Why is our society, our world, ignoring the warnings of climate change, destroying our environment, creating ever-larger inequality even as more people are lifted out of poverty? Why is it that the U.S. middle class, which used to be such a strong, vibrant element of our society has become weak and stagnant?
The reason for all of this lies not with the mass of people on this Earth, who have no or little control of anything, even in their own lives. The reason lies with those with ultimate power – the corporate titans of finance and industry.
It is they who decide what is in their corporation's best interest, which is what will make the most money in the short run, and implement that plan of action without any concern for the plan's impact on the public good or the welfare of their workers. And it is they who largely determine the regulatory scope of government, regardless which Party is in power, and so they are in most critical areas effectively unregulated.
This is not an indictment of capitalism, as I made clear in my post, "Is the Problem Capitalism or Our Society?" Regardless the economic system, it is the holders of capital – whether they be aristocrats, political dictators (Communist, fascist, or otherwise), or corporate titans – that have determined the fate of their economies, their workers, and the general public. It is thus instead an indictment of man-made society going back millennia.
Until the dawn of the 20th century, those who controlled capital pretty much had their way. Whether it was the robber barons of the industrial revolution or the aristocrats of the old social/political order, these people could do what they wanted and treat people, whether their workers or cottagers, as they wanted. Income inequality was huge with the large mass of people being both poor and illiterate. Slavery may have been the most egregious example of this system, but it was definitely part of the system.
It was only with the ascendancy of Teddy Roosevelt, of all people – a wealthy Republican – that finally some people with political power felt the huge damage that those with unregulated power wreaked on the masses, while acquiring astronomical wealth. And so the progressive era was born. The trusts were broken up, anti-trust laws were passed, and workers were protected and empowered for the first time, both through protective laws as well as government support for the growth of labor unions. This movement gained further momentum in the 30s because of people's reaction to capitalism during the Great Depression and the election of F.D.R. with his crusading New Deal.
As a result, the middle class grew from a small segment at the turn of the 20th century (15 - 20%) to become the largest single bloc in the population (around 70%) and the backbone of the country's economic prosperity at its highpoint in the 1970s. This increase came about because the lower working class had largely become middle class. In 1970, 62% of the nation's aggregate income went to middle-class households, compared to 29% for upper-income households.
Then Ronald Reagan was elected President and things started changing. Central to that change was the famous Reagan line, "Government is not the solution to our problem; government is the problem."
From that perspective, the dismantling of government regulations that had protected the public and workers began and gathered steam in the decades that followed. Culminating perhaps most significantly in the repeal of the Steagall-Glass Act which was passed to regulate banks in the aftermath of the 1929 stock market crash.
This repeal happened during an otherwise liberal Democratic administration (Clinton), but with wall street insiders in key cabinet positions and Republicans in control of both the House and Senate. Efforts to reenact Steagall-Glass after the 2008 market crash and recession failed, as did efforts to regulate derivatives – all of this again under a Democratic administration with full control of Congress.
The result of this disempowering of workers/empowering of corporations together with the forces of globalization, which began in the 1970s, resulted in the stagnation of worker's salaries. While wages have risen (26%), their purchasing power has stayed the same during the 50 years between the 1970s and 2020; or said another way, salaries adjusted for inflation have remained the same. While those in the top 1% rose 160% during the same period, unadjusted for inflation.
As a result of that stagnation together with many formerly middle-class workers falling back into the lower-class income category, the middle class in 2015 accounted for just under 50% of the population – a significant drop since the 70s – and accounted for only 43$ of the nation's aggregate income, down from 62% in 1970.
The middle class was also the main victim of the finance industry's predatory lending schemes, made possible when Steagall-Glass was repealed, that were a major cause of the 2008 recession. The recession cost the middle class not only jobs but also resulted in the foreclosure of millions of homes. (I do not include the upper class as a main victim of the recession because although they lost heavily, they generally regained their wealth when the market rebounded.)
Another measure of how the middle class have fared during this period is to look at income inequality. One measure of this is that in 1929, the richest 0.1% of Americans held 25% of the country's wealth. By the 1970s, that percentage had fallen to below 10%. Over the past 40 years, it has again risen to around 20%.
We have gone back to the future, with those with the control of capital being largely unregulated. Yes, we don't have child labor anymore and various other controls remain in place. But so many have been weakened or repealed that corporations have been empowered to consider almost no interests other than their own greed. Workers are no longer considered an asset to be nourished and grown but as a cost center to be controlled.
Clearly, if left to their own devices, corporate leaders will not do what is in the best interest of anyone other than themselves. They only act as responsible members of society when they are forced to by government laws.
And so, in one post, "Toward a Reformed Capitalism," I urged the laws of incorporation be changed to force companies to consider their workers' interest as well as the public good. Let me quote from that post:
"We must reexamine what a corporation is. What is its function in our economy and society?
Corporations are a creature of the law. Corporations are allowed the benefits of incorporation because they provide something of value … they are critical to the economic health of the country and of their workers. They also thus meet a societal need.
So from a governmental/societal perspective, corporations exist to enhance the greater good. Unfortunately, as we have seen repeatedly ever since the industrial revolution, corporations have been mostly intent on making money and so have done much that harms, that is not in keeping with, the greater good. And typically with full knowledge of that harm. And they have been abetted by the government's action or inaction.
The answer to this conundrum is to reform the laws under which corporations are organized by restructuring their governance. The goal of this effort should be to make consideration of the greater good … the public interest as well as worker interest … an integral part of the corporate decision making process. " Specific recommendations are made in the post.
These recommendations are not unrealistic or totally novel. Most countries in the EU require employee board-level representation. They also require a number of "independent" directors; but these are not directors who are tasked with representing the public good, they are just tasked with preventing conflict of interest in decision making. My recommendations go much further.
This will take strong political leadership and lock-step support from Democrats in Congress because this will certainly not be a bi-partisan effort, not in the current political climate.
This may result in the end of corporations as we have known them, but they will still be strong and financially profitable. As I noted in the post, this proposal does not in any way eliminate the profit motive in corporate decision making, nor the amount of profit they seek to make. It just ensures that the public good and workers' interests are considered in the adoption of corporate plans, and so it will most likely impact the amount of profit.
Republicans will scream, "socialism." But this is not socialism in any form; government is not taking over the role of the private sector. This is not even the government hovering over or involving itself in corporate decision making; it is just setting the law which corporations must follow.
Clearly this is a change in the way things have been done. But it is a change that is wholly in keeping with the reason why corporations are sanctioned by the government, why government gives corporations the benefits of incorporation. And it is past due because of the havoc corporations have caused in the economy, the environment, and people's well-being due to the unregulated effect of corporate greed over the past four decades.
It is important to note that in the period between the passage of Glass-Steagall in 1933 and its repeal in 1999, the U.S. suffered no major financial crisis – there were recessions but they were due to monetary policies or other factors. Further, during the period of progressive corporate regulation and increasing government measures supporting low income families, income inequality decreased.
Since the repeal of that act we have had a major financial crisis and economic downturn, major stuck market volatility. That together with the decrease in regulation and lower-income supports since the 80s (pre-Biden) returned income inequality to its pre-Depression levels. One measure of this is that in 1929, the richest 0.1% of Americans held 25% of the country's wealth. By the 1970s, that percentage had fallen to below 10%. Over the past 40 years, it has again risen to around 20%.
If we want to maintain a sound, stable economy and one that fosters greater income equality, then government must take this step to reform capitalism and our society.
