Sunday, October 16, 2005

Class Civil War

The last 30 years have been characterized by the privileged "paying themselves first" by convincing the public that reducing revenues would improve the economy, then letting everyone else fight over the scraps when this turned out not to be the case. From the perspective of those at the top, the social welfare state would eventually collapse if they simply refused to pay for it. Instead they hoped for a situation where the society would be cut vertically, with people voting for the economic interest of the industry or locality they belonged to, rather than cut horizontally by socio-economic status.

But it is unusual to get an overt statement of this view as we did today from Delphi chief Steve Miller. The hand writing of what economics writer Daniel Gross calls "the great cram down" is on the wall. For a very long time, there have been two systems in the industrialized world: one of working for large corporations in important positions with good pensions and benefits, and another of working for much smaller companies or in the paycheck to paycheck. The two worlds diverged most sharply in access to health insurance and defined benefit pensions.

This lead to a political grid lock on the left, where unionization had the paradoxical role of both promoting social advances for working people, and forming a pool of voters who would prevent full national pension and health benefit programs, since they had access to better private plans. With the globalized economy, this situation has become increasingly unstable. Large corporations less and less need preferential access to US workers, and are less and less willing to take on long term commitments in order to attract them. One might think that this would favor exclusively "race to the bottom" conditions. Instead many of the jobs being lost are moving to countries that offer national benefit plans, for example Canada, because this means that there is a much lower cost per worker to the corporation.

Which direction this will lead to in the US is harder to predict. One possible road is for the political bonds between organized and unorganized labor growing stronger, with a bail out of pensions and retiree health care as part of a national and universal health system. The other is Miller's "Inter-generational warfare," where those working and those retired divided against each other in order to squabble over the scraps left behind. But that is the lesson of business - you are either at the table when decisions are made, or on it when it comes time to carve.

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