirements to disinfect seats, stanchions, door panels and miles of handrails several times a day will also make it harder to get busy cities back up and running, hindering any economic recovery and disrupting everything from business meetings to school and university classes, David Gauthier-Villars, Giovanni Legorano and Miho Inada report.

Two Steps Forward…

U.S. states are working to ramp up coronavirus testing capacity as part of their reopening strategy. Doing so will help determine who can safely go back to work. 

British Prime Minister Boris Johnson said the U.K. would take some small steps this week in easing the lockdown he put in place seven weeks ago.  

South Korea is back on the defensive, with Seoul’s bars and clubs ordered closed after the country reported its biggest one-day increase in new infections in a month. The fresh virus cases show how difficult it might be to return to normalcy. The country of roughly 51 million people hadn’t resorted to a lockdown like the U.S. and Europe. Instead, South Korea relied on aggressive testing, tech-heavy contact tracing and a willingness by many to stay indoors, Timothy W. Martin and Dasl Yoon report.

Circle of Life

Shanghai Disneyland welcomed visitors for the first time since January, becoming one of the highest profile tourist spots to reopen as China reboots parts of its economy. If Monday’s reopening was anything to go by, Walt Disney’s theme park kingdom is likely to regain its magic slowly. Visitor numbers were capped, some attractions remained closed and the day featured none of the hallmarks for which the Disney parks are known: parades, fireworks and meet-and-greets with familiar characters, Trefor Moss reports.

WHAT ELSE WE’RE READING

When Americans vote in November, unemployment will be below 6%. “I think that despite the tragedy of the Covid-19 epidemic there is no reason to believe that the U.S. economy–and the global economy for that matter–shouldn’t recover quite fast from this crisis. Much faster than after the 2008-9 crisis. Numerous policy mistakes have been made around the world both in combating and containing the pandemic and in terms of the monetary and fiscal response to the crisis and more mistakes are likely to be made, but we should nonetheless remember that market economies emerge much faster from negative supply shocks than from demand shocks,” Markets & Money Advisory economist Lars Christensen writes.

What happened to all the fast-growing startups? Writer Cheryl Winokur Munk looks at six theories on why they seem to be disappearing.

SIGN UP FOR OUR CALENDAR

Real Time Economics has launched a downloadable calendar with concise previews forecasts and analysis of major U.S. data releases. To add to your calendar please click here.



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Latin America Needs Access to Resources Without Generating Debt: Issuance of Special Drawing Rights

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Latin America is going through a multiple crisis, the perfect storm is brewing in the region, with severe sanitary limitations to face the Covid-19 and in the face of the deepest recession since the Great Depression (1872-1896), the projection of contraction for the region, according to ECLAC[1] is of around 5.3% in 2020, with a greater impact in South America.

The consequences of the crisis are already strongly felt in the world, some of the most significant impacts are the disruption in the supply chains -especially for the primary exporting countries, the paralysis of the tourism sector, the largest drop in remittances, the continuous drop in Foreign Direct Investment and the increase in capital flight in a greater magnitude than the crisis of 2008. To the loss of jobs and sources of livelihood in economies with large informal sectors, the exacerbation of gender gaps has to be added, both in the economic sphere and in the use of time. The crisis has badly affected Micro, Small and Medium-sized Enterprises (MSME), many of them forced to disappear, and the domestic business sectors have collapsed whilst trying to re-emerge with higher levels of debt.

With the shift of the epicenter of the pandemic from Europe and the United States to the countries of the South, the World Bank [2] estimates, in a downside scenario, that 100 million people could be dragged into extreme poverty. For Latin America, the result will be an increase of inequality and poverty, with almost 29 million new poor in the region[3]. The impact of Covid-19 will be devastating and long-lasting for the region. The IMF considers that this could be another lost decade for Latin America[4], with an output contraction of 9.4% in 2020[5].

Latin American countries have a reduced fiscal space, their access to concessional financing[6] is limited, and available credits under the Covid-19 framework are insufficient. All countries in the region, with a few exceptions in the Caribbean, already had a fiscal deficit before the pandemic. Argentina, Bolivia, Brazil, Costa Rica and Ecuador registered the highest deficit levels in 2019, above the Latin American average of -2.8% according to ECLAC, and in some cases a higher debt service is projected in the next years[7].

This situation warns of the limitations to face Covid-19 and allocate resources to health and social protection with the urgency required by the evolvement of the pandemic.

Since most countries in the region are considered middle-income, the current sources of financing available are mainly non-concessional and with various schemes of conditionality[8], according to the policies of each lender .

Given the great needs to face the pandemic, the availability of resources is insufficient. Among the solutions discussed by international financial institutions, the G20 and the IMF have proposed the suspension of debt payments for low-income countries, and the provision of credits has been arranged for other developing countries.

While the G20 countries have a USD 9 billion stimulus package[9] in place to alleviate the crisis for its citizens and businesses during the pandemic, the IMF has made available $ 1 trillion dollars against Covid-19 for developing countries, more than 100 countries have requested this emergency fund, from which USD 100 billion correspond to the Rapid Financing Instrument (RFI), with a concessional interest rate (up to 1.5%) but with a short repayment term (5 years), through a quick disbursement process and without sequential conditions, to support local budgets. There are 11 countries in the region that have accessed the RFI fund (Bolivia, El Salvador, Haiti, Panama, Paraguay, Costa Rica, the Dominican Republic, Guatemala, Jamaica, the Bahamas, and Ecuador), with average disbursements of USD 300 million per country, giving countries a brief respite, but likely to be insufficient to face the magnitude of the crisis. Additionally, the other countries of the region will be able to access the resources provided by the IMF to fight Covid-19, through conventional credit programs and agreements.[10]. Argentina has a program under review with the IMF; Ecuador has a suspended program to access the rapid financing instrument; Chile, Colombia and Peru have flexible credit agreements; Honduras and Barbados have credit programs; and other Caribbean countries such as Dominica, St. Vincent, Granada, St. Lucia and Haiti have access to concessional loans.

In sum, the solution proposed to middle-income countries to fight the pandemic is based upon new loans leading to the emergence of a new wave of debt, which will imply a new burden on debt service in the medium term, with the risk that countries might prioritize debt payment over investment in health and social protection.

In the face of an unprecedented crisis, life must be prioritized; the vast majority in our countries face the dilemma of starving or dying from Covid-19. The resources that are needed are crucial and urgent to face the health crisis and sustain the economic recovery, through tools such as a monthly basic emergency income that eases the costs of lockdown measures and allows further progress towards a universal basic income.

Within this context, both the IMF Managing Director and the United Nations Secretary General have concluded that the impact of the coronavirus-related economic crisis for developing countries will be equivalent to at least USD 2.5 trillion. Consequently, the funds available under traditional mechanisms to face the above are insufficient. For this reason, an issuance of Special Drawing Rights (SDR) is urgent for all the countries of the world.

What are SDRs?

Special drawing rights are a reserve asset created through international political agreements. The United Nations member countries, also members of the International Monetary Fund, can determine – with a majority of 85% of the votes – the creation of new Special Drawing Rights (SDR). The value of a SDR is defined from a weighted-average basket including the US dollar, the euro, the yen, the UK pound sterling and the yuan. SDRs are created politically “out of thin air,” which is why many economists call it “paper gold.” They are assigned to each member´s central bank. SDRs are recorded in a financial entity attached to the IMF called the “SDR Department” which has an independent accounting structure from the IMF itself.

SDRs have a historical origin close to Latin America and developing countries. The first time that the SDR was conceived was within UNCTAD in 1964, then led by the Argentine Raúl Prebisch. After years of deliberations, the IMF accepted, and the SDRs were first issued in 1969.

SDRs are not created by the IMF, they are created by the IMF Board of Governors – that is, by all member states. For this reason, in the context of the international financial crisis caused by the subprime crisis in the United States and as in line with the recommendations of the “Stiglitz” Commission, established by the President of the United Nations General Assembly in 2009, it was the General Assembly that ordered the creation of SDRs; subsequently, the G20 supported this request and the IMF Board of Governors voted for an issuance made in August 2009. A total of 187 billion SDRs were created (then USD 250 billion) and were distributed to each country. Distribution is based upon each country´s voting power in the IMF, for this reason, rich countries received almost 2/3 of the entire SDR issuance.

Even so, the SDRs received by the countries of the South were used to alleviate the crisis. As of December 2010, 107 developing countries had used part of their SDRs to meet their financing needs.

The use of SDRs can be made effective when countries receive them and exchange them with other countries or monetary organizations for any of the currencies that make up the SDR basket. Most countries choose to sell their SDRs for US dollars. SDRs´ main buyers are the United States, the United Kingdom, Japan and the European Central Bank. Other countries decide to use their newly received SDRs to make contributions to the IMF to carry out bilateral transactions.

If any country refuses to buy SDRs, the IMF has the legal ability to compel US dollar-surplus countries (for example, the United States) to buy SDRs from countries that need to sell them. However, for decades this action has not been required, since all purchases have been voluntary.

Currently, due to the hegemony of the US dollar, only the United States has the power to issue money unlimitedly, without affecting the value of its currency. This privilege has been shared through unlimited swap lines with other five central banks: Canada, the United Kingdom, Europe, Switzerland and Japan. Limited access to swaps has also reached 9 other countries (in Latin America only Brazil and Mexico). However, most developing countries do not have such unlimited access to US dollars, a type of discrimination called monetary triage[11].

SDRs are not debt

The most agile way to democratize access to debt-free money is through an ambitious issuance of Special Drawing Rights. According to the current structure of voting power in the IMF, the vast majority of the issuance will reach developed economies, but if the issue is large enough, a significant magnitude will reach developing countries.

Unlike IMF loans, the SDR allocation does not constitute a loan, as it should not be repaid once used. Currently, the allocation has a negligible financial cost of 0.05% per year. Therefore, SDRs are debt-free money and do not require conditionality. Their allocation is universal, to the point that that military powers look at SDRs with suspicion as they provide unconditional liquidity to everyone, including geopolitical adversaries.

Faced with the simultaneous external shock across the planet, international organizations, civil society and the countries of the planet are in favor of an ambitious issue of SDRs. Almost the entire G20 has spoken in favor[12], the Secretary of the United Nations [13], African Heads of State, the World Health Organization, the IMF Managing Director [14], the ECLAC Executive Secretary, The Economist, the Financial Times Editorial Board, and several organizations of the civil society[15].

How many SDRs should be issued?

Given the voting power structure at the IMF, a US vote is required to approve the issuance. To date, the support of the current administration of the United States government for an issuance of Special Drawing Rights has not yet been obtained. The US vote on SDRs is governed by the SDR Act of 1968, which establishes two routes for the issuance of SDRs. If the issuance is equal to or smaller than the existing SDRs to date (475 billion SDRs), it can be carried out at the initiative of the Treasury Secretariat, prior communication to Congress at least 90 days before the vote. If the issuance is greater, then a law has to be passed, and the 90-day notice is no longer necessary. If a law is approved, the vote of the Secretary of the Treasury in favor of the SDR issuance becomes mandatory and not optional.

To aim for the lowest amount and avoid a law could be an option, but that would mean total dependence on a White House initiative. Formulating a law, however, would force a negotiation between Congress and the White House, reduce the wait time and increase the possible amount of the issue.

For these reasons, 31 US congressmen led by Jesus Garcia, D-Illinois, have proposed a bill (H.R. 6581) that would force the U.S. to support the issuance of 3 trillion SDRs (USD 4.1 trillion). [16] This bill would form part of one of the legislative packages resulting from a political agreement between the House of Representatives (with a Democratic majority) and the Senate and the White House.

If this law were to be approved, Latin American and Caribbean countries would receive the funds corresponding to 3 billion SDRs (outlined in the table below) within the next few days.

Below is the allocation that each country in the region would receive, as a percentage of its IMF quota, with a 1 trillion and 3 trillion SDR issuance:

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SDR ISSUANCE ALLOCATION TO LATIN AMERICAN COUNTRIES (In million USD)
Country Percentage of IMF Quota 3 Trillion SDRs 1 Trillion SDRs
SDR USD SDR USD
Antigua and Barbuda 0.004 126 173 42 58
Bahamas, The 0.038 1.151 1.58 384 527
Barbados 0.020 595 819 199 273
Belize 0.006 168 231 56 77
Dominica 0.002 73 100 24 33
Grenada 0.003 103 142 34 47
Guyana 0.038 1.147 1.575 382 525
Jamaica 0.081 2.415 3.317 805 1.106
St. Kitts and Nevis 0.003 79 108 26 36
St. Lucia 0.004 135 185 45 62
St. Vincent and the Grenadines 0.002 74 101 25 34
Suriname 0.027 813 1.117 271 372
Trinidad and Tobago 0.099 2.963 4.07 988 1.357
Argentina 0.67 20.105 27.609 6.702 9.203
Bolivia 0.050 1.514 2.08 505 693
Brazil 2.32 69.65 95.649 23.217 31.883
Chile 0.37 11.003 15.11 3.668 5.307
Colombia 0.43 12.896 17.71 4.299 5.903
Costa Rica 0.08 2.33 3.2 777 1.067
Dominican Republic 0.10 3.011 4.135 1.004 1.378
Ecuador 0.15 4.401 6.044 1.467 2.015
El Salvador 0.060 1.812 2.488 604 829
Guatemala 0.090 2.704 3.713 901 1.238
Haiti 0.034 1.033 1.419 344 473
Honduras 0.053 1.576 2.164 525 721
Mexico 1.87 56.219 77.205 18.74 25.735
Nicaragua 0.055 1.64 2.252 547 751
Panama 0.079 2.377 3.264 792 1.088
Paraguay 0.042 1.27 1.745 423 582
Peru 0.28 8.418 11.56 2.806 3.853
Uruguay 0.090 2.707 3.717 902 1.239
Venezuela 0.78 23.482 32.247 7.827 10.749


Plan B – Donating SDRs

In the event that a new SDR issuance was unsuccessful, some organizations propose that rich countries donate their existing SDR to developing countries directly or through trusts administered by the IMF. While this is a fair initiative, the mechanics to implement it may be too complex.

As described by French Finance Minister Bruno Le Maire, the issuance of SDRs is a global monetary policy, while the donation of SDR is a fiscal policy. The donation of SDR has two implications. If the grant is compulsory, it may require an amendment to the IMF’s Articles of Agreement, for which parliamentary ratification would take years to achieve. If the grant is voluntary, as a fiscal policy it would require budgetary approval by national parliaments in developed countries, which would also be a lengthy process. In some countries, it would also involve being framed in legislation regarding development aid or international cooperation.

For these reasons, some analysts have proposed that rich countries should lend their SDRs directly to the IMF or to trusts administered by the IMF. This would replicate the phenomenon already mentioned above, with developing countries being plunged into a new wave of debt with conditionality. Therefore, it does not seem to be a viable option for developing countries. Given the timing criterion – the urgency of the health and economic emergency arising from the pandemic – a SDR donation should follow a substantial SDRs issuance process.

SDR for budget support

SDRs can be used as budget support. There are concerns by several actors regarding the usability of SDRs. While SDRs are, in principle, distributed to central banks in member countries, this depends entirely on national legislation. For example, in the United States, SDRs are given to the Treasury Department’s Foreign Exchange Stabilization Fund, not to the Federal Reserve.

In the case of Ecuador, an amount of US dollars equivalent to the SDRs received in 2009 were transferred to the Ministry of Finance to be added to the fiscal budget. The rationale used was that there had been an extraordinary increase in the Central Bank’s equity, which meant that there was a transfer of capital gains to the Central Bank’s sole shareholder, the Ministry of Finance. This legal framework is similar in most countries around world, so that – although SDRs are used for balance-of-payments purposes (to import medical inputs and equipment as well as a possible vaccine) – they can also be used as fiscal resources (to help alleviate the economic effects of a health emergency).

Conclusions

A new wave of external debt should not be the preferred option for Latin American countries to emerge from the crisis. Currently, debt service cancellation or deferral is available only for low-income countries.

SDRs do not constitute debt with principal repayment and can also be used as budget support. For Latin American and Caribbean countries – the vast majority of which are middle-income countries – the issuance of SDRs is a necessity.

The size of issuance is very important. A symbolic issue of SDRs would not be sufficient. A substantial issuance is fully justified, not only because of the needs of the countries of the region but also in comparison with the huge injections of liquidity by rich countries.

Given the escalation of the coronavirus in Latin America, the issuance of SDRs to deal with health emergencies and the economic crisis must be not only substantial but also swift.

The post Latin America Needs Access to Resources Without Generating Debt: Issuance of Special Drawing Rights appeared first on Center for Economic and Policy Research.



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IPA’s weekly links

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Guest post by Jeff Mosenkis of Innovations for Poverty Action

Professor Lisa Cook explains that black and white inventors put in equivalent numbers of patent applications once in 1899, and never again. 

  • First, a great webinar by Professor Lisa Cook, former economic advisor to President Obama, among many other accomplishments, on how lynchings, violence, and discrimination caused African-American inventions (measured by patent applications) to peak in 1899 and never recover. Here’s the video and slides, but for a fast summary, I did my best to live tweet it. She covered a lot of ground, but some parts that stuck with me in particular:
    • The number of “missing” patents never filed because of the decreased numbers is on the order of the contribution of a medium-sized European country. It’s hard to imagine what innovations and prosperity we’ve all missed out on.
    • Prof Cook mentioned in passing that a cousin helped found a town in North Carolina intended as a safe place for African-Americans to live and prosper without harassment. The story of Soul City, NC is fascinating.
    • The most compelling part of the story wasn’t even in the webinar. It was her decade-long uphill battle to get the paper published, and what it tells us about the field of economics, which she explains to Planet Money’s The Indicator (Apple).
  • The NYTimes has a piece explaining the problems with the culture of economics, and Dania Francis & Anna Gifty Opoku-Agyeman offer three tips for the field in Newsweek
  • The Sadie Collective has recommendations for what institutions and individuals in the field can do better.
  • The best piece I’ve read on how subtle assumptions about race get absorbed into economists’ reasoning is this from Professor William Spriggs.
  • How the field got to be the way it is is a bit easier to understand if you read this horrible piece by George Stigler in 1962: The Problem of the Negro.

If you haven’t seen it yet, this was a great explanation for the general US culture:

  • Kimberly Jones’ Monopoly game metaphor reminds me of this Howard French brilliant deconstruction of a UK historian’s book (gated, sorry) about African history.  French shows that Europeans destroyed sophisticated civilizations and hollowed out countries’ populations for hundreds of years by dragging away the workforce, and today cast about for roundabout theories for why they’re “underdeveloped” 
  • I’m side-eyeing historians, but also hard to ignore the asymmetry in where development economists’ ideas come from, and the assumption that countries where the rich people are also must know how to get rich.
    Along those lines, here’s a great piece by Francesco Loiacono, Mariajose Silva-Vargas, & Apollo Tumusiime (written before the pandemic) about how research designs can be more sensitive and less biased by the views of the researchers (better informed consent, for example, and not assuming their programs happen in a vacuum, or realizing that local politicians may swoop in and take credit for cash transfers). (h/t David McKenzie’s links)
  • Today, I learned that the UK’s abolition of slavery was accomplished through paying the slaveowners for their lost “property,” to the tune of today’s $17 Billion (and requiring an additional 5 years of unpaid labor, which I feel like there’s a name for…) British taxpayers just finished paying back that borrowed money in 2015, which means that descendants of slaves have been paying back their own ancestors’ slavemasters.
  • Jennifer Doleac put together a series of flash webinars on policing research, more info here.
  • A series of simple police reform ideas in this article and tweet thread on how to fix many policing problems by looking at financial incentives, moving the benefit of the “taxes” levied disproportionally on the poor by the criminal justice system away from the local municipalities (revenues from fines, seized assets, and the like) and redistributing them at the state level, prioritizing the poor.

The post IPA’s weekly links appeared first on Chris Blattman.



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Monopoly Mayhem: Corporations Win, Workers LoseWhy do big…

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Monopoly Mayhem: Corporations Win, Workers Lose

Why do big corporations continue to win while workers get shafted? It all comes down to power: who has it, and who doesn’t.    

Big corporations have become so dominant that workers and consumers have fewer options and have to accept the wages and prices these giant corporations offer. This has become even worse now that thousands of small businesses have had to close as a result of the pandemic, while mammoth corporations are being bailed out.  

At the same time, worker bargaining power has declined as fewer workers are unionized and technologies have made outsourcing easy, allowing corporations to get the labor they need for cheap.    

These two changes in bargaining power didn’t happen by accident. As corporations have gained power, they’ve been able to gut anti-monopoly laws, allowing them to grow even more dominant. At the same time, fewer workers have joined unions because corporations have undermined the nation’s labor laws, and many state legislatures – under intense corporate lobbying – have enacted laws making it harder to form unions.

Because of these deliberate power shifts, even before the pandemic, a steadily larger portion of corporate revenues have been siphoned off to profits, and a shrinking portion allocated to wages.

Once the economy tanked, the stock market retained much of its value while millions of workers lost jobs and the unemployment rate soared to Great Depression-era levels.

To understand the current concentration of corporate power we need to go back in time. 

In the late nineteenth century, corporate power was a central concern. “Robber barons,” like John D. Rockefeller and Cornelius Vanderbilt, amassed unprecedented wealth for themselves by crushing labor unions, driving competitors out of business, and making their employees work long hours in dangerous conditions for low wages. 

As wealth accumulated at the top, so too did power: Politicians of the era put corporate interests ahead of workers, even sending state militias to violently suppress striking workers. By 1890, public anger at the unchecked greed of the robber barons culminated in the creation of America’s first anti-monopoly law, the Sherman Antitrust Act. 

In the following years, antitrust enforcement waxed or waned depending on the administration in office; but after 1980, it virtually disappeared. The new view was that large corporations produced economies of scale, which were good for consumers, and anything that was good for consumers was good for America. Power, the argument went, was no longer at issue. America’s emerging corporate oligarchy used this faulty academic analysis to justify killing off antitrust.

As the federal government all but abandoned antitrust enforcement in the 1980s, American industry grew more and more concentrated. The government green-lighted Wall Street’s consolidation into five giant banks. It okayed airline mergers, bringing the total number of American carriers down from twelve in 1980 to just four today. Three giant cable companies came to dominate broadband. A handful of drug companies control the pharmaceutical industry.

Today, just five giant corporations preside over key, high-tech platforms, together comprising more than a quarter of the value of the entire U.S. stock market. Facebook and Google are the first stops for many Americans seeking news. Apple dominates smartphones and laptop computers. Amazon is now the first stop for a third of all American consumers seeking to buy anything.

The monopolies of yesteryear are back with a vengeance.

Thanks to the abandonment of antitrust, we’re now living in a new Gilded Age, as consolidation has inflated corporate profits, suppressed worker pay, supercharged economic inequality, and stifled innovation.

Meanwhile, big investors have made bundles of money off the growing concentration of American industry. Warren Buffett, one of America’s wealthiest men, has been considered the conscience of American capitalism because he wants the rich to pay higher taxes. But Buffett has made his fortune by investing in monopolies that keep out competitors.

– The sky-high profits at Wall Street banks have come from their being too big to fail and their political power to keep regulators at bay.

– The high profits the four remaining airlines enjoyed before the pandemic came from inflated prices, overcrowded planes, overbooked flights, and weak unions.

– High profits of Big Tech have come from wanton invasions of personal privacy, the weaponizing of false information, and disproportionate power that prevents innovative startups from entering the market.

If Buffett really wanted to be the conscience of American capitalism, he’d be a crusader for breaking up large concentrations of economic power and creating incentives for startups to enter the marketplace and increase competition.

This mega-concentration of American industry has also made the entire economy more fragile – and susceptible to deep downturns. Even before the coronavirus, it was harder for newer firms to gain footholds. The rate at which new businesses formed had already been halved from the pace in 1980. And the coronavirus has exacerbated this trend even more, bringing new business formations to a standstill with no rescue plan in sight.

And it’s brought workers to their knees. There’s no way an economy can fully recover unless working people have enough money in their pockets to spend. Consumer spending is two-thirds of this economy.

Perhaps the worst consequence of monopolization is that as wealth accumulates at the top, so too does political power.

These massive corporations provide significant campaign contributions; they have platoons of lobbyists and lawyers and directly employ many voters. So items they want included in legislation are inserted; those they don’t want are scrapped. 

They get tax cuts, tax loopholes, subsidies, bailouts, and regulatory exemptions. When the government is handing out money to stimulate the economy, these giant corporations are first in line. When they’ve gone so deep into debt to buy back their shares of stock that they might not be able to repay their creditors, what happens? They get bailed out. It’s the same old story.

The financial returns on their political investments are sky-high.

Take Amazon – the richest corporation in America. It paid nothing in federal taxes in 2018. Meanwhile, it held a national auction to extort billions of dollars in tax breaks and subsidies from cities eager to house its second headquarters. It also forced Seattle, its home headquarters, to back away from a tax on big corporations, like Amazon, to pay for homeless shelters for a growing population that can’t afford the city’s sky-high rents, caused in part by Amazon!

And throughout this pandemic, Amazon has raked in record profits thanks to its monopoly of online marketplaces, even as it refuses to provide its essential workers with robust paid sick leave and has fired multiple workers for speaking out against the company’s safety issues.

While corporations are monopolizing, power has shifted in exactly the opposite direction for workers. 

In the mid-1950s, 35 percent of all private-sector workers in the United States were unionized. Today, 6.2 percent of them are.

Since the 1980s, corporations have fought to bust unions and keep workers’ wages low. They’ve campaigned against union votes, warning workers that unions will make them less “competitive” and threaten their jobs. They fired workers who try to organize, a move that’s illegal under the National Labor Relations Act but happens all the time because the penalty for doing so is minor compared to the profits that come from discouraging unionization. 

Corporations have replaced striking workers with non-union workers. Under shareholder capitalism, striking workers often lose their jobs forever. You can guess the kind of chilling effect that has on workers’ incentives to take a stand against poor conditions.

As a result of this power shift, workers have less choice of whom to work for. This also keeps their wages low. Corporations have imposed non-compete, anti-poaching, and mandatory arbitration agreements, further narrowing workers’ alternatives. 

Corporations have used their increased power to move jobs overseas if workers don’t agree to pay cuts. In 1988, General Electric threatened to close a factory in Fort Wayne, Indiana that made electrical motors and to relocate it abroad unless workers agreed to a 12 percent pay cut. The Fort Wayne workers eventually agreed to the cut. One of the factory’s union leaders remarked, “It used to be that companies had an allegiance to the worker and the country. Today, companies have an allegiance to the corporate shareholder. Period.”

Meanwhile, as unions have shrunk, so too has their political power. In 2009, even with a Democratic president and Democrats in control of Congress, unions could not muster enough votes to enact a simple reform that would have made it easier for workplaces to unionize.

All the while, corporations have been getting states to enact so-called “right-to-work” laws barring unions from requiring dues from workers they represent. Since worker representation costs money, these laws effectively gut the unions by not requiring workers to pay dues. In 2018, the Supreme Court, in an opinion delivered by the court’s five Republican appointees, extended “right-to-work” to public employees.

This great shift in bargaining power from workers to corporate shareholders has created an increasingly angry working class vulnerable to demagogues peddling authoritarianism, racism, and xenophobia. Trump took full advantage.

All of this has pushed a larger portion of national income into profits and a lower portion into wages than at any time since World War II. 

That’s true even during a severe downturn. For the last decade, most profits have been going into stock buybacks and higher executive pay rather than new investment.

The declining share of total U.S. income going to the bottom 90 percent over the last four decades correlates directly with the decline in unionization. Most of the increasing value of the stock market has come directly out of the pockets of American workers. Shareholders have gained because workers stopped sharing the gains.

So, what can be done to restore bargaining power to workers and narrow the widening gap between corporate profits and wages?

For one, make stock buybacks illegal, as they were before the SEC legalized them under Ronald Reagan. This would prevent corporate juggernauts from siphoning profits into buybacks, and instead direct profits towards economic investment.

Another solution: Enact a national ban on “right-to-work” laws, thereby restoring power to unions and the workers they represent.

Require greater worker representation on corporate boards, as Germany has done through its “employee co-determination” system.

Break up monopolies. Break up any bank that’s “too big to fail”, and expand the Federal Trade Commission’s ability to find monopolies and review and halt anti-competitive mergers. Designate large technology platforms as “utilities” whose prices are regulated in the public interest and require that services like Amazon Marketplace and Google Search be spun off from their respective companies.

Above all, antitrust laws must stop mergers that harm workers, stifle competition, or result in unfair pricing.

This is all about power. The good news is that rebalancing the power of workers and corporations can create an economy and a democracy that works for all, not just a privileged few.



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