The inherent right to work is one of the elemental â€¨privileges of a free people. —FDR, radio address, 1937
Of all classic capitalist problems—income inequality, imperialism, the class character of the state, and so on—mass unemployment has probably been the one to trouble living Americans least. From the establishment of FDR’s war economy through the end of the so-called golden age of capitalism in the early 1970s, the US matched other major economies in functioning at close to full employment (at least as the term is defined by economic orthodoxy, on which more later). In the troughs of recessions, the unemployment rate might touch 7 percent, but otherwise it wavered between about 3 and 5.5. And even with the onset in 1973 of what Robert Brenner, in the commanding economic history of the period, called the long downturn—a decline across the system in rates of growth and profit, persisting to this day—the US touted a distinctly better record of job creation than its main European rivals. The average unemployment rate for the ’70s came to slightly above 6 percent; for the ’80s, above 7; and for the ’90s, just below 6—a marked deterioration since the end of the golden age, but not bad by international standards. The years from 1997 to 2006 saw an average stateside rate below 5 percent, achieved though this was with the decisive aid of serial financial bubbles.
Europe meanwhile has never dispersed the cloud of structural unemployment that settled over the ’70s. France, Germany, Italy, and Spain registered unemployment rates around 10 percent as late into the last expansion as 2004, and last year’s recession has erased most gains since then across the Continent. The situation remains far worse in poor countries, whose vast cities have never gathered into formal paid employment the populations displaced from the land by the postwar commercialization of agriculture. As a result, some two-fifths of economically active humanity now ekes out its subsistence in an “informal sector”—essentially a euphemism for unemployment—often marked by salvage, racketeering, and violence.
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Of course the relatively attractive American figures ignored a massive prison population, which—starting its steep ascent, suspiciously enough, in the mid-’70s—now exceeds 2.4 million, mostly men of working age. Reckoning these disproportionately black and Latino inmates, short on marketable skills—in other words, the very people with the worst job prospects—into the official unemployment rate would raise it by about 1.5 percent. And other cases of concealed unemployment abound among cohabiting couples and young people living at home; for obvious reasons, they can give up searching for a job more easily than adults on their own. Had these and other “discouraged workers” been counted as unemployed, and had the official numbers included part-timers wishing to be full-time, 1997’s proud 4.7 percent rate would have been more like 7 or, counting prisoners, 9—a thought to salt any moist nostalgia for the good old days of Clintonomics.
It’s also worth keeping in mind the actual contours of an American job. American employees spend more hours at work than their European or Japanese counterparts; their two weeks of vacation are the least in the rich world; many jobs don’t include health benefits; those that do, deprive workers of health care should they become unemployed (a powerful instrument of labor discipline); maternity leave, when women feel they can take it at all without imperiling job security, is minimal by first-world standards; and the crumbling legal standard of the eight-hour day doesn’t actually set much limit on exploitation: nothing stipulates that you can’t work two such jobs. The minimum wage, capable as late as 1980 of supporting a full-time worker at the poverty line, has now fallen 40 percent beneath that line. Among badly paid and often undocumented workers in trades like construction and meat-packing, industrial accidents run into the hundreds of thousands each year, the more so since the Bush administration cut the budget of the Occupational Safety and Hazard Administration (OSHA) each year of its tenure. At the opposite end of the pay spectrum, the advent of smart phones and laptops has put many white-collar workers perpetually on call in a way formerly reserved for doctors and firemen. And it goes almost without saying that the celebrated “flexibility” of the US labor market is an honorific for casual dismissal. Yet in spite of these ungenerous conditions—or, if you listen to the business press, precisely because the American model refuses to coddle workers—the US had for more than thirty years distinguished itself as the large economy, outside of Japan, in which it was easiest to find a job: an ambiguous achievement but a real one.
The American approximation to “full employment” has now collapsed. In the aftermath of the recession, which may well double dip, unemployment hovers around 10 percent. The U-6 or “true unemployment rate,” which includes some discouraged workers as well as unwilling part-timers, stands near 17 percent. A smaller proportion of workers between the ages of 16 and 24 is employed than at any time since the Depression. The probability of an unemployed person finding work over the next month, ordinarily about one in three during recessions, has sunk to one in five. Recent polls find alarmingly but not unexpectedly high rates of stress, anger, and depression among laid-off workers; the wages of unemployment are material deprivation and psychic pain.
According to the Federal Reserve, unemployment will remain above 7 percent through the end of 2012—a cold new floor perhaps, where the golden age had placed a ceiling. Because the likelihood is that the end of a period of severe cyclical unemployment will disclose a new landscape of structural unemployment, with jobs in manufacturing, construction, and finance having been permanently eliminated without equivalent new openings in other industries. Trends toward outsourcing and automation augur even worse conditions: a quarter of American jobs are said to be exportable, and another sizable fraction must be expendable in favor of technology. In principle, none of this requires increased long-term unemployment. If a given task will now be performed in another country or by a machine, it doesn’t follow that there is no further economic use for the person thus replaced. But the systemwide tendency, for almost four decades now, has been to add jobs more slowly than population, and there is no reason to think that, absent a political movement for true full employment, the US will avoid the fate of the rest of the capitalist world: a place—now a planet—where a proportionally shrinking body of laborers is ever more heavily exploited to ensure a rate of profit that nevertheless continually declines.
Who Killed the Golden Age?
Our political demand should be for the opposite arrangement: a larger mass of labor more lightly exploited. The ultimate goal is a job for everyone who wants and can perform one. On the face of it, this is not a controversial program. Full employment is one of those political ideals, like democracy, that almost everyone claims to admire; no important strain of economics fails to promote it at least in name. So you might suppose that the near achievement of full employment during the golden age or “long boom” (Brenner) from the late ’40s through the early ’70s would be counted among the triumphs of the period. In fact, the opposite is true. For left and mainstream economists alike, full employment has most often been seen as the snake in the garden of postwar prosperity, and the ultimate cause of its demise. The theory is simple enough: Full employment raised wages to a level at which they cut too deeply into profits. Businesses could only react by raising consumer prices, leading workers to seek still higher wages. Inflation spiraled upward; profitability still faltered; and economies slid toward stagnation. The only way, then, to preserve “full employment” was to redefine it as an ideal rate of unemployment, just enough so that inflation would not increase. The scope of any left agenda this side of socialism depends on whether we retain this definition of full employment, and what answer we give to the related question of how the golden age turned leaden.
The historical controversy can come first. What was the golden age, that full employment could have put an end to it? The first decades after World War II saw not only high rates of overall growth and profitability—hence their auriferous name—but tremendous productivity growth (measured in output per hour) and a rapid expansion of labor markets across the wealthier countries. Accelerated automation, along with new efficiencies in transportation and electricity generation, allowed more commodities to be produced in the same amount of time. This made commodities cheaper, which in turn meant that real wages could rise while what Marxists call the rate of exploitation (the ratio of profits to wages) also went up. Meanwhile the flood of women and young people onto the job market relieved any tendency to labor scarcity; the number of American women doing paid labor grew by 71 percent between 1950 and 1970, and the number of teenagers by nearly as much. Since most of these new workers were not (or weren’t imagined to be) heads of households, they were unable to demand a living wage and could be hired at low cost.
By the early ’70s, on standard accounts, dwindling rates of technological innovation were converging in the US and elsewhere with the saturation of the labor market. Neither increased productivity nor a flow of new workers could be relied on to keep wages from growing more slowly—or at least no more quickly—than profits; both streams were drying up. Despite its Marxist accents, the argument of Ernest Mandel in Late Capitalism (1975) coincides with prevailing views ever since:
As soon as [economic] expansion led to the dismantling and disappearance of the industrial reserve army [Marx’s term for the unemployed], . . . the golden years of late capitalism were internationally over. There was no longer any chance of an automatic increase in the rate of profit or its maintenance at a high level. The struggle over the rate of surplus-value [the ratio of profits to wages: in practice, synonymous with the rate of exploitation] now flared up anew. Moreover, in this struggle it was precisely the high level of employment which contributed to a significant increase in the strength of wage-earners. . . . Late capitalism cannot avoid a period of relatively decelerated economic expansion if it fails to break the resistance of wage-earners and so to achieve a new radical increase in the rate of surplus-value. (Mandel’s emphasis)
This argument attributes the diminished economic vitality of the ’70s to a profit squeeze induced by excessively high wages attendant on full employment. “The strength of wage-earners” curtailed profits, which in turn reduced business investment. A certain debate flourishes as to whether lower business investment led, then, to further declines in productivity, as R&D budgets were cut and new technologies could not be developed and applied, or whether, instead, the technological potential of the golden age was simply being exhausted: past a certain point, and regardless of investment, assembly lines can’t become much more automated or rationalized. Either way, the proposition that the wage bill of a fully employed population made it impossible to sustain prior rates of growth and profitability has been common to neoliberals in Chicago, Keynesians in Berkeley, and Marxists in greater London.
Robert Brenner, in The Economics of Global Turbulence (2006), calls this the Full Employment Profit Squeeze thesis. The thesis has proved remarkably durable in the face of the stubborn persistence, since the ’70s, of weak economic performance among the rich countries—even with the return of mass unemployment, the worldwide enfeeblement of the labor movement, and the stagnation or outright decline of real wages. How can the effect of slower growth have so outlived its notorious cause? According to the thesis, post–golden age workers still enjoy too much power at the levels of shop-floor, industry, and government. To risk full employment in these circumstances would only unleash another wage explosion, with labor costs again outrunning productivity. The restoration of the system’s dynamism can only come about through labor’s final defeat or surrender—one that, in spite of all of labor’s lost battles over the last thirty years, still has yet to occur. Further reductions in real wages, further erosion of unemployment benefits, and increased economic insecurity constitute the recipe for profitability. If the US has logged higher growth and fuller employment over the last twenty years than other advanced economies, this owes to its greater, if still incomplete, acceptance of these home truths.
Inevitably this view claims many adherents among overlapping schools of libertarians, Austrophiles, and marginalists, for whom all interference in the market, including a legal minimum wage, is a crime against prosperity. Thus the return of mass joblessness to America has prompted op-ed pages on the right and several notable economists to bay for the reduction of the minimum wage as a means to full employment. But the argument that labor has still failed to accommodate itself to the requirements of capital accumulation knows its left versions as well. In a 1996 overview of “Social Democracy and Full Employment,” the late British economist Andrew Glyn, a Marxist and a pioneer of the profit squeeze thesis, concluded that “the slowdown after 1973, above all of investment, was the response to rising inflation and profit squeeze. . . . In such a context of weak private demand and slow productivity growth, maintaining full employment required severe restraint on worker’s pay and consumption to keep exports competitive, investment profitable and the budget under control.” In this analysis, shared in essence by Barry Eichengreen’s impressive study of The European Economy since 1945 (2006), the labor movement in Europe failed to impose on itself the necessary wage restraint. Note, however, the question-begging role of “weak private demand” in Glyn’s sketch of post-’70s malaise. Surely if private consumer demand is too weak this cannot be because wages run too high? And—another crucial question—is the competitive pricing of exports really a sine qua non of social democracy?
Setting aside these doubts for the moment, it is at least obvious that the Full Employment Profit Squeeze thesis no longer holds much political allure for the left. If Marxists during the ’70s could relish the imminent apocalyptic showdown between labor and capital it promised, that day is gone. Many features of Mandel’s Late Capitalism hold up remarkably well against the background of later developments, but the herald of impending revolution with which he ended his book, summoning “the mass revolutionary movement of the international working-class that is now approaching,” could hardly have a more antique ring to it. If a contest over wages and profits has to be resolved today by either the reduction of the former through a lowered standard of living, or the final elimination of the latter through the transcendence of capitalism, one possibility sounds like what you might read in tomorrow’s paper and the other like a pipedream.
Today, the FEPS thesis has become a very bitter pill, to be swallowed without any chaser of revolutionary hopes. It would mean acceding to calls for still lower wages, and accepting still more income inequality and social insecurity as the ransom for future growth. You would want to be sure the prescription of this harsh medicine was correct. You might therefore seek a second opinion.
Much of the originality of Brenner’s Economics of Global Turbulence lies in its frontal attack on the idea of wage-induced profit squeeze. For Brenner, not excessive wages but the maturation of international competition in manufacturing produced the long downturn. As Germany and Japan in the ’60s and ’70s, the “newly industrializing countries” of East Asia in the ’80s and ’90s, and finally the Chinese colossus of today intruded upon the markets of prior industrial powers, increased competition exerted relentless downward pressure on profits, resulting in diminished business investment, reduced payrolls, and—with lower R&D expenditure—declining productivity gains from technological advance. The textbook result of this industrial tournament would have been the elimination of less competitive firms. But the picture drawn by Economics of Global Turbulence is one of “excessive entry and insufficient exit” in manufacturing. Brenner argues that with so much money sunk in expensive plants and campuses, it was often more rational for firms to accept a below-average rate of return than to close up shop and suffer the wholesale devaluation of their fixed capital. So relatively unprofitable firms hung on for dear life, bringing down the average health of the system. In such a climate of weak industrial profitability, available capital increasingly chose a fleet-footed speculative career over more rooted investment in manufacturing. Hence the financialization of the world economy, delivering more volatility than growth.
To this original argument about the causes of the long downturn corresponds an equally heterodox vision of its possible overcoming. If the restoration-through-crisis proposed by the profit squeeze thesis entails further concessions from labor, Brenner has in mind a different purgative: the severe winnowing of high-cost, low-profit manufacturers across the globe. Liberated thus from mutually destructive competition, surviving firms and freed-up capital could regain the high profit rates that would enable them to lead an international expansion. Brenner doesn’t suggest that such a “shakeout” would spare workers (or capital) enormous pain, but he believes it offers the sole prospect for revival within the terms of the current system. Those terms include unrestricted capital mobility and (as for Glyn) export-oriented growth among later-developing economies.
The opposition between the standard profit squeeze argument and Brenner’s position is stark. The former presents a vision of excessive competition of workers with capital; the latter, of excessive competition among what Marx called “the many capitals.” From a political standpoint, Brenner’s anatomy of the long downturn at first looks more inviting. Who on the left wouldn’t prefer a rash of corporate bankruptcies to the kneecapping of living standards? But Economics of Global Turbulence is formidable not only for its unrivaled command of the relevant data and its comparative perspective (treating the shifting fortunes of the American, German, and Japanese economies as no other work has done), but also for its saturnine mood. For Brenner, the problems of contemporary capitalism brook no adjustment. The temporary triumph of some important firms and the destruction of others might set the stage for higher rates of growth, but this growth would take off—after a vast “slaughter of capital values” (as Marx once put it)—from a lower plane of overall prosperity. The abandonment of American factories could only accelerate, and the unemployment rate with it. Even then, following a bout of creative destruction the likes of which the world has never seen delivered except by falling bombs, the result would presumably be, though Brenner doesn’t say so, the eventual re-emergence of overcompetition and incipient global stagnation.
The strength of this vision lies in its treatment of the great supposed virtue of contemporary capitalism—unfettered international competition—as its deadly vice. Out of a historian’s tact or a socialist’s despair, Brenner never implies the possibility of any tolerable reform of the system or lets slip a prayer for revolution. The main body of Economics of Global Turbulence appeared as a special edition of New Left Review in 1998, in the heyday of Clinton and Blair’s “third way,” with the Socialist parties of Europe having converted to neoliberalism and Communist China embarked on its great program of underpricing foreign labor, and before the turn to the left across South America. Here, one is tempted to say, is the Marxism, without comfort for labor or laurels for capital, that the ’90s deserved.
Overcapacity as Underemployment
And yet: Doesn’t Brenner’s position acquire a more hopeful cast if you consider its unstated implications regarding consumer demand? The problem he identifies of industrial overcapacity and overproduction—of too much plant producing too many goods—is manifestly one of excess supply. And excess supply can presumably be addressed in one of two ways: by reducing supply to the level of demand (through the envisioned shakeout of uncompetitive firms), or by raising demand to the level of supply. Excess capacity would disappear with the circumstance of adequate overall demand. In this sense, the fatally overpaid workers of the past forty years—as they are conceived of across the political spectrum—might be reconceived as fatally underpaid, not just from their own point of view but from the standpoint of systemic requirements for sustained growth.
To draw this consequence from Brenner’s argument is to turn the received idea of the golden age on its head. After all, even in the legendary days of “full employment” joblessness in the US was often three or four times higher than in Sweden, and Johnson’s War on Poverty hardly named a phantom enemy; it was never the case that all who wanted a job could get one, or that fear of hardship had ceased to exert its discipline. Might it be that the era’s fatal flaw lay not in excess compensation for workers and over-full employment, but in insufficient wage growth and not-full-enough employment?
The Rate of Exploitation
A resurrection of the old Marxist measure of the rate of exploitation—which no one seems to bother to try to calculate anymore—would tend to support the idea that inadequate rather than excessive wages and employment sapped the golden age. We know from Mandel’s work that throughout the ’50s and ’60s the rate of exploitation (again, the proportion of profits to wages) ran at a high level. This very imbalance permitted the thirty years’ truce between capital and labor: though real wages were rising fast, profits rose even faster. And yet, as readers of Marx are aware, a high rate of exploitation poses a potential problem of realization. If would-be purchasers are impaired by low wages, then the total mass of commodities cannot be unloaded at the desired price. Capital fails to realize its customary profit, and slips toward stagnation.
What, after all, can be done with increasing profits? A portion flows into the consumption fund of wealthy households, and it is at least conceivable that the rich could spend enough to maintain a sufficient level of consumer demand. (The US approached just such a strategy over the last dozen years, with help from the delirious increase of asset prices.) But as Keynes pointed out, the proportion of income going to consumption tends to decline as incomes rise across social classes. For this reason it would be reckless, never mind grotesque, to rely on rich people’s appetite for luxuries to make up for a general shortfall in demand. In practice, a substantial portion of the income of wealthy households tends to be saved, which is to say invested and restored to its status as capital.
By definition, capital seeks to realize at least the average rate of profit. How should it be invested? It can be loaned out to private or public parties, but this merely defers the question, since capital can only be returned with interest if it has been borrowed by profit-making enterprises or governments collecting taxes from the activities of same. Profit-making enterprises are the crux. And these depend on providing goods or services that can be sold for more than it costs it produce them. But to whom can these commodities be sold? Capital temporarily frozen in the form of commodities can only realize a profit through the good offices of purchasers, who for the most part must either be consumers (if you are selling consumer goods, e.g., cars) or firms that produce for consumers (if you are selling capital goods, e.g., conveyor belts). At some equilibrium level, the ratio of profits to wages will not be too high to interfere with the valorization of capital. Above that level, however, profits are made at too great an expense to wages, with the result that consumer demand is no longer enough to secure the realization by capital of the average rate of profit. That average will then decline—as has been the secular trend across the rich countries since the ’70s—even as the ratio of profits to wages remains elevated.
The commonplace profit squeeze thesis, however, argues in effect that the rate of exploitation (for all that mainstream economics would spurn the term) sank too low around 1970 and has stayed depressed ever since. The “reserve price” of labor, to use more congenial terminology—the wage beneath which labor refuses to work—is even now too high, owing presumably to an exaggerated sense of dignity among workers or the tyranny of the minimum wage. The possibility can be entertained. But when the wage share of GDP has steadily fallen across the rich countries while their overall growth rates continue to slide, the opposite possibility looks more likely: only a rising total wage bill during the ’70s and after could have ensured consumer demand consistent with the maintenance of full employment—and a sustainably high rate of return. No less an authority than Kalecki, in his classic essay on “The Political Aspects of Full Employment” (1943), insisted that “profits would be higher under a regime of full employment than under laissez-faire.” He and others produced models to bear the contention out; the models are unsurprising if you consider that full employment by definition entails expanded economic activity.
There are also historical reasons for supposing that the fatal flaw in postwar capitalism lay in not-full-enough employment. The interpretation of the inflationary troubles of the ’70s as a price spiral induced by high wages (along with high oil prices) is not the only one; in the late ’70s, with inflation at its postwar worst, unemployment also ran much higher than in prior decades. In the US, the Ford and Carter administrations attempted to stimulate the economy by deficit spending and tax cuts, but so long as workers were not producing a supply of goods and services commensurate with the increased monetary demand, what could the prices of existing goods and services do but rise? Another solution would have been to create new jobs, turning out new commodities, to soak up excess currency. But this could only have been achieved at the cost, unthinkable to business, of greater power for labor.
In the event, the international economy of the long downturn ever more closely approximated a zero-sum game in which no economy’s success could be purchased except at another’s expense. (See Brenner’s account of the seesawing fortunes of Germany, Japan, and the US.) The path toward prosperity for later-developing large economies lay in exporting “tradeables” to the international market. In Germany and Japan, and then in China, catering to external markets won out over nurturing internal demand. Domestic wage repression, usually in combination with an undervalued currency, formed the precondition of international competitiveness. Meanwhile, the old “import-substitution” regimes of Latin America, which focused on domestic rather than international markets, were considered discredited, despite having compiled a record of macroeconomic performance better than anything achieved by Latin America under neoliberalism.
In light of the recent recession, the limits to export-led growth now seem plain. On one hand, the entrance onto the world market of lower-cost producers in Asia threatened to undermine the hard-won position of any given rich country. (Indeed Japan has secured its continued if shaky prosperity largely through investment in other Asian economies.) On the other hand, the growth of supply in international trade has simply outpaced that of demand. The telltale sign of this was always the towering current account deficits run by the US. On the strength of borrowed money and the “wealth effect” that permitted withdrawals against rising asset prices, American consumers, and their counterparts in places like the UK and Spain, could absorb enough of the world’s exports to avert stagnation. The American situation had the neatness of tragedy or comedy: the health of the world economy would depend on the spending habits of the people most completely committed to wage restraint! (The wage share of American GDP—subtracting the top 5 percent of earners—fell from a height above 63 percent in 1969 to 52 percent and declining in 2005.) But the US role as global buyer of last resort could not survive mass mortgage and credit-card defaults, or the precipitous drop, in 2008, of equity and real estate prices.
So far this has inspired no doctrinal conversion, in the economic ministries of the world, to the “developmentalism” favored by poorer nations during the golden age, but there are signs that net-exporting countries are busy reorienting themselves toward domestic consumption. A recent Slate piece by Daniel Gross takes up the theme: “Countries stung by the sudden drop-off in demand from foreign buyers have realized that they can no longer simply export their way to prosperity. China’s exports fell 23 percent between August 2008 and August 2009. Smart investors are channeling resources to companies that produce domestic goods for domestic markets.” Of course only a few countries like the China and the US have vast enough domestic markets to pursue such a course; smaller nations in, for instance, Europe and South America would have to form “domestic” markets among themselves through bodies like the EU and Mercosur. At any rate, the success of such a strategy depends on a rising wage bill in domestic markets. And this in turn implies expanded (if not yet full) employment.
The Emptiness of “Full Employment”
Whether the golden age came to an end, and whether our own leaden age has persisted, because the wage bill of the international working class ran too high or too low can’t be settled here. But the illicit prestige that economists have enjoyed in recent years—a byproduct of so much forbidding mathematics, occupational arrogance, and coincidence with speculative bubbles—should not lead us to believe that the question has been answered among conferring neutral experts. Last year I had the chance to ask Nouriel Roubini—a disciplinary eclectic known for the breadth of his reading and the independence of his views, and world-famous for having predicted the financial crisis with extraordinary accuracy—if it might be that unemployment and wage stagnation on an international scale lay at the bottom of the global recession. His reply is worth quoting in full.
“Even without being Marxian,” Roubini said, “income is allocated between labor and capital. Capital has a greater marginal propensity to save out of that income, and labor has a greater marginal propensity to spend. And it’s a fine balance, because if there is too much capital accumulation and you produce too many goods, and the final demand is not there because wage earners don’t have enough income, then you can be in an equilibrium of low growth. That is the big conundrum we have to think about. If you want to take the more radical view, you say wages were not growing fast enough, capital income was growing fast, and the only way you got enough final demand is by allowing people to borrow against income they didn’t have. For a while, demand was sustained by equity and housing bubbles. Right now the reckoning has arrived, people have to live within their means, real wages are not growing fast enough, therefore we may be in—unless there is a change in distribution of income and wealth—a period of subpar growth. It’s a possibility, a hypothesis. I wouldn’t say it’s for sure true. The years to come are going to test it.”
Imagine that we are witnessing the end of the global imbalances that mounted so teeteringly high over the last decade, a collective folly according to which one group of countries, led by the US, purchased the surplus goods of another group, led by China and Japan, with money the first group did not possess and had to borrow from the second. Neither group—at least not their corporations or governments—truly wanted anything like full employment. For the net-exporting countries, full employment would have raised wage costs and threatened competitiveness. For the net-importing countries, full employment would have triggered inflation and so undermined purchasing power and asset prices. True, the lack of full employment spelled inadequate aggregate demand across the system. But an increasingly baroque financial shell game conjured just enough demand to keep things afloat—until it did not. Now the world’s exports can no longer be purchased with phantom wages. Now the project of developing internal markets in country after country will encourage the revival of true full employment as a condition of adequate overall demand. Global prosperity will come about not through further concessions from labor, or the elimination of industrial overcapacity by widespread bankruptcy—but through the development of societies in which people can afford to consume more of what they produce, a greater product now with the entire labor force at work.
There are plenty of reasons to suspect this is only a daydream, not least the veto that international finance continues to wield over the policies of any country needing to borrow money to stimulate domestic development. But if the US is to recommit itself to full employment, the first battle will have to be over the very definition of the term. Since Milton Friedman’s 1967 paper on “the natural rate of unemployment,” economic orthodoxy has defined full employment along Friedmanite lines as the Non-Inflation Accelerating Rate of Unemployment, or NAIRU. This is “full employment” not as common sense would gloss it—a job for all those willing and able to work—but as just enough unemployment for wage demands not to drive up inflation. Today “full employment” is defined by the Bureau of Labor Statistics as 4.9 percent unemployment.
It’s true that full employment as common sense would understand the term has often been accompanied by relatively high inflation—the example of Sweden before 1990 is handiest. And there is no denying that inflation above a certain level (about 8 percent annually, it seems) begins to harm everyoneexcept massive debtors. Below that threshold, however, inflation can be convenient for a variety of economic actors. Workers will often accept a nominal increase in wages that is scant gain in real terms; firms are encouraged to borrow if inflation keeps real interest rates low and eases the repayment of loans; and idle capital is tempted into investment by the steady erosion of value it otherwise suffers. But—and there’s the rub—financial capital refuses to tolerate otherwise acceptable levels of inflation. In recent decades, straitened avenues for profitable investment have released vast migrating swarms of “finance.” Riding a bubble, and jumping off in time, has been the great ambition of this capital; disintegrating through inflation, the overriding fear. Thus the generation-long ascendancy of financial capital has expressed itself in a preference for a monetarist or Friedmanite definition of full employment, one in which the dangers of inflation have been oversold at the expense of the unemployed, wage-earners, and industry too. Even now, in what is if anything a deflationary climate, an unreasoning fear of inflation dominates public debate.
In 1978, Congress made it an explicit purpose of the Federal Reserve to promote full employment, as well as to maintain price stability. (The European Central Bank, by contrast, is tasked only with stabilizing prices.) The goal of full employment is inscribed, then, in our financial system. It should now become a central political demand with which to counter efforts by the Obama administration and congressional Republicans to fight mass unemployment by means of tax credits for employers. If it is not already obvious that these pitiful initiatives, not even sincere enough to qualify as wishful thinking, are knowingly inadequate to the problem they pretend to address, that will be plain enough in the months and years ahead.
A basic charter of full employment might begin with three simple articles. Article 1 should insist that the words mean what they say: full employment. Let galloping inflation retain its well-deserved stigma; a moderate level of inflation is more often than not a sign of economic health.
Article 2 should specify a living wage. The vision, popular on the right, of full employment through misery—the willingness of paupers to do anything to survive—is both an abomination and an error. Academic Keynesians have exposed the fallacies in the right’s call for the reduction or abolition of the minimum wage, and their demonstrations don’t need to be repeated here. The left’s contribution to the debate would lie in the simple and irrefutable proposition that a mentally and physically able adult is capable of producing at least enough economic value to sustain him or her at a decent standard of living. The very existence of mass unemployment without mass starvation and homelessness proves that all workers can support at least themselves—in any complex economy they support more or less double their number, not to mention underwriting all war, luxury, art, and thought. No one capable of doing anything economically valuable need be a charity case in receiving a living wage.
Article 3 should stipulate the state’s responsibility for achieving full employment. The most traditional object of public employment is public works of the kind associated with the Work Progress Administration. Between 1936 and 1939, the WPA spent about 2 percent of GDP per year in employing two and half million people to build over 4,000 schools and 130 hospitals, and to repair or pave 280,000 miles of road. The stimulus of the American Recovery and Reinvestment Act has been, by contrast, timorous and wasteful. According to Doug Henwood in his invaluable Left Business Observer:
At most . . . ARRA has “saved or created”—a spongy concept—a number of jobs equal to about 0.5% of total employment. . . . And this has come at a cost of almost $250,000 a job! Even if you allow for a multiplier effect in employment, and assume that each of these jobs generated another half or three-quarters of a job, we’re still talking well over $100,000 a job. It would have been far more efficient just to create old-style public works at, say, $40,000 a pop.
Still, the need for public works, and the capacity of the government to pay for them, are not unlimited. If private business, ordinary government administration, and public works expenditure all fail to achieve full employment, let the government sponsor workers’ cooperatives producing marketable goods and services. Such cooperatives would receive startup loans from the government, but would then survive on their own income or, like other businesses, fail. Compensation would be set by the workers themselves, and any profits of enterprise likewise distributed by labor/management. The government might limit the work week of cooperatives, to give private business an advantage. Or it might conclude that capital does not deserve any special advantage. If workers’ co-ops can outcompete capitalist firms, then let the devil take the hindmost. Such a program shouldn’t be judged too utopian: employee stock ownership plans (ESOPs) in the US, and, more spectacularly, the successes of the recovered factory movement in post-2001 Argentina point up the viability of worker-owned enterprises within capitalism. If that dispensation were to erode firm by firm into an economy of associated producers, slowly eliminating distinctions between labor and capital and workers and management, we would have all the more reason for stripping the first quarter-century after the Second World War of its title of the golden age. The maxim L’âge d’or était l’âge où l’or ne régnait pas is wrong only in its past tense: the golden age will be when gold—or rather capital—no longer rules.
Of course today any thought of a golden future for humanity is all but stifled before utterance by ecological dread. So it should be added that full employment wouldn’t win us much unless accompanied by the reduction of greenhouse gas emissions, peak oil mitigation, and the conservation of forests, topsoil, fisheries, and so on. Moreover, the goals of full employment and ecological sustainability can complement one another. Full employment on an international scale would raise the price of raw materials and fossil energy, and in this way encourage their conservation. And at least until the (perhaps impossible) transition to a sustainable energy regime endowed with the same transportation capacities as our own doomed fossil system, full employment would promote the localization of production by raising fuel costs. This in turn would deprive capital of some of its capacity for wage arbitrage and strengthen the hand of labor.
Meanwhile, a renewed demand for full employment must insist on a literal reading of the term; a living wage; and the responsibility of the state to ensure jobs whenever business does not. Possibly to achieve true full employment where the long postwar boom only approached that condition would only revive and confirm the profit squeeze thesis, and enforce the conclusion that full employment is as ruinous to capitalism as common opinion has supposed. In that case, the attenuation of profitability, at a high plane of prosperity, might lead us to recall Marx’s proposition that no social order is ever overcome until all its productive capacities—surely these include those of its working people—have been fulfilled. Turning away (revolution is perhaps the word) from profitability as the index of social health, we might attain a nearly steady-state summit of civilization, and content ourselves with a slow-growing economy in which the red of socialism had been interfused with the green of sustainability. Or—a more pedestrian chance—maybe full employment would spell nothing worse for capital than moderate inflation; a balanced rate of exploitation would secure the steady growth of wages and profits both. On this subject the last word still belongs to Kalecki: “If capitalism can adjust itself to full employment, a fundamental reform will have been incorporated in it. If not, it will show itself an outmoded system which must be scrapped.”
 Doug Henwood’s calculation, applying a statistical measure developed by the economist Robert Shimer.
 The Polish economist MichaÅ‚ Kalecki (1899–1970) developed a “Keynesian” theory of business cycles, liquidity traps, and countercyclical spending independently of Keynes. In economics departments outside the US, he is usually given credit for this. But Kalecki’s politics were Marxist.
 Keynes: “The whole management of the domestic economy depends upon being free to have the appropriate rate of interest without reference to the rates prevailing elsewhere in the world. Capital control is a corollary of this.”
 The terror inspired by the notion of a “public option” attached to health care reform always indicated the bad faith behind the familiar eulogies to the marvelous competitiveness of capital by comparison with the lumbering state. If the self-description of business were accurate, it would have nothing to fear from public competition.