Liberal Democracy and Class Power

Since Western liberal capitalist societies, and especially the USA, are presumed by the new liberalism to be the avatars of democracy, it may be useful to examine concretely the extent to which democracy – broadly understood as deliberative and open-ended processes of social self-determination (Arblaster, 1987; Dryzek, 1996) – is constrained by the existence of democratically unaccountable concentrations of private power grounded in relations of class. Despite the triumphalist liberalism of the post-Cold War era, with its noisy pronouncements of the bankruptcy of Marxian socialism, the classical Marxian concept of class based upon relationship to the means of production surely has some purchase in the contemporary American political economy. Ownership of the means of production is concentrated within the wealthiest ten percent of American families: according to Federal Reserve data for 1995, this top decile owned 84 percent of the stock and 90 percent of the bonds owned by individuals (including indirect ownership through mutual funds), as well as 92 percent of business assets. And ownership of these assets is even more highly concentrated in the upper reaches of the top decile: the richest one percent of the population owned over 42 percent of stocks, almost 56 percent of bonds, and more than 71 percent of business assets (Federal Reserve data reported in Henwood, 1997c: 3). On the classical Marxian view, the private ownership of the means of production (and appropriation of its product by the owning class) presupposes the existence of a class of people who are, from day to day, dependent upon the sale of their labor-power to secure the necessities of life. Bowles and Edwards report that in 1988, the richest one percent of US families (enjoying annual incomes of more than one million dollars) received almost three quarters of their income from property ownership in the form of profit, interest, capital gain, rents and royalties. This contrasts markedly with the great majority of families who are primarily dependent upon wage labor to enable them to meet their needs and who are, therefore, fully subject to the manifold relations of power and domination which inhere in the capitalist wage relation. In 1988, the 46 million families whose incomes fell between 20 and 75 thousand dollars received almost 84 percent of their income from labor (Bowles and Edwards, 1993: 105).

To these relations of class correspond particular kinds of social power. Owners of the means of production may be socially empowered as employers and as investors.

As employers, capitalists and their managerial agents attempt to assert direct power over the quantity and quality of work performed by those whose labor power is being purchased: "the capitalist forces the worker where possible to exceed the normal rate of intensity, and he forces him as best he can to extend the process of labor beyond the time necessary to replace the amount laid out in wages" (Marx, 1977: 987). This workplace power can be as simple and direct as the "drive system" under which foremen cajoled and coerced workers to greater levels of output; or it can take the form of enormously complex organizations of production such as that commonly referred to as "Fordist".

Displacing predominantly craft-based production in which skilled laborers exercised substantial control over their conditions of work, Fordist production entailed an intensified industrial division of labor; increased mechanization and coordination of large scale manufacturing processes (e.g., sequential machining operations and converging assembly lines) to achieve a steady flow of production; a shift toward the use of less skilled labor performing, ad infinitum, tasks minutely specified by management; and the potential for heightened capitalist control over the pace and intensity of work. In the mid-1920s, one production worker described as follows the relentless pace and intense effort which his job required, and the consequences of failing to meet that standard on a daily basis: "You've got to work like hell in Ford's. From the time you become a number in the morning until the bell rings for quitting time you have to keep at it. You can't let up. You've got to get out the production...and if you can't get it out, you get out" (quoted in Rupert, 1995a: 111) At the core of the Fordist reorganization of production, then, was the construction of new relations of power in the workplace; to the extent that these relations of power could become established parameters of the work process, capital would reap the gains of manifold increases in output per hour of waged labor. The promise of massive increases in productivity led to the widespread imitation and adaptation of Ford's basic model of production through the industrial core of the US economy. The institutionalization of such a system of production required a combination of force and persuasion: a political regime in which trade unions would be subdued, workers might be offered a higher real standard of living, and the ideological legitimation of this new kind of capitalism would be embodied in cultural practices and social relations extending far beyond the workplace (Rupert, 1995a).

Limited as the "industrial democracy" of Fordist unionism may have been, most people are now even less able to have any meaningful voice in their working lives. There has been a shift in the "correlation of forces" within the workplace and a recasting of the historical structures in which capitalist production relations are instantiated. After decades of de-unionization, restructuring and layoffs, downsizing and outsourcing, and transnationalized production, workers in post-Fordist America are effectively disempowered and less able to lay claim to the fruits of their growing productivity.

That employers are fully aware of the fearful dependence of working people upon their jobs, and in an era of transnationalized production are prepared to exploit this economic insecurity as a source of workplace power, is demonstrated by the fact that employers now commonly threaten to close plants and eliminate jobs when they are faced with unionization drives or new collective bargaining situations. According to one of the most comprehensive and systematic studies of unionization campaigns in the post-NAFTA period, this type of workplace extortion has taken a variety of forms: "specific unambiguous threats ranged from attaching shipping labels to equipment throughout the plant with a Mexican address, to posting maps of North America with an arrow pointing from the current plant site to Mexico, to a letter directly stating that the company will have to shout down if the union wins the election". One firm shut down a production line without warning and "parked thirteen flat-bed tractor-trailers loaded with shrink-wrapped production equipment in front of the plant for the duration" of the unionization campaign, marked with large hot pink signs reading "Mexico Transfer Job". Between 1993 and 1995, such threats accompanied at least half of all union certification elections (Bronfenbrenner, 1997: 8-9). In the words of one auto worker contemplating his future in a transnationalized economy, the threat of runaway jobs "puts the fear in you" (quoted in Rupert, 1995: 195); and, indeed, it is intended to do so.

These shifting relations of power have had measurable effects. During the "golden years" of postwar Fordism, real wages rose steadily along with productivity (Rupert, 1995a: 179). That relationship has since been severed: productivity continues to rise (albeit more slowly than during the "golden age"), while real wages have been declining over the long-term and total compensation (wages + benefits) have stagnated (Mishel et al., 1997: 131-38). Doug Henwood, editor of Left Business Observer, explains:

We're constantly told by economists and pundits that the key to getting wages up again is raising productivity. But over the last several decades, productivity - the inflation-adjusted value of output per hour of work - has risen much faster than real compensation (wages plus fringe benefits adjusted for inflation)… Here's another way to think about the growing gap between productivity and wages. According to the World Bank, in 1966, U.S. manufacturing wages were equal to 46% of the value added in production (value-added is the difference between selling price and the costs of raw material and other inputs). In 1990, that figure had fallen to 36% (Henwood, 1997a).

This intensified exploitation of workers is a large part of the explanation for higher corporate profits, a roaring stock market, and extravagant growth in executive compensation.

The labor-oriented Economic Policy Institute concurs that a significant power shift in favor of capital has occurred. According to EPI economist Lawrence Mishel (1997), whereas " labor’s share of corporate sector income rose from 79.2 percent in 1959 to 83.9 percent in 1979", it had declined to about 81 percent by 1996. In the manufacturing sector, the reversal has been sharper (Mishel, 1997). Correspondingly, EPI reported that over the last eight-year business cycle corporate profit rates have hit record peaks, up over 50 percent from the profit peak of the previous business cycle - substantially higher, that is, than the profit peak of the rabidly pro-business Reagan-Bush years!:

Corporate profit rates reached a new peak in 1996 and are now at their highest level since these data were first collected in 1959…In no previous period in US history have profit rates experienced such a rapid sustained rise... The rise in profit rates results from two factors: a shift in income from wages to profits, and a decline in the relative size of the capital stock due to low levels on investment…In 1988, 14.07% of corporate income went to profits. In 1996, this proportion had risen by more than a full percentage point to 15.16%. This shift from wages to profits created a gap between wage growth and productivity growth, and took away approximately one quarter of the wage gain that workers would have realized over the last eight years if their wages had kept pace with productivity (Economic Policy Institute, 1997; see also Baker and Mishel, 1995).

Conditions favoring extraordinary levels of corporate profitability have translated into rich rewards for investors. According to Henwood, recent record highs on Wall Street (the Dow surging past 7,000 - and subsequently on beyond 8,000 and then 9,000) represent the crest of a wave which has been building for years: "Over the last 15 years, the real (inflation-adjusted) Standard & Poor's 500 index, a proxy for blue-chip corporate America, is up 574%, by far the biggest 15-year real rise since good statistics start in 1886; in 1964, it was 434%; in 1929, 205%. By most conventional measures of whether stocks are reasonably priced, the market is at or near historic extremes." Not only have investors made out like bandits on the appreciation of their assets, but they have also been receiving generous dividends: "firms are paying out near-record shares of their profits to their stockholders – 70% of after-tax profits since 1982, [almost] twice historical averages". Henwood suggests that, Alan Greenspan notwithstanding, this "exuberance" in the markets is not altogether "irrational", but rather "stock markets are celebrating the political triumph of capital worldwide" (Henwood, 1997b). It is sometimes claimed that growing participation in mutual funds and pension plans have "democratized" the ownership of capital, implying that the benefits of a booming stock market might trickle down at least as far as the "middle class". It is important to remember, however, that ownership of financial and business assets remains highly concentrated among the very rich, as I demonstrated above.

If the 1990s have been good to members of the investor class who derive the bulk of their income from the ownership of financial and business assets, they have also been happy times for corporate executives (who, as recipients of large stock options, are also members of the investor class). In 1978, the average American corporate CEO earned about 60 times as much as the average worker; by 1995 the average CEO was pulling down 172 times as much as his workers. The compensation of the average CEO grew by 152 percent between 1978 and 1995, rising to more than $4.3 million annually (Mishel et al. 1997: 226).

In an environment where the rewards to corporate managers and investors have far outstripped the wages of working people, it should not be surprising to discover that inequalities of income and wealth are at historically high levels. According to the US Census Bureau, income inequality increased markedly between 1968 and 1994, such that the income gap between rich and poor was wider in 1994 than at any time since 1947, when they began collecting such data (US Census Bureau, 1996, see also Wolff, 1995: 28 and Mishel et al., 1997: 52-64). Inequality of wealth is even more stark than the income gap. According to Federal Reserve data for 1995, the top one percent now control more wealth than the bottom ninety percent of the population. While unequal ownership of wealth is nothing new in the American political economy, such inequality is now more extreme than at any time since the 1920s (Henwood 1997c; also Wolff, 1995: 7; and Mishel et al., 1997: 278-81).

Employers and investors in the US have then enjoyed the fruits of their enhanced social power. But this power is not confined within the boundaries of the "economy"; it has broader political manifestations as well. "Even in a society whose government meets the liberal democratic ideal, capital has a kind of veto power over public policy that is quite independent of its ability to intervene directly in elections or in state decision making" (Bowles and Gintis, 1986: 88). Even if members of the owning class were somehow unable or unwilling to access political influence through massive campaign contributions, private coffees with the President or nights spent in the Lincoln bedroom, they would nonetheless be uniquely privileged by virtue of their structural situation and social powers. Insofar as the state under capitalism depends for its economic vitality upon the investment activities of a class of "private" owners of the social means of production, it is effectively subject to their collective blackmail. If a state fails to maintain conditions of "business confidence" (Block, 1977: 16), or if it enacts policies which appear threatening to the interests of the owning class, investors responsible only to their own pocketbooks may decline to invest there. In effect, they may subject the state to a "capital strike" - driving up interest rates, depressing levels of economic activity, throwing people out of work, exacerbating the fiscal crisis of the state and endangering the popular legitimacy of the incumbent government. Thus are market values enforced upon governments which claim to be responsive to popular democratic pressures. "The presumed sovereignty of the democratic citizenry fails in the presence of the capital strike" (Bowles and Gintis, 1986: 90).

The power of transnationally mobile capital to override democratic processes and public deliberations has increased manifoldly along with the growth of international liquidity and the sophistication and speed of exchange in the world’s financial markets. According to Howard Wachtel, "some $650 billion in foreign exchange transactions are completed each day in New York, Tokyo, and London. Only about 18 percent support either international trade or investment… The other 82 percent is speculation…" (Wachtel, 1995: 36). Responding to short-term differences in perceived conditions of profitability and variations in business confidence between one place and another, these huge speculative flows are highly volatile. Massive amounts can be shifted from one currency (or assets denominated in one currency) to another literally at the speed of light via the computer modems and fiber optic cables which link together the world’s financial markets. The volume and speed of this trading has heightened the potential disciplinary effect of a threatened capital strike, and governments are increasingly obliged to weigh carefully their welfare, fiscal and monetary policies against the interests of investors who may exit en masse in response to expectations of lower relative interest rates or higher relative inflation rates. This disciplinary power has the effect of prioritizing the interests of investors, who are as a class effectively able to hold entire states/societies hostage. Moreover, the particular interests of the owning class are represented as if they were the general interests of all: "since profit is the necessary condition of universal expansion, capitalists appear within capitalist societies as bearers of a universal interest" (Przeworski, quoted in Thomas, 1994: 153). In this ideological construction, the social and moral claims of working people and the poor are reduced to the pleadings of "special interests" which must be resisted in order to secure the conditions of stable accumulation. In William Greider’s apt summary, "Like bondholders in general, the new governing consensus explicitly assumed that faster economic growth was dangerous – threatening to the stable financial order – so nations were effectively blocked from measures that might reduce permanent unemployment or ameliorate the decline in wages. …Governments were expected to withdraw more and more benefits from dependent classes of citizens – the poor and elderly and unemployed – but also in various ways from the broad middle class, in order to honor their obligations to the creditor class…" (Greider, 1997: 298, 308). This disciplinary power was reflected in Bill Clinton’s speedy transformation from a candidate advocating "putting people first" (through job creation and public investment strategies) to an incumbent deficit hawk whose eyes were glued to the bond markets (Greider, 1997: chapter 13). The ideological equation of the interests of investors with the universal interest is also reflected in the World Bank’s declarations that globalization of capital is a positive force, "richly rewarding policy when it is sound but punishing it hard when it is unsound" (World Bank, 1995: 5); the question of soundness for whom is, of course, not an open issue for the Bank.

But the anti-democratic ramifications of liberal capitalism are not exhausted by cataloguing the ways in which capital and its interests are privileged within putatively democratic states, for capitalism and its politics have never been confined within the boundaries of states. Capitalism is a social order which is premised upon accumulation for its own sake, endless accumulation; and, as such, recognizes no boundaries. As Marx and Engels famously declared, "The need of a constantly expanding market for its products chases the bourgoisie over the whole surface of the globe" (in McLellan, ed., 1977: 224). While there is considerable debate on the substance and significance of the current phase of "globalization" (cf. Dicken, 1992; Agnew and Corbridge, 1995; Hirst and Thompson, 1996; Robinson, 1996b; Henwood, 1997d; Wood, 1997; Perraton et al., 1997), it seems to me clear enough that the postwar world order – and the historic bloc whose project this was - has fostered the growth of transnational capitalism along with institutions and ideologies to support worldwide accumulation.