Third Wave Capitalism

How Money, Power, and the Pursuit of Self-Interest Have Imperiled the American Dream

John Ehrenreich

• Publisher: ILR Press
• Year: 2016
• eBook ISBN: 9781501703584
• Topic: Politics & International Relations
• Subtopic: North American History
• Index: Politics & International Relations

In Third Wave Capitalism, John Ehrenreich documents the emergence of a new stage in the history of American capitalism. Just as the industrial capitalism of the nineteenth century gave way to corporate capitalism in the twentieth, recent decades have witnessed corporate capitalism evolving into a new phase, which Ehrenreich calls "Third Wave Capitalism."Third Wave Capitalism is marked by apparent contradictions: Rapid growth in productivity and lagging wages; fabulous wealth for the 1 percent and the persistence of high levels of poverty; increases in the standard of living and increases in mental illness, personal misery, and political rage; the apotheosis of the individual and the deterioration of democracy; increases in life expectancy and out-of-control medical costs; an African American president and the incarceration of a large percentage of the black population.Ehrenreich asserts that these phenomena are evidence that a virulent, individualist, winner-take-all ideology and a virtual fusion of government and business have subverted the American dream. Greed and economic inequality reinforce the sense that each of us is "on our own." The result is widespread lack of faith in collective responses to our common problems. The collapse of any organized opposition to business demands makes political solutions ever more difficult to imagine. Ehrenreich traces the impact of these changes on American health care, school reform, income distribution, racial inequities, and personal emotional distress. Not simply a lament, Ehrenreich's book seeks clues for breaking out of our current stalemate and proposes a strategy to create a new narrative in which change becomes possible.

1

Third Wave Capitalism

Looking back on the decades since World War II from the vantage point of 2015, the gods would seem to have looked with favor upon America. Our economy has boomed. New technologies have transformed our lives. Our standard of living is much, much higher than it was. Americans are healthier and better educated than ever before. While inequalities and bigotry certainly remain, people of color, women, and gays and lesbians now know far greater freedom, opportunity, and security than in the years immediately following the war.

But if we look back more carefully, the view gets more complicated. From the end of World War II until the 1970s, despite turmoil and ups and downs, evidence of progress in the United States is clear. But somewhere in the 1970s or early 1980s the road turned sharply. In some areas, progress came to a dead halt. In other areas, we, the American people, took what now seems to be a wrong road. In a few areas, progress was even reversed.

Consider a few examples (all of which I will return to later, in more detail):

• From World War II until the early 1970s, Americans from all socioeconomic strata benefited from economic growth. But beginning in the seventies, productivity and incomes became uncoupled, and inequality grew. In the late 1970s, the richest .01 percent of Americans owned 7 percent of our aggregate wealth, a 30 percent lower proportion than thirty years earlier. Today they own 22 percent. In the late 1970s, the richest 1 percent took home 10 percent of aggregate wages; today they take home over 20 percent. Though productivity has increased by 120 percent since 1979, inflation-adjusted average hourly earnings for production and nonsupervisory workers (everyone but higher paid managers and supervisors) went up only 0.1 percent per year between 1979 and 2014.¹

• By virtually any measure of health status, Americans are far healthier today than they were decades ago. Life expectancy is up, mortality rates are down, and effective treatments for many diseases, nonexistent fifty or sixty years ago, have become routine. But the price has been high. Health-care spending as a percent of GDP has risen 250 percent since 1970. Inability to pay medical bills accounts for more than half of all family bankruptcies. And by international standards, at least, what we get for the $2.9 trillion we pay each year for health care isn’t very good. Americans experience more illnesses and have shorter lives than people in other high-income countries. In 1960, the country’s infant mortality rate ranked twelfth among the thirty-four countries in the Organization for Economic Cooperation and Development (OECD), ahead of Japan, Canada, Germany, and France. Today the United States has fallen to thirtieth in infant mortality, behind Greece, Poland, and Slovakia. Most of the relative decline has occurred since 1980. Within the United States, huge disparities remain. A male black infant born today can expect to live four years less than his white counterpart, and for poor people with less than a high school education, mortality rates are actually rising.²

• Americans today are far better educated than years ago. The average number of years spent in school, the percentage of Americans of all social classes who are high school graduates, the percentage who are college graduates, and (despite what you may have heard) students’ test scores are all up dramatically. Students from all over the world come to attend U.S. colleges and universities and even high schools. But most of the reduction in the gaps in academic achievement between white and black and between white and Latino students occurred during the 1970s. The gap barely changed in the two decades following and has narrowed only slightly over the last fifteen years. The difference between the proportion of children of poor people and the proportion of children of rich people attending or completing college has doubled since the 1970s. And at least since “A Nation at Risk,” the 1983 report of the Reagan administration’s National Commission on Excellence in Education, we have been inundated with claims that our schools are failing, that students’ skills are falling behind the rest of the world, and that U.S. students are not being prepared for the job market.³

• Jim Crow is no more, and the income, health, and educational statuses of African Americans today are dramatically better than in the 1950s. For most white Americans, open expressions of racism have become unacceptable. A large black middle class has emerged, and we have a black president and countless elected black officials at lower levels. But the gaps between black and white in schooling, unemployment rates, and income have barely narrowed since the mid-1970s. Since the 1980s, school segregation has been rising again, in both the North and the South. Today one quarter of all of black children in New Jersey attend super-segregated schools, with fewer than 1 percent nonblack children. A growing proportion of blacks live in predominately poor neighborhoods. And, beginning in 1980, the rate of incarceration of black men has risen dramatically. Today, the New York Times headlines, some 1.5 million black men are “missing” from their communities, either languishing in prison or prematurely dead.⁴

• Between 1960 and 1975, the proportion of Americans living in poverty dropped by more than half. By 1973, the poverty rate was down to 11 percent. But it then rose a bit, and it has never again reached its 1973 low point. Meanwhile, the proportion of the poor who are in “deep poverty”—who have incomes less than half the official poverty level—has steadily risen, from 30 percent in 1975 to 44 percent today.⁵

• Despite rising wealth, personal misery and a sense of personal isolation have increased. Rates of depression are up and levels of self-reported anxiety among young people have doubled since 1980. Meanwhile, sources of social support have declined. The number of Americans who say that they have no “confidant” rose two-and-one-half-fold between 1985 and 2004. Sociologists have documented a decline in social trust in recent decades, especially among the less educated. Despite increasingly shrill proclamations of religiosity, church attendance, once a source of solace for many, has dropped precipitously since the mid-1970s.⁶

• The first two-thirds of the twentieth century brought wave after wave of progressive reform—the Progressive Era of Teddy Roosevelt and Woodrow Wilson, FDR’s New Deal, Truman’s Fair Deal, and Johnson’s Great Society. Regulation of banks and of the transportation, food, drug, and other industries, the development of the “social safety net,” governmental guarantees of minimum wages and maximum hours and the right to unionize, unemployment compensation, workplace safety rules, anti-discrimination laws, and controls over air and water pollution made Americans safer, less exploited as workers and consumers, and more secure in the face of the vagaries of employment and the inevitability of old age. There were periods of backsliding, of course, but rarely for long. Looked at from a distance, progress was steady. But in the early 1970s, the reforms came to an abrupt halt and militant conservatism became increasingly triumphant. There was Republican Nixon’s “southern strategy” with its withdrawal from aggressive enforcement of civil rights, Democrat Jimmy Carter’s onslaught against transportation industry regulation, Republican Ronald Reagan’s proclamation that “government is not the solution, government is the problem,” Republican George H. W. Bush’s deregulation of the energy industry, and Democrat Bill Clinton’s embrace of deep cuts in welfare, bank deregulation, and harsh prison sentences for minor offenses. After Republican George W. Bush’s effort to cut taxes for the rich, and in the face of ever-more-entrenched and ever-more-powerful conservative opposition, Barack Obama’s claim of “yes we can” seems ever more hollow.

Many other examples could be given. In sphere after sphere of American life, the seventies and early eighties are an inflection point. Before, there was progressive change. After, there was not.

There are what seem to be exceptions, of course, most notably in the gains in the status of women. But looked at more closely, the course of modern feminism shows a similar pattern, peaking in the early 1970s, then falling back. State ratification of the 1972 Equal Rights Amendment had stalled out by 1977. The 1973 Roe v. Wade decision (disallowing most state and federal restrictions on abortion) was followed by a wave of increasingly successful efforts to chip away at women’s reproductive rights. By the 1980s, the feminist movement had become increasingly fragmented, fraught with dissension, and imperiled by backlash. Even the gains in women’s employment and income may have reflected the growing need for families to have two wage earners, if they were to maintain their living standard in the face of stagnant wages, as much as support for women’s rights.

So what’s going on here? Let’s step back for a moment. The change of course that is evident in U.S. history since the 1970s is not merely a superficial, retrospective grouping together of unrelated events. Inequality, political paralysis and the conservative onslaught, the crises in the American health care system and in American education, the collapse of efforts to end poverty and racial disparities, the rise in personal misery and political rage, all traceable to the 1970s and early 1980s, are not just a random collection of isolated problems. They represent the emergence of a new stage in the history of American capitalism.

Historians often divide American social, political, and economic history since the early nineteenth century into two phases, the age of Industrial Capitalism and the age of Corporate Capitalism. Each of these phases was characterized by the emergence of distinctive forms of economic enterprise, by novel technologies and radically new modes of transportation and communication, by expansion in the extent of the market, by changes in the modes through which wealth was accumulated, by shifts in the relationship between public and private sectors, by evolution of the typical forms of social conflict, and by distinctive ideologies. Since the 1970s, we have entered a third phase, the phase I call “Third Wave Capitalism.” (For discussion of this terminology, see below).

The First Two Waves: Industrial Capitalism and Corporate Capitalism

The age of Industrial Capitalism—the era of the Erie Canal and the transcontinental railroad, of Morse’s telegraph and McCormick’s reaper and Edison’s electric light bulb, of small entrepreneurs but also of hyper-rich “robber barons” such as Andrew Carnegie and John D. Rockefeller—extended through most of the nineteenth century. The steam engine and the factory system revolutionized production. Railroads, steamboats, and the telegraph and telephone revolutionized transportation and communications, widening markets. Great fortunes were made in railroads, mining, and basic industry. Though its role was minimal by later standards, the federal government subsidized the railroads, indirectly subsidized manufacturing through the tariff system, and promoted the settlement of the West. Local and state governments helped maintain order, which included helping to break strikes and repress the recently freed black population in the post-Reconstruction South. This was a turbulent period in the United States, with social and economic conflict manifest in the Civil War, pitting region against region and manufacturers against plantation owners, in widespread strikes, pitting workers against their employers, and in regional political battles such as the Populist struggles, pitting southern and Plains State farmers against banks and railroads and their allies.

Then, around the end of the nineteenth century, Corporate Capitalism began to emerge. Giant joint stock companies and giant banks increasingly dominated the American economy. Technological advances in chemistry and electricity, the rise of the petroleum industry, and the development of the internal combustion engine—what some called “the second industrial revolution”—led to the emergence of the automobile industry, electrical utilities, and broadcasting. Soon the automobile and the truck and the radio permitted the development of a truly national marketplace. Rapid urbanization, wave upon wave of immigration from eastern and southern Europe, and the great northward migration of blacks from the rural South transformed the American workforce and the American landscape. “Scientific management” reorganized work processes, turning individual workers into little more than appendages of the machines they operated. In response to financial crises, labor unrest, and middle-class outrage over excesses of industrial capital such as those described in Upton Sinclair’s The Jungle, both government and corporations were forced to accommodate to some degree to the needs of workers, farmers, and consumers. At the same time, corporate leaders began to see the state as a mechanism that could directly serve their needs. Progressive Era reforms such as railroad rate regulation, the Pure Food and Drug Act, and the Federal Reserve Act not only protected consumers and small businesses but also helped rationalize industries, stabilize the economy, and protect corporations against more radical demands from workers and farmers.⁷

The increasing scale of enterprises and the rise of a national market created the possibility of raising wages to permit higher consumption. In 1914, Henry Ford increased the wages he paid his workers to five dollars a day, doubling their previous rate. In legend, at least, Ford realized that paying higher wages to his workers would make it possible for them to buy his products. It was actually probably more an effort to reduce worker turnover in his plants and was accompanied by vastly increased scrutiny of the workers’ lives. But regardless of Ford’s own intentions, the understanding that higher wages would, in the end, help corporations make profits, triumphed. Of course, the argument that higher wages lead to higher consumption really only works at the level of society as a whole, not at the level of a single company. No matter what Boeing pays its workers, they won’t be able to themselves afford a 747. But if everyone pays their workers more, capitalists can benefit from higher sales. The Boeing workers may be able to afford to buy tickets from American Airlines to fly on a 747 and a Samsonite suitcase to carry their belongings from one city to another.⁸

Struggles between workers and owners persisted at the level of individual corporations, of course (as the great 1941 strike against Ford itself, among other labor battles, showed), but something new had been added. Now what happened to workers at a specific company was often inseparable from what happened to workers in general. Struggles for economic justice took on an intercompany or even national form. In earlier times, most strikes had been local, pitting workers against the owners of an individual company. The new model was reflected in the emergence of industry-wide strikes, such as the steel strike of 1919, the textile workers’ strike of 1934, and the coal miners’ strike of 1946, and even citywide strikes such as the San Francisco general strike of 1934. It can also be seen in the development of explicit or implicit industry-wide collective bargaining, as in the auto industry’s adoption of “pattern” settlements after World War II: Once the union reached a contract with one of the Big Three auto companies, the other companies copied it.

Sometimes big strikes took on an anticapitalist, “class struggle” tone, but in the wake of the 1946 strike wave, a general social compact emerged. Unions would accept the underlying class relationships of society, agree to long-term contracts that protected employers from the threat of frequent strikes, and give up the right to bargain over some issues, in exchange for employment stability, a steady increase in real wages, and extensive health and pension benefits and vacation time (all underwritten, of course, by increases in productivity and monopoly control over pricing).

Unions, an insurgent force in earlier days, b...

Table of contents

• Acknowledgments
• Introduction
• 1. Third Wave Capitalism
• 2. The Health of Nations
• 3. Getting Schooled
• 4. Race and Poverty: The Betrayal of the American Dream
• 5. The Crisis of the Liberal and Creative Professions
• 6. Anxiety and Rage: The Age of Discontent
• Epilogue
• Notes
• Index