Socialist firebrand Adam Smith points the way in struggle for a living wage

“Servants, labourers and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconvenience to the whole. No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged.”  – Adam Smith, The Wealth of Nations, Book 1, Chapter 8

Another world is possible, despite what the 1 per cent say. The funny thing is, it’s a world described as simply equitable by none other than the so-called “father of capitalism”, Adam Smith, whose actual words would automatically get him labelled as a socialist today. 

There are increasing signs of resistance to that world as it is – and beyond that a growing sense of what needs to change and why, connecting the immediate, the structural and the philosophical fundamentals. To begin with the immediate, two recent events show signs of life for a new militancy among the working poor in America, no doubt inspired in part by the Occupy movement, as well as their own desperate circumstances. Their circumstances have been desperate for a good long while now. But the change in public consciousness due to Occupy is new – and growing. 

First off, on Black Friday – the busiest shopping day of the year – Walmart workers and their supporters in 46 states rallied against the retail giant’s policies of low wages and poor benefits that leave many of its workers dependent on food stamps, government healthcare and other welfare state programmes. The average Walmart worker earns $8.81 an hour – almost exactly the income required to keep a family of three right at the poverty line… if the wage-earner works full time, that is. 

Just two problems: First, a third of Walmart’s employees don’t even come close to working full time; they work less than 28 hours per week and don’t qualify for benefits. Second, the poverty line is incredibly low, compared to the actual cost of meeting basic living expenses. 

Living wage calculator

According to the “living wage calculator” at MIT’s website, a basic living wage for a single individual is $8.45 in the low-cost state of Mississippi, for a 2-child 3-person family it’s $21.08. In a more typical state – Wisconsin – the figures are $8.87 for an individual and $26.64 for a similar family of three. In New York City, the figures are $12.75 for an individual and $32.30 for a single-parent family of three. 

Speaking of New York City, the next week saw the second event – a wildcat one-day strike of fast-food workers there protesting similar conditions of low-wage work for brand-name companies like McDonald’s, Burger King and Wendy’s, with a median wage of $8.90 an hour. Writing about these two actions at Salon, former Secretary of Labour Robert Reich wrote: 

These workers are not teenagers. Most have to support their families. According to the Bureau of Labour Statistics, the median age of fast-food workers is over 28; and women, who comprise two-thirds of the industry, are over 32. The median age of big-box retail workers is over 30.

It’s also clearly not necessary for their wages to be so low. It’s not necessary across the boards, since the minimum wage now is roughly a third less than it was at its peak in 1968, adjusted for inflation. Simply having a minimum wage that kept up with inflation – roughly $10.50 an hour today – would lift millions of workers and their families out of poverty, though obviously many millions more would still be poor, particularly those with just one working parent.  

But even without the force of federal law, such low wages are uncalled for. In her 2000 book, No Shame in My Game: The Working Poor in the Inner City, Katherine S Newman reported that fast food jobs in the white suburbs started around $2 an hour higher than the rates at the inner-city fast food restaurants that were the primary focus of her study. They paid much lower wages because they could get away with it, not because they had to. 

As for Walmart, its $8.81 an hour is roughly half the $17 an hour that its competitor Costco pays (though that’s still well short of the $21.18/hour it takes to support two kids in Mississippi).

Things aren’t going to get much easier over the next decade, either, if they keep going as projected. The Bureau of Labour Statistics’ most recent list of fastest-growing occupations is headed by two low-wage jobs accounting for more than half the gains of the entire list of 30 fastest-growing jobs. 

Personal care aides at $9.82/hour and home health aides at $10.28/hour both make less than the 1968 minimum wage, adjusted for inflation, and will account for 1.3m new jobs from 2010 to 2020, which is 28 per cent more than the number of jobs projected for the next 28 fastest-growing jobs combined. 

More immediately, Reich also draws attention to a mid-summer report by the National Employment Law Project, which says, in part: 

The central finding of this report is that the majority of America’s lowest-paid workers are employed by large corporations, not small businesses, and that most of the largest low-wage employers have recovered from the recession and are in a strong financial position.

Specifically:

• The majority (66 per cent) of low-wage workers are not employed by small businesses, but rather by large corporations with over 100 employees;
   
• The 50 largest employers of low-wage workers have largely recovered from the recession and most are in strong financial positions: 92 per cent were profitable last year; 78 percent have been profitable for the last three years; 75 per cent have higher revenues now than before the recession; 73 per cent have higher cash holdings; and 63 per cent have higher operating margins (a measure of profitability).
   
• Top executive compensation averaged $9.4m last year at these firms, and they have returned $174.8bn to shareholders in dividends or share buybacks over the past five years.

Three years after the official end of the Great Recession, the US continues to face a dual-crisis of stagnant wages and sluggish job growth. Critics argue that a higher minimum wage will discourage companies from hiring, and that most low-wage employers are small businesses that are still struggling in a weak economy. In fact, this report demonstrates that the majority of low-wage workers are employed by large corporations, most of which are enjoying strong profits. 

Wages largely ‘remain stagnant’

None of this should be surprising. While the US economy as a whole has continued growing over the past 40 years – though at a slower pace than it did prior to 1973 – wages in general have largely remained stagnant. That means that more and more money has gone to asset-holders, especially those at the very top – the 1 per cent.   

To get a better grasp of what’s happened over that time, I downloaded data from the World Top Incomes Database, to see how income levels had changed over time. I also downloaded data for Sweden as well. 

In the US, from 1973 to 2010, the average income per tax unit was up just 12 per cent. Including capital gains, it was up 13 per cent. But for the bottom 90 per cent, on average, it was down 11 per cent, while for the 1 per cent it was up 153 per cent on average, and for the 1 per cent of the 1 per cent it was up 649 per cent. That’s income redistribution, baby! 

On those rare occasions where the wages of average Americans becomes a topic for public discussion, we’re routinely told that it’s all a matter of market forces, of increased global competition and the like. So a look at how things have changed in Sweden makes for an interesting comparison (I actually downloaded data for more than a dozen other countries, but Sweden was the only one with equally complete data). 

In Sweden, the average income over this same time period was up 80 per cent – 93 per cent with capital gains. The bottom 90 per cent did roughly as well – up 78 per cent, while the top 1 per cent was up 124 per cent and the 1 per cent of the 1 per cent was up 564 per cent.

So, income gains were much higher overall, and though the wealthy did better than average, only the super-wealthy did dramatically better. For the most part, Sweden has managed to keep increased prosperity a broadly shared phenomenon. Pretty darned good for a socialist hell, wouldn’t you say? 

But that’s precisely my point: It takes a socialist-inspired framework to make capitalism actually work for everyone the way its cheerleaders say that it should. And the reasons for this is not hard to find. You can find them in Adam Smith’s Wealth of Nations. 

First and foremost, while free market ideologues will insist that wages should be set by “market forces”, by “supply and demand”, the model they have in mind is derived from commercial exchange, where, ideally, both parties are unconstrained by necessity – they freely choose to enter into an exchange. But Smith knew as well as anyone that such was not the case for those who work for a living. Thus, he observed: 

A landlord, a farmer, a master manufacturer, a merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long run the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate.

This means that employers and employees can never bargain in a true free-market condition as idealised in theory. Employers will always have a structural advantage absent any laws regulating labour markets. The best one can hope for is a framework of law and custom that levels the playing field and allows for a good approximation of what an unbiased free market might produce – which is precisely what the data above suggest that Sweden has most admirably done, while the US has miserably failed.  

Smith had something to say about this as well. More particularly, about the crafting of frameworks in general: 

Whenever the legislature attempts to regulate the differences between masters and their workmen, its counsellors are always the masters. When the regulation, therefore, is in favour of the workmen, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.

Economics is a ‘political activity’

This is why economics used to be called “political economy”, because the great classical economists never lost sight of the fact that economics was a thoroughly political activity, not something outside of the life of a political community. What Sweden has done is “just and equitable” – the proof is right there in the data, showing that almost all have shared more or less equally in its growing prosperity over the past 40-plus years. 

Sweden is a prime example of what Gosta Esping-Andersen called the socialist or social democratic welfare state in his classic 1990 book, The Three Worlds of Welfare Capitalism, which sought to comprehend the similarities and differences of modern welfare states.

Esping-Andersen presented a three-fold construct of basic types: The conservative welfare state, typified by Germany, which aims to consolidate the existing social order and its hierarchical relations in various ways; the liberal welfare state, typified by English-speaking countries from Britain to the US and Canada to Australia and New Zealand, which aims to deal with imperfections in the market system with minimal interference to the basic market system; and the social democratic welfare state, found primarily in the Nordic countries, which aims to provide maximal protections for all. 

One of the key measures Esping-Andersen used in his study was de-commodification – the degree to which social policies reduce individuals’ reliance on the market (and their labour) for their well-being. The irony is that de-commodifying labour is the surest route to having it priced fairly as a marketplace commodity. So as long as capital, but not labour, is free to participate or not, there will always be a structural disadvantage against labour getting what even neo-classical economics says it should be due. 

In the US (in sharp contrast to Sweden), the dominant politics of the past 30-plus years has been distinctly “free market conservative” – which is to say, 19th century liberal in theory, but heavily favouring haves over have-nots in practice. It’s a unique sort of hybrid of liberal and conservative welfare state motivations. 

“Solutions” for faster growth have been subsidies and tax cuts at the federal level – whose failure I discussed here recently in “Free Lunch Conservatism: The Santa Who Failed” – and a race-to-the-bottom of competing tax subsidies for businesses at the state and local level. 

This has also failed, as is quite evident from a recent story by Louise Story at the New York Times, based on a massive investigation which put together a database of 150,000 awards. The annual value of these subsidies is estimated at $80bn, but there’s not much evidence that they do any good at all for the states, cities and counties that grant them. 

A full accounting [of the cost], The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards. Nor do they know if the money was worth it because they rarely track how many jobs are created. Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.

This is dirty little secret of the tax-break revolution of the past 30-plus years: Not only is there surprisingly little to show for it, no one’s even pretending to keep track. Talk about a faith-based initiative! One might expect that tax-breaks for businesses aimed at job creation would come with some sort of oversight mechanism, to make sure they were delivering as promised.  

Living wage protections

If one were actually concerned about the public welfare, one might even require that the jobs created pay a living wage. But not under the influence of conservative ideology, which verges on theology. Once the business-friendly policy is sold, that’s the end of it – until it’s time for the next go-round. 

The city of Long Beach, where I lived for 18 years, was a typical example. As other large industry jobs have been lost – topped off by the closure of the Naval Shipyard in 1997 – Long Beach has spent hundreds of millions of dollars subsidising and promoting its tourism and hospitality industry.  

The fact that it now hosts the world-famous TED Talks is emblematic of this decades-long push. But its hotel workers toil in poverty, in part because the city never even considered linking “job-creating” tax-breaks to a requirement that the jobs pay enough for people to live on. 

As a result, the city, state and county have to make up the gap with food stamps, healthcare coverage and the like. Over the past few years, there’s been an ongoing effort to organise these workers and to press for living wage protections.  

On election day last month, they tasted victory, as a $13/hour living wage ordinance for hotel workers was approved by voters. According to one account: 

“I have said all along that the second thing I would do when Measure N passes is take my family off of public assistance,” said Maria Patlan, a ten-year housekeeper in Long Beach’s hotel industry. “But the first thing I will do is a dance of joy.” 

… Economists project the measure will add about $7 million annually into the local economy, creating and sustaining 85 jobs and generating an estimated $800,000 in tax revenues. 

But this is just one local victory, trying to play catch-up for a situation that should never have been allowed in the first place. Adam Smith saw it coming over two centuries ago. Why couldn’t we? 

Paul Rosenberg is the senior editor of Random Lengths News, a bi-weekly alternative community newspaper.