The maxim that “hard work pays off” is increasingly coming under more scrutiny in today’s workforce. What happens when stated values fail to match the practices and realities of our current labor market? If it isn’t in its last throes, the myth of meritocracy surely has been dealt a serious blow in light of what we now know about income and wealth inequality and the disconnect between productivity and profit for the average American worker.
Bloomberg News reported on June 5 that pay for the top CEOs on Wall Street increased by over 20 percent last year. The article is based on analysis of data reported to the Securities and Exchange Commission and finds that the substantial rise comes after a 26 percent jump in CEO salaries in 2010.
Meanwhile, census data shows nearly 1 in 2 Americans, or 150 million people, have fallen into poverty or could be classified as low-income. Thirty-eight percent of African-American children and 35 percent of Latino children live in poverty.
Even as productivity has continued to climb, wages have been either stagnant or declining. Household income for the average working family has continued to fall, but men, Latinos and those without a college education have experienced an especially sharp drop in wage growth since the recession, according to a recent briefing paper by the Economic Policy Institute.
EPI states that from 2002 to 2007, productivity rose 11 percent but the hourly wage for high school and college educated workers fell. In fact, the average median household income (adjusted for inflation) actually earned $2,000 less during that period, going from $60,804 to $58,718. For the first time, family income levels sunk below what they had been at the beginning of the economic cycle.
Typically, an era of higher productivity would also cause wages to rise as workers receive compensation for harder work. Instead, the reverse has been happening. As many companies have reduced staff to cut costs, employees have been squeezed to work longer and produce more.
The labor simply isn’t transferring to the employee paychecks. Nominal wage growth in the private sector was 3.4 percent before the economic crisis, but fell to 1.6 percent by the recession’s third year. Similarly, wage compensation dropped from 3.1 percent to 1.8 percent and most of the benefits went to the upper class. From 1989 to 2007, the top 1 percent of households earned 56 percent of the total income growth. The bottom 90 percent received a total of 16 percent.
Capitalism and politics
Since the 1970s, large corporations have dramatically increased their economic power and political influence. The results have been substantial legislative changes that deregulated major industries, liberalized banking rules, undercut labor-law enforcement and reform, prevented increases in the federal minimum wage and fostered an ideology of free-market liberalism and the “maximization of shareholder value” at the expense of other stakeholders.
Prior to these changes, American business practiced a managerial capitalism that shared the returns on investments in new goods and services among the firms’ investors, science and engineering professionals, managers and other employees.
Now, American business emphasizes a form of financial capitalism that rewards financial innovations, transactions and restructuring. As a result of this shift, a disproportionate share of the yield from recent productivity gains has gone to those in the financial sector who engineered this shift and to the top executives in corporations who applied these principles in their firms. As a result, they have, effectively, segregated and concentrated the profits into the hands of a privileged few.
This means that we have fashioned a social system, not that dissimilar from medieval European feudalism, but instead of nobility and royalty being at the pinnacle, we have a financial and corporate ruling class that has emerged as lords of the manor.
Those languishing in poverty, even though they are working longer hours and are more productive than before, have been regulated to the peasant class; exiled to a life of serfdom.
Today, an increasing proportion of the economy is organized around financial capitalism — where productive enterprises are viewed as bundles of assets to be reconfigured with the goal of maximizing financial returns. The focus of investment activities has shifted — from investing in productive, value-added enterprises to extracting money from companies for reinvestment in higher-yielding activities.
In other words, our economy hasn’t moved into a “new house” of investment in innovative endeavors, but rather, we are rearranging the furniture in the old one through wealth and income created by means of financial restructuring.
Working hard, getting nowhere
Mind you, the meritocracy myth was always suspect, how else do we explain the millions of Americans who have worked extremely hard and were never quite able to get ahead? What do we say to the millions of women who have not received equal pay for equal work?
What do we say to the millions of Hispanics and blacks who have labored to build a life for themselves and their families, only to find that even when their experience and education are identical to whites, their compensation is not?
How do we explain the brutal and back-breaking work of the historical and current immigrant and undocumented worker, which unjustly translated not into righteous remuneration, but economic exploitation?
So many times in the past four years or so, we have been led to believe that this present political and social conflict comes down to capitalism and socialism, but that is misleading. Before one can get to the socialism-capitalism (faux argument in my opinion) argument, the question of what kind of capitalism we want must first be answered.
Do we want a financial sector-based capitalism that values the maximization of financial returns at the expense of the solvency of the American (and global) economy? Let’s keep this in mind: The cancer that originated in the financial sector eventually led us into the worst economic catastrophe since the Great Depression.
It is in no one’s best interest to have hard work devalued and I still believe that we achieve a whole lot more with hard work than without it. The question is, however … will this nation shape and implement a just and equitable economy that says they believe it, too?