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‘A tale of 2 recessions’: As rich Americans get richer, the bottom half struggles

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The path toward economic recovery in the U.S. has become sharply divided, with wealthier Americans earning and saving at record levels while the poorest struggle to pay their bills and put food on the table.

The result is a splintered economic picture characterized by high highs — the stock market has hit record levels — and incongruous low lows: Nearly 30 million Americans are receiving unemployment benefits, and the jobless rate stands at 8.4 percent. And that dichotomy, economists fear, could obscure the need for an additional economic stimulus that most say is sorely needed.

The trend is on track to exacerbate dramatic wealth and income gaps in the U.S., where divides are already wider than any other nation in the G-7, a group of major developed countries. Spiraling inequality can also contribute to political and financial instability, fuel social unrest and extend any economic recession.

The growing divide could also have damaging implications for President Donald Trump’s reelection bid. Economic downturns historically have been harmful if not fatal for incumbent presidents, and Trump’s base of working-class, blue-collar voters in the Midwest are among the demographics hurting the most. The White House has worked to highlight a rapid economic recovery as a primary reason to reelect the president, but his support on the issue is slipping: Nearly 3 in 5 people say the economy is on the wrong track, a recent Reuters/Ipsos poll found.

Democrats are now seizing on what they see as an opportunity to hit the president on what had been one of his strongest reelection arguments.

“The economic inequities that began before the downturn have only worsened under this failed presidency,” Democratic presidential nominee Joe Biden said Friday. “No one thought they’d lose their job for good or see small businesses shut down en masse. But that kind of recovery requires leadership — leadership we didn’t have, and still don’t have.”

Recent economic data and surveys have laid bare the growing divide. Americans saved a stunning $3.2 trillion in July, the same month that more than 1 in 7 households with children told the U.S. Census Bureau they sometimes or often didn’t have enough food. More than a quarter of adults surveyed have reported paying down debt faster than usual, according to a new AP-NORC poll, while the same proportion said they have been unable to make rent or mortgage payments or pay a bill.

A historic House vote on marijuana legalization will take place later this month. We break down why Democrats are voting on the bill despite the fact that it’ll be dead upon arrival in the Senate.

And while the employment rate for high-wage workers has almost entirely recovered — by mid-July it was down just 1 percent from January — it remains down 15.4 percent for low-wage workers, according to Harvard’s Opportunity Insights economic tracker.

“What that’s created is this tale of two recessions,” said Beth Akers, a labor economist with the Manhattan Institute who worked on the Council of Economic Advisers under President George W. Bush. “There are so obviously complete communities that have been almost entirely unscathed by Covid, while others are entirely devastated.”

Trump and his allies have seized on the strength of the stock market and positive growth in areas like manufacturing and retail sales as evidence of what they have been calling a “V-shaped recovery”: a sharp drop-off followed by rapid growth.

But economists say that argument fails to see the larger picture, one where roughly a million laid-off workers are filing for unemployment benefits each week, millions more have seen their pay and hours cut, and permanent job losses are rising. The economy gained 1.4 million jobs in August, the Labor Department reported Friday, but the pace of job growth has slowed at a time when less than half of the jobs lost earlier this year have been recovered.

Some economists have begun to refer to the recovery as “K-shaped,” because while some households and communities have mostly recovered, others are continuing to struggle — or even seeing their situation deteriorate further.

“If you just look at the top of the K, it’s a V — but you can’t just look at what’s above water,” said Claudia Sahm, director of macroeconomic policy at the Washington Center for Equitable Growth. “There could be a whole iceberg underneath it that you’re going to plow into.”

The burden is falling heavily on the poorest Americans, who are more likely to be out of work and less likely to have savings to lean on to weather the crisis. While recessions are always hardest on the poor, the coronavirus downturn has amplified those effects because shutdowns and widespread closures have wiped out low-wage jobs in industries like leisure and hospitality.

Highly touted gains in the stock market, meanwhile, help only the wealthiest 10 percent or so of households, as most others own little or no stock.

The disconnect between the stock market and the broader economy has been stark. On the same day in late August that MGM Resorts announced it would be laying off a quarter of its workforce, throwing some 18,000 workers into unemployment, its stock price jumped more than 6 percent, reaching its highest closing price since the start of March.

“The haves and the have-nots, there’s always been a distinction,” Sahm said. But now, she added, “we are widening this in a way I don’t think people have really wrapped their head around.”

A store going out of business
A customer leaves a retail store, which is going out of business, during the coronavirus pandemic. | Lynne Sladky/AP Photo

Without further stimulus, the situation appears poised to get worse. Economic growth until now had been led by increasing levels of consumer spending, buoyed by stimulus checks and enhanced unemployment benefits that gave many people, including jobless workers, more money to spend.

Low-income consumers have led the way, and they spent slightly more in August than they did in January, according to the Opportunity Insights tracker — even as middle- and high-income consumers are still spending less.

But those low-income consumers were also the most dependent on the extra $600 per week in boosted unemployment benefits, which expired in July. Since that lapsed — and since Congress appears unlikely to extend it any time soon, if at all — “we’re likely to see other macroeconomic numbers really fall off a cliff in the coming weeks,” Akers said.

The expected drop in spending, paired with the expiration of economic relief initiatives like the Paycheck Protection Program, could also spell trouble for businesses in the coming months. Many economists expect a wave of bankruptcies and business closures in the fall, contributing to further layoffs.

In that sector, too, owners are feeling disparate impacts. More than 1 in 5 small business owners reported that sales are still 50 percent or less than where they were before the pandemic, according to a recent survey from the National Federation of Independent Business, and the same proportion say they will need to close their doors if current economic conditions do not improve within six months.

At the same time, however, half said they are nearly back to where they were before, and approximately 1 in 7 owners say they are doing better now than they were before the pandemic, the survey showed.

Those diverging narratives could be understating the need for further stimulus by smoothing over some of the deeper weaknesses in the labor market and the economy, experts say.

“This is a case where the averages tell a different story than the underlying data itself,” said Peter Atwater, an adjunct economics professor at William & Mary.

While Republicans appear to be embracing the idea of further “targeted” aid, they are also touting what Trump has called a “rocket-ship” economic recovery and emphasizing record-breaking growth while downplaying the record-breaking losses that preceded it.

“There’s no question the recovery has beat expectations,” said Rep. Kevin Brady (R-Texas), the top Republican on the House Ways and Means Committee, this week on a press call with reporters.

Talks between the White House and Democratic leaders, meanwhile, have been stalled for weeks. The Senate is set to return from its summer recess next week with no clear path forward on a relief package.

“People are in these bubbles,” Atwater said. “And if people aren’t leaving their homes, are not really getting out, it’s unlikely that they’re seeing the magnitude of the downside of this K-shaped recovery.”

This article originally appeared at Politico on September 7, 2020. Reprinted with permission.

About the Author: Megan Cassella is a trade reporter for POLITICO Pro. Before joining the trade team in June 2016, Megan worked for Reuters based out of Washington, covering the economy, domestic politics and the 2016 presidential campaign. It was in that role that she first began covering trade, including Donald Trump’s rise as the populist candidate vowing to renegotiate NAFTA and Hillary Clinton’s careful sidestep of the Trans-Pacific Partnership.

A D.C.-area native, Megan headed south for a few years to earn her bachelor’s degree in business journalism and international politics at the University of North Carolina at Chapel Hill. Now settled back inside the Beltway, Megan’s on the hunt for the city’s best Carolina BBQ — and still rooting for the Heels.


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Everyone can get coronavirus, but economic inequality means it will be worst for those at the bottom

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Coronavirus doesn’t spare the powerful. As of this writing, two members of the Housea senator, and the president of Harvard University have tested positive. But as with so many things in the unequal United States of America, it’s going to be worse for people who are already vulnerable: low-income people, people in rural areas, homeless people, single parents, inmates, and more.

There’s the constant strain of affording health care in a system that bankrupts so many people. There’s the need to go to work no matter what if you live paycheck to paycheck and don’t have paid sick leave. There’s the fact that so many of those low-wage jobs require face-to-face contact.

COVID-19 disproportionately hits older people, and rural populations skew old. The most common jobs in rural areas tend not to offer paid sick leave. Rural areas have also lost more than 100 hospitals in the past decade, so the remaining hospitals may struggle to keep up with increased need even more than hospitals in other areas of the country—where it’s already expected to be bad.

We’re told that staying away from other people and washing our hands a lot are two of the best ways to combat the spread of coronavirus. Homeless people lack access to sanitation and often live in crowded environments, be they shelters or encampments. Inmates are another group living in crowded environments and prisons often lack soap as well.

In the workplace, a Politico analysis found that nearly 24 million people are in particularly high-risk, low-wage jobs—cashiers, home health aides, paramedics. Their jobs require them to get close to lots of people day after day, and all too often lack paid sick leave.

Low-income people also can’t stockpile food and retreat to their homes to ride it out—because most don’t have the savings to buy two weeks of food all at once. Families whose kids rely on free or reduced-price school lunches may still have access to those meals, but they are likely to have to go out every day to pick up the food. And many say that their school districts haven’t told them where to go for meals.

Anyone can get sick from COVID-19. Anyone can get very sick from it. But that doesn’t mean the suffering will be evenly distributed. 

This article was originally published at Daily Kos on March 24, 2020. Reprinted with permission.

About the Author: Laura Clawson is a Daily Kos contributor at Daily Kos editor since December 2006. Full-time staff since 2011, currently assistant managing editor.


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King and Meany Brought Civil Rights and Labor Together for a Legacy That Continues Today

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Beginning in 1960, Dr. Martin Luther King Jr. and then-President George Meany of the AFL-CIO began a relationship that would help bring the labor and civil rights movements together with a combined focus on social and economic justice.

Meany was an outspoken defender of individual freedom, and in March 1960, he emphasized the crucial link between the union and the civil rights movements. He told an AFL-CIO gathering, “What we want for ourselves, we want for all humanity.” Meany met with King to privately discuss how they could work together. King proposed that the AFL-CIO invest pension assets in housing, to help lessen economic inequality. The AFL-CIO then established the Investment Department in August 1960 to guide union pension funds to be socially responsible investors.

The next year, King spoke to the AFL-CIO Executive Council, comparing what labor had achieved to what the civil rights movement wanted to accomplish: “We are confronted by powerful forces telling us to rely on the good will and understanding of those who profit by exploiting us. They resent our will to organize. They are shocked that active organizations, sit-ins, civil disobedience, and protests are becoming every day tools just as strikes, demonstrations, and union organizations became yours to insure that bargaining power genuinely existed on both sides of the table.” At the AFL-CIO Constitutional Convention later that year, Meany made civil rights a prominent item on the agenda, and King spoke to the delegates about uniting the two movements through a common agenda, noting that African Americans are “almost entirely a working people.”

Not only did the AFL-CIO provide much-needed capital to the civil rights movement, but numerous affiliates did as well. Several combined to give more than $100,000 to King’s Southern Christian Leadership Conference. The UAW directly funded voter registration drives in predominantly African American areas throughout the South and paid bail money for jailed protesters. Meany and the AFL-CIO also used their considerable political influence in helping to shape the Civil Rights Act of 1964 and Voting Rights Act of 1965.

Union activists were a key part of the March on Washington for Jobs and Freedom as well. The Industrial Union Department of the AFL-CIO endorsed the march, as did 11 international unions and several state and local labor councils. A. Philip Randolph, then-president of the Brotherhood of Sleeping Car Porters, was a key organizer of the event. UAW President Walter Reuther was a speaker at the march, condemning the fact that African Americans were treated as second-class economic citizens.

King’s final act in pursuit of social and economic justice was in support of the sanitation strike in Memphis, Tennessee. After his death, then-President Lyndon B. Johnson sent the undersecretary of labor to settle the strike, and the city acceded to the demands of the working people, leading to the creation of AFSCME Local 1733, which still represents sanitation workers in Memphis.

In 1964, Meany sent a letter to all AFL-CIO affiliates outlining an new pathway that would directly support housing construction and homeownership. In 1965, the Investment Department helped establish the Mortgage Investment Trust, which was the formal embodiment of the socially responsible investment plan and gave a boost to badly needed affordable housing construction. In 1984, the Mortgage Investment Trust was replaced by the AFL-CIO Housing Investment Trust, one of the first socially responsible investment funds in the United States. Since it was created, the HIT has grown to more than $4.5 billion in net assets and has helped finance more than 100,000 affordable housing units and helped create tens of thousands of union jobs.

The partnership between civil rights and labor launched by King and Meany has helped the country make great strides in the intervening years, and the partnership continues.

This blog was originally published at AFL-CIO on January 12, 2018. Reprinted with permission.

About the Author: Kenneth Quinnell is a long-time blogger, campaign staffer and political activist. Before joining the AFL-CIO in 2012, he worked as labor reporter for the blog Crooks and Liars.


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Enormous, Humongous August Trade Deficit Prompts Trade Deficit Bill

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dave.johnsonThe U.S. Census Bureau reported Wednesday that the August trade deficit rose 3 percent to $40.73 billion from July’s $39.5 (slightly revised). Both exports and imports rose, with imports rising more than exports. August exports were $187.9 billion up $1.5 billion from July. August imports were $228.6 billion up $2.6 billion.

The goods deficit was $60.3 billion, offset by a services surplus of $19.6 billion.

Imports from China increased 9.5 percent.

Is Increased “Trade” Good If It Really Means Increased Trade Deficits?

“Trade” is generally considered a good thing. But consider this: closing an American factory and firing its workers (not to mention the managers, supply chain, truck drivers, etc affected) and instead producing the same goods in a country with low wages and few environmental protections, then bringing the same goods back to sell in the same stores increases “trade” because now those goods cross a border. This is how “trade” results in a structural trade deficit. Goods once made here are made there, the economic gains move from here to there.

Offshoring production can be a good thing, but only in a full-employment economy. This is because with everyone employed companies can’t find people to do things that need to be done. Meanwhile workers in other countries need the jobs. The people there can afford things made here, and trade balances. Everyone benefits.

But since the 1970s the US has used “trade” and other policies to intentionally drive unemployment up and wages down, to the benefit of “investors” (Wall Street) and executives, who then pocket the wage differential. This pushes the economy’s gains to a few at the top, increasing inequality, which increases the power of plutocrats to further influence policy in their favor.

The US has run a trade deficit since the 1970s. Coincidentally, see this chart:

The stagnation of wages for working people just happens to correspond with the introduction of the intentional “trade” deficit. Again, “trade” in this case means deindustrialization: closing factories here, opening them there and bringing the same goods across a border to sell in the same stores.

Trade Deficit Reduction Act

This week Rep. Louise Slaughter (D-NY) introduced a bill designed to identify and reduce our enormous, humongous trade deficits. RochesterFirst.com has the story, in Slaughter introduces legislation to reduce trade deficits,

On Monday, Congresswoman Louise Slaughter unveiled the Trade Deficit Reduction Act, which calls for a change in how we approach international trade in order to benefit our workers.

The legislation would put a government-wide focus on addressing the most significant trade deficits that exist between the United States and other countries. The U.S. has run trade deficits since the 1970s.

… “The last thing our community needs as we work to reignite our manufacturing base with advanced technologies like optics and photonics is to undo this progress by enacting another NAFTA-style trade deal. We need a whole new direction in our trade policy, which is why I am standing with workers from PGM Corp. today to unveil the Trade Deficit Reduction Act. This legislation will change how we approach international trade and make it benefit our workers and manufacturers,” said Slaughter.

The bill would require the administration to identify the countries with which the U.S. has the worst trade deficits.

The bill also directs the administration to develop plans of action to address the trade deficits with those countries, with strict deadlines and oversight from Congress.

The intentional trade deficit and other policies to drive up unemployment and drive down wages greatly enrich a few, but history tells us the consequences are dangerous to society. For example, the rising support for Trump and other far-right populists like him around the world.

This post originally appeared on ourfuture.org on October 6, 2016. Reprinted with Permission.

Dave Johnson has more than 20 years of technology industry experience. His earlier career included technical positions, including video game design at Atari and Imagic. He was a pioneer in design and development of productivity and educational applications of personal computers. More recently he helped co-found a company developing desktop systems to validate carbon trading in the US.


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Contract for Disaster: How Privatization Is Killing the Public Sector

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mtm0ndg4mjmzmzyxodm5mzc4Privatization is bad news for federal, state and local government workers, and the communities where they live. That’s according to a new report released Wednesday by In the Public Interest, a research group focused on the effects of privatization.

The study, “How Privatization Increases Inequality,” explores the role privatization plays in the American economy—compiling data on the estimated $1.5 trillion of state and local contracts doled out each year.

“A lot of decisions are small,” says Donald Cohen, executive director of In the Public Interest, but “if you add all that up, it’s very significant.”

Many government workers in the United States enjoy a robust structure of pay and benefits, including pensions, health care and paid time off. Workers operate in a structured environment that acts, as the report says, as a ladder of opportunity. A clearly outlined framework of positions and pay grades, backed by enforcement of antidiscrimination laws, makes government jobs particularly friendly to women and people of color—20 percent of public sector jobs are held by Black workers, while nearly 60 percent of public sector jobs are held by women.

(Joe Brusky/ Flickr)
(Joe Brusky/ Flickr)

For decades, work in the public sector has been a gateway to a middle-class life. But that’s changing.

Cohen notes that the Right managed to make privatization an ideological project. This shift has generated huge profits for corporations and harmed public sector workers and their unions.

“They want to contract out not because it makes sense, but because that’s their jobs. They’re right-wingers,” he says.

Privatized workers have lower rates of unionization, are paid less than their publicly-employed counterparts, don’t have access to benefits and experience high turnover, the report shows. Sometimes they work side-by-side with government employees, as at the University of California system, something that Cohen says is deliberate.

“Part of the strategy of management is to contract out part of the work to keep the pressure on the non-contract part of the work,” he says.

That strategy leaves workers shortchanged—literally. In 2013, the National Employment Law Project found that one in five federal contractors it interviewed was using Medicaid for health care, while 14 percent needed Supplemental Nutrition Assistance (SNAP). Reliance on federal benefits shifts costs from employers to taxpayers.

Contract employees are caught in a poverty trap that hurts not just them, but their communities. Workers who aren’t making money aren’t spending it, dragging down local businesses and creating a ripple effect in regional economies.

The report argues that poor recordkeeping and limited transparency make it extremely difficult to gauge the effects of contracting, and that the public needs to have access to such information. Legislators, advocates, unions and workers should be invested in how, when, where and why contract labor is used.

Is it improving services while keeping standards high for workers? Or is it being used as an ostensible cost-cutting measure, harming workers and shifting expenses to taxpayers and their communities?

We’re seeing a new era of work in America, and the move to contractors over directly-employed government workers is highlighting that shift as well as its consequences. For government workers, privatization is an economic shell game, and they are losing.

This blog originally appeared at inthesetimes.com on September 28, 2016. Reprinted with permission.

S.E. Smith is an essayist, journalist and activist is on social issues who has written for The Guardian, Bitch Magazine, AlterNet, Jezebel, Salon, the Sundance Channel blog, Longshot Magazine, Global Comment, Think Progress, xoJane, Truthout, Time, Nerve, VICE, The Week, and Reproductive Health Reality Check. Follow @sesmithwrites.


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401(k) Retirement Plans Amplify Income Inequality and Racial Disparities

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Isaiah J. Poole

It’s bad enough that the move toward individual retirement plans has been a massive failure when it comes to providing average working Americans retirement security. But now there’s research that shows that our dependence on individual retirement plans adds fuel to the fire of racial and class inequities in ways that the pension plans that used to be common did not.

The Economic Policy Institute presented that research Thursday in its “State of American Retirement” report. The report underscores the need to keep up the fight for strengthening Social Security and increasing its benefits, rather than cutting them.

“We’re moving toward a retirement system that magnifies inequality,” said Monique Morrissey, the EPI economist who wrote the report. That happened, she said, as the percentage of workers who received a pension (a “defined benefit plan”) declined from 35 percent of private-sector workers in the early 1990s to less than 20 percent today. (In the early 1980s, the percentage of private-sector workers in large companies that had a pension exceeded 80 percent.)

Pension plans were surprisingly egalitarian, Morrissey said, in the sense that once you got a job with a pension, what you received in retirement was affected only by your wages and years with the company. With “defined contribution plans” – like 401(k)s and individual retirement accounts (IRAs) – differences widen by race and class.

According to the report, among the people in the top 20 percent of income, nine out of 10 have retirement account savings; among those in the bottom 20 percent, it’s worse than totally flipped; fewer than one in 10 have any retirement account at all. The workers at the top fifth of the income scale accounted for 63 percent of total income, but have 74 percent of the total stashed in personal retirement accounts.

Only 41 percent of black families and 26 percent of Hispanic families had retirement account savings in 2013; 61 percent of white households do. The average retirement account among African-American and Hispanic workers contains about $22,000; for whites, the average account contains $73,000. On top of that, research shows that African Americans are disproportionately in jobs where retirement plans are simply not offered. “401(k)s have really been a disaster for African Americans,” Morrissey said.

In fact, for all ordinary workers, “401(k)s were never designed to be a primary retirement plan,” Morrissey said. Yet they filled that role at the same time President Ronald Reagan and Congress cut a deal to improve the solvency of Social Security that pushed back the retirement age over time from 65 to 67 – and at the same time worker wages stopped keeping pace with productivity and with income gains for corporate executives.

The result is that today fewer Americans than ever will have a financially secure retirement. The Government Accountability Office in 2014 found that half of all households age 55 and older have no retirement savings at all; close to 30 percent also do not have a pension to rely on, either. Of those who do have a 401(k) or IRA-type plan who were between the ages of 55 and 64, their retirement savings would yield a monthly check upon retirement of about $310 a month.

Morrissey said these realities reinforce the case for expanding Social Security benefits. “That’s the number one thing we need to be doing,” she said. (To support the call for strengthening Social Security benefits, add your name to this petition.)

She added that while waiting for action at the federal level, states can play a role. For example, the California Secure Choice Retirement Plan would opt workers into making regular contributions to a state-managed plan if they did not have a retirement plan available in their job. The state plan would invest in a balanced portfolio of assets that would not be driven by the kinds of management fee incentives that often drive retirement plan investments.

This blog originally appeared at OurFuture.org on March 3, 2016. Reprinted with permission.

Isaiah J. Poole worked at Campaign for America’s Future. He attended Pennsylvania State University and lives in Washington, DC.


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Taking Pope Francis’ Message Seriously Means Pushing for Worker-Owned, Green Cooperatives

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in these timesThe Pope’s visit to the USA this week comes just two months before pivotal UN climate talks that could lead to a global climate agreement. Climate change will be high on his agenda in planned addresses to the UN and Congress, and it is likely that one of his central concerns will be the economy. Pope Francis did not mince words in his recent encyclical on the theme of climate change and one of the main targets of his searing critique was our current economic system. He bemoaned that “the earth’s resources are … being plundered because of short-sighted approaches to the economy, commerce and production.” He chastised the dominance of the speculative finance sector over the economy, and the folly of looking to market growth to solve all social ills.

His core message is that we are currently locked in an economic growth model based on the premise we have an inexhaustible planet. The way the global economy is currently run will not ensure our long-term physical survival. There are some glaring signals that it won’t ensure our economic survival either. For starters, the financial crisis of 2008 and evidence that patterns of growing inequality are stunting economic growth. Recent admissions from the International Monetary Fund (IMF) that economic trickle down theory doesn’t work have further cast doubt on the logic of the current system.

Alongside experts such as the Nobel laureate Joseph Stiglitz and established economic institutions such as the IMF, the Pope is not alone in raising the alarm on “unbridled capitalism.” So in order to solve the greatest challenges of our time, climate change and inequality, we need an economic system that serves us better. However, it seems that beyond identifying and agreeing upon the problem, we often stop short at imagining solutions.

But there are signs that the seeds of a stronger and more responsible economy may already be taking root. Interest in existing models of enterprises, banks, cooperatives and networks that put social and environmental principles before profit is growing. These businesses have a strong emphasis on collective ownership, management and decision-making. Financial decisions are not left to the power of a few, whether government bureaucrats or corporate CEOs, but overseen more democratically by the main generators and beneficiaries of economic activity: the workers and customers.

This rich and diverse tapestry of economic activity witnessed around the world has been called a number of things: social economy, solidarity economy, local economy, new economy, the next system. Interest in the promise of these approaches has even spurred the UN to form a task force to investigate the potential of the social and solidarity economy in contributing to global development goals.

Sounds like a nice idea, but is this really economically viable? Surprisingly yes, and in many cases these enterprises are much more resilient and successful than current models that can result in job losses, bankruptcy and financial crashes. A recent UN report concluded that worker- and customer-owned banks made less risky decisions and outperformed investor owned banks during the recent global financial crisis. Research reveals that worker-owned cooperatives also have similar economic and social benefits that make them a better business model for communities and the economy as a whole.

One well-known example is that of Mondragon Cooperative Corporation, a highly successful worker-owned company of over 70,000 employees based in Spain. The company operates internationally and has a diverse portfolio, including the manufacture of industrial machinery. The 10th-largest company in Spain in terms of asset turnover, Mondragon had lower levels of unemployment compared to the rest of Spain during the 2008 recession and still remained globally competitive. Instead of firing staff during the economic downturn, employees voted to take pay cuts and top managers took their share of the burden. The Spanish cooperative is not alone. Over 2008, in the midst of the financial crisis, the combined turnover of the world’s 300 largest cooperatives was an impressive $1.6 trillion, comparable to the GDP of the ninth largest economy in the world.

Action to fight climate change could benefit from new economic approaches. Take the two sectors that contribute the most to global carbon emissions: energy and agriculture. In Germany, community-owned energy cooperatives are booming, supporting the rapid uptake of renewable energy without having to depend on the patronage of reluctant utility companies. The impressive success of wind power in Denmark is due largely to the rapid spread of community-owned wind turbines. In the United States, the move away from utility-scale power plants is also happening. Recent studies show that levels of solar power generation in the U.S. have been underestimated by as much as 50 percent. This is due to the exponential growth in rooftop solar, which is not yet systematically recorded. The opportunity to magnify the potential of small-scale energy producers could be immense.

With regards to agriculture, the UN advocates ecologically friendly methods based around small-scale farming, with more local production and consumption. This could lead to higher yields, better protect food systems from the impacts of climate change and reduce emissions from this sector. Agricultural cooperatives are critical to the success of smallholder farming, allowing independent farmers to remain competitive through collective purchasing and distribution networks. Climate action that supports agricultural cooperatives and low-emission, climate-proof farming methods could have positive economic, food security and climate outcomes.

Action on climate change could both support and benefit from a more stable and democratic economy. Climate finance and subsidies currently being swallowed by the fossil fuel industry could be redirected to promote locally owned and managed energy and farming, using socially responsible financial institutions to manage these funds. The result could be a stronger economy that works better for both people and the climate.

In his encyclical, the Pope entreated us to “seek other ways of understanding the economy and progress”. A framework for a more democratic, collectively owned and managed economy could be part of this. The re-imagination of the economy is already in motion. It’s time for the climate movement to get on board.

This Blog originally appeared on In These Times on September 23, 2015. Reprinted here with permission.

About the Author: Gaya Sriskanthan has over a decade of experience working on climate change, environmental protection, and sustainable development with a range of organizations including the United Nations and the UK Department for International Development. She currently focuses on indigenous peoples’ rights and civil society inclusion in climate change action. Follow her on Twitter: @gayasktn.


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Why the Hollowing Out of the Middle Class Matters

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david madlandFor the past several decades, the idea that high levels of inequality were good for the economy dominated political and economic thought. Politicians believed the trickle-down theory that enabling “job creators” to get richer would help us all, and economists provided cover for this line of thinking because they thought there was a tradeoff between growth and equity.

But, as inequality has risen to extreme levels in the United States, the foundations of the economy have weakened, and America is now experiencing the kinds of problems that plague less-developed countries. The United States now must confront high levels of societal distrust that make it hard to do business, governmental favors for privileged elites that distort the economy, and fewer opportunities for children of the middle class and the poor to get ahead—wasting vast quantities of human potential.

Fortunately, a new class of economists and policymakers are now challenging the old, flawed, ideas about inequality. Academics have begun to rethink their views about the decline of the middle class, and progressive politicians are finally starting to openly contest the logic underlying supply-side after years of failing to do so. There is a growing realization that a strong middle class is not merely the result of a strong economy—as was previously thought—but rather a source of America’s economic growth.

The new direction on economic policymaking cannot arrive soon enough, because our economy continues to suffer deeply from a financial crash caused in large part by high levels of inequality. Rebuilding the middle class is critical, as a strong middle class performs four vital functions in the US economy.

First, a strong middle class helps society run relatively smoothly, with higher levels of trust among its citizens. People need to be able to trust one another enough to do business with one another. When there is little trust, the cost of doing business shoots up—or, as economists put it, transaction costs increase.

Second, a strong middle class leads to better governance. A thriving economy depends on a well-functioning government that provides critical services, such as roads and schools, with relatively little corruption. As the middle class has weakened and inequality has risen, the wealthy have gained excessive political power and the middle class has become less civic-minded, leading to a host of governmental dysfunctions.

Third, the middle class is a source of stable consumer demand, which enables businesses to invest in new products and hire additional workers—thereby fueling growth. As consumer demand in the years prior to the Great Recession was based heavily on middle-class debt, the economy was unstable. And now that the middle class is so weak—burdened by stagnant incomes, high debt levels, and underwater mortgages—it can’t consume enough to keep the American economy going.

Finally, a strong middle class creates more human capital. In the modern economy, a skilled, healthy, and entrepreneurial workforce is a driver of economic growth—at least as much as the physical capital of factories and machines. As inequality has risen and the middle class has weakened, America has not developed the full human potential of its middle and working classes.

To have strong and sustainable growth, the economy needs to work for everyone. That’s why we need to focus policy on rebuilding our economy from the middle out.

 

About the Author: The author’s name is David Madland. David Madland is the author of Hollowed Out: Why the Economy Doesn’t Work Without a Strong Middle Class and the Managing Director for Economic Policy at the Center for American Progress. Follow Madland on Twitter: @DavidMadland

 


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Executive Council Creates Labor Commission on Racial and Economic Justice

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Image: Mike Hall“America’s legacy of racism and racial injustice has been and continues to be a fundamental obstacle to workers’ efforts to act together to build better lives for all of us,” says the AFL-CIO Executive Council in a statement announcing the creation of a Labor Commission on Racial and Economic Justice.

The statement, released today at the council’s winter meeting in Atlanta, acknowledges “an ugly history of racism in our own movement” and adds:

“Yet at the same time the labor movement has a proud history of standing for racial and economic justice. When we have embraced our better selves we have always emerged stronger in every sense. And whenever we have succumbed to the temptation to see some working people as better than others, we have always ended up weaker.”

Pointing to today’s dramatically increasing economic inequality, decreasing union density and growing instability for the majority of Americans, the council says, “The need for all workers to strengthen common interests in achieving economic justice is clear.”

“At the same time our different experiences organized around race, gender identity, ethnicity, disability and sexual orientation often challenge and complicate this shared experience. If we are to succeed as a movement, the full range of working peoples’ voices must be heard in the internal processes of our movement. To be able to stand together we have to understand where all of us are coming from.”

The council points to the unemployment rate for African Americans—10.3%, more than twice as high as that for whites—the criminal justice system and educational inequities that are large parts of a “world divided in many ways by color lines.”

“At the same time working people share a common experience of falling wages and rising economic insecurity. To build a different, better economy we need power that can only come from unity and unity has to begin with having all our voices be heard, on all sides of those color lines. We have to start by acknowledging our own shortcomings and honestly addressing issues that are faced by the communities in which our members live—both the problems and the solutions. We have to find a way to see with each other’s eyes and address the facts and realities.”

The Labor Commission on Racial and Economic Justice will:

  • Facilitate a broad conversation with local labor leaders around racial and economic disparities and institutional biases, and identify ways to become more inclusive as the new entrants to the labor force diversify;
  • Engage in six to eight labor discussions around the country, with local labor leaders, constituency groups and young workers addressing racial and economic issues impacting the labor movement and offering recommendations for change; and
  • Attempt to create a safe, structured and constructive opportunity for local union leaders to discuss issues pertaining to the persistence of racial injustice today in the workforce and in their communities, and to ensure that the voices of all working people in the labor movement are heard.

This blog originally appeared in aflcio.org on February 25, 2015. Reprinted with permission.

About the Author: Mike Hall is a former West Virginia newspaper reporter, staff writer for the United Mine Workers Journal and managing editor of the Seafarers Log.  He came to the AFL- CIO in 1989 and has written for several federation publications, focusing on legislation and politics, especially grassroots mobilization and workplace safety.


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