Swans Commentary » swans.com November 7, 2011  

 


 

From Social Contract To Occupy Wall Street
 

 

by Manuel García, Jr.

 

 

 

 

(Swans - November 7, 2011)  The decade of the 1920s was one of industrialization and economic growth, globally. This relatively peaceful and prosperous period ended with the onset of a quarter century of economic hardship and armed conflict.

In 1927, a civil war broke out in China that would finally end with the victory of the Chinese Communist Party in 1949. In 1929, the New York Stock Exchange crashed, and the Great Depression began. Two years later, a period of 23 years of continuous international warfare began.

The period of open warfare, which includes the 1939-1945 interval labeled "World War Two," began in 1931 with the Japanese invasion of Manchuria, and ended in 1953 with the armistice ending the shooting of the Korean War.

The United States of America emerged from the period of economic depression and world war as the supreme global power by 1945, and it would revitalize its non-communist European and Asian allies, and former enemies, during the period of postwar reconstruction from 1945 to 1953.

As the combatant nations of WWII recovered and reconstituted themselves in the immediate postwar years, they were each motivated by revulsion over the recent past, gratitude to the millions of soldiers and workers who brought about the collective liberation, and hope for a brighter future, to develop some form of social contract between the people and their governments, the labor force, and the industries. In the United States, this social contract was a bipartisan support for popular New Deal and progressive collectivities like Social Security, public education, unionized labor, the Securities and Exchange Commission (SEC) and Federal Deposit Insurance Corporation (FDIC), as well as the postwar G.I. Bill (educational and housing benefits for veterans). In the non-communist European states it was a social democratic form of government, which managed many nationalized popular benefits. In the communist states, the socialized benefits were offered in exchange for unchallenged political control by Communist Party authority.

The next twenty years (1953-1973) were the golden age of capitalism and Soviet communism, a period of unexcelled economic expansion resulting from vigorous industrialization coupled with distributive social contracts.

Despite increasing population, productivity slackened in the 1970s, and given the unavoidable increase of social costs, the expansion of prosperity stagnated. By the end of the decade, plutocratic political pressure in the West had built up enough to increasingly detach government from stewardship of the social contract, and more closely focus it on corporate interests. In 1978, the People's Republic of China abandoned central planning and began command capitalism.

Over thirty years of neoliberalism followed in the capitalist world, to the present day (from about 1979 to 2011). Non-communist neoliberalism is "free," or market-driven (with varying interventions by governments), while a command form of neoliberalism is used in the People's Republic of China, directed by its exclusive national party.

At the beginning of the 1990s (between 1989 and 1991) the economically and politically stagnant Soviet Union and its satellite empire in Eastern Europe disintegrated, and the many independent states formed out of that former political monolith were absorbed into the capitalist world.

During the 1980s and 1990s, the United States was de-industrializing ("outsourcing") to increase corporate profits by decreasing its domestic labor costs. Many newly industrializing states (NIEs) in Asia and Latin America were taking advantage of this expatriation of American industrial capacity, by offering to host foreign-owned industrial facilities, and offering their people as a lower-cost substitute labor force.

Japan was a leader in outsourcing production throughout Asia, but it only did so after achieving full employment in Japan, and only to increase its total industrial output to feed its export (mainly U.S.) market. While the portion of Japan's labor force in industry has dropped since before the 1990s, the affected workers have been shifted to service industry employment, so full employment has been maintained (about 4% unemployment during the 2000s).

As in the major industrialized states during the 1970s, productivity gains in the 2000s in the now more developed NIEs were not always capable of outpacing the growth of population and the increasing costs of social needs and unexpected losses. So, the returns from some outsourced investments were diminished from initial expectations. The perceived lethargy of industrial development anywhere to yield profits quickly enough increased investors' fever to decouple profitability from productivity. The first decade of the 21st century was one of frenzied speculation in financialized paper (e.g., derivatives, hedge funds), and was facilitated by the deregulation of the US banking industry in 1999.

The financial system collapsed between 2007 (burst housing bubble, banks insolvent) and 2008 (stock market crash, public bail-out of banks), after thirty years of de-industrialization accompanied by a trend of growing income inequality. From a rate of 4.5% in early 2007, the official US unemployment rate shot up past 10% by January 2010, and remains above 9% today. One should double these numbers for a more realistic estimate of unemployment.

The combination of heavy personal debt and lack of jobs (for skilled labor and professionals) has spurred many people across the United States to congregate in public protests, to move themselves beyond fearfulness in isolation to a release of their anger, by channeling it into a joint sense of purpose for social change. These are the people of the Occupy Wall Street (OWS) movement in its many locations.

The sense of purpose for social change has two parts: a change of self image so one interacts in a new and more effective way with the rest of society, and the taking up of some form of political activism so as to help move the larger society to change in desired ways. How these two factors are proportioned within any particular individual is determined by their unique circumstances.

OWS is the human face of debilitating debt and unemployment, and it will disappear when popular debt relief (e.g., for underwater mortgages and student loans) and the widespread availability of skilled employment occur. How long it will take the U.S. to arrange for popular debt relief and the widespread availability of skilled employment is unknown. Equally unknown are how many political and thus economic changes will have to be made in the course of arriving at popular debt relief and a full employment economy, but ultimately that point will be reached because it is the most stable arrangement for US society. Resistance to achieving this stable social state will only delay the inevitable and increase the quantity of blood, sweat, tears, and money needed to achieve it.

Every desire for social change held by every person in the OWS movement can be reflected in one simple phrase: renew the social contract.

OWS is an awakening. People who had thought of themselves as law abiding, hard working, loyal Americans ready and willing to take their places in society as contributors are waking up to the fact that they have been pushed out of American prosperity, and they want in.

OWS is a protest about being personally saddled with debt, primarily for homes and education, sold under promises of a better future, and then government allowing the lending institutions to destroy the economy necessary to support those rosy futures, at a handsome profit, without penalty, and -- most galling -- without canceling the essentially fraudulently-created debt on the mortgage holders of financially inundated real estate or evaporated professional careers.

The young people of OWS are the cadets of the bourgeoisie who have been excessed by the time of their graduation. A soulless nation is eating its young: for decades by incarcerating rather than employing blacks, and now, because of a tightening of the money situation for plutocrats, even throwing over the white cadets who have been training to man the occupations that will continue America's bourgeois economics during the next two decades. The graduates of 2006 to 2016 may be a lost generation, as this is an ageist society. When the economy recovers, maybe by 2016 (since neoliberalism is likely to persist), employers will look to fresh graduates to fill the available slots; once five years out of school, you are obsolete.

OWS has social and political impact primarily by being LARGE and PRESENT. It has to be the elephant in the middle of the nation's view-screen in order to cause a course correction. The longer OWS endures, the more likely it is that the political class will agree to work toward debt-cancellation and job growth, since these will make OWS disappear.

Can enough new jobs be created soon? Ambrose Evans-Pritchard (international business editor at The Telegraph) has the idea that a US economic turnaround (more jobs) will occur within the next few years, brought about by the exploitation of new domestic sources of petroleum (oil shale and tar sands) and a reversal of outsourcing (or, a return to domestic industrialization). This is just one indicator of rational expectations (devoid of environmental concerns) for a resumption of economic growth.

What about reform of the financial industry? Nicholas Kristof, a conservative pundit at The New York Times, is advocating reform of the financial industry because he understands that hubris by the plutocracy could lead to a disastrous popular backlash (the ultimate conservative nightmare is communism). Mainstream voices for financial reform know that wonderful profits can easily be made the old fashioned way, as was the case under Glass-Steagall banking regulations between 1933 and 1999.

And, what about debt relief? Wall Street certainly loves the idea when it applies to banks. Angela Merkel, Chancellor of Germany, recently stared down the European banks and made them accept a 50% writedown of their Greek debts. The stock market zoomed 300 points, because investors are far more concerned with the "stability" and continuity of the eurozone financial markets than they are with a few banks losing a few 10s or even 100s of billions (half made up with public bail-outs), so long as the game and the global banking casino are not shut down by a currency (euro) and credit market (banking industry) collapse.

Obviously, the concept of debt relief will be pushed and expanded further and further, because the debt burden everywhere is like a bone caught in the financial world's throat. Once it is finally swallowed or coughed out, then the feasting can begin again. When debt is cancelled, people are free to borrow, spend, create, and expand productivity, that is to say generate earnings and profits. The next Steve Jobs may be milling about in an OWS throng, just waiting for student loan relief to set him capitalistically free. So, we can expect that when OWS people begin speaking the language of demands, one of the items included will be relief of students' loans for education.

The young generation in OWS wants the freedom to advance their bourgeois, capitalist aspirations; they want to be the Steve Jobs and Barack Obama of the 2020s. They do not want to shrink their vision into re-entering a proletarian life, nor to occupy their minds and time with "organization" for proletarian-type unions like the UFW (United Farm Workers), nor consign their aspirations to distant hopes for an elusive millennialist "revolution."

OWS is a leaderless coincident mass awakening, it is not a popular uprising in the style of the Mexican or Russian (February) Revolutions, and it is not organized in the sense of being hierarchical and regimented. The cadets manning OWS will never adopt Marxism, essentially none have flocked to the red banner.

The people in OWS are shackled by debt and economic fear, and they are gathered to celebrate the freeing of their minds from a number of illusions. Individually, they may go on to be active politically, each in their own way, but all are quite unlikely to relinquish their identification with the American bourgeoisie ("middle class"), or to relinquish their new and painfully-realized mental freedom by submitting themselves to the blinkered thinking of any political ideology that seeks to exploit their massed energy, or to direct their social purpose.

Renew the social contract.

 

Timeline: 1945 Social Contract to 2011 Occupy Wall Street

1945, Europe and Japan ruined by World War II

Civil War in China (1927-1949) interrupted by Japan's occupation of Manchuria (1931-1945) and Sino-Japanese War (1937-1945)

Postwar rebuilding in Europe, 1945-1956:

U.S. role:
- 1944, Bretton Woods system of currency relations to US dollar
- 1945-1948, $12B in U.S. postwar aid to Europe
- 1948-1952, $13B in Marshall Plan aid to Western Europe
- (US GDP in 1948 was $258B)

Soviet role:
- 1945-1954, Soviets extract 23% of East German GNP
- 1945-1954, slow release of German POWs, forced laborers

- 1949 Cold War split formalized, West and East Germany created
- 1949-1956 East and West evolve comprehensive social contracts

Western European states (Atlantic Alliance) 1949-1956:
- renew politically as social democracies
- much foreign aid in, rapid growth, more satisfied population
- have extensive political freedom on account of prosperity
- 1954, West Germany gains full political and economic autonomy

Eastern European states (Warsaw Pact) 1949-1956:
- reformed as Soviet communist satellite states
- reparations or little aid, slow growth, less satisfied population
- very limited political freedom in exchange for social contract
- 1953 East German and 1956 Hungarian revolts suppressed

Postwar rebuilding in Japan, 1945-1960:

1945-1952, US aid of $1.9B while Japan under occupation:
- this equaled 15% of imports and 4% of GNP, in forms of:
- 59% food, 15% industrial materials, 12% transport equipment

1953, US military spending (Korean War) is 7% of Japan's GNP
- by 1960 US military spending in Japan less than 1% of Japan's GNP

Economic growth 1953-1973:

"Golden Age" in Western Europe, Japan, and Soviet Union
economies achieve "full employment"
labor cooperation exchanged for social contract
productivity and gains due to industrialization, and:
- government (trade) policies
- exports
- technology
- cooperative labor

Economic stagnation 1971-1979:

1971 collapse of Bretton Woods currency relations to US dollar.

(The Vietnam War had accelerated inflation, and faith had been lost in the US' ability to cut budget and trade deficits. "On August 15, 1971, the United States unilaterally terminated convertibility of the dollar to gold. As a result, 'the Bretton Woods system officially ended and the dollar became fully fiat currency, backed by nothing but the promise of the federal government.' This action, referred to as the Nixon shock, created the situation in which the United States dollar [not gold] became the sole backing of currencies and a reserve currency for the member states.")

1973, first oil crisis
(Arab boycott over US aid to Israel in 1973 Arab-Israeli War)

1973-1974, stock market crash (20+ years of steady growth ends)

1978, People's Republic of China abandons central planning
- a centrally planned economy is replaced by command capitalism

1979, 2nd oil crisis
(U.S. opposes Iranian Revolution)

Thatcherism and Reaganomics
- Margaret Thatcher, UK Prime Minister, 1979
- Ronald Reagan, US President, 1981
- lower productivity after 1960s, higher population and social costs
- government increasingly oriented to corporate interests
- retreat from New Deal and post WWII social contracts
- trend of increasing income inequality begins

30 Years of US Neoliberalism, 1981-2011:

Ronald Reagan Administration (R), 1981-1988:
- breaks the air traffic controllers union in 1981
- "supply side" and "trickle down" economics, and tax cuts
- deep recession of 1982 with 10% unemployment
- stock market crash of 1987
- Savings and Loan crisis, a $125B public bail-out
- deregulation and hostility to regulate
- no change to the minimum wage
- raised national debt from $997B to $2.85T
- the share of US income received during 1980-1988 by the:
-- 5% highest-income households grew from 16.5% to 18.3%
-- 20% highest income households grew from 44.1% to 46.3%
-- 20% lowest income households fell from 4.2% to 3.8%
-- second poorest 20%, fell from 10.2% to 9.6%.

George H. W. Bush Administration (R), 1989-1992:
- recession in 1992 with 7.8% unemployment
- developed North American Free Trade Agreement (NAFTA)

Bill Clinton Administration (D), 1993-2000:
- 1994, enacts North American Free Trade Agreement (NAFTA)
- 1996, ends Aid to Families with Dependent Children,
-- (fulfills promise to "end welfare as we have come to know it")
- 1996, Antiterrorism and Effective Death Penalty Act of 1996
-- (significant precursor of the Patriot Act of 2001)
- 1999, signs Gramm-Leach-Blyly Act,
-- (this repeals Glass-Steagall Act of 1933, bank deregulation)
-- (see ENDNOTES for more on Glass-Steagall)
- 2000, signs Commodity Futures Modernization Act,
-- (legalizes over-the-counter derivatives)
- federal budget surpluses 1998, 1999, 2000, 2001 (Fiscal Years)
- War on Drugs swells prison population from 1.4M to 2.0M

George W. Bush Administration (R), 2001-2008:
- 2001 and 2003, total tax cuts of $1.3T, aimed at the wealthy
- 2002, No Child Left Behind Act (push to privatize public schools)
- "War on Terrorism":
-- 2001, Patriot Act (curtails civil liberties)
-- October 2001, invasion of Afghanistan
-- March 2003, invasion of Iraq
- 2002, stopped funding the United Nations Population Fund
-- (UNFPA promotes family planning in the developing world)
- 2005, response (and lack of) to Hurricane Katrina
- 2008, Troubled Asset Relief Program (TARP), the $700B bail-out

Barack H. Obama Administration (D), 2009-present:
- failed to use Democratic majorities in congress to pass reforms
- September 17, 2011, Occupy Wall Street begins; what now?

 

ENDNOTES

"The People Cry Out Against the New Great Depression"
by Manuel Garcia, Jr.
http://louisproyect.wordpress.com/2011/10/05/the-people-cry-out-against-the-new-great-depression/
(Glass-Steagall Act and financial reforms are described)

"Some Central Themes of the Occupy Protesters"
by Associated Press
http://youtu.be/3zXk_2_LCR8
(video on income inequality)

"Graphic of US Income Inequality, 1947-2011"
by Robert Reich and New York Times
http://www.nytimes.com/imagepages/2011/09/04/opinion/04reich-graphic.html?ref=sunday

"United States Income Distribution 1947-2007"
by wikipedia
http://en.wikipedia.org/wiki/File:United_States_Income_Distribution_1947-2007.svg

"Where's My Job?" by ConnectTheDotsUSA.com
http://www.connectthedotsusa.com/pdf/WheresMyJobSlides.pdf

"Owe Dear"
by The Economist
http://www.economist.com/blogs/dailychart/2011/07/world-debt-guide
(global debt map)

"World Power Swings Back to America"
by Ambrose Evans-Pritchard
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8844646/World-power-swings-back-to-America.html

"Crony Capitalism Comes Home"
by Nicholas Kristof
http://www.nytimes.com/2011/10/27/opinion/kristof-crony-capitalism-comes-homes.html

"Calling Bankers' Bluff, Merkel Won Europe a Debt Plan"
by Steven Erlanger and Stephen Castle
http://www.nytimes.com/2011/10/28/world/europe/europe-in-accord-on-basics-of-plan-to-save-the-euro.html?_r=1

"Another Idea For Student Loan Debt: Make It Go Away"
by Petra Cahill
http://www.msnbc.msn.com/id/45040659/ns/us_news-life/

 

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About the Author

Manuel García, Jr. is a native of the upper upper west side barrio of the 1950s near Riverside Park in Manhattan, New York City, and a graduate engineering physicist who specialized in the physics of fluids and electricity. He retired from a 29 year career as an experimental physicist with the Lawrence Livermore National Laboratory, the first fifteen years of which were spent in underground nuclear testing. An avid reader with a taste for classics, and interested in the physics of nature and how natural phenomena can impact human activity, he has long been interested in non-fiction writing with a problem-solving purpose. García loves music and studies it, and his non-technical thinking is heavily influenced by Buddhist and Jungian ideas. A father of both grown children and a school-age daughter, today García occupies himself primarily with managing his household and his young daughter's many educational activities. García's political writings are left wing and, along with his essays on science-and-society, they have appeared in a number of smaller Internet magazines since 2003, including Swans.   (back)

 

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Published November 7, 2011



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