To restore the middle class

English: Economist James K Galbraith

English: Economist James K Galbraith (Photo credit: Wikipedia)

Again from The Predator State by James K. Galbraith:

“The true secret  lies in the aggressive regulation of wages. If you are a business in Sweden or Norway, you are free to import, export, and outsource as you like. There is, however, one thing you are not free to do: you are not free to cut your wages. You are not free to compete by going after cut-rate workers, either native or immigrant. You are not free to undercut the union rate. You have to pay your workers at the established scale, and if you cannot do that and earn a profit, too bad for your business.

“The effect of this on business discipline is quite wonderful. To succeed, business must find ways to compete that do not involve running down the wage standards of their workforces. They do it by keeping productivity high and investing in the search for technological improvement. this means that advanced industries thrive in Scandinavia, while backward ones die out. (Progressive businessmen prosper, while reactionaries fade away.) As a result, the economies as a whole stay competitive: the Scandinavian countries started the twentieth century poor and ended it at the top of the world’s distribution of income and wealth. The tax and welfare systems then make sure that everyone has enough to live on.

The United States is not Sweden or Norway. It is much larger, in particular, and for this reason it cannot move ahead as far or as fast as smaller countries. But the economic principles do not change when they cross the North Atlantic. And we have, in fact, applied them in the past. As Dorgan and Brown correctly state in their essay, this is how the American middle class got built in the first place. It was done not by ‘free markets’ but through unions, laws, regulations, and yes, standards. But the standards were not imposed on other people. They were imposed at home–where they can be enforced–and the rest of the world adjusted to what we did here. The problem, in short, is not foreigners and trade. The big problem is that unions, laws, regulations, and standards have been undercut by conservative policies right here at home. And the foundation stone of those policies is the idea that wages and prices should be set by the market, and not interfered with by the political process.”

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