Prof. Oren M. Levin-Waldman will discuss his most recent article: “Wage Growth and Bolstering the Middle Class Requires a New Anti-Trust Policy” By Oren M. Levin-Waldman, on Wednesday, December 19, 2018th at 10am EST on the Westchester On the Level Internet radio broadcast. Use the following hyperlink … http://tobtr.com/s/11116657 to listen “Live” or “On Demand”. Please recognize the broadcast is initiated at 9:55am EST and is archived within 15 after the conclusion of the broadcast day at 12Noon.
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Wage Growth and Bolstering the Middle Class Requires a New Anti-Trust Policy By Oren M. Levin-Waldman
We have been living in a global economy for several decades now. The global economy is often lauded by neo-liberals as the measure of true progress. What increasing globalization has done, however, is obscure another trend which has been very detrimental to the American economy, and particularly its labor market. That is, with globalization, there has been a parallel movement away from smallness to bigness.
Big and even bigger business has supplanted small businesses. Multinational corporations have supplanted national corporations. When we think of monopolies in restraint of free trade we often think of companies that grew through acquisitions and mergers. It is ironic that a free market which requires competition is also an arena for larger companies to buy smaller ones and form big trusts in restraint of free trade.
When Adam Smith talks about the proper functions of government, he specifically talks about the use of the state’s police power to break monopolies in order to preserve competition. Why is competition so important? Because it is through competition that prices can remain relatively low and consumers can maximize their utility. It is through competition that the invisible hand works to protect consumers, not only from those who would price gouge but those who would put shoddy, even unsafe, goods on the market.
With globalization, however, traditional monopolies have been replaced by large scale corporations that enjoy tremendous market power. Because of their economies of scale, box stores like Walmart, for instance, have been able to undersell smaller mom-and-pop operations, effectively making them monopolies. The only difference is that they keep prices relatively low. In fact, they perversely argue that in the interests of their customers they maintain low costs, including labor costs.
In the theory of competitive markets, it is assumed that workers can freely bargain with their employers over wage rates and working conditions. This would certainly be true if the marketplace has a multitude of different employers to bargain with. A worker who can’t get a decent wage from one employer can go to the next. But when small businesses have been eaten up by bigger ones, the number of employers to bargain with has decreased and workers’ bargaining power has effectively become limited.
The market power that big companies enjoy allows them to drive down wage rates, with workers effectively suffering a lower standard of living. It isn’t only that new forms of monopoly constrain competition; they also suppress wages. A new anti-trust policy might not only restore the real competitiveness of the market, but it might also allow for wages to rise as well.
In The Wealth of Nations, Smith acknowledges the problem of employers colluding to either raise prices or to suppress wages. He even understands why workers would be tempted to organize into unions in the face of collusion: because a collective of workers who now have a degree of market power through unionization is the only way to counteract the power of the employers who have colluded and used their collective power to drive down wage rates.
Now if we liken the growth of big companies with substantial market power to the types of collusion that Smith was talking about, it should be obvious that workers too need more market power. That is, they need even more than ever to organize in the face of large global corporations that use their power to suppress wages. And yet, the nature of the global economy has been such that big, especially multinational firms, have been able to undercut workers’ ability to organize.
Multinational corporations in particular have been able to move their capital out of the country to places where wages are a fraction of wages in the U.S. thereby undercutting unionization efforts. The same multinational corporations have been able to use their wealth and power to petition states to pass right-to-work laws, thereby making it more difficult to unionize workers because these laws ban closed shops. And finally, these multinational corporations have been able to use their wealth, power, and influence to lobby the U.S. Congress to get tax policies favorable to them and limit worker protections, including increases in the federal minimum wage.
Companies like Walmart use their market power to dictate to their suppliers what they can pay their workers in order to keep prices low and profits high. In response to this type of pressure many American jobs have been exported, only exacerbating the decline of the American middle class.
One should not assume that this movement to bigness at the expense of small businesses is a product of only Republican policies; they are as much a product of Democratic policies too. The rise in big government does parallel the rise in big business. In a peculiar kind of way they feed off of each other. The bigger the business with its market power, the more of a need for government regulation because there is no longer an invisible hand to do it.
The Affordable Care Act, for example, was supposed to reduce costs, but it actually encouraged physicians groups to join in mega-medical practices so that physicians could better negotiate with insurance companies over reimbursement rates. The effect? Small physicians groups and solo-practitioners no longer exist. Any number of tax policies supported by Democratic administrations intended to tax wealthier individuals in the name of the public interest, ended up discriminating against small businesses.
Perhaps the greatest irony is that the American political economy was built on smallness; not bigness. If anything, this bigness threatens American political cultural traditions. It particularly threatens the liberty of the American worker. The multinational corporation in the global economy has no allegiance to specific nations, and certainly not to the nations they are located in. These corporations certainly have no allegiance to local communities.
The worker whose bargaining power has been further eroded as a result of the market power wielded by big corporations has only two choices in a negotiation: either accept the low wages being offered or starve. Of course, this is facilitated by big government that offers workers supports which really benefit business because they allow them to continue paying their workers low wages. Or as Anthony Downs summed it up so well in An Economic Theory of Democracy, public officials cater to those interests that enable them to stay in power and retain power. This means that they pursue the interests of the affluent because they make contributions to their campaigns. They then purchase the quiescence of low-income voters that maximizes those voters’ money utility, which in turn frees them up to pursue policies favorable to the affluent.
The country seriously needs to restore labor market institutions. This means strengthening unions, raising the minimum wage, and reviving labor laws that protect workers’ rights. But it also requires returning to a more sane anti-trust policy that can bring back the type of competitive market place that not only protects small businesses but enables workers’ wages to grow too. The middle class requires it..
Restoring the Middle Class through Wage / Oren M. Levin-Waldman / Palgrave MacMillan
This book makes the case for minimum wage as a way to improve well-being of middle-income workers, reduce income inequality, and enhance democracy….
Minimum Wage: A Reference Handbook / ABC – CLIO
The Minimum Wage: A Reference Handbook By Oren M. Levin-Waldman. As of 2014, the minimum wage in Seattle is $15 an hour — double the federal minimum wage.
“Wage Policy, Income Distribution, and Democratic Theory” By Oren M. Levin-Waldman
Dr. Oren M. Levin-Waldman, Ph.D., Professor at the Graduate School for Public Affairs and Administration at Metropolitan College of New York, Research Scholar at the Binzagr Institute for Sustainable Prosperity, as well as faculty member in the Milano School for International Affairs, Management, and Urban Policy at the New School. Direct email to: email@example.com .