The Mess of 2009, Part 1

I write this sitting at home, staring at my computer, looking for a new job. I got laid off two weeks ago. I live in the Rust Belt – Detroit. Southeast Michigan has led the way into hell, and may ultimately be the area that catalyzes this nation into some type of economic tsunami. With the number of jobs connected to the auto industry in this area, directly and otherwise, if one of the Big Three goes under – and with GM posting a $9.6 billion loss in 2008 Q4, they lead the pack – I shudder to think about what’s next. Will the fall of one of the few remaining companies that make things in this country test the strength of our Republic to the breaking point? I hope not, but I fear so.

Any reasonable person must be wondering why we’re in this mess. After all, we spent most of the last eight years involved in a Global War on Terror that we’ve fought to defend our freedoms. One would hope that this endeavor, were it righteous, would earn us sufficient cosmic brownie points to avoid our current economic malaise. The whole 9/11 experience and its aftermath was troubling enough. Now we face a circumstance that almost none of us have faced before here.

We hear numerous voices on the political right, and elsewhere, who seem to be on a “Blame America First” kick on this issue. ‘The real problem,’ these voices intone, ‘is that we Americans have all spent beyond our means.’ According to this line of reasoning, if we all hadn’t rushed out to buy so many things we couldn’t afford – a house too big, too many cars, etc. – we wouldn’t be in this fix. Now, of course, there is some truth to such a view. But the facts point to a series of other culprits as the real source of our current malaise. Since it is middle class Americans of all persuasions and backgrounds who now see their homes and retirement savings falling like the leaves in the height of autumn, silently but in a deluge, it might be wise to remember back some years to see what has changed. It might also be prudent to examine who is benefiting from the demise of the middle class in the U.S.

The middle class in this country really took off after World War 2. There were a number of factors that contributed to that. The rise of a progressive labor movement in the late 19th century was the first step in the evolution of the middle class. With the rise of industrialism in the period around the Civil War, the rapid growth of the railroad system and the discovery of cheap oil throughout this country saw the further growth of a very rich class in this country. Eager capitalists were willing to have their workers labor under intolerable circumstances for meager wages. Those American heroes, who fought, bled and died at the front of the labor movement, pushing for legislation that brought about the eight hour day with closer control on workplace conditions, provided a first step in the development of a middle class.

After World War 2, the GI Bill of Rights, in conjunction with the hard-fought gains of the labor movement, provided GI’s with a series of opportunities – get an education, get a job at a decent wage and healthcare, buy a house, and with Social Security and a pension from that job, retire with some reasonable well-being.

Additionally, and importantly, there were other factors that contributed dramatically to this middle class phenomenon. Those of you who, like me, can remember the early 60’s, can answer this simple question: How many credit cards did your parents have? I’ve asked this question to many people, and the answer is usually “none.” At that time there weren’t many credit cards. I can remember, actually when, years later as a young adult, I got my first American Express card – which wasn’t even a credit card. My first credit card was a gas card, which is often the answer I get when I quiz others.

So, in addition to the factors described above, individual Americans weren’t in debt, not like we are now. Debt was viewed pejoratively, and rightly so. Many of us can vividly remember something that we now hear coming back into vogue: layaway. Buy it first. Get it when you pay it off.

Take note of that fact.

So what has changed? After perusing the description above, we might conclude, everything. How did the American view of debt change so radically from that point when all the forces that made the middle class what it was converged?

Here are a few factors:

Privately Held Companies

In that time period, many of the businesses in this country were privately held. I’ve worked for years in the printing industry. In Chicago there were once 5000 printers. When I worked there, most of the printers were family/privately owned. Numbers of them had been handed from one generation to the next, from parents to children, for many decades, back into the 1800’s. These private companies had a character that was frequently familial. I recall, working for one such printer in the late 70’s and 80’s, hearing the owner tell me that his employees were the greatest asset he had. In this environment, it was common for owners to back such words up with actions that reflected those values. And because the printing industry was a unionized business, nonunionized companies tended to play by the rules of union businesses the keep their valued employees with them.

While this example is not 100% true, many companies in this country dealt with their employees as described above. United Parcel Service, as an example, remained a private company for many years. UPS employees from the era when they were private speak of the company highly to this day. These private companies, as well as the public companies with unionized workforces, shared some common characteristics:

a) Work hours that were often close to 8 hours a day/40 hours a week

b) Overtime above 40 hours

c) A level of pay that allowed for a single family money earner

d) A pension that allowed loyal employees to retire with a reasonable degree of security

e) Other benefits, such as vacation, health insurance, and the like that gave their lives similar security and continuity

As a result of this, a family could buy a house, own a car, provide for a family reasonably, receive decent healthcare, get a decent education at a public school, go to college, get a job….and the cycle continued.

So what exactly changed?

Publicly Held Companies

Allow me to go back to my example in the industry I know best, the printing business. I remember well the time when printers in Chicago began talking about managing in a more “corporate” manner. What this meant was that they began to feel the pressure of competing with larger, publicly held companies. As newer, faster technology flooded the graphic arts business, it took more and more investment to compete. It appeared no longer possible for a printer to survive with a good, loyal body of employees using slower equipment. It was no longer feasible to compete with far larger companies who could temporarily offer lower prices, higher quality with increasingly overworked employees, without union representation. Family-owned businesses also didn’t speak the language of the investment bankers, could not go toe-to-toe with the financiers. Many, many of them faltered after over-investing.

As the buyout craze of the 80’s and 90’s gained momentum, these small, family-owned companies saw the opportunity of getting out of a business they seemed unable to compete in. Throughout Chicago, the companies, family owned and managed, were absorbed, one by one, by the larger, publicly-held printers – printers who, themselves, were once family-owned. In short order, the era of these small businesses atrophied.

As time went on, the 90’s bubble saw other factors erode. As these publicly-held companies felt increased pressure for more profit from investors, they began to jettison those building blocks of the middle class. Significantly, one of the first items to fall was the pension. Instead of giving an employee a guaranteed retirement income for life, corporations played the same bait-and-switch that the Bush (43) administration tried with Social Security. Just like the notion of “owning” your Social Security monies in your own investment account, corporations unilaterally moved pensions into one of those goofy numbers – 401K. Now we “own” our retirement income – except for the fact that with the 401K the employee had to begin contributing their own money into this financial vehicle we “own.”

That was pretty slick. And now, in 2009, we see what a wonderful idea that was. After all, what is your 401K worth? Mine’s worth….let’s see….no, let’s not. I’ve talked to many people who simply don’t open the envelopes from their 401K management company. More importantly, what we were told was a stable replacement for a pension has proven to be unstable at best.

Then there’s health insurance. Due to the rise of health insurance costs, companies of all sizes have moved larger and larger portions of healthcare premiums over to employees. While some of this is understandable, due to the influence of insurance and pharmaceutical companies on all levels of government, employees have often been smothered by the necessity of bearing this burden. Where unions once could provide the muscle to negotiate with corporations, no single employee can afford to stand up to a corporation for too long.

Along with these factors, corporations have also successfully fooled American workers into believing that they would be better off working for a corporation without the influence of unions. To some degree unions bear some responsibility for this. I’ve been in the musician’s union for 40 years, since I was 16 years old. This union is largely irrelevant to many musicians. I sorely wish this wasn’t the case, but it is. We’ve seen the unions, in their recent dealings with the Big Three, backed into a corner, with insufficient voice to mount any serious opposition to the further erosion of workers’ rights and benefits. There are just too many stories of corrupt union officials, of unions protecting workers who clock in and sleep some of the day, and other stories that lower many people’s view of unions.

In the meantime, up until recently, publicly-held companies have had a field day. While workers have seen their salaries and wages stagnate for much of the 90’s and early 2000’s, corporations have made off like bandits. We’ve seen company after company declare record profits, quarter by quarter, while simultaneously moving their manufacturing out of the United States to some country where they can get away from those pesky unions, where they can pay workers, including children, well under $1.00 an hour, where there are few environmental constraints and no OSHA, no health insurance.

These same companies want to sell us Americans more and more of their goods, much of which is manufactured elsewhere. Corporations have used several tactics to do this. I’ll discuss this in my next article.