Wayne M. O'Leary

Crisis of American Capitalism

Amidst the general economic happy talk emanating from Washington these days -- the boosterish administration chatter about a "sustained" recovery, increased job creation, a rebounding stock market -- there are abundant signs of silent distress across the land. Call it a creeping malaise, a slow unraveling of the mighty economic engine that has powered American fortunes for several generations, delivering broadly shared prosperity ever since the nation emerged from depression and war in the 1940s.

The engine of the American economy has not yet lost all of its reserve horsepower; it still generates sufficient thrust to propel a minority into the good life and keep them there -- but only a minority. Economic critic Jeff Madrick, appearing on PBS's Now two years ago, defined that minority as the top 20% in income, the bracket one had to be in to truly live the American dream. Federal income-distribution figures for 2001, which indicated the top 20% of households had for the first time taken in half of all American income (a share that is holding firm four years later), suggest Madrick's thesis is correct.

Moreover, the 20% club is one that is becoming increasingly harder to join. Historically, Americans have rarely been jealous of those higher up the economic ladder -- not even the CEOs making 500 times their wages -- because they have always assumed upward mobility was their national birthright, that they, too, had the opportunity to rise. Now, that assumption is seriously in doubt.

In its first issue of 2005, The Economist, which normally cheerleads for free market capitalism, both documented and bemoaned the apparent end, in our time, of America's celebrated social mobility. Meritocracy, the very essence of Americanism, was petering out, lamented the magazine's editors. The national curse of inequality they accepted as a given, but increasingly, they reported, it was no longer being offset by steady upward movement from one generation to the next.

Others, too, have noticed the phenomenon of static or downward American mobility over the past 20 to 30 years. Under such dire headlines as "The Vanishing Middle Class" and "Middle Class No More," the Washington Post, one of the nation's most authoritative mainstream journals, explored the disintegration of broad-based American prosperity in a series of articles in late 2004-early 2005. Its conclusion: the economy is no longer working to benefit average citizens. Among the perquisites that are disappearing for those not in the aforementioned upper fifth, it reported, are good jobs with livable wages, good workplace health and retirement benefits, and any kind of long-range economic security.

None of this would surprise those caught in the latest manifestation of American capitalism's slow-motion implosion, such as the United Airlines employees whose promised retirement pensions have been swallowed up in the bankruptcy proceedings pursued by their company, which used the business-friendly legal and judicial system to reconstitute itself at the expense of its suddenly irrelevant and disposable work force. The United ploy, expected to be imitated by troubled US firms across the board, will put the coup de grace to the traditional post-World War II retirement system based on defined-benefit pensions. Such pensions, in decline since the cowboy-capitalist days of the 1980s -- their provision by large- and medium-sized businesses fell from 76% of employed workers in 1986 to 36% in 2000 -- are moving from the endangered species list to a museum-quality example of the taxidermist's art; they will be replaced by the risky and oversold 401(k) plans that were only supposed to supplement them.

This change took place despite a rising stock market and perhaps because of it, since the 20-year investment boom that ended in 2000 made market-sensitive defined-contribution plans of the 401(k) variety easier to sell to the public. Yet, it was a mirage. In May 2002, ABC News reported that while the market rose by nearly 800% from the 1980s through the 1990s, the retirement income of average Americans actually dropped by 11% as companies (the same companies abolishing more costly traditional pensions) cut back on contributions to the new 401(k) plans, preventing underpaid workers from fully investing in them. The upshot is that about 40% of seniors will retire on barely half their working incomes, and 20% will live below the poverty line; in the "ownership society," they will own mainly their debts.

Employee health insurance has followed a pattern similar to pension coverage over recent decades. Washington Post investigators discovered that the percentage of total workers in private industry covered by employer-based medical insurance fell from 66% in 1990 to 45% in 2003, while over roughly the same time period (1988-2004), average monthly employee contributions to family health plans nearly tripled. This took place in the context of consistently stagnant wages, which failed to keep pace with either rising health premiums or overall inflation during the 15 years prior to 2003.

Wages, even more than pensions and health coverage, form the crux of capitalism's crisis in this most capitalist of nations. In an environment where workers are being urged or forced to take on more and more of the direct responsibility for their future wellbeing, the decline in well compensated employment is assuming immense ramifications. The last recession, which we are told ended in 2001, produced first a jobless recovery that then morphed into a raise-less one. News reports in mid-2004 made much of the fact that newly created post-recession jobs, mostly low-level service positions, were paying an average of 21% less than the lost jobs they replaced, two-thirds of them less than the prevailing US median wage. But this is nothing new; factoring in inflation, average hourly wages in the US have been going down for the past 30 years.

That's the essential crisis of American capitalism, the worst threat since the Great Depression to the financial structure FDR saved. Regardless of corporate earnings, stock market levels and raw job totals, an economic system that doesn't provide average, middle class individuals with an employment base sufficient to maintain a decent standard of living and a modicum of economic security is, by any real measurement, a failed system. This is the situation we find ourselves in after a generation of uncritical market worship and rampant economic globalization accompanied by no rules or regulations.

Wayne O'Leary is a writer in Orono, Maine.

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