Jul 27, 2011
Two years into the official economic recovery, 34 million people, or 23% of the working age population, are either unemployed or working part-time, often at minimum-wage jobs. And that’s just a snapshot of how many people are out of work in one month. Unemployment is vastly more widespread. At some time during the last year, almost half of all working class families had at least one family member out of work.
And there is every indication that the unemployment will continue, maybe get worse. Some big companies have started a new round of mass layoffs. Cisco Systems, the network equipment giant, said it will lay off 6,500 employees, or 9% of its staff. Goldman Sachs, the finance giant, said that it will cut 1,000 jobs. Lockheed Martin, the military contractor, is proposing to cut 6,500 employees through severance deals or layoffs. And state and local governments announce new rounds of job cuts almost every week, coming on top of the 142,000 they cut in the first half of 2011.
Much of the working class youth are locked out of the job market altogether, not able to get even a minimum-wage job. This spring, when McDonald’s announced it was hiring, it was flooded with almost a million job applications.
Even the middle aged are not protected from this onslaught. More than one-quarter of middle-aged men are now either unemployed or are working part-time and not earning enough money to survive on.
This mass unemployment is not some natural catastrophe, completely out of the control of human beings. It is a catastrophe brought on by the capitalist drive for profit.
Right now, in the midst of this unemployment disaster, corporate profits are blossoming. Profit margins at the 500 big companies tracked by Standard and Poor’s are running at their highest levels since 1993. Supposedly on their last legs and losing out to foreign competition, U.S. manufacturers nonetheless turned in 170 billion in profit in 2009, then jumped up to 270 billion in 2010.
Joseph Lavorgna, chief U.S. economist of Deutsche Bank, exclaimed: “Not only are we seeing a tremendous V-shaped recovery in corporate profits, but we are in fact seeing the biggest profit recovery ever.”
Workers paid for this “tremendous” recovery in corporate profits with their jobs. During the recession itself, which officially lasted from December 2007 to June 2009, the bosses slashed a record seven million jobs. At the peak of the layoffs, between January and March 2009, companies were cutting more than 780,000 jobs every month. That deadly level of unemployment was used against the remaining workers and employees to extort more work from each worker, often for lower wages and benefits. In January 2009, exactly when the job cuts were at their most vicious, corporate profits started to grow.
The official economists tell us that the economic recovery began in July 2009. But during the first six months of this so-called “recovery,” the bosses cut one million more jobs, while continuing to push the pace of speed up. The layoffs and speed up fed on each other, producing a growing pile of corporate profits.
By early 2010, with production on the upswing, the bosses may have stopped the mass layoffs. But they brought back few workers, forcing the depleted workforce to put out the added work. Having cut two million production jobs during the downturn, manufacturing companies brought back only 130,000 workers by this spring, when production was returned almost to its pre-recession high point.
This enormous push to wring more profit out of fewer and fewer workers is reflected in the fact that U.S. productivity growth doubled from 2008 to 2009, in the midst of the recession, then doubled again in 2010, according to the Organization for Economic Cooperation and Development (OECD).
In talking about the growth in profits, Lynn Reaser, the Chief Economist of Point Loma Nazarene University in San Diego, pointed out: “It’s important to note that companies were able to bring production back up to pre-recession levels without hiring any more workers. We have now recovered all of the output lost in the recession, but we are still down 7.5 million workers.”
The increase in corporate profits was paid for by the loss of jobs and speed up. Or, as an article in the Economist last December explained, “Profits owe their V-shape in great part to employment’s L-shape.” In other words, profits went down and then quickly pulled back up, in the shape of a V, while the number of jobs crashed down and then stayed down, in the shape of an L.
So what did the corporations do with all their profits? They channeled them to that tiny layer of the population that holds the economy in their hands, some of the wealthiest people in the world.
First of all, the corporations did what they always do – they passed on their profits in the form of dividends, most of which go to a tiny minority of big stockholders. But this year, they were particularly generous. In the first three months of 2011, dividends surged at a record pace. JP Morgan Chase quintupled the size of its dividend, an increase worth more than three billion dollars. Even companies that usually didn’t pay dividends started to pay them, including Wellpoint, the health insurance giant, and Cisco Systems, which announced layoffs soon after it started paying dividends.
Corporations also used their profits to buy back shares of their own stock, thus handing billions more to their biggest stockholders. In the first three months of 2011, companies spent almost twice as much money buying back their own stock as they did in the same period last year. Leading the way are the biggest oil companies, flush with huge profits from gouging consumers on the price of fuel. Corporate executives at Exxon Mobil bragged to Wall Street analysts that they had distributed “more than seven billion dollars” to shareholders in the first quarter of this year through dividend increases and share buybacks, and they said they plan to repeat the operation in the next three months. ConocoPhillips announced that it will spend 15 billion dollars this year buying back its own stock. Not to be left behind, Chevron announced similar plans.
Even companies that didn’t have large profits increased dividends and stock buybacks, borrowing the money in order to hand it over to their big stockholders. Some companies borrowed so much to boost their stock buybacks and dividend increases that Moody’s lowered their credit rating, according to Business Week (March 26). Their CEO’s literally buried their companies under a mountain of debt to satisfy the demands of a few wealthy stockholders.
Even after all this money was lavished on stockholders, non-financial companies were still sitting on close to two trillion dollars in cash in the fall of 2010. That’s equal to 11% of their total assets, a 60-year high. And the big banks had even more. All this speaks to just how stupendous the growth of profits has been.
Presiding over this plunder and devastation for the benefit of a few are the chief executive officers – who rewarded themselves handsomely. Last year, they averaged more than 11 million dollars in total compensation at 300 of the largest U.S. companies, according to the AFL-CIO. At the biggest financial companies, which skim the cream of the profits and wealth for themselves, a wide array of executives made huge amounts of money in 2010. The Wall Street Journal estimated that total compensation among executives was a record 149 billion dollars. Of course, even in 2009, when the economy was near its lowest point, the Wall Street bankers had paid themselves 140 billion dollars.
When the corporations did pretend to “invest” their profits, they first used them to buy up other companies. In the first quarter of 2011, corporate takeovers surged to 330 billion dollars, a big recovery from when money for takeovers had dried up completely in the wake of the financial crash. This 330 billion is almost equal to the total amount that all U.S. companies invested in plants, offices and equipment. But corporate takeovers produce nothing of value and add no new jobs. On the contrary, when companies snatch up other companies, this usually results in job losses. With the aim of getting a quick return on their buck, the take-over artists often cannibalize the company they buy, stripping it of capacity, leaving the carcasses of once productive buildings and plants in their wake. These financial operations enrich a few wealthy stockholders, executives and the banks that finance the deals, while the workers pay for it with their jobs.
As for investment in actual plants and equipment, companies are spending less on this than they have in decades. Net investment, a very important measure of what the bosses are putting back into the productive economy, is running at its lowest level since the 1940s. Instead of investing to expand, companies are squeezing more production out of the same old plants and equipment. Factories that used to have one or two shifts are now running flat out: three shifts, 24-hours a day, seven days a week, resulting in hellish hours for the workforce, much greater health and safety hazards, worse working conditions... and more plant closings. Airlines cut routes, shrink capacity, fly their planes completely full and charge much higher fares. Electric utilities don’t replace old equipment or install extra capacity for usage peaks, resulting in regular blackouts, explosions and fires.
In other words, companies are maximizing their profits at the expense of workers and the rest of the laboring population, who, as consumers, also have to face these vultures.
Capital’s drive to extract greater profit for the benefit of a few is laying waste to all of society, creating an ever larger scourge of unemployment, smashing the standard of living of the working class and other parts of the population.
The government has aided and abetted the bosses every step of the way.
When the U.S. financial system completely froze up in 2008, the U.S. government stepped in and bailed out the banks and other financial companies. Never mind that in their mad drive to accumulate ever more money, these were the very culprits who had brought on the collapse, inflating speculative bubbles, using trillions of dollars in debt. The government provided the bankers with 13 trillion dollars, often assuming their losses. The victims of the collapsed housing bubble – the millions who lost their homes and the millions more who lost their jobs – got nothing.
No – and the laboring classes are now stuck with the bill for that bailout. This huge transfer of money from the government to the banks and other sectors of big capital is what blew out the budget deficits. And all the current proposals to cut the deficit in one way or another will make working people pay the bill – pretending that this is “equality of sacrifice”! No, the cuts being discussed will impose sacrifice on the laboring population, for the benefit of the wealthy.
Even if the bailout of the financial system was on a far more spectacular scale, the government has always used its taxing power to take what working people pay in taxes, using it for the benefit of the banks, the big corporations and their wealthy owners. Look at what the government has been doing for years to Social Security, whose trust fund is supposed to contain 2.6 trillion dollars in retirement savings. In reality, the government has regularly taken the Social Security surplus and spent it. While the government claimed to be holding that trust fund for the future retirement of tens of millions of people, it was using those trillions of dollars to help fund its regular budget deficits – deficits produced by tax breaks, other subsidies and giveaways that it gave to boost the corporate bottom line, and by its wars. The government did the same thing with the Medicare Trust Fund, the Highway Trust Fund, and all the other trust funds built up by the special taxes people pay dedicated to a specific purpose. In place of the money the government took from these programs, it left worthless IOU’s.
Now, after stealing trillions of dollars in retirement money, the government wants more! This huge campaign pushed by both Democrats and Republicans – supposedly to “save” Social Security and Medicare – is nothing but a scam to get working people to accept benefit cuts in one way or another. And for what purpose? Only so the government can put its hands on more money... that it can hand over to the capitalist class.
Over the last few decades, government has attacked some of the most vital services, including education, public health, fire and emergency services, mass transit, water and sewage, snow removal, roads and bridges, parks and recreation – to name just a few. These programs are often funded jointly by federal, state and local governments. When the crisis hit almost four years ago, governments at every level scrambled to outdo each other in cutting these vital programs as deeply as possible, to satisfy the clamor of big companies and the wealthy for still more aid and tax breaks for themselves.
These cuts could only have deadly consequences for the population. In many cities, waits are now so long for EMS trucks, people die before emergency techs get there. With so many fewer emergency rooms, the overcrowding leads hospitals to close their doors until the crowd thins out, forcing ambulances to drive from one emergency room to the other, seeking an opening. Streets are not cleared during blizzards, and people die because emergency vehicles can’t get through. With fire stations closed, small fires spread to entire city blocks before the fire trucks arrive. Mass transit routes are cut, while fares are raised, leaving increasing numbers of people with no way to get to work or school. As roads and bridges are left to decay, falling chunks of concrete land on cars. Water and sewage systems have been left so long to rust that untreated sewage literally flows into the drinking water supply at times – “boil tap water before drinking it!”
In recent years, the education system, with its overall yearly budget of 600 billion dollars, has become the central target for the capitalist raiders. Under the banner of “school reform,” government has been carrying out a huge campaign to cut funding to the schools. Claiming they want to get rid of “bad” schools, school boards close school buildings and get rid of neighborhood schools, but don’t replace them. Instead, they herd more students into fewer buildings and increase class sizes. They target what they call “bad” teachers, who happen to be the most experienced, who know the students, parents and neighborhoods – but also happen to have the highest wages and benefits. Replacing them with new, inexperienced and lower paid teachers, school boards chop at the school budget. Some of the richest people in the world – like Bill Gates and Eli Broad – sent their flunkies and lieutenants, with all sorts of celebrity and hype, to oversee school systems in some of the biggest cities. New York City, Washington, D.C., Detroit, Los Angeles and Chicago all testify to the damage these reformers have done – and to the large amount of money they have been able to drain out of public education.
These cuts carried out by government have already had a devastating impact on the population. And every single cut – in public services and social services, in education and health care – means that jobs are being destroyed along with it.
Instead of the government using its vast resources to hire people in the face of the jobs crisis, it is adding to the jobs loss. Since August 2008, 577,000 public sector jobs have been cut – with no end in sight. Even the bourgeoisie’s own newspaper, the New York Times, estimates that if public sector employment had simply continued to grow as the population expanded, it would have added half a million jobs – in just the last two years. So, the budget attacks have cost over one million public sector jobs.
The bosses are literally smashing down the standard of living of the working class, taking workers’ jobs, pay, benefits, and destroying vital services that serve the neighborhoods and communities – and all this, so the wealthiest people in the world can grow even more wealthy.
This is the balance sheet capitalism offers us today. Every school closing, every service cut, every job cut is another indictment of this system that today holds society in its deadly grip.