Saturday, November 4, 2017

Exit-Voice-Loyalty and Kneeling

Back in 1970, the political economist Albert O. Hirschman published a widely influential treatise titled “Exit, Voice, and Loyalty”. He introduced this conceptual triad to analyze the three options available to those who are dissatisfied with a particular organization, institution, or situation. 

Under the “exit” option, one simply leaves or “takes their business elsewhere”.  This is regarded as the market-based solution.  Alternatively, one can exercise “voice” individually, or through the organization of like-minded others, and demand change, so that the unsatisfactory situation can be acknowledged and addressed. Hirschman considered “voice” most consistent with the principles of democratic citizenship. Finally, there is the default option of “loyalty”, where one faithfully or silently supports the existing state of affairs.

How does the exit-voice-loyalty scheme apply to the current debate over professional athletes kneeling during the national anthem?

Despite the effort by detractors to interpret these protests as unpatriotic or disrespecting the military, the original act by Colin Kaepernick was explicitly designed to protest the widely reported police violence against black American citizens. The national anthem served as an occasion to express dissent and expose the hypocrisy of espoused American values alongside the brutal reality of racial injustice. As Kaepernick stated: “I am not going to stand up to show pride in a flag for a country that oppresses black people and people of color”. Thus, Kaepernick and others were responding to what they considered to be an unsatisfactory state of affairs and chose, among the exit-voice-loyalty options, the constitutionally protected and non-violent act of voice, in the hope of raising awareness and improving conditions.

Those opposed to these actions often demand, instead, unconditional loyalty to the nation and its symbols, despite the well-documented record of disproportionate police violence against unarmed black men. In this context, loyalty means blind conformity and ritualized obedience.

It is interesting that the very conservatives who endlessly trumpet and celebrate the American virtues of individual freedom and liberty, are the first to demand that those citizens who dare exercise these freedoms be sanctioned, disciplined, and fired.  Freedom in theory; authoritarianism in practice. 
And if the disaffected are unwilling to exhibit loyalty, the only other option is “exit”. Those who protested the Vietnam war will be familiar with the phrase “America, love it or leave it”. Such invective is now directed at those who take a knee during the national anthem.  If you have a problem with the way law enforcement operates, move to another country.

In short, the opponents of dissent want to eliminate the option of “voice”; the one course of action Hirschman associated with democratic expression. There are now only two options – loyalty or exit. Take your pick.

Such a sentiment is a dangerous threat to democratic vitality. As the former General and Republican President Dwight D. Eisenhower warned: “May we never confuse honest dissent with disloyal subversion.”

Ironically, sports fans are now faced with a similar array of choices.  Dissatisfied with the way athletes are expressing their dissent, fans are weighing their options – “exit” through boycott, remain loyal to their team, or actively voice their disagreement with the protest tactics.

I would suggest that sports fans and others keep in mind the original source for the athlete’s actions, and support the athletes in raising awareness and ultimately addressing the well-documented failings of the law enforcement and criminal justice systems. Rather than attacking the messenger, it is time to heed the message.

Sunday, December 11, 2016

It's The System, Stupid

Imagine if we had a self-regulating political system that responded automatically to efforts to expand political participation and the freedom of expression, but in a negative fashion. For example, suppose every time a policy was proposed, or put in place, to allow citizens greater ability to express their preferences, the system automatically responded by reducing the range of policy issues that would be accessible to popular input.  Thus, expanding political participation and freedom of expression in the name of democracy would actually result in less democracy. How would we respond to such a situation? Would we simply give up trying to expand the opportunities for democratic expression? Or would we question and seek to change the political system that produced these perverse results? 

Now consider a comparable situation but in the economic system. Suppose every time we proposed a policy that would improve the working and material conditions of the citizens through, for example, a minimum wage or unionization, the self-regulating market system responded by producing  fewer jobs or by disinvesting and capital flight. Thus, attempts to improve the lives of workers would actually result in negative consequences for workers, and this would then be used as the basis for opposing any such labor reforms. How would we respond to this situation?  As it turns out we are much less likely than in the case of the political system to consider the system itself as the problem. Instead, we assume the system is a natural force that cannot be changed or modified [aka TINA – “there is no alternative”] and therefore our only choice is either to abandon all efforts, or work to accommodate the system to minimize the negative consequences.   

When people tell us that any effort to improve material conditions won’t work because the “market” will respond negatively and the action will be counterproductive, we need to consider the problem to lie not with the policy proposal but with our economic system itself.

The economist Michael Perelman [in The Invisible Handcuffs of Capitalism] has framed this issue similarly and more colorfully in the context of the Greek myth of Procrustes and the infamous Procrustean Bed. In that fable, Procrustes invites travelers to spend the night but they must conform to the dimensions of his bed which results in his sadistic practice of amputating limbs that are too long, or stretching the bodies of those who are too short. The Procrustean bed is the metaphor for a system that requires absolute conformity to its logic and the negative consequences for those who deviate.  This is how Perelman describes the operation of the capitalist market.

Recognition of the systemic sources of our problems has fueled a several movements aimed at fundamental political-economic change. One prime example is “TheNext System” project.  

Monday, August 8, 2016

Political-Economic Correctness: Neither the ‘N’ or the ‘F’ Word Shall Be Spoken

Political-Economic Correctness:  Neither the ‘N’ or the ‘F’ Word Shall Be Spoken

The US economy is in the throes of a death spiral that will ensure continuing slow growth, stagnant wages, and growing inequality. It is a sad commentary that that there is virtually no mention by either of the two major party candidates of the pernicious effects of what is now termed Neoliberalism, nor its pernicious appendage, Financialization.  In fact, the terms have been banished from political campaign discourse despite the fact they are routinely evoked by those analyzing the past 30 plus years of US capitalism. The consequences of neoliberalism, alongside financialization, contribute to an economic death spiral because they produce a vicious cycle that promises self-perpetuating economic stagnation.

Neoliberalism refers to the political-economic policy regime that emerged in the 1980s in response to economic crisis conditions of the 1970s. In an effort to reestablish corporate profitability, it elevated private corporate interests over all others through regressive taxation, anti-labor legislation, the evisceration of the social welfare system, “free trade” policies, and deregulation.  The role of government is largely reduced to creating favorable “free market” business climate conditions and reducing the obstacles to the free flow of capital investment, domestically and globally. One of the most significant consequences of the new policy regime was that corporations responded to this neoliberal environment by structurally downsizing and geographically relocating   their operations to reduce costs and enhance profits. This contributed to deindustrialization and the declining role of manufacturing.  

Financialization refers to the growing role of the financial sector in determining the priorities, and accounting for a larger share, of economic activity.  This can be seen in the way corporate decision-making is increasingly based almost exclusively on the anticipated reaction of financial markets, and how an increasing proportion of corporate profits are based not on production but financial speculation.

Neoliberal corporate restructuring and financialization have worked in tandem to undermine what has been described as the virtuous cycle of capitalism. Historically, self-sustaining and dynamic capitalism has depended upon a virtuous cycle that involves the following sequential process -- capital investment in production, employment, labor income, discretionary spending by labor on produced commodities, the generation of profit, and the net profit directed toward more productive capital investment, which starts the cycle anew.  The two critical and necessary conditions in sustaining this cycle are corporations reinvesting profits back into production of goods and services, and workers directing their income toward consumer spending on those goods and services.  Today this virtuous cycle is short-circuited at just these two points as a result of two structurally symbiotic features of the US economy stemming from neoliberal policies instituted in the 1980s – the outsourcing/offshoring of production and financialization.   

How have we arrived at this unsatisfactory economic state? 

Let’s start on the production side.
1.       In response to the economic crisis of the 1970s corporations restructured by outsourcing (aka subcontracting) manufacturing to make their companies leaner and meaner, and sourced manufacturing suppliers, or their own facilities, offshore. This contributed to deindustrialization and the disappearance of well-paying blue-collar factory jobs in the US, thus resulting in downward mobility and unemployment. This also put domestic workers in competition with cheaper foreign labor.
2.       At the same time, one central aspect of financialization was the transition from a philosophy of “managerial capitalism”, involving corporate decision-making by professional managers aimed at improving and expanding business operations, to a “financial capitalism” model that shifted corporate strategy toward the single-minded goal of maximizing “shareholder value”.   Other stakeholder interests – those of workers, communities, or the long-term viability of the enterprise – were subordinated to maximizing the return to shareholders. In order to ensure that managers would pursue shareholder value, their compensation packages included stock options which served to align this desired behavior with monetary incentive.  
3.       The “market”, and accordingly share price, responded favorably when corporations were able to sell off various units and divisions, downsize their labor force, offshore facilities or suppliers to low wage/deregulated locations, and cut costs. Thus, the financial sector both rewarded and reinforced corporate restructuring resulting in progressive deindustrialization.
4.       As corporations, under neoliberalism and corporate restructuring, were able to increase their profit share at the expense of labor’s share, they had large sums of money in search of profitable investment outlets. Since many of these corporations had outsourced manufacturing, the profits would no longer be plowed back into new or upgraded factories or production (which was now carried out by subcontractors, increasingly offshore) but rather into something with potentially higher returns.

5.       At the same time, financial institutions, newly deregulated under the neoliberal regime, developed and invented an assortment of exotic financial instruments to attract the growing corporate windfall. This fueled the further financialization of the economy and the upward concentration of income and wealth (see below).   

6.       Theoretically and historically, a rationale for allowing capitalists to retain the greatest share of profits was based on the assumption that they would plow them back into more investment and production in factories and new enterprises, and thus generate expanding employment and worker income. But today in the US, rather than a convergence, there is a divergence between profits and capital investment (see Figure 1 below). The delinking of these represents a fundamental failure of US capitalism.  Profits are no longer retained and re-invested in production; rather they are diverted toward financial instruments, or used for stock buy-backs to support or enhance share price. 

This is how the capital investment process necessary for a virtuous cycle has been short-circuited.

How has the consumption side of the equation been thwarted?

7.       While the financial sector both shapes and is the recipient of the flow of investment dollars, the broader production side of the economy is neglected, employment opportunities are curtailed, and income and wealth are further concentrated in the hands of financial engineers and their corporate clients.  For the average worker, who has experienced stagnation in buying power, or worse downward mobility, as the economy is restructured and globalized, debt becomes the means to sustain and support their standard of living.
8.       Consumer demand is not only depressed as a result of neoliberal economic policies that favor capital over labor producing stagnant wage growth, but an increasing portion of one’s income stream is diverted to servicing or paying off the various claims made by financial entities as part of car loans, mortgage, credit card, and student debt   (from which the financial sector benefits). This diverts what little income they receive back to the financial sector through debt service rather than into the consumption and spending that would stimulate business growth and employment.  And given the offshoring of production, much of the already limited simulative impact of consumer spending is restricted domestically to the retail sector as the actual manufacturing of commodities takes place abroad.  
9.       Thus we have a toxic symbiotic relationship between financialization and continuing de-industrializing disinvestment. 
It is important to note that as a result of the restructuring of our economy under the neoliberal regime, the financial sector is now in the most powerful political-economic position as the recipient of the diversion of monetary resources from both production and consumption.  Economically, the dominance of the financial sector has been identified by such establishment institutions as the Bank for International Settlements as a serious drag on “real economic growth”.  Politically, mainstream economists such as Simon Johnson speak of a “financial oligarchy” determining policy in the United States. Others describe the rise of debt peonage under a neo-feudal financial regime.  

It is the very power and influence of this sector that ensures, under out current political system, that their interests will continue to be protected by both political parties.

Two Recommended Sources on Outsourcing/Offshoring and Financialization

William Milberg and Deborah Winkler, Outsourcing Economics: Global Value Chains in Capitalist Development.  Cambridge Univ Press

Michael Hudson, Killing The Host: How Financial Parasites and Debt Destroy the Global Economy. Islet Press.

Monday, August 1, 2016

The Myth of Party Polarization

The Myth of Political-Economic Party Polarization

“I actually think the divide is not that wide…. When you go to other countries, the political divisions are so much more stark and wider. Here in America, the difference between Democrats and Republicans — we’re fighting inside the 40-yard lines”
President Obama, November, 2013

It is difficult to read anything about American politics today without coming across the claim that the political system is more polarized than at any time in recent history and that this is the source of current intractable gridlock.  However, as it pertains to the political-economic policy dimension, I believe the claim is false and is due to a misconception of what polarization would involve, and the actual type of division and animosity that actually characterizes party politics today.  

Technically, polarization of the political parties would involve each of the two parties moving in opposite directions toward the left and right ends of the political spectrum. A stylized example of a theoretical party polarization is represented in Figure A.  Here you have, over a 30 year period, the Democratic Party moving toward the left end of the political spectrum and the Republican Party moving toward the right end of the political spectrum. They are moving in opposite directions and toward opposing ideological poles  


A more accurate representation of the political-economic shifts of the two parties is presented in Figure B. Here we have, since 1970, both parties moving toward the right end of the political spectrum. But even though both parties have moved to the right, fueled by their dependence on and cultivation of corporate campaign contributions, the distance between the two parties can still widen if one party is moving more radically to the right than the other. This describes the Republican Party. As political scientists Mann and Ornstein put it in It’s Even Worse Than It Looks,  “The Republican Party has become an insurgent outlier — ideologically extreme; contemptuous of the inherited social and economic regime; scornful of compromise; unpersuaded by conventional understanding of facts, evidence and science; and dismissive of the legitimacy of its political opposition.”  When one of only two parties takes an extreme ideological position, sharp political division is the logical outcome.  This results in a growing distance between the parties despite the fact that they have been moving in the same direction.

The alternative perspective presented here on the issue of polarization is based on what we know about the Democratic Party, beginning with the Carter administration, but solidified under Clinton, that involved a clear departure from New Deal social democratic principles and an embrace of more conservative neoliberal political-economic policies. Among the most notable under Clinton were the North American Free Trade Agreement (NAFTA), the Personal Responsibility and Work Opportunity Act, and the Commodity Futures Modernization Act.   All three of these pieces of legislation moved the Democratic Party to the right as part of the “triangulation” strategy adopted by the Clinton administration.  The Obama administration has done little if anything to reverse policy in these three areas and, in terms of trade agreements, has actually pursued a deepening of the global neoliberal apparatus as evidenced by his promotion of the Trans-Pacific Partnership (TPP).

So, if the parties have moved in the same direction, what accounts for the real hostility and antagonism between the parties and party members?  I would like to offer two simple concepts, based on the existence of a two-party versus multiparty system, which might provide a partial explanation.

First is what I call zero-sum partisanship. This means that (as in a zero-sum game) any gain for one party (electorally or legislatively) is viewed as a loss for the other; and any loss for one is viewed as a gain for the other. Under this destructive arrangement, the notion that there might be a mutually beneficial agreement or a basis for cooperation or compromise between the two parties becomes increasingly unlikely.   

A second closely associated feature of our party system is binary partisanship.  As with a binary numerical system, you are either a 1 or 0.  One’s political identity, and the tone of political discourse, is shaped by one’s location into one category or the other. If you criticize a Republican you must be a Democrat. If you criticize a Democrat, you must be a Republican. If you are not a 1 you must support a zero. There is no space in a binary system between 0 and 1; nor is there the option for a 0 to choose a 2, as this would automatically be interpreted as assisting 1, and thus supporting a “spoiler”.

When Reince Priebus, the chair of the Republican National Committee, was recently asked why the party was now embracing Trump, he replied, "It’s a binary choice. It’s Donald Trump or Hillary Clinton."

Principled non-partisanship under the zero-sum and binary conditions becomes nearly impossible.  Antagonism and mutual distain becomes the norm.

All of this has produced partisan co-dependent relationship between the two parties; each depending on the other to serve as the nemesis against which to generate antipathy among their base.   Instead of offering a politically principled policy agenda, the parties are content to mobilize voters on the basis of the claimed horrors that will result if the opposition is victorious.

For example, in soliciting support and campaign contributions in the current election, Hillary Clinton has made the following pitch: “Donald Trump is not a normal candidate, and if he beats us, it will be more than a defeat at the ballot box — it will be a once-in-a-generation setback for our values and our shared idea of what America means.”​

Rather than proposing a progressive left agenda, as one might expect if ideological polarization were occurring, Clinton, and the Democratic Party of recent election campaigns, is content to run on defending the status quo from the reactionary right. This is aptly described by Matt Karp, in a recent article in Jacobin, as “fortress liberalism” – “the dominant mentality within the Democratic establishment”.

In short, the notion of political party polarization must be examined more carefully and critically as it suggests that not only is there extremism from both parties, but that the Democratic Party has somehow moved sharply to the left. On the central matter of political economic ideology, this characterization is clearly false. The fact that the greatest challenge to the Democratic establishment has come from the progressive social democratic left, and that that ranking officials of the Chamber of Commerce of Commerce and Wall Street moguls such as Michael Bloomberg are now actively supporting Hillary Clinton for President, provides further dis-confirming evidence of the ideological party polarization claim.

Sunday, July 31, 2016

Property Party?

In the words of Gore Vidal:   “There is only one party in the United States, the Property Party … and it has two right wings: Republican and Democrat.”

Tuesday, July 26, 2016

Exit, Voice, or Loyalty: Thoughts on the Sanders Movement

The 2016 primary election season has seen the greatest widespread dissatisfaction and defection from the two-party duopoly in modern times. For both the Democrats and the Republicans, members have challenged the party establishment and promoted insurgent candidates.  How will this all play out through the general election and beyond?  We can consider the case of the Sanders supporters.

One way to approach this question is to take Albert O. Hirschman’s brilliant conceptual triad designed to analyze the options available to those who are dissatisfied with a particular organization, institution, or situation.  The model offers three course of action – exit, voice, or loyalty.  Under the “exit” option one simply leaves or takes their business elsewhere.  This is regarded as the market-based solution.  Alternatively, one can exercise “voice” through the organization of like-minded others and demand change, so that the organization can be transformed into something more satisfactory. Hirschman associates this option with democratic activism. Finally, there is the default option of “loyalty” where one can continue to faithfully support, or remain. in the organization.

Hirschman’s scheme is conceptually elegant, and it can be applied to a wide variety of situations, but fails to consider fully the contextual factors that might constrain the seemingly “free choices” or options facing the social actor.  For example, in the case of a disgruntled employee, “exit” may be highly desirable but not feasible under poor labor market conditions of high unemployment.  Similarly, “voice” may seem an attractive option but there may be few opportunities or the consequences of exercising voice may be dismissal from the job.  What then appears, after considering and rejecting these options, as “loyalty” is in fact really a situation of highly restricted and constrained choice, or no choice at all. 

How do the three options of the Hirschman model currently apply in the short-run to the Sanders supporter? Many may choose to exercise the “exit” option. This could mean not supporting Clinton and either voting for another political party or abstaining all together.  “Voice” could involve working to change the Democratic Party from within so that it more closely aligns with the principles and policies of the Sanders movement. “Loyalty” would entail the strong partisan commitment of supporting whatever nominee emerges from the Democratic Party nominating process.

In the case of the Sanders supporter, there are also contextual constraints that limit easy choices.  One of these contextual factors is the political dynamic generated by a two-party system. As it applies to the exit option, under a two-party system failure to turn out for the Democratic Party, or casting a ballot for a third party, may serve to benefit the Republicans. One is then cast, no matter how unfairly, as somehow responsible for an outcome that may be the least desirable – in this case a Trump victory. 

Some variant of the “voice” option was incorporated into the platform drafting procedures with the appointment of Sanders’ representatives to participate in that process.  Voice can, in the short run, be further exercised through protests and demonstrations at the national convention.  But there are obvious constraints given the fact that the Democratic Party is a corporate dominated party institutionally devoted more toward defending the establishment status quo than promoting radical structural changes that would challenge the balance of social class power. 

Further, the very foundation of the Sanders campaign – as a “political revolution” dependent upon a long-term mass social movement – requires a non-institutionally regulated, sometimes-cacophonous, overture that will disrupt and agitate for substantive social change.   

For this reason, the post-Bernie led movement is best advised, over the post-election long-run, to combine “exit” -- from the shackles of the two party system (which has been the graveyard of social movements) -- with the “voice” of the various movements and existing organizations sharing common ground in seeking justice, equality, and democracy.  

Of course, this will require some level of organization to be most effective. Last night Bernie Sanders communicated the following to those supporting his campaign and movement:

“Our work will continue in the form of a new group called Our Revolution. The goal of this organization will be no different from the goal of our campaign: we must transform American politics to make our political and economic systems once again responsive to the needs of working families.

Friday, July 22, 2016

Trump as Personification of 21st Century U.S. Capitalism

Many of those supporting Donald Trump for President base their support on his record as a successful businessman. But how did Trump amass his financial fortune? A closer look reveals that Trump is, in fact, the perfect personification of the current state of American capitalism -- an economic system that is based heavily on three strands of capitalist practice that today depart radically from the idealized version of the self-made entrepreneurial form.  Trump’s record as a business executive conforms closely to all three strands.

The first is patrimonial capitalism.  This term was introduced by Thomas Piketty in his book Capital in the Twenty-First Century which charts the long-term trajectory of inequality in capitalist societies. His analysis concluded, as the term suggests, that those who dominate and direct our economy base their wealth increasingly on inheritance. It is largely family income and wealth that determines who will occupy the capitalist class rather than merit.  This does not mean that the principle of meritocracy is irrelevant as it does provide, if nothing else, a powerful legitimizing ideology along the lines of “I was born on third base, so I must have hit a triple”.

Trump fits squarely into the patrimonial model as his father, Fred Trump, amassed a net worth of at least $200 million and Donald inherited somewhere between $40 and $200 million. Donald also benefited throughout his business career from a long series of loan guarantees underwritten by his father.

Second is crony capitalism.   This refers to the close relationship between capitalists and government officials in which said officials provide capitalists with various favors (e.g. abatements, incentives, re-zoning, etc.) that translate into private profit. Donald learned the lessons of crony capitalism from his father Fred who developed powerful political connections enabling profitable opportunities in the building of public housing. Donald has built on those connections and that strategy throughout his life. This has included relationships with the City of New York for tax abatements, efforts in Bridgeport CT to have existing businesses condemned, the use of eminent domain in numerous locations to obtain property, and obtaining casino licenses in Atlantic City.  Trump has been quite open about his ability to make economically useful connections with any political official, and his “pragmatic” campaign contributions to both parties reflect this practice.

Opportunities for crony capitalism have increased under the neoliberal supply-side economic development model that privileges the needs of capital over the needs of workers and communities. As states and localities are charged with building favorable business climates for capital investment, and the number of so-called “public-private partnerships” increase, government favors can be rationalized as contributions to job creation.

The third outstanding feature of the contemporary US economy is debt-driven capitalism.   Trump proudly has proclaimed himself “the king of debt” and he claims he “made a fortune out of debt”. He has used what is now a common business practice that was the subject of a recent story in the New York Times on Trump’s business record in Atlantic City: “…even as his companies did poorly, Mr. Trump did well. He put up little of his own money, shifted personal debts to the casinos and collected millions of dollars in salary, bonuses and other payments. The burden of his failures fell on investors and others who had bet on his business acumen.”  A variant of this model, sometimes described as “vampire capitalism”, is the standard operating procedure for the private-equity firms which gained national attention when Mitt Romney was running for President.  As reported during that last presidential race: ”Borrowing lots of money and incurring bad debts is not how real businesses make money in a normal world. But we don’t live in such innocent times. Modern American capitalism is rife with sophisticated financial intermediaries who exploit flaws and complexity in the system, as well as insider connections, to make profits off of predatory behavior” 

So when people hold up Trump as an exemplary example of business acumen, it must be put in the context of U.S. capitalism more generally and the larger systemic failure of our political economy that concentrates wealth in an oligarchical fashion, allows government to be captured by narrow corporate interests, and economically rewards those who use financial sector debt for short term gain.