DOLLARS

Could Medicare for All Be Cheap?

Nov | Dec
PAGE 5

2017
Fake News on Trump’s Tax Plan

&SENSE
PAGE 7

A Civic Strike in Colombia

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Workers’ Share of National Income

REAL WORLD ECONOMICS PAGE 30

Deindustrialization
in the Granite State
 DOLLARS < From the Editors

&SENSE Contradictions of Capitalist Development

I n their renowned book, The Deindstrialization of America (1984), Barry Bluestone

REAL WORLD ECONOMICS

and Bennet Harrison describe what deindustrialization has wrought for workers
Dollars & Sense magazine explains the workings of
the U.S. and international economies and provides in the manufacturing “core” of the Northeast United States: “Their very jobs are be-
left perspectives on current economic affairs. It is
edited and produced by a collective of economists,
ing pulled out from under them. And instead of providing new employment op-
journalists, and activists who are committed to social portunities, a higher standard of living, and enhanced security, the decisions of cor-
justice and economic democracy.
porate managers are doing just the opposite.”
the d&s collective
Betsy Aron, Autumn Beaudoin,
In her cover story for this issue, Marie Duggan gives us a fine-grained and deeply
Sarah Cannon, John Miller, human story of the decline and fall of the machine-tool industry in Keene, N.H.
Jawied Nawabi, Zoe Sherman,
Bryan Snyder, Chris Sturr, De’En Tarkpor Above all, Duggan’s message is that deindustrialization is not something that “just
William Whitham, Jeanne Winner happened,” but the result of human decisions—from the level of firm managers
staff and owners to the heights of national economic policymaking and back. Likewise
editors Alejandro Reuss, Chris Sturr
business and circulation manager De’En Tarkpor
for the consequences, which ruptured what can only be described an intimate rela-
the d&s board
tionship between the owners, managers, and workers in the industry. A traditional
Gerald Friedman, John Miller, “welfare capitalism,” where owners and managers cared for “their men,” with a mix-
Steven Pressman, Abby Scher,
Chris Sturr, De’En Tarkpor
ture of real feeling, paternalism, and hostility to labor organization, gave way to a
Ten-year collective members (historical)
form where the workers got the shite end of the stick, the relationship exploded
Frank Ackerman, Randy Albelda, Betsy Aron, into open conflict, and the industry was ultimately left as a looted shell.
Phineas Baxandall, Mark Breibart, Marc Breslow,
Beth Burgess, Jim Campen, Dick Cluster,
Patricia Rodriguez takes us to a different part of the world, to the port city of
Chuck Collins, Ellen Frank, Amy Gluckman, Buenaventura, Colombia, and a different—equally searing—account of capitalist
Erkut Gomulu, Sue Helper, Arthur MacEwan,
John Miller, Laura Orlando, Linda Pinkow,
development. Here, the rise of the modern port industry is bringing “environmental
Alejandro Reuss, Adria Scharf, Bryan Snyder, destruction and the forced, violent displacement of Afro-descendant and indige-
Chris Sturr, Chris Tilly, Jeanne Winner
nous communities in the area.” Rodriguez, too, gives us a human story of the dis-
Five-year staff members (historical)
Nancy Banks, Marc Breslow, Randall Divinski,
possessions and violence suffered by the poor and marginalized, but also the in-
Deborah Dover, Daniel Fireside, Amy Gluckman, spiring story of their resistance to these assaults and their determination is devising
Maryalice Guilford, Patricia Horn, Linda Pinkow,
Paul Piwko, Alejandro Reuss, Abby Scher,
and fighting for alternatives.
Chris Sturr, Vince Valvano, Tim Wise Finally, among our features, an interview with economist William Tabb takes us
design around the globe—from the high-income countries that were the epicenter of the
layout Chris Sturr
front cover design Chris Sturr
global crisis to developing countries that face the harrowing prospect of dealing
see pp. 9-18 for photo credits with globally mobile capital. In the former, workers face a power structure commit-
printing   Boyertown Publishing
ted to wage repression and financialization; in the latter, they face elites that have
Dollars & Sense (USPS 120-730) is pub­lished bimonthly
by the Economic Affairs Bureau, Inc., 89 South Street,
abandoned national autonomous development in favor of neoliberalism and inte-
LL02, Boston, MA 02111, a non-profit corporation.
ISSN: 0012-5245. 617-447-2177. Fax: 617-447-2179.
gration with global capital. Yet, Tabb, too, gives reason for hope rather than de-
E-mail: dollars@dollarsandsense.org. Periodical postage spair—that, in response to a system that is neither socially nor ecologically sustain-
paid at Boston, MA, and additional mailing offices.
able, we will see the growth of anti-capitalist resistance.
For subscription information, contact Dollars & Sense, 89
South Street, LL02, Boston, MA 02111. To subscribe, Also in this issue: Gerald Friedman on Medicare for All, John Miller on the Trump
go to: www.dollarsandsense.org/subscriptions.Please
allow 4–6 weeks for delivery. tax giveaway to (you guessed it!) corporations and the very rich, Arthur MacEwan
POSTMASTER: Send address changes to Dollars & on the labor share of total income in the USA and other high-income countries.
Sense, 89 South Street, LL02, Boston, MA 02111. All
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www.dollarsandsense.org
T
his is the final issue for Alejandro Reuss as co-editor of Dollars & Sense. He first
became involved with D&S, as an intern, in 1996. Since then, he has been a col-
lective member, an Associate (when he was at UMass-Amherst for graduate
school), and co-editor (in two separate stints, 2000–2002 and 2013–2017). All told,
he has been on the D&S staff for seven years and on the collective for sixteen, and
has had an immeasurable impact on the organization and its publications. He will
no longer be on the D&S staff, board, or collective, or in any other formal leadership
position in the organization. “The only ties will be of another nature—the kind that
cannot be broken.” D&S

2  l  DOLLARS & SENSE  l  NOVEMBER/DECEMBER 2017

 DOLLARS
&SENSE
REAL WORLD ECONOMICS

NUMBER 333 | NOVEMBER/DECEMBER 2017

CON TENT S

TH E R E GUL AR S

page 5 page 19 4 the short run

5 making sense
“Medicare for All” Could Be
Cheaper Than You Think

FEATUR ES 7 up against the wall st journal

Fake News on Trump’s Tax Cut
9 Deindustrialization in the Granite State Framework
What Keene, N.H., can tell us about the role of monetary policy
and financialization in the loss of U.S. manufacturing jobs. 28 in review
MARIE CHRISTINE DUGGAN
Josh Ryan-Collins, Toby Lloyd, and
Laurie MacFarlane, Rethinking the
19 “The People Don’t Give Up, Dammit!” Economics of Land and Housing
In Buenaventura, Colombia, a Civic Strike and a Collective Plan
to End a Port Enclave.
30 ask dr. dollar
PAT R I C I A RO D R I G U E Z
What is U.S. workers’ share of national
income?
24 Transnational Capital and Transnational Labor
Understanding the restructuring of the capitalist world economy in
the neoliberal era and since the global economic crisis.
A N I N T E RV I E W WITH W I L L I A M K . TA B B

NOVEMBER/DECEMBER 2017  l  DOLLARS & SENSE  l  3

< The Short Run
By Alejandro Reuss, Zoe Sherman, and Chris Sturr
Give Up the Dough
Nike recently premiered a new com-
mercial, titled “Want It All,” showing a
young basketball player envisioning
his future career—from the play-
ground, to basketball camps, to Duke,
and ultimately to the NBA. The ad fea-
tures the powerful baritone of Public
Enemy’s Chuck D, rapping the group’s
hit “Shut ‘Em Down,” from the 1991
album Apocalypse 91.
Only a few lines are included in the
commercial, most prominent among
them being the refrain of “Shut ‘em
down, shut ‘em down, shut ‘em shut
‘em down.” But there’s a lot more to the
song than that. It’s been over a quarter
century since “Shut ‘Em Down” was
released, so many of those who see
the ad will have never heard it in full,
and many who did won’t remember.
The last verse, as it originally appeared
on Apocalypse 91:
4  l  DOLLARS & SENSE  l NOVEMBER/DECEMBER 2017
I like Nike, but wait a minute.
The neighborhood supports, so put
some money in it.
All corporations owe, they gotta give
up the dough
To my town OR ELSE WE GOTTA SHUT
‘EM DOWN!
You gotta think that Nike didn’t care
too much for that sentiment. —AR
Incriminating Vanity
A life of public service often entails
personal sacrifice. Secretary of
Commerce Wilbur Ross, Jr., for exam-
ple, lost his spot on the Forbes 400
list of the nation’s richest people
when he accepted Donald Trump’s
nomination to serve. Not because he
had to give up any assets, but be-
cause he was required to file financial
disclosure forms to take up a govern-
ment post and those showed that his
net worth was “only” $700 million,
more than $2 billion less than Forbes
mistakenly gave him credit for last
year. Hoping to avoid exposure as a
relative pauper, Ross asked Forbes to
keep him on the list, claiming he had
moved the missing $2 billion into
trusts for his family—but that only
invited more scrutiny since, if that
were true, he should have paid $800
million in gift taxes. We might ques-
tion Forbes’ celebration of obscene
accumulations of wealth. But they at
least had the integrity to admit the
falsehood they published, which is
more than can be said for Ross. —ZS
That Can’t-Do Attitude
Elon Musk, co-founder and CEO of the
electric car company Tesla Inc., is fa-
mous for a grandiose optimism—a be-
lief, apparently, that anything is possi-
ble if you really commit to it. Through
his company SpaceX, he hopes to send
people to Mars (and make money do-
ing so—somehow). His latest venture,
playfully called “The Boring Company,”
promises to dig an enormous tunnel
that will shoot cars “via a futuristic car
skate” under Los Angeles at speeds up
to 130 miles an hour, according to
Business Insider. What problems can’t
this serial entrepreneur tackle?
Tesla workers have apparently
found Musk’s limit: workplace harass-
ment. As reported in a recent article in
The Guardian, a Tesla assembly-line
worker, Jorge Ferro, said he was
“taunted for being gay and threatened
with violence.” Meanwhile, Owen Diaz
and his son Demetrick, who are black,
were subjected to daily racist epithets
at the Tesla factory where they both
worked. Supervisors brushed aside the
complaints in both cases. According to
The Guardian, the company “called the
claims ‘unmeritorious’ and argued that
it was not responsible since the em-
ployees are contractors.” So much for
that can-do attitude. —CS D&S
< Making Sense

Medicare for All Could Be Cheaper Than You Think

BY GERALD FRIEDMAN
Lady Bird Johnson looks on
as President Lyndon B.

P ublic support for single-payer

health care has risen in recent
months amid failed Republican efforts
to repeal and replace the Affordable
Care Act. That’s perhaps why Sen.
Bernie Sanders [I-Vt.] on September 13
introduced a new version of his single-
payer plan with the support of 16
Democratic colleagues, a sharp rise
from 2013 when none signed on to a
similar proposal. It would not only ex-
pand Medicare to all Americans (citi-
zens and documented immigrants) but
make it more comprehensive by cover-
ing more services, like mental health,
dental care, and vision care, all without
copayments or deductibles. But
Sanders’s plan would require substan-
tial tax increases, likely more than
US$14 trillion over the first decade,
based on an estimate I did of a previ-
ous version.
There is, however, a simpler path
toward single-payer that may have a
better chance of success because it
requires much smaller tax increases:
Simply strike the words “who are age
65 or over” from the 1965 amend-
ments to the Social Security Act that
created Medicare and, voilà, everyone
(who wants) would be covered by the
existing Medicare program. While this
wouldn’t be single-payer—in which
the government covers all health care
costs—and private insurers would
continue to operate alongside
Medicare, it would be a substantial
improvement over the current system.
Giving Medicare to Everyone
In 2015, the last year with complete
data, over 55 million Americans re-
ceived Medicare benefits (including
nine million who were disabled). Total
spending was $646 billion that year, or
an average of $11,000 per recipient. A
simple expansion would add the non-
disabled population under age 65 to
Medicare: 28 billion without insurance,
61 million covered by Medicaid or the
Children’s Health Insurance Plan, and
181 million with private insurance. For
the purposes of my calculations, I as-
sume everyone eligible for Medicare
would take advantage of the program.
Because the vast majority of the new
enrollees would be younger and
healthier than current Medicare partici-
pants, the cost per person would be
much less, or about $5,527 for the once
uninsured and $3,593 for everyone else.
With a few other calculations, the total
price tag of an expansion would tally
around $836 billion—almost $600 bil-
lion less than Sanders’ single-payer.
Substantial Savings
Something that often gets lost in the
debate over the cost of single-payer is
that its implementation would lead to
a host of savings that make the bill to
taxpayers a lot less than the sticker
price. I estimate that a full single-payer
Johnson signs the Medicare
bill at the Harry S. Truman
Library in Independence,
Mo., July 30, 1965.
Credit: Wikipedia Commons,
Public Domain.
system would likely save almost 19%
of current spending, or about $665
billion for 2017. A simple Medicare
expansion wouldn’t save quite as
much but it would still be significant.
So where would the savings come
from? To begin with, studies show that
medical billing is more expensive in the
U.S. than in many countries. The U.S.
health care system costs twice as much
as Canada, for example, because more
“payers” means more complexity.
Savings from a simple Medicare expan-
sion could reduce this waste by about
$89 billion a year (see next page).
Another source of savings is on in-
surance administration. Private insur-
ers spend more than 12% of total ex-
penditures on overhead, compared
with around 2% for Medicare. Savings
from moving everyone to Medicare
would approach around $75 billion
because of economies of scale, lower
managerial salaries, and more meager
marketing expenses.

NOVEMBER/DECEMBER 2017  l  DOLLARS & SENSE  l  5

< Making Sense

A third way a simple Medicare ex-
pansion would yield savings is by re-
ducing the ability of hospital monopo-
lies to overcharge private insurers.
Medicare, in contrast, is able to pay
22% less for the same services because
of its size. If all Americans used
Medicare, savings on hospital costs
could exceed $53 billion.
These three areas, then, would save
just under $220 billion, more than
twice the level of new expenditures
needed to cover the uninsured. These
savings would bring the total new gov-
ernment expenditures from the expan-
sion down to $618 billion.
One Small Step
While $618 billion still seems like a
hefty price tag, taxes wouldn’t have to
be raised much to pay for it. For start-
ers, most everyone would pay the pre-
miums already charged by Medicare,
generating an additional $210 billion
in revenue from premiums without
requiring members of Congress to
vote any new taxes. In addition, a
Medicare expansion would reduce the
need for two current insurance subsi-
dies: one for employer-provide insur-
ance plans and another that the ACA
provides insurers. This would save
about $161 billion.
This leaves about $246 billion that
would still need to be raised through
additional taxes. This could be done
with an increase in the Medicare tax
that gets deducted from your pay-
check. The tax, which is split evenly
between employee and employer,
would need to rise to 5.9% from 2.9%
today. While this would amount to
about $15 a week for the typical em-
ployee, this would bring Medicare
coverage that would save the average
worker with employer-provided fam-
ily coverage over ten-times as much
in premiums. D&S
G E R A L D F R I E D M A N is a profes-
sor of economics at the University of
Massachusetts-Amherst.
N O T E S : A longer version of this article originally
appeared at The Conversation (theconversation.com);
this version and the original are published under a
Creative Commons ShareAlike NoDerivatives license;
this version is modified from the original by permis-
sion from The Conversation. Author’s calculations are
available at http://www.dollarsandsense.org/Funding-
Medicare-for-All-explanation-170918.pdf.
S O U R C E S : S.1804 - Medicare for All Act of 2017
(congress.gov); Jessie Hellmann and Rachel Roubein,
“Sanders unveils single-payer bill to cheers from sup-
porters,” The Hill, September 13, 2017 (thehill.com);
Robert Pear, “Medicare for All or State Control: Health
Care Plans Go to Extremes,” New York Times, Sept. 13,
2017 (nytimes.com); Committee for a Responsible
Federal Budge, “Analysis of the Sanders Single-Payer
Offsets,” Feb. 3, 2016; Social Security Administration,
“Part A—Hospital Insurance Benefits for the Aged and
Disabled” (ssa.gov); Kaiser Family Foundation, “Total
Number of Medicare Beneficiaries” (kkf.org); Centers for
Medicare & Medicaid Services, “National Health
Expenditure Fact Sheet” (cms.gov); Kaiser Family
Foundation, “Key Facts about the Uninsured
Population,” Sept. 19, 2017; Kaiser Family Foundation,
“Total Monthly Medicaid and CHIP Enrollment,”
Timeframe: February 2016; The Kaiser Commission on
Medicaid and the Uninsured, “The Cost of Care for the
Uninsured,” May 10, 2004 (southerninstitute.org);
Gerald Friedman, “Funding HR 676: The Expanded and
Improved Medicare for All Act: How we can afford a
national single-payer health plan,” Physicians for a
National Health Plan, July 31, 2013 (pnhp.org); Centers

MEDICARE FOR ALL … FOR CHEAP?
Not exactly cheap, but more affordable than the comprehensive single-
payer proposed by Bernie Sanders. The table shows the costs and savings
from moving everyone to Medicare and how it could be paid for. Numbers
may not add up due to rounding.
Costs
Savings
Costs minus savings
Revenues
Net cost minus revenues
Coverage replacement
Covering uninsured
Total cost
Provider administration
Insurance administration
Hospital monopoly pricing
Total savings
Net cost
Tax expenditure subsidy
Reduced ACA subsidy
Premiums
Subtotal
New revenue needed
for Medicare & Medicaid Services, “National Health
Expenditure: Projected,” 2016-2025; Eric C. Schneider et
al., “Mirror, Mirror 2017: International Comparison
Reflects Flaws and Opportunities for Better U.S. Health
Care,” The Commonwealth Fund (commonwealthfund.
org); D. M. Berwick and A.D. Hackbarth, “Eliminating
waste in US health care,” Journal of the American Medical
Association, March 14, 2012 (ncbi.nlm.nih.gov); Steffie
$754bn Woolhandler and David U. Himmelstein, “Single-Payer
Reform: The Only Way to Fulfill the President’s Pledge of
$82bn More Coverage, Better Benefits, and Lower Costs,”
$836bn Annals of Internal Medicine, April 18, 2017 (annals.org);
Nick Buffie, “Overhead Costs for Private Health
$90bn Insurance Keep Rising, Even as Costs Fall for Other
$75bn Types of Insurance,” Center for Economic and Policy
Research blog, Feb. 6, 2017 (cepr.net); Avik Roy,
$53bn “Hospital Monopolies: The Biggest Driver of Health
$218bn Costs That Nobody Talks About,” Forbes, Aug. 22, 2011
(forbes.com); Centers for Medicare & Medicaid Services,
$618bn “Inpatient Charge Data FY 2015”; Medicare Payment
$142bn Advisory Commission, “Report to the Congress:
Medicare Payment Policy,” March 2017 (medpac.gov);
$19bn Medicare.gov, “Part B costs” (medicare.gov);
$210bn Department of Treasury, “Tax Expenditures FY2016”
(treasury.gov); Congressional Budget Office, “Insurance
$372bn Coverage Provisions of the Affordable Care Act—CBO’s
March 2015 Baseline” (cbo.gov); Jean Murray, “FICA
$246bn
Taxes - Social Security and Medicare Taxes,” The Balance,
July 5, 2017 (thebalance.com).

6  l  DOLLARS & SENSE  l NOVEMBER/DECEMBER 2017

< Up Against the Wall Street Journal
W $J
Fake Tax News
WSJ editors claim Trump tax framework will boost growth and lift wages.
BY JOHN MILLER
The [Trump Tax] plan would make U.S.
businesses more competitive around

T hat the Wall Street Journal editors
are once again trotting out the ca-
nard that showering the rich with tax
cuts will revitalize economic growth
and lift wages is hardly news.
What is news is that they have
stooped to endorsing such an ill-
specified, fraudulent tax plan that will
benefit Trump, his cabinet, and rest of
the rich at our expense without pro-
moting growth.
Pro-Rich Not Pro-Growth
That’s surely the case for the Trump
proposal to cut personal income tax
rates, eliminate the alternative mini-
mum tax, and repeal the estate tax.
Reducing the current seven tax
brackets to just three, including lower-
ing the top tax rates from 39.6% to
35%, will do little to rejuvenate eco-
nomic growth. For starters, the U.S.
economy has logged its fastest eco-
nomic growth when income taxes on
the rich were high, not low. During the
1960s, the only decade in which the
annual economic growth rate aver-
aged 4%, the top income tax rate was
as high as 91% and never lower than
70%. And over the last fifteen years,
with a far lower 39.6% top income tax
rate, the U.S. economy grew more
slowly than during any of the five de-
cades from 1950 to 2000.
International comparisons also fail
to show that cutting taxes on the
wealthy is the key to increasing eco-
nomic growth. For instance, when
economists Thomas Piketty, Emmanuel
Saez, and Stefanie Stantcheva com-
pared economic growth rates and
changes in the top marginal income
tax rate of 18 OECD countries, (which
includes most of the world’s large,
high-income economies) during the
1960–2010 time period, they found
that, “cuts in top tax rates do not lead
to higher economic growth.”
globe. The corporate rate will fall to
20% from 35%, which is the highest
oped world. The punishing U.S. syste
m has left $2.5 trillion parked overseas
money will be invited back at a disc
ount. ...
Overall, the tax-reform outline can revit
alize a weak economic expansion, lead
new business creation, and lift wages.
—“Tax Reform, If You Can Keep It:
The GOP outline is a pro-growth boon
can’t rise further,” by The Editorial
Board, Wall Street Journal, Sept. 28,
Eliminating the alternative minimum
income tax (AMT)—a provision put in
place to prevent high-income taxpayers
from taking advantage of so many de-
ductions and credits that they would
pay little or no income taxes—is anoth-
er tax giveaway for the rich. Currently
more than seven out of eight taxpayers
who pay the AMT have incomes greater
than $500,000 per year. And the AMT
has forced some of the super-rich, in-
cluding the President, to pay substantial
income taxes. In 2005, Donald Trump
paid $38.4 million in federal taxes on
$153 million of income, with $31.3 mil-
lion going to cover his AMT bill.
The benefits or repealing the estate
tax go almost exclusively to the super-
rich. The tax is levied on estates with
taxable assets greater than $5.5 million
for individuals ($11 million for couples).
The top 10% of income earners pay
nearly 90% of the tax, with over one-
fourth paid by the richest 0.1%, with
annual incomes in excess of $3.9 mil-
lion. Using net worth estimates com-
piled by Bloomberg Business Week, the
Center for American Progress calculates
that eliminating the estate tax would
save Trump and his cabinet (and their
families) $3.5 billion, with a $1.2 billion
tax cut for the Trump family alone.
Nor is there is credible evidence that
eliminating the estate tax would pro-
mote economic growth. For econo-
mists, the effect of estate taxes on eco-
nomic growth is uncertain. On the one
hand, a lower estate tax makes it cheap-
er for people to leave money to their
the
in the devel-
, and that
to more
, but rates
2017.
heirs. That might encourage them to
work harder and save more. On the oth-
er hand, a lower estate tax allows peo-
ple to make the same after-tax bequest
with a smaller amount of savings, which
might persuade them to work and save
less. What’s more, Congressional
Research Service economist Jane
Gravelle reports that “there is virtually
no empirical evidence” that the estate
tax hinders economic growth.
Hardly in Need of Tax Relief
Despite the Wall Street Journal editors’
claim, cutting tax rates on corporate
profits from 35% to 20% is unlikely to
boost economic growth or lift wages.
One reason is that U.S. corporations
are far from hurting. After-tax corporate
profits relative to Gross Domestic
Product (GDP) continue to hover near
the record-setting levels posted in 2013.
Nor is it the case that prohibitively
high corporate taxes have compro-
mised the international competitive-
ness of U.S. corporations as the edi-
tors insist. The U.S. statutory
corporate tax rate is in fact the high-
est of any of the 34 OECD member
countries. But because the U.S. corpo-
rate income tax is littered with loop-
holes, U.S. corporations pay out far
less of their profits in taxes than those
statutory rates suggest. And the effec-
tive tax rate, the proportion of total
profits paid in taxes, faced by U.S. cor-
porations is quite similar to that paid
by corporations elsewhere. A study

NOVEMBER/DECEMBER 2017  l  DOLLARS & SENSE  l  7

 < Up Against the Wall Street Journal
conducted by Price Waterhouse
Coopers, for instance, found that the
effective U.S. corporate tax rate in
2008 was 27.1%, a bit lower than the
27.7% average of the other OECD
countries (weighted by GDP). More re-
cently, the U.S. Treasury Department
found that in 2014 the 23.9% effective
U.S. corporate tax rate was modestly
higher than the 20.7% weighted aver-
age of that of the other six G-7 coun-
tries (Canada, France, Germany, Italy,
Japan, and the United Kingdom).
The Trump framework also promises
a discounted tax rate for U.S.-based cor-
porations that bring their profits stock-
piled overseas back to the United
States. U.S. corporations can defer pay-
ing taxes on their foreign income until it
is “repatriated,” or sent back to the par-
ent corporation from abroad. And as of
June 2017, U.S.-based corporations had
accumulated $2.6 trillion of corporate
profits overseas, with Apple’s $256 bil-
lion at the top of the list.
But there are plenty of reasons a tax
holiday is unlikely to boost investment.
To begin with, it’s not the case that a
shortage of profits is holding back cor-
porate investment. Almost all the cor-
porations with large cash holdings
outside the United States also have
substantial cash holdings in the United
States. In June 2017, for instance, the
15 corporations with the largest hold-
ings abroad also held $282.2 billion of
cash and marketable securities in the
United States. In addition, corporations
can borrow at near-record-low interest
rates in the United States and use their
profits held abroad as collateral.
On top of that, we’ve already tried a
tax holiday for repatriated corporate
profits, and it failed to increase domes-
tic investment and employment. In
2004, under the George W. Bush
Administration, a maximum tax of
5.25% on repatriated profits managed
to lure about $300 billion back to the
United States. But corporations did not
use those repatriated profits to “in-
crease domestic investment, employ-
ment, or R&D,” according to a National
8  l  DOLLARS & SENSE  l  NOVEMBER/DECEMBER 2017
Bureau of Economic Research study
conducted by economists Dhammika
Dharmapala, C. Fritz Foley, and Kristin
J. Forbes. Rather, their study found that
“a $1 increase in repatriations was as-
sociated with an increase of almost $1
in payouts to shareholders.”
A Bonanza for Business Owners
Treasury Secretary Steven Mnuchin as-
sures us that cutting corporate taxes is
no bonanza for business owners. He
insists that, workers, not shareholders
and the investment class, are the chief
beneficiaries of these tax giveaways to
corporations. Workers bear “over 80%”
of the burden of business taxes (in the
Over the next decade
a whopping 79.7% of
Trump’s tax cuts would
go to the richest 1% of
taxpayers.
form of lower wages than they would
have received in the absence of the
tax), says Munchin, and “lower taxes on
corporations lift wages, and create jobs.”
Munchin’s assertion, however, is at
odds with most mainstream studies.
Even a 2012 study conducted by the
Office of Tax Analysis of the Bush
Treasury Department found that 82% of
the corporate tax burden falls on the
owners of capital, and 45% of the benefit
of a corporate income tax cut goes to
the richest 1% of taxpayers. On top of
that, a recent Economic Policy Institute
study conducted by Josh Bivens the
found “no obvious correlation between
corporate rate changes and wages” in
OECD countries from 2000 to 2016.
Finally, if most all of the burden of
corporate taxes was borne by workers,
not the owners of corporations, then
how could it be that corporations are
in desperate need of tax relief?
The Trump framework doesn’t ne-
glect owners of the majority of business-
es in the United States who do not pay
corporate income taxes on their profits.
Rather, the profits of these sole-propri-
etorships, partnerships, and s-corpora-
tions (which afford up to 100 owners
limited liability) are simply “passed
through” to their owners’ income and
taxed by the personal income tax.
In the name of providing tax relief
to small businesses, the Trump pro-
posal would reduce the maximum
income tax rate on business profits
from 39.6% to 25%. But that lower top
tax bracket benefits exclusively busi-
ness owners with more than $250,000
per year in business income, or just
3% of taxpayers with business in-
come. They are typically professionals,
including doctors, lawyers and even
partners in investment firms and
hedge funds. The Tax Policy Center
estimates that about two-thirds of the
benefits of proposals like Trump’s end
up going to millionaires. As a result,
this tax break for wealthy business
owners is no more likely to promote
economic growth or lift wages than
the other pro-rich tax cuts that make
up the Trump tax proposal.
Not Made for You and Me
Trump’s tax framework falls absurdly
short of providing the “tax relief for
middle-class families” it promises.
The Tax Policy Center estimates that
over the next decade a whopping
79.7% of Trump’s tax cuts would
go to the richest 1% of taxpayers,
with annual incomes in excess of
$732,800. That’s an average tax cut of
$207,060 for the top 1%, while the
bottom 60% of taxpayers get an av-
erage tax cut of just $233.
Massachusetts Senator Elizabeth
Warren got it right, when she said,
“Trump’s tax plan is simple. The rich get
richer, and everyone else gets left be-
hind.” But that’s music to the ears of the
Wall Street Journal editors. D&S
J O H N M I L L E R is a professor of eco-
nomics at Wheaton College and a mem-
ber of the Dollars & Sense collective.
S O U R C E S : Available at dollarsandsense.org.
 D e i n d u s t r i a l i za t i
in
ot
n
h e G ra n i te Sta te

m o n e ta r y p o li c y
ll u s a b o u t t h e ro les of anufacturing jobs.
h a t K e e n e , N .H ., c an te n in the loss of U.S. m
W a n d f in a ncializatio

BY MARIE CHRISTINE DUGGAN

T H E CEN TR AL RO O M IS 6 5 , 0 0 0 S QUA R E F E E T W I T H A HI G H C E I LI N G .

››
This room is noisy, with large machines emitting loud hums and whirrs. The machinists are dwarfed Kingsbury
within the canyons between the rows of equipment. Many of the machines have plastic housings, so that Machine Tool,
each looks like a giant photocopier, a rectangular plastic box taller than a person, and perhaps the length Keene, N.H., a
of two or three people. There is a window on the side of each one. Inside, the drilling/lathing/milling oper- symbol of
modernity in
ation is performed on the metal. However, someone peering in through the window doesn’t actually see a 1969.
metal tool hitting the material. The surprising sight of water gushing furiously meets the eye. The tools
themselves operate at tremendously high speeds (2,000 inches per minute, or 20,000-50,000 rpm). The Source: Keene
Chamber of
water pushes metal debris away, as human hands or air flow did on the previous generation of machines. Commerce, in the
But water also acts as a coolant to put out sparks and to counteract the tremendous heat created by the fric- local history
tion of metal tool on metal part. archive of Keene
Public Library.
This scene is not from Germany or South Korea, but rather from the southwest corner of New
Hampshire, only fifteen miles from the borders with Massachusetts and Vermont. The high-tech machine
shop described was Knappe and Koester—in 2011, before it was sold to GS Precision, which has since
expanded the operation. Manufacturing industry in Keene specializes in the production of capital-goods—
products used as parts or machines at other businesses in other production processes: ball-bearings, dia-
mond turning machines, lens producers, lubricants for machinery, and inks and date-stamp printers for
food and pharmaceutical plants around the globe. These factories are so clean and relatively small (employ-
ing about a hundred, not hundreds or thousands) that newcomers to New Hampshire, like myself, tend to
notice the cows at the dairy farms and the fresh ice cream stands, not the manufacturing plants tucked
behind real estate offices or next to hardware stores.
In an effort to repair the connection between economic theory and industrial activity, I picked up the
phone and contacted some local managing owners to ask if my undergraduates could tour the plants. The
industrialists were excited that someone at “the college” showed interest in what they did. We saw a high-
tech machine shop unloading the latest computerized five-axis machines from Japan in 2011. We watched
young computer-savvy machinists assemble diamond turning machines by hand, and saw a demonstration
of how the machines drill plastic molds for producing touchscreens in factories around the globe. ››
NOVEMBER/DECEMBER 2017  l  DOLLARS & SENSE  l  9
 D E I N D U S T R I A L I Z AT I O N
Keene lies in the Connecticut River Valley,
which in the mid-19th century witnessed the
birth of the machines that make replaceable metal
parts. Machinists from Hartford, C.T., to
Lebanon, N.H., drove up global
productivity during the indus-
trial revolution, and since that
time the machinists’ skills had
been passed down from father
to son (and occasionally to
daughter). This chain was dam-
aged with the layoffs and plant
closings between 1980 and
1990. In those years, few
fathers told their eighteen-
year-old children to become
machinists. As a result, there is
now a shortage of computer-
savvy machinists, so local
firms donated funds to build
a computerized machine tools
laboratory at Keene State and have offered a
››
$1,000 scholarship to train at the local commu-
Keene lies in the
nity college, which shares the lab. Many of Keene
Connecticut River
Valley, which runs State’s staff and students are from Connecticut,
from Bridgeport, Vermont, and New Hampshire, and come from
Conn. to Claremont, families with connections to machining.
N.H., and which
birthed replaceable The economic forces impacting the machining
metal parts and the jobs that continue to sustain local families are hard
U.S. machine tool to see using standard economic datasets. Most
sector.
databases provide information only on publicly
held firms—those that issue shares that are traded
on the stock exchange. Ownership transitions
between 1998 and 2012 shifted some of the local
plants into the hands of large, publicly-held corpo-
rations. Yet some of the local manufacturing firms,
including some of the most dynamic in the United
States, remain smaller in scale and independently
owned, and so are absent from standard databases.
My students and I began conducting oral histories
of owners and workers in order to learn more about
the private firms that do not appear in the data.
The Elephant in the Room
In November 2016, Trump started to pick up a
surprising amount of support in many parts of the
nation. As it turned out, even though Clinton won
the popular vote, 2,026 counties went for Trump,
while 447 went for Clinton. As I began to pull
10  l  DOLLARS & SENSE  l  NOVEMBER/DECEMBER 2017
together my research about deindustrialization in
my new hometown, the Trump phenomenon was
getting hard to ignore. It suddenly dawned on me:
Keene, N.H., wasn’t the only place to have experi-
enced an attack on its export-competitive industrial
base between 2000 and 2012. Was it all of New
Hampshire? Or was it just about everywhere but San
Francisco, Boston, and New York City?
Figure 1 is what I found in five minutes. The
crushing loss of manufacturing jobs between
1980 and 1985 is a vivid memory for me, because
I graduated from California’s Berkeley High
School in 1981, where 90% of my peers were not
going on to four-year college. When I arrived at
Tufts University in Medford, Mass., I saw store-
fronts boarded up and watched people in line at
the convenience store pay with food stamps. The
baleful glares at us privileged college students
only got worse as the unemployment rate reached
10.9% in November 1982. When I moved to
Brooklyn in 1990, I often drove by the empty
industrial buildings along the waterfront.
Figure 1. Manufacturing Jobs in the U.S.
25.0
20.0
Millions of people
15.0
10.0
5.0
0.0
1939
1942
1946
1949
1953
1956
1960
1963
1967
1970
1974
1977
1981
1984
1988
1991
1995
1998
2002
2005
2009
2012
Source: Federal Reserve Bank of St. Louis (Fred II)
So, when I saw on this graph that the manufac-
turing job loss of 2001-2009 was triple that of
1979-1985, my jaw dropped. And why didn’t I
know this? I read the New York Times, the New
Yorker, the Financial Times. I hang out with het-
erodox economists, for goodness sake! I now sus-
pect that industry left our intellectual centers
between 1979 and 1985—out of sight, and so out
of mind—but remained a powerhouse in so-
called “rural” areas until 2001, only to suddenly
and precipitously decline. I realized how lucky I
was to be living in a place that is like a good bit of
the United States.
 Many economists have been focusing on
macroeconomics—the ups and downs of the
entire national economy, measured in “aggregate”
data—for the past twenty-five years. The instabil-
ity of the financial sector and rising income
inequality could both be analyzed through
economy-wide data, so we all rightly got our
heads in that game by 2007. If one takes manufac-
turing jobs as a percent of total employment, there
has been a continuous decline since the late 1960s,
and one would therefore see little new between
2001 and 2009. Some people point to China’s
accession to the WTO in 2001 as the cause of the
U.S. decline in manufacturing. However, my own
research inside firms suggests that competition
from China is not the main story.
Keene’s capital goods producers do not com-
pete with producers in low-wage nations, but
rather with firms in Europe and Japan, and unit
labor costs have generally been higher in those
places than in the United States since 1990. The
decline in U.S. jobs has less to do with external
forces than Americans seem to think, and more to
do with the policies taken (or not taken) inside the
United States itself. If a firm was going to collapse
in the face of cheap labor overseas, that happened
in 1982 (as in shoes and textiles). The manufac-
turers who survived until 2000 were made of
sterner stuff. Monetary policy that promoted
financial bubbles turns out to be another ingredi-
ent in the decline of manufacturing jobs between
1978 and 2012. I will analyze this in a three part-
series by exploring three different moments in
recent U.S. economic experience: 1980 to 1990,
1990 to 2000, and 2001 to 2012. I use case stud-
ies from Keene to illustrate the arguments.
Deindustrialization Part I:
The Connecticut River Valley
Machine Tool Sector, 1980-90
Hank Frechette purchased Kingsbury Machine
Tool from his father-in-law, E.J. Kingsbury, in
1963. That year, Frechette also hired the entire
graduating class of Wentworth Tech in Boston.
“I had never heard of Keene,” relates Donegan,
an electrical engineer in that class. But it would
become his home and his life for the next forty-
odd years. Machinists from Vermont and New
Hampshire considered Kingsbury to be one of
the most exciting places to work in New England. ››

Kingsbury in the Golden Age:

1958 to 1982

T he photo on the title page of this article shows Kingsbury

Machine Tool in its heyday, 1969. One year earlier the pro-
grammable logic controller (PLC) had been invented in
Massachusetts. At Kingsbury, the PLC replaced miles of wire in
cabinets—which electrical engineers previously had to sort
through to locate any glitch. As engineer Dennis Donegan
explained, “You’d think [the PLC] is a computer, but it’s not a
computer, it’s dedicated to just one thing.” By 1969,
Kingsbury Machine Tool had incorporated the PLC into the
rotary machine that the company supplied to General
Motors (among its many clients) to make automobile wheels.
The Kingsbury was like an assembly line at the fingertips of one operator. The operator
shown in the picture above would load the material to be machined into a part such as an automobile wheel. He
would simply push a button to advance the carousel around to the sixteen or so successive stations. The operator
would load a fresh piece, and at the same time take a finished piece out. For example, the first step might be to
punch holes and slots in the metal, the second to bend tabs, the third, fourth, and fifth consecutively deeper roll
forming operations, and so on. Since each of these operations had previously been done on separate machines, the
Kingsbury Machine was feared by manual machine operators as labor-displacing technology. The Kingsbury Rotary
was the cutting edge automated technology of 1970.

NOVEMBER/DECEMBER 2017  l  DOLLARS & SENSE  l  11

 D E I N D U S T R I A L I Z AT I O N Hank Frechette made a name for himself
nationally and became a leader in the National
Their work ethic and skills, plus the innovations Association of Manufacturers. There he met
of the young electrical and mechanical engi- another rising executive, Jim Koontz, who was
neers, plus the management by Hank Frechette based in Detroit. When Frechette died suddenly
and Charlie Hanrahan—a co-owner who was in 1976, his astute widow Sally Kingsbury asked
also a member of the founding family—grew the Koontz to come to Keene and take the helm of
company threefold between 1963 and 1976, so the business. Koontz’ wife had doubts about leav-
that it employed around 1,000 people. Many ing the community of executives in Ann Arbor
machinists commented that, in those days, for remote Keene, N.H., but the couple made the
Kingsbury was like a family. Charlie Hanrahan move with their four children. Between 1978 and
1982, Kingsbury was employing three shifts of
The decline in U.S. jobs has less to do with workers to keep up with continuous orders as
external forces than Americans seem to think, Detroit auto companies tried to re-tool to com-
pete with small cars from Japan. Koontz became
and more to do with the policies taken (or not CEO in 1983.
taken) inside the United States itself. In 1984, Kingsbury had its first layoff: over 200
people. This was a shock to the community and
Erratic monetary policy turns out to be another many blamed Koontz as an outsider with no local
ingredient in the decline of manufacturing jobs ties—compared to Charlie Hanrahan, for example,
who had gone to grade school with many of the
between 1978 and 2012. men. But this wasn’t just a personality issue—there
were larger economic forces at work. In 2012, Jim
Koontz related to me that it felt in 1983 as if the
worked hard to keep it that way. He had a note- company had gone off a cliff, one minute produc-
book in which he wrote down every man’s name ing three shifts a day with paychecks chock full of
and the names of his wife and children, with overtime and bonuses—to suddenly a period of six
their ages. (Yes, all the workers at Kingsbury— months with no orders. It was only in early 2017
indeed, all the machinists in Keene—were men. that I actually saw in Figure 2 (left) that machine
That is no longer the case, but it was in those tool industry profits for the nation as a whole
days.) He trained new supervisors to make simi- dropped in 1983 from nearly $4 billion to $1.5
lar efforts to know each member of the shop per- billion—a drop which does indeed look very much
sonally. Once a man got a job at Kingsbury, he like a fall off a cliff.
was set for life—until 1984. What was causing that massive decline in indus-
try-wide profits in U.S. machine tools? One factor
Figure 2. Profits in Machine Tool Sector was a dramatic technological shift from mass pro-
of the United States in Millions of Dollars duction to flexible production, precisely in the
1980s. Jim Koontz explained it:
4500
4000
Kingsbury made machines that could produce one
million to two million parts for the Big Three auto
3500
manufacturers. After a while, volumes went down.
3000 At one point, those three auto makers produced all
2500 the autos in the world. By 1980, there were thirty
companies producing for the world, but by now
2000
[2012], there are three hundred auto companies
1500 worldwide. Each automobile has 30,000 parts, and
1000 80% of them today are produced by suppliers, so
there must be tens of thousands of suppliers, glob-
500
ally. Because of this, the volumes that auto makers
0 needed their machines to produce went down from
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009

one million to 100,000. This changed the style of

the technology that the manufacturers needed.
Source: NBER-CES Industry Database, NAICS 333512

12  l  DOLLARS & SENSE  l  NOVEMBER/DECEMBER 2017

 Few businesses today need a machine that can
produce millions of identical parts, like
Kingsbury produced back in the 1970s. Instead,
they need machines that can be reprogrammed to
produce different parts. The name for such
machines is “CNC”—computer numerical con-
trol, which means that the computerized
machines are run by software. The modern
machinist enters the dimensions of the parts to
be produced, and then listens as the machine
chooses the tools and goes about making the
parts. Kingsbury had purchased such a machine
by 1987. Machinist Phil Hilliker thought it was
the finest piece of equipment he had ever worked
with. The gossip among owners of plants in and
around Keene is that Jim Koontz never adopted
CNC technology—Kingsbury never adapted to
changing technology in changing times—and
this is why Kingsbury failed to make profits after
1983. As one financial wizard told me, the reason
U.S. machine tool makers did not survive until
the 21st century is that they were, “Fat, lazy, and
stupid.” But there is evidence that this judgement
is far too hasty.
Over time, a couple of reasons—more solid
than gut instinct—emerged to challenge the con-
ventional argument that U.S. machine tool firms
just didn’t adapt. For one thing, Kingsbury
acquired the machine tool firm Hillyer, and
Hillyer did make CNC machines. Secondly, the
CNC machine Phil Hilliker stands in front of was
made by Jones and Lamson (J&L). (One day, a
student in my class magnified the photo above
and found the company’s name.) J&L was a
machine tool maker in Springfield, Vt., a town
about fifteen miles from Keene. The company
filed for bankruptcy in 1986, so the “can’t adapt”
argument had been applied to them, too. But
there in front of us was clear evidence that J&L
had produced a computerized lathe by 1986, and
machinist Phil Hilliker said he was using it by
1987, and it was the finest machine he had ever
worked with. Thirdly, the machine shop next
door to J&L in Springfield was Bryant Grinding,
and it was in decline by 1990. Yet at a recent lec-
ture a computer scientist told me he had applied
for a job as a computer programmer at Bryant in
1981, and they were using what he considered a
“nifty” program for machine tools. These are
three hints that the Connecticut River Valley
machine tool sector was adapting.
Financial changes were a second factor exacerbat-
››
ing the pressure inherent in a period of technologi- Kingsbury
cal change and low profits. It was not until 1983 machinist Phil
that Jim Koontz became managing owner of the Hilliker standing
in front of a Jones
company. He did so by means of an internal lever- & Lamson
aged buyout (LBO). That is, Koontz did not have automatic turret
the personal wealth necessary to purchase the com- lathe in 1987. The
ATL is a computer
pany. However, Sally Kingsbury and the rest of the
numerical control
board felt that he had demonstrated the managerial (CNC) machine
skill in 1978-1982 to take over, and they wanted the that at the time
manager of the firm to have an ownership stake to was produced in
Vermont just 15
tie him to the community. In an LBO, a consortium miles from Keene.
of banks puts the money up to purchase the com-
pany. Specifically, they put the money into a fund,
and the fund purchases the company. The profits
that the firm makes are then earmarked to pay off
the banks. Once the bank loan has been paid off, the
fund is owned by management. In this case, Koontz
was not the only one “in on” the fund. Some of the
engineers wound up being part-owners of the fund,
as did members of the Kingsbury family.
The use of an “inside LBO” to transfer ownership
of Kingsbury from one generation/owner to the next
was not new. Hank Frechette had done the same
thing when he purchased Kingsbury from his father-
in-law E.J. Kingsbury. Yet it seems that something
went wrong with this second LBO. LBOs were more
common by the 1980s, and it is likely that the lever-
age was higher—meaning a smaller down payment,
and a larger amount lent. Everyone who was in on
the LBO considers Jim Koontz to have been an out-
standing executive who did his best in difficult times.
The workers on the shop floor and the supervisors
who were not part of the LBO, however, consider ››
NOVEMBER/DECEMBER 2017  l  DOLLARS & SENSE  l  13
 D E I N D U S T R I A L I Z AT I O N
Koontz to have been their worst nightmare. As an
educated guess, I would say there were two prob-
lems: First, paying off an LBO with profits from the
firm would be difficult when the profits of the entire
industry suddenly fell by 60%. That, in itself, may
have increased pressure to cut costs in 1984.
And the second problem was that the stock mar-
ket rose continuously from 1987 to 1999. Between
1969 and 1982, an investor in the stock market
would not have made capital gains, but only divi-
dends. Those ambitious for more dramatic returns
(such as the Kingsbury family and Hank Frechette)
put their money into physical plant and talented
labor, and made profits by expanding market share
through quality products. After 1982, industrial
profits were hard to come by, while Alan Greenspan
kept interest rates relatively low between 1987 to
1999, which made capital gains in the stock market
the new normal. At Kingsbury, managers “in on”
the fund initially used to pay off the LBO received
profits out of production, and invested them into
the rising stock market where they must have reaped
consistent capital gains—while workers on the shop
Jim Koontz, CEO of floor lost their bonuses because the profits made
Kingsbury, 1983– from producing and selling machine tools were
1998, in white shirt
meager in the 1980s and the 1990s. At the time,
presenting an
award, 1987. gains made in shares of other companies on the
stock market may not have seemed to come at the
Photo courtesy of
expense of the workers inside Kingsbury. But a
the Historical
Society of Cheshire
wedge had emerged between the interests of owners
County, N.H. and the workers on the shop floor. Supervisor Kenny
Johnson described “a change in how [Jim Koontz]
››
handles his people.”
14  l  DOLLARS & SENSE  l  NOVEMBER/DECEMBER 2017
It was his way and no other way. There was a period
of time where he managed by fear, in the sense that if
people didn’t go along with his idea he would put fear
into them and he wanted to make them into a ‘yes’
person. That’s one of the ways he changed and didn’t
listen to people. For instance, when the union was
being introduced at Kingsbury’s, he’d come up to me
and he’d ask me some questions, he thought I was
being too easy on some of my employees but my phi-
losophy hasn’t changed then, hasn’t changed today,
you treat people how you like to be treated. I’m not a
‘yes’ person. So I told him how I felt. I felt like he had
really loyal employees and he thought I was treating
the employees—he said I had too much compassion
for my employees, ok? I had too much compassion
for my employees, that’s not the way management
was going to go in a sense of compassion, and I told
him the truth, told him how I felt, I know it wasn’t
the way he felt and we got in a discussion and he
almost fired me on the spot, ok?
Putting his job on the line to stand up to Jim
Koontz for the employees in the late 1980s was a
turning point in Kenny Johnson’s life, a moment
that took great courage and won him the respect of
the workers—to this day nearly thirty years later. He
had been trained by Charlie Hanrahan to know and
care for his employees and their families, as the way
to motivate the highest effort from the machinists.
But now Koontz was pressuring him to lay off good
machinists because they supported a union. Kenny
Johnson was not a fan of unions on the grounds that
“you don’t need a union if you treat your people
right, ok?” However, Koontz was not, in Johnson’s
opinion, treating the shop floor right. Koontz hired
Jeff Toner as vice president, and the general view was
that Toner was a hatchet man to get pro-union
workers fired. With considerable struggle, soul
searching, difficult conversations, courage and soli-
darity, the machinists voted for a union in 1991.
What did the union get for the workers? Largely it
was access to the gains from the stock market by
means of the pension. As one retired machinist put it
recently, “I have been retired for eight years, I am get-
ting a pension from that place, and it’s going to keep
on going. I mean, the guy who set up the 401k plan
or whatever you want to call it, the guys knew what
they were doing with this thing.” The trick was to
keep your job. The industry’s profits were down, so
only half kept those jobs into the 21st century. But
that’s 300 or 400 workers gainfully employed for
forty years. Many machinists from Kingsbury still
meet for breakfast every Thursday, driving from 45
minutes away even when it is ten below and icy road
conditions, to gather outside the restaurant at 6:45—
similar to their old commute for the 7am day shift.
The layoffs at places like Kingsbury in 1984
broke a social compact between owners and work-
ers, and from 1983 to 1991, the Connecticut
River Valley felt like a war zone. Workers lost con-
fidence in management’s intention to look out for
product quality and the labor force, and that loss
of confidence broke some unspoken taboo. The
ratio of owner compensation to worker compen-
sation at the firm was much lower in 1983 than it
is today. One form of compensation to the owner
was the respect (tinged with fear) of the commu-
nity and the workers on the shop floor. Kingsbury
was also a major philanthropic giver, cementing
the owner’s sense of responsibility for and owner-
ship of the entire community.
When the workers at Kingsbury mobilized for a
union, they were publicly demonstrating that they
had lost confidence in Jim Koontz. At stake was
really who owned the plant: the legal owners, or
the men whose skill gave the machines their repu-
tation? Machinist Phil Hilliker was one of the first
to wear a union shirt. He related to my students in
2015 the pressure he was under:
They would send my work out to have it done some-
where else. ‘I’ve got no work for you Hilly, got to lay
you off.’ They didn’t have to lay me off, I had so
many things I could do around there. I was their
whipping boy. They wanted to break me down
because I was an older one. But it couldn’t be done.
I said, If B-52s didn’t kill me during the Korean
thing, when they bombed me, you sure as hell ain’t
gonna be able to do it.
Most of the male workers had served in war,
either World War II, Korea, or Vietnam, so a com-
parison of the tensions on the shop floor to war
was not made lightly.
Divisions That Wore People Down
The 1980s were an intense time of technological
change, as Kingsbury began to use computerized
machine tools to make products, and then also
acquired Hillyer Machine Tool to have their own
line of computerized products. The loyalty that
supervisors like Kenny Johnson exhibited to older
workers meant the young were fired first, even
though they might have young children to support
at home. One of the men laid off in 1984 had lost
a finger at Kingsbury’s. Yet, as a young man, he had
never favored the union, because unions supported
seniority rights. He felt that the younger cohort to
››
which he belonged was better able than the old
timers to learn new technology and turn the firm’s Charlie Hanrahan
(far right) with
prospects around. This younger man hates unions, other Kingsbury
and blames Kingsbury management for acting like executives. His
a unionized shop in 1984, though no union was management
philosophy:
voted in until 1991. “Treat people as
The toll the decade took was not only on the you would want
shop floor. Charlie Hanrahan was the managing to be treated.”
He retired as CEO
owner who had gone to elementary school with in 1982.
the men and knew every man’s family members
by name. Hanrahan had been Hank Frechette’s Photo courtesy of
the Historical
right-hand man, and ran the company from 1978
Society of
to 1982, teaching Jim Koontz the ropes, before Cheshire County,
retiring. He gave the speech of his life trying to N.H.
prevent the vote for a union. He had a heart
attack during this period, and his children believe
it was caused by his divided loyalties. He respected
Jim Koontz, and he developed close ties to the
shop-floor workers. That was his way of inspiring
people to give their best effort. Though Hanrahan
passionately believed a union was the wrong way
to go, every machinist I have spoken to goes out
of his way to explain the confidence, affection,
and appreciation they had for him. Hanrahan
may have been caught between a manufacturing
world that viewed the workers’ skills as the source
of profits (1958–1982) and the new era (1983–
2012, at Kingsbury) when the source of wealth
was capital gains on the stock market, which
could be harvested best by laying workers off
from time to time.
The tragedy of the tensions in the 1980s is that
both managing owners and machinists cared
deeply about the future of the firm. For all the
flaws that the workers saw in Koontz, he had ››
NOVEMBER/DECEMBER 2017  l  DOLLARS & SENSE  l  15
 D E I N D U S T R I A L I Z AT I O N The Volcker Shock Makes Imports Cheap
Technological change does not seem adequate to
virtues also, especially compared with his successor. explain the number of firms that closed in the
Koontz was a man who was trained to work with Connecticut River Valley between 1980 and 1990,
machines—he did not have an MBA—and most given that they had weathered so many changes
machinists prefer working for someone who knows during the previous one-hundred years. What else
technology. He lived in Keene, rather than the dis- was going on between 1979 and 1984 that could
tant corporate ownership of a conglomerate. The explain the massive drop in U.S. machine tool
pension contributions papers demonstrate that he profits of 1983? I have taught macroeconomics
maintained the workers’ pension with utmost reg- four times a week for seventeen years, so of course,
ularity. As auto production went global, he traveled the hike in the U.S. interest rate between 1979 and
the world from South Africa to Brazil to sell 1983 came to mind. Figure 3 (left, above) is shown
Kingsbury Machine Tools. He used Kingsbury with the pink area to indicate that time period.
retained earnings to acquire Hillyer to keep up During the 1979 to 1983 time period, this base
with technological change. nominal rate of interest rose from 9 to 19%. The
Federal Funds Rate is what banks pay to borrow from
each other for overnight loans, and banks pop a
Figure 3. U.S. Federal Funds Interest Rate markup on top of that before they lend to consumers,
25.0 so the interest rate for a credit card to a person of
sound credit was probably 29% when the Federal
20.0 Funds Rate was 19%. The reason Fed Chair Paul
Volcker raised the interest rate so high was in order to
Percentage rate

15.0 kill off inflation, which was about 10% per year in the
late seventies. He did reduce inflation, but using the
10.0 interest rate to fight inflation is like using chemo to
fight cancer: it killed off a lot more than inflation.
5.0 Everyone knew that a high rate of interest would
reduce business investment in fixed capital equip-
0.0 ment like machine tools. The logic by which high
1969
1970
1972
1974
1976
1977
1979
1981
1983
1984
1986
1988
1990
1991
1993
1995
1997
1998
2000
2002
2004

interest rates reduce new capital spending is based

on the idea that such spending is financed largely
Source: Federal Reserve Bank of St. Louis (FRED II).
by debt. When interest rates are high, the cost of
borrowing rises. U.S. firms probably made the
rational decision to delay new capital spending in
Figure 4. Index of Unit Labor Costs the hope that the interest rate would come down.
in the U.S., Germany, and Japan Figure 4 (left, below) illustrates unit labor
180.0
costs—the cost of wages and benefits employers
160.0 incurred in the making a hypothetical widget in
140.0 various countries. While U.S. unit labor costs (the
120.0 black line) had long been higher than German
Dollars

100.0 (light gray) or Japanese (medium gray), that gap

80.0 widened precisely between 1979 and 1984. This
60.0
was due to two factors:
First, U.S. manufacturers may have delayed
40.0
purchasing new equipment until after interest rates
20.0
came down, while their Japanese and German
0.0 counterparts did not. Instead, they invested in new
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013

machinery that meant workers could produce

United States Germany Japan
more units in the same amount of time.
Source: The Conference Board (conference-board.org). ULC is labor cost per unit of output. Labor cost is evalu- Second, what U.S. policymakers may not have
ated using nominal exchange rates, and output is evaluated using purchasing power parity exchange rates. realized is how much the exchange rate for the U.S.

16  l  DOLLARS & SENSE  l  NOVEMBER/DECEMBER 2017

dollar would appreciate in response to the rising Figure 5. Hypothetical Competition Between U.S. and
rate of interest. Exchange rates had been flexible Imported Machine Tool, 1979-84
only since 1971. A rising interest rate pulled wealth $160

from around the globe into U.S. bank accounts $140

and this drove up the value of the U.S. dollar rela- $120

Thousands of dollars
tive to every other currency in the world. The dol- $100
lar appreciated relative to the German deutsche $80
mark and the Japanese yen, and competitors using $60
those currencies were the ones that the machine $40
tool sector faced. Suddenly, the prices of U.S.-
$20
made products went up when converted to
$0
deutsche marks or yen, and the prices of German

1979
1980
1980
1980
1980
1981
1981
1981
1981
1982
1982
1982
1982
1983
1983
1983
1983
1984
1984
1984
1984
and Japanese products went down when converted
to dollars. Japanese (imported) machine U.S.-made machine

This drop in relative unit labor costs gave the Source: Bureau of Labor Statistics (bls.gov), the Bank of Japan, and author’s calculations.
Germans and the newly industrializing Japanese
an opening they needed into the U.S. market for
machine tools. To see how this worked, consider a
hypothetical tool such a CNC lathe, produced by
a U.S. company. It is 1979, and the tool costs, say,
$100,000 in the United States. Let’s say that in
1979, a customer is considering buying a CNC
lathe. They have been buying from the U.S. com-
pany for fifty years, so they stick with the U.S.-
made machine, even though the Japanese or
German import costs the same.
However, by December 1984, U.S. machine
tools experience inflation of 36%, so the US
machine costs $136,000. Meanwhile back in
Japan, rising productivity reduces costs by 12%. If
productivity rises more slowly in United States
than Japan, then the U.S. dollar should depreciate, Financial Engineers Finished the Job

which would hold steady the price that U.S. buyers
pay for a Japanese machine. However, Fed Chair
Volcker tries to control inflation by raising U.S.
interest rates to 19% in 1981, and the high interest
rate drives up the value of the dollar, and the
import is now “on sale” for only $85,500. That is a
$51,000 savings! Under these circumstances some
firms decide to try out the import. In short, the
U.S. Federal Reserve gave imports an opening into
the U.S. market by creating a 38% discount on the
price of an import relative to a U.S.-made machine
tool in 1984.
By 1986, Volcker had realized his mistake and
did depreciate the dollar by around 38%, so that
the Japanese import would cost the same as the
American machine. By then 400 people had
already been laid off from Kingsbury in Keene,
N.H., and Jones & Lamson in Springfield, Vt.,
sold out in 1986.
››
By 1988, the Goldman Industrial Group had pur-
Kingsbury’s
chased J&L out of bankruptcy, and began applying inline
“financial engineering” techniques to extract value machine was
from the firm. “Financial engineering” is used to produced by
1998 for
make profits from dying companies by taking export to
them apart. Of course, many times it’s not clear mass
that the firm was going to die if the financial pred- producers
around the
ator had not attacked. By 1990, Goldman had pur-
world.
chased another once-fine firm, next door to J&L,
Bryant Grinding. And in 1998, Goldman protégé
Iris Mitropoulis purchased Keene’s Kingsbury
from Jim Koontz, where Phil Hilliker still had his
job. Mitropoulis owned Ventura Industries, a sepa-
rate company which owned only one thing,
Kingsbury Machine Tool. By 2001, it was clear
that she was not investing the retained earnings she
had acquired along with the plant into new equip-
ment. “Ah, she took the retained earnings!” erupted
one retired executive in sadness and frustration. ››
NOVEMBER/DECEMBER 2017  l  DOLLARS & SENSE  l  17
 D E I N D U S T R I A L I Z AT I O N
By 2007, half of the pension fund was miss-
Retired ing as well. Indeed in 1983, the IRS had ruled
Kingsbury that a firm facing bankruptcy had the right to
machinist use the workers’ pensions to try to keep the com-
Phil Hilliker
with his wife pany open. In 2016, I submitted a Freedom of
Caterina Information Act (FOIA) request to the Federal
Hilliker in Pension Benefit Guarantee Corporation, and
2015.
there was a very fat file on Kingsbury. Up to
››
1998, Jim Koontz ran the company and the
Not only did Volcker’s high interest rates tilt
the scale toward imports. It appears that the
easy money provided by new Fed Chair Alan
Greenspan after 1987 created a rising stock
market that rewarded people who took value
out of industrial production.
accountant Tom Cookson filed nice neat forms
verifying the financial health of the workers’
pension fund. He made it through ups and
downs of the stock market with only a few
bumps, so that $45 million dollars was in the
fund by 1998 when Koontz sold it. Mitropoulis,
on the other hand, filed messy and incomplete
pension documents, and by 2007, the fund had
only $26 million in it. Maybe it was all the 2001
decline in the stock market, but maybe not. In
addition, she went out tirelessly asking the fed-
eral government to lend the company money
18  l  DOLLARS & SENSE  l  NOVEMBER/DECEMBER 2017
earmarked for woman-owned businesses. It
appears that all the money that was ever granted
to Kingsbury by its previous owners, its employ-
ees, or lenders was transferred to Ventura
Industries, so that Kingsbury declared bank-
ruptcy in 2012. Financial engineering should
not be legal. But it is.
When Keene looks at Mitropoulis’ actions
1999-2012, the reign of Jim Koontz at Kingsbury
appears in a more nuanced light. Mitropoulis was
easy to get along with, and so friendly to the union
men, that she disarmed them while she probably
transferred value to Ventura Industries. She never
traveled overseas to find any customers, she did not
invest the retained earnings in the company, half
the pension fund vanished on her watch, and she
borrowed money at subsidized interest rates and
then declared bankruptcy so she wouldn’t have to
pay it back.
If we step back to see what Kingsbury’s story
tells us about U.S. deindustrialization, it’s not
only that Volcker’s high interest rates tilted the
scale toward imports. There is a second more
insidious aspect: it appears that the easy money
provided by new Fed Chair Alan Greenspan after
1987 created a rising stock market that rewarded
people who took value out of industrial produc-
tion. Koontz and people of his era stumbled
upon those capital gains, while financial engi-
neers such as Mitropoulis actively extracted value
from industry to shift the wealth into other
assets. Class struggle was nothing new to facto-
ries, but between 1980 and 1990, unstable mon-
etary policy was a new pressure hard for either
owners or workers to see. They wound up turn-
ing on each other. Indeed, the influence of chang-
ing monetary policy has been hard for left econo-
mists to see, and we are only now, thirty-five
years later, beginning to understand what a sea
change in the institutional context for industry
was taking place. D&S
M A R I E D U G G A N is a professor of economics at
Keene State College in Keene, N.H. You can follow her
and her students’ work on these issues at: industrialsur-
vival.wordpress.com.
S O U R C E S : Available at dollarsandsense.org.
N O T E : Part II of this series will take a closer look at how U.S. industry
was damaged by monetary policy in the 1990s.
“The People Don’t Give Up, Dammit!”
In Buenaventura, Colombia,
a Civic Strike and a Collective Plan
to End a Port-Enclave.

B Y PAT R I C I A R O D R I G U E Z

“T HE PEOPLE DON’T GIVE UP, DAMMIT!” “¡El pueblo no se rinde, carajo!”

››
That was the chant that rose up from the Civic Strike of the city of Buenaventura, in the depart- The port of
ment of Valle del Cauca, Colombia, in May and June 2017. The Civic Strike, supported by 114 organiza- Buenaventura,
tions and hundreds of thousands of people who barricaded access roads to the port, was according to some Valle del Cauca,
Colombia,
residents the strongest mobilization in Buenaventura’s history. Paralyzing port activities and leading to May 2017.
millions in losses for multinational corporations, it was the result of years of civil-society organizing—
spurred by the build-up of frustrations over the violence, historical neglect, and extreme poverty levels that Credit:
All photos by
plague a majority of the population in this city. The Strike ultimately led to the introduction in Congress Patricia
of a law to establish an autonomous fund for Buenaventura, which includes mechanisms of collective deci- Rodriguez.
sion-making about development plans for the city.
On July 17, 2017, about 40 community and labor leaders from Buenaventura met with a dozen mem-
bers of international organizations like the World Organization against Torture, the U.S.-based Witness
for Peace, and the Colombian-based NGO Inter-Ecclesiastic Commission of Justice and Peace, to testify
about the precarious living and working situation of thousands of labor-union members, Afro-descendant
community leaders, fisherfolk, and many others in and around this port city. The leaders took turns
describing the vast reach of systemic violence and poverty, and the massive failures by national and local
government officials to address these problems.
Speaking out against injustice was not an easy decision for the women and men gathered at this meet-
ing, and at the various sites of resistance during the Civic Strike. The meeting took place in the Punta Icaco
Humanitarian Zone of Buenaventura, a proclaimed safe-space established in October 2016 after local resi-
dents (who largely earn a living from small-scale local lumber operations) sought help from human-rights
groups, after deeming it impossible to continue to suffer intimidation and extortion by illegal armed
groups. Punta Icaco lies adjacent to the Puente Nayero neighborhood of Buenaventura, which in 2014
formed the first urban Humanitarian Space in Colombia, after a series of deaths by dismemberment were
discovered in nearby “chop houses” run by local paramilitary groups. ››
NOVEMBER/DECEMBER 2017  l  DOLLARS & SENSE  l  19
 B U E N AV E N T U R A
Today, the threats and attacks by paramilitary
groups like AGC (Gaitanista Self-Defense Forces
of Colombia) against community leaders still hap-
pen almost daily, in spite of the heavy presence of
public security forces that are supposedly there to
protect the population, and military presence in
the nearby Bahía Málaga military base (also a U.S.
Navy base since 2009). AGC is a paramilitary
group that has terrorized communities in the
Pacific Coast region since their supposed demobi-
lization after the 2005 Justice and Peace Law. In
fact, within nine days of the meeting with interna-
tional organizations, one of the leaders at the meet-
ing was held at gun-point in his home, allegedly by
AGC operatives, and told “not to meet with the
gringos or he would be killed.”
In Buenaventura, desperation has obviously
surpassed the fear of speaking out; the living
conditions of many who live and work in the port
area are absolutely desolate.
But in Buenaventura, desperation has obviously
surpassed the fear of speaking out; the living condi-
tions of many who live and work in the port area
are absolutely desolate. According to official fig-
ures, 80% of the population of Buenaventura lives
in poverty, 21% are illiterate, and the unemploy-
ment rate is 62%. Residents complain of having
little or no access to water; what little is available is
often not safe enough to drink.
But the people of Buenaventura are, as their
chant proclaims, not giving up.
The Port as a 21st-Century Enclave Economy
At the Punta Icaco Humanitarian Space meeting,
leaders spoke of labor abuses, forced displacement,
torture, death threats, and killings practiced by a
variety of powerful actors: paramilitary groups,
guerrillas, and port officials. But the stories also
implicate elites such as politicians and heads of
national and multinational corporations, includ-
ing Sociedad Portuaria de Buenaventura (SPB).
SPB is a port-operations company majority-owned
by a dozen billionaires from Colombia, Philippines,
20  l  DOLLARS & SENSE  l  NOVEMBER/DECEMBER 2017
Spain, China, and South Korea. SPB operates the
biggest port in Colombia’s Pacific Coast, which
60% of all Colombian exports go through, includ-
ing 80% of coffee exports, and high percentages of
palm oil, coal, steel, petroleum, grains, sugar,
banana, and other products. The port brought in
$5.8 billion (U$2 million) pesos in national cus-
toms revenue in 2016.
The port itself has an operating capacity of
more than 12 million tons of cargo per year in its
five terminals. The Guardian reported in 2011 that
China had proposed building a rail link connect-
ing the port of Cartagena with Colombia’s Pacific
Coast as well as a $7.6 billion plan for the expan-
sion of the Buenaventura port, in order to increase
Chinese exports into the Americas and to facilitate
the export of coal and other raw materials from
Colombia to China.
Though the port has indeed expanded, an even
more telling sign of the importance of port access
is the March 2017 inauguration of the new
$550-million Port of Agua Dulce, owned and
operated by two large Asian companies, ICTSI
(International Container Terminal Services,
Philippines) and PSA (World’s Port of Call,
Singapore). Agua Dulce is advertised as the most
modern port on South America’s Pacific Coast, yet
it is swiftly leading to environmental destruction
and the forced, violent displacement of Afro-
descendant and indigenous communities in the
area. In the Afro-descendant community of El
Cruzero, for instance, leaders complain of violent
displacements and the vast clearing of ancestral
lands for mining and other purposes by companies
that operate in Agua Dulce. In this sense, the ports’
importance to a wide portion of the local popula-
tion is quite reminiscent of the dependency pro-
duced during the era of expansion of enclave
export based economies in the 1900s.
The Paro Cívico: Labor, Ethnicities, Civic
Organizations Hold their Ground
The contrast between the technological and infra-
structural capacity of the port itself and the levels of
poverty and displacement among the people living
nearby is stark, revealing the essence of residents’
long-term drive to organize. The city’s crisis reached
a climax during the 22-day Civic Strike, but the
problems of extreme poverty, drug-trafficking, and
violence in Buenaventura span many decades.
Initially, the Civic Strike leaders called on the
Colombian government to declare an economic,
social, and economic state of emergency. Their
demands included, among others, an increase
spending on housing, healthcare, basic sanitation,
infrastructure, and education at all levels, as well as
an accountable and collective rights-based legal sys-
tem that protects rather than victimizes marginal-
ized populations. The organizations also asked for
monetary and symbolic reparations for victims of
violence by state- and non-state armed actors, and a
commitment of funds for the strengthening of local
economy, creating jobs and increasing salaries, as
well as increased public expenditures on the recov-
ery and conservation of degraded ecosystems,
including rivers and biodiverse areas.
As the Civic Strike gained strength, more than a
hundred civic organizations began working together
at different strategic meeting points (or puntos de
encuentro) in the city. Hundreds of thousands of resi-
dents of the region occupied entire areas, calling for
transformative peace in the territories. By this they
meant one that touches on structural changes and
the right to live in dignity, and which goes beyond
the cease-fire agreements, being negotiated between
the Colombian government and guerrilla groups like
FARC (Revolutionary Armed Forces of Colombia)
and ELN (National Liberation Army), to end a civil elsewhere. We were able to interact and coordinate

conflict that has lasted more than fifty years. The
strike was met with brutal attacks by police and the
Escuadrón Móvil Antidisturbio (Mobile Anti-Riot
Squad, known as ESMAD) forces, resulting in sev-
eral deaths, and thousands injured. Security officials
threw (U.S. manufactured) tear gas grenades and
shot rubber bullets blindly toward the crowds, but
the demonstrators who gathered at the strategic
points held their ground.
La Delfina, one of the punto de encuentro com-
munities, was selected by the Civic Strike Committee
for its strategic location, at the entrance of the main
highway leading into the island-port of
Buenaventura, and its inter-ethnic profile, with
indigenous and Afro-descendant groups coexisting
but largely living and defending their separate terri-
tories. Having nearly always fought for their own
interests, the groups were united by calls for mass
non-violent resistance and by the brutal repression
just four days into the strike. Two weeks into the
road blockages and strike, the loss to the export sec-
tor was already $20 billion pesos ($7 million). As a
leader of the Afro-descendant community explained:
“We had an experience that merits being replicated
››
with the nearby indigenous leaders from the Nasa-
Embera communities for the first time. We were Punta Icaco
Humanitarian
attacked indiscriminately, but this just united us. If Zone at night,
we did it alone, this would be impossible.” Though May 2017.
the state of economic emergency was not called,
allegedly due to the national government’s fear of a
domino effect, the idea of the autonomous budget
has brewed from this unity.
The fifty-plus years of armed conflict are
undoubtedly a source of the state’s failure to imple-
ment more just economic plans and address
human-rights violations. Despite the seeming
advance in formal peace negotiations between the
FARC and the Colombian government since 2012,
peace is not at all felt on the ground. The problems
in Buenaventura also have deeper structural
sources, revealed most visibly in the labor situation
in the Buenaventura Port itself.
Privatization and Corporate Labor Abuse
Buenaventura has operated officially as a port city
since 1827, but fast-paced modernization began
with the creation of state-owned Empresa Puertos
de Colombia (Colpuertos) in 1959. At its peak in
››
NOVEMBER/DECEMBER 2017  l  DOLLARS & SENSE  l  21
 B U E N AV E N T U R A
the 1970s, Colpuertos directly employed about
10,000 workers. At that time, the port of
Buenaventura consisted of a single dock. Throughout
Colpuertos’ decentralization (the process of decreas-
ing the decision-making role by state managers of
public enterprises) in the 1980s, jobs and salaries
remained relatively stable, but its eventual privatiza-
tion in 1991 and the concomitant end of collective
bargaining agreements represented a drastic change
in labor standards and protections. For instance,
average salaries of port workers decreased from 6.3
times the minimum wage, in the 1980s, to just 1.8
times by 2002. During the 1980 and 1990s,
Colombia’s governments adhered to neoliberal eco-
nomic policies, spurring the “flexibilization” of labor
relations and the creation of hundreds of subcon-
tracting firms of all sizes. These firms moved swiftly
to hire low-paid temporary workers.
With new technology and a culture of anti-
Activists at the
entrance of El unionism behind the economic model, the number of
Cruzero, May 2017. port-related jobs in Buenaventura declined, by 2008,
On the billboard in to only about 3600, with only 200 being part of the
the background,
the declaration of
SPB. As Daniel Hawkins (2013) states, “Buenaventura
protected appears to have been the laboratory for labor interme-
ecological area, diation in the Colombian port industry … [it] was the
amid signs of port of most frenetic entrepreneurial activity.”
military presence
and trucks coming But in 2007, a handful of port workers in
in and out Cartagena decided to create a new, more representa-
of the area. tive union (Unión Portuaria, UP) to fight labor out-
››
sourcing (tercerización) and reestablish formal
22  l  DOLLARS & SENSE  l  NOVEMBER/DECEMBER 2017
contracts with SPB in all the ports of Colombia. In
August 2012, following years of labor conflict with
SPB and subcontracting firms like TECSA
(Terminal de Contenedores, S.A., responsible for
loading and unloading of cargo containers), a strike
by key UP workers led to 110 workers obtaining
direct contracts with SPB, but this left another 3500
workers still in insecure indirect jobs with TECSA.
Meanwhile, TECSA’s net profit was 11.6 billion
pesos ($3.7 million) in 2012.
The labor abuses continued, and in May and
June 2015, Unión Portuaria organized another
strike. This one ended with a direct contract with
SPB for 376 workers, and with TECSA for another
523 workers. Again, another 3,000 workers
remained without a direct collective bargaining
agreement that would guarantee an eight-hour
work day, increased wages, and other protections
for them and their families. J.R., a leader from
Unión Portuaria notes, “[2012-2015] were years of
many violent mass displacements of people living
in neighborhoods in and near the Buenaventura
port, which in turn spurred many of us [in UP] to
denounce forced displacement, and to organize
actions to return to our territories [near the port].”
Labor abuses in Colombia were supposedly to be
addressed as part of the 2011 U.S.-Colombia Free
Trade Agreement Labor Action Plan (LAP), hailed
by the Obama administration as a roadmap to
improving labor rights in Colombia. Under its LAP
commitments, the Colombian government would
prioritize key economic sectors—including palm
oil, sugar, mines, flowers, and ports—for increased
labor inspections. Yet, by 2015, the failure of LAP
was evident in a low number of inspections and
weak enforcement of labor standards. In addition,
labor leaders continued to be targets of threats and
assassinations: Between 2011 and 2015, 105 labor
leaders were killed, allegedly by right-wing paramili-
tary members or thugs paid by secret “intellectual
authors” who are rarely identified.
The government of President Juan Manuel
Santos (in office since 2010) has put in place so-
called “integral development” schemes such as Plan
Pacífico (2014), which would target infrastructure
building all along the Pacific coast. In Buenaventura,
the government hired a Spanish engineering and
architecture consulting firm, Esteyco, to develop a
multimillion master plan to modernize the port city
and create biodiversity and ecotourism projects. But
the plan was largely developed without consulting
civil society organizations. As Senator Alexander
López-Maya declared during a Congressional hear-
ing in 2017, “This is basically a plan for clearing of
the population from the island-port to the inland. It
is a scene of frequent terror, fear, persecution so that
people abandon their lands, and go wherever, and
this is most worrisome. We have a total of 140,000
people displaced, six thousand just last year, in the
Bajamar port-structure zone.”
The Autonomous Budget
Because Buenaventura has such a history of labor,
indigenous, and Afro-descendant resistance to
exploitation, the negotiations around the creation of
(and mechanisms for) an autonomous budget
(FonBuenaventura) takes on added importance. It
shows the growth of collective methodologies and
long-term thinking on the part of the movements. A
member of the Civic Strike Executive Committee
calls it “an acceptable resolution to problems that the
government never intended to resolve.” An autono-
mous budget involves a 10 billion peso (US$3.3
million) trust fund established by law (on July 26,
2017), to be gathered and used over a span of 10
years, and which forms an integral part of municipal
development plans. The fund will be based on an
allocation of 50% of local tax revenue each year and
additional national funds and external loans.
The agreement includes an immediate infrastruc-
ture investment of 1.5 billion pesos ($500,000),
which will include the construction of a sewage sys-
tem for the port area, an emergency wing of a hospi-
tal, and other public projects. The fund, when
approved in Congress, will be administered by a
FonBuenaventura council, composed of five mem-
bers of the community, seven national and local gov-
ernment officials, plus the mayor of Buenaventura
and the governor of Valle del Cauca. Although lop-
sided in favor of the government, decisions will sup-
posedly be made through participatory roundtable
dialogues (Cabildo Abierto, or “open council”)
around issues such as land, housing, infrastructure,
jobs and productivity, water and public services, edu-
cation, reinvigoration of cultural expressions of Afro-
descendant and indigenous groups, greater account-
ability of the justice system and protection for
victims, and human rights. In addition, the agree-
ment includes government recognition of right to
social protest, the implementation of collective rights
(like free prior and informed consent before any
major infrastructural or mining project can begin),
protection mechanisms for movement leaders who
are threatened for mobilizing, monitoring of post-
strike compliance by the state, and the creation of a
truth commission to investigate ESMAD and other
armed actors’ violence during the strike.
According to one of the UP labor representa-
tives speaking at the Cabildo Abierto, the future of
Buenaventura lies in continuing to build a “cul-
ture” of organized popular resistance and struggle
for social change. In addition, this requires the
creation of a public enterprise of sorts—or at least
one that more closely represents the interest of the
population of Buenaventura, rather than private
interests—continued actions for formalization of
labor contracts, the creation of new jobs, and the
increase in incomes for ordinary workers.
The unity built over years of organizing, culmi-
nating with the Civic Strike, is now reflected in the
collective demands being pressed by the people of
Buenaventura. These demands promise continued
resistance against the exploitative model of labor
relations being defended by global capital. Change
will not come from entrepreneurs or politicians. It
will come from grassroots organizations them-
selves, as labor and ethnic communities continue
to deconstruct systems of power, exploitation, and
racism—through continued mobilization, legisla-
tion at national and international levels (i.e,. the
rights-based framework pushed by organizations
like the International Labor Organization or the
above-mentioned World Organization against
Torture) or both. There is hope that the era of free-
reign by elite and state actors might end one day
soon. If one thinks about the roots of problems in
Buenaventura, it is not hard to imagine that it
could be so much different, with a hint of ethical
spirit by those in positions of power, and a lot of
popular “not giving up, dammit!” D&S
P AT R I C I A R O D R I G U E Z teaches politics at
Ithaca College.
S O U R C E S : Tania Branigan, “China goes on the rails to rival Panama
canal,” The Guardian, Feb 14, 2011 (theguardian.com); Daniel Hawkins,
The Formalization and Unionization Campaign in the Buenaventura Port,
Colombia (2013) (lser.la.psu.edu); Nayibi Jimenez and Wilson Delgado,
“La política pública de privatización del sector portuario y su impacto
en la organización del trabajo en el puerto de Buenaventura,” Revista
cientifica pensamiento y gestión, v. 25 (2008); Alexander López-Maya,
Colombia Senate hearing, 2017 (youtube.com); Alonso Valencia, Los
orígenes coloniales del Puerto de Buenaventura, Historia y Memoria
(July-December 2014).
NOVEMBER/DECEMBER 2017  l  DOLLARS & SENSE  l  23
 Transnational
Capital
and
Transnational
COSTS OF Labor
EMPIRE A N I N T E RV I EW WITH
W I L L I A M K . TA B B

W illiam K. Tabb is an economist and author of

The Restructuring of Capitalism in Our
Time (2012), Economic Governance in the Age of
Globalization (2004), and The Amoral Elephant:
Globalization and the Struggle for Social Justice in
the Twenty-First Century (2001). He spoke with
Dollars & Sense in July 2017 on the global economic
crisis, its causes and consequences; the transnational
capitalist class and neoliberal globalization; and the
prospects for resistance and alternatives to capitalism
now and in the future.

Dollars & Sense: If we look at a world map showing GDP growth rates in 2009 or 2010, during the Great
Recession, we see most of the high-income countries of North America, Europe, and East Asia with nega-
tive growth rates. Meanwhile, we see some of South America, much of Africa, and most of South Asia and
East Asia still with positive economic growth. Why would the wealthiest and most powerful countries be
at the epicenter of a global economic crisis?

William Tabb: The crisis was triggered in the financial sector, and while that didn’t cause the problem,
it brought the economy down. The financial crisis itself was created by the over-indebtedness in the
richer countries and the extent of leverage, that is of borrowing, mostly by the private-sector, actually,
and the slow rate of growth in their economies. They dealt with the slow rate of growth in the economy
by offering people the chance to borrow more money. And they did. As they borrowed more and more,
they reached the point that they couldn’t pay it back, especially the mortgages and, within that, the
subprime mortgage in the United States. But that same property crash happened in a number of other
advanced countries.
The other thing that was behind the borrowing was the stagnation of income for working classes
across the advanced capitalist world. Slowing growth in the real economy and rapid growth in the finan-
cial economy came from increased unequal distribution of income, where the 1%—in Occupy Wall
Street’s terms—accrued more and more of the surplus created. They put it into finance because there
was no point in producing more goods and services, investing in the real economy, because most people
didn’t have the money because of the stagnation of incomes. So you had the slowing down leading to
the financialization.
The other piece of that was the globalization of the economy, in which industry or deindustrialization
had killed so many of the good and many unionized jobs, which added to the stagnation pressures.

24  l  DOLLARS & SENSE  l  NOVEMBER/DECEMBER 2017

D&S: Just to follow up on that, do you think it’s
useful to talk about a possibility where—even if the
crisis detonated in the higher-income countries—
they might have offloaded more of the fallout onto
other countries? People talk about Germany “export-
ing unemployment” to other countries, but these
were mostly countries in the European periphery. Is
it possible to imagine the high-income countries
doing something similar on a global scale?
WT: To begin with the German case which you
raise: It’s an important one, because what the
Germans succeeded in doing was holding down
the wages in their own country, so that they could
continue to export. The rest of Europe became less
competitive, with the euro, since they were all tied
to the same currency. The German economy grew
basically by exploiting their neighbors in Europe.
As far as the developing countries are concerned:
many were commodity producers, and with the
downturn, commodity prices fell and they were
damaged heavily through that.
I also wanted to go back to the way that finance
hurt Latin America and Asia in earlier crises,
where the same form of borrowing was inter-
rupted by the United States’ monetary policy. The
countries that had borrowed first in the Latin
American debt crisis of the 1980s and then in the
Asian crisis of the ’90s, suddenly had to pay back
debt that they couldn’t pay back because of the
suddenness of the change.
In the current period, or the period since 2007–
2008 with the downturn, something similar hap-
pened, in which the developing countries did suf-
fer the consequences of the slowdown in the core.
The extent to which this was the higher-income
countries “putting it on them” rather than merely
co-suffering—it’s a harder one for me to answer.
D&S: You mentioned the Latin American debt
crisis, which served as the lance point, in many
countries, for the imposition of “neoliberal” eco-
nomic policies. The United States government
was certainly in the forefront of spreading this
“free market” or “neoliberal” economic policy
paradigm to other parts of the world, in Latin
America and elsewhere, and giant U.S. corpora-
tions have certainly been major beneficiaries. Is
the hegemonic position of the United States in
the capitalist world economy dependent on the
continuation of this paradigm?
WT: It certainly is important to transnational capi-
tal, and especially to U.S.-based transnational capi-
tal. But one of the things to think about is that the
nationality of capital has become more interna-
tionalized. For many major U.S. corporations, or
major German or French corporations, the stock is
owned much more widely, so that their headquar-
ters may still be in the country of origin but capital
has become more internationalized in terms of
ownership and control. So, yes, for American cor-
porations it is very important, but it is important
for all transnational capital.
What neoliberalism does is force the countries of
Latin America or other developing countries to hold
their own wages down in order to be competitive in
the global marketplace. Capital is mobile, and trans-
national capital will buy from the lowest cost
sources, given that their supply chains can alter
where production is taking place. It gives them bar-
gaining power for lower taxes in the countries of the
Capital is mobile, and transnational capital will
buy from the lowest cost sources, given that
their supply chains can alter where production is
taking place. It gives them bargaining power for
lower taxes in the countries of the Third World,
lower wages for the workers in those countries,
and incentives to locate there.
Third World, lower wages for the workers in those
countries, and incentives to in fact locate there. So a
great deal of the profitability of transnational capital
comes from this greater bargaining power over both
the workers of the world and the countries of the
world, especially the less powerful countries that are
more dependent on transnational capital.
D&S: How far do theories of a “transnational capi-
talist class” and “transnational capitalist state” get
us in understanding the restructuring of the capi-
talist world economy in the late 20th century? Do
those ideas help us explain the transition from the
clashing colonial empires of a century ago (each
seeking to carve out exclusive access for their own
capitalist companies) to today’s global regime
maintaining global access (to markets, natural
resources, labor, etc.) for transnational capital? ››
NOVEMBER/DECEMBER 2017  l  DOLLARS & SENSE  l  25
 T R A N S N AT I O N A L C A P I TA L A N D L A B O R
WT: I had earlier been skeptical of the theory,
because all of the actions of local capitalist
classes—in terms of protecting their interests—
were strong going into the 1980s and the 1990s.
But we did see a major change, a change that
actually originated earlier, as national develop-
ment strategies gave way—with elites, instead of
trying to follow autonomous development and
trying to protect themselves from foreign capital,
becoming instead junior partners foreign capital
and giving up the national independence and
autonomous development.
When that happened, they became junior part-
ners for transnational capital and to a much greater
extent were integrated into the global capitalist class.
This was a significant change from the era of
national Keynesianism of the postwar period into
global neoliberalism, where transnational capital is
able not only to penetrate these countries, but the
elites of these countries see their interests in working
as part of a global capitalist class. I think that the
theory, as it has been developed, is now much more
convincing and the evidence for it is much greater.
D&S: How do you see the prospects for a new
anti-capitalist politics, meaning a politics that aims
at the replacement of the capitalist system with a
new form of economic organization on a world
scale? Does the globalization of capital undermine
the viability of the “working class” as a driving
force of social change, or could it foster (as one of
its contradictions) a truly “transnational working
class” that could be an agent of a global economic
transformation?
WT: One of the things Karl Marx saw in the
1840s, when he and Frederick Engels were writing
the Communist Manifesto, was that capitalism was
a world system (which was pretty impressive
insight back then) and that the global working
class had nothing to lose and much to gain by
uniting against capital. The idea that this might
happen was dismissed by many people, but Marx
just keeps coming back. In the current period, as
global capital gets more and more control, it
becomes more and more clear what is really going
on. So in the United States, we have a situation
where a little over half of young people are anti-
capitalist and prefer socialism. This is a major

The Evolution of Imperialism

A century ago, it was clear that the division of labor was the Global South producing raw materials and the “core”
countries of the world system producing industrial goods. The peripheral countries produced raw materials
which were sold at low prices because of the lower cost of reproducing labor power in those countries as well as the
military stronghold the colonial power had, and their ability to appropriate land and labor from the peoples of the
Global South. That was first called “colonialism,” later “imperialism.” Some of these countries got their independence—
became formally independent—but the economic relationship continued, and the countries of the core continued to
exploit them basically in the same manner.
You did have a period of national development, of autocentric development, at the end of World War II. This was a
strategy where national elites, pushed by progressive movements in these countries, tried to pursue a different form of
development. Even groups like OPEC [the Organization of the Petroleum Exporting Countries] trying to raise the price of
oil by coming together. The Bandung Conference of 1954 of progressive Third World leaders—called the “Third” World
between the Soviet system and the Western capitalist system—trying to negotiate a better deal for their countries.
Neoliberalism basically undid that. So we move from the earlier period, of 100 years ago, of straight, exploitative,
military, violent control, to informal control. When the colonial powers left a particular country, they tried to leave in
place leaders who had been educated in the colonial country, chosen by the foreign ministries of the colonial powers,
to be cooperative in a period when the former colony had become formally independent. That was challenged by
some of the important leaders in the postwar period—Nehru in India, Sukarno in Indonesia, and others—who tried
to negotiate in a very meaningful sense for the Global South. They were succeeded, unfortunately, by leaders who
were more in favor of the later development of transnational control. —WT

26  l  DOLLARS & SENSE  l  NOVEMBER/DECEMBER 2017

 h y l?
change. The other change, speaking for the

W
moment about the United States, is that surveys

g i t a
are showing that people identify not as middle

D i
class (because they are being pushed out of the

Tr y
middle class and people who are coming into the
economy have not been given a chance for a mid-
dle-class standard of living) but as working class.
Please consider a
The rise of the right is the same thing as we saw Dollars & Sense e-subscription!
in the 1930s: When the left becomes stronger—the We’ll send you a full-color pdf
progressive movement, the workers movement of each issue, as soon as
becomes stronger—it’s only a violent, racist, xeno- it’s published.
phobic, Trump-like administration that can try to
contain what in our country would be the base of
the Democratic Party, the trade union movement,
young people, Black Lives Matter, the fight for the
$15 an hour minimum wage. These movements are
getting stronger, and organizing at the local level is
important. We’re seeing the same trends, not only in
the other advanced countries—in England espe-
cially, with [Jeremy] Corbyn—but in the countries
that have been hardest hit by the crisis. We’re seeing
strong left-wing movements in Greece and Spain.
Latin America has become more complex, as the
left-wing governments that came in had trouble
delivering on what they wished to deliver, given that
they were part of a global system. They were unable
on their own, even though they were able to improve
conditions, to fundamentally challenge capitalism.
I think the idea that capitalism will be chal-
lenged—it will be challenged in the advanced
countries and perhaps in China, where the num-
ber of strikes and the extent of unrest is really
quite substantial, although the Communist Party Free This offer to our subscribers allows you to
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moving into an era where class analysis becomes
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part of the conversation. D&S just e-mail us at: dollars@dollarsandsense.org.

NOVEMBER/DECEMBER 2017  l  DOLLARS & SENSE  l  27

< In Review
Putting Land and Power Back into Economics
Rethinking the Economics of Land
and Housing, by Josh Ryan-Collins,
Toby Lloyd and Laurie MacFarlane,
with the New Economics Foundation
(Zed Books, 2017).
B Y P O L LY C L E V E L A N D
H ere’s a desperately needed new
book to revitalize not only urban
economics, but our whole approach
to economics—micro, macro and
muddled. While the authors draw their
examples from Great Britain, their
lessons pertain far more broadly.
The first section of Rethinking the
Economicsof Land and Housing reminds
us of the central role of land in the “clas-
sical” economics of Adam Smith, David
Ricardo, John Stuart Mill, and others.
The classicals attributed production to
three “factors of production”: land (in-
cluding all natural resources), labor (all
productive human effort) and capital
(all physical tools and inventories used
in production). These belonged to three
distinct but overlapping classes: land-
lords, workers, and capitalists, and
earned respectively rent, wages, and
interest/profit. The landlords were the
ruling class, heirs of the conquerors of
the territory, deriving their “rent” in-
come from the mere privilege of having
titles granted and protected by the
state. As Adam Smith wrote in The
Wealth of Nations, “As soon as the land
28  l  DOLLARS & SENSE  l NOVEMBER/DECEMBER 2017
of any country has all become private
property, the landlords, like all other
men, love to reap where they never
sowed and demand a rent even for its
natural produce.”
Adam Smith and the others argued
that the best tax was one that fell on
the market value of land, collecting
the landlords’ rent. In fact, a stiff land
tax of four shillings to the pound had
funded consul bonds when the Bank
of England was founded in 1694 dur-
ing the reign of William and Mary,
making England a financial power-
Adam Smith and
the other classical
economists argued
that the best tax
was one that fell on
the market value of
land, collecting the
landlords’ rent.
house and setting it on the path to
empire. In 1700, land taxes supplied
some 35% of national revenue, a
number that would fall steadily over
the years to negligible levels. In the
late 1800s, the American Henry
George, author of Progress and Poverty
(1879) began a worldwide crusade for
social justice. He picked up and ran
with the classical model; his “remedy”
for poverty and inequality was to shift
all taxes to land. A national land tax in
England, advocated by Winston
Churchill, came close to passing in
1909 and 1910; there were several
near-successes up to 1938.
Meanwhile, the establishment re-
sponded to the threat of George, and
of Karl Marx, by creating “neoclassical
economics.” The leading instigator was
the American John Bates Clark, for
whom is named the award for the best
work by an economist under 40. Clark
merged land into capital, and rent into
profit to give us the static two-factor
scheme of capital and labor in today’s
economics. He also claimed that
capital and labor were paid their “mar-
ginal product”, that is, according to the
value of their contribution. Clark’s mo-
tive was clearly political: to dampen
growing claims that labor was being
exploited. Somehow land came to
mean only farmland, dismissed as
mostly irrelevant in an industrial econ-
omy. As the Rethinking authors state,
Clark’s model had a huge influence
and became the basis for 20th century
macroeconomics.
The second part of Rethinking de-
velops the history of housing policy in
England. The late 19th and early 20th
centuries saw increasing urbanization
and more widespread ownership of
property in England. The authors
argue that this brought both “free-
dom and theft”: greater opportunity
for property owners, yet theft of op-
portunity for non-owners, since the
overall supply of land is fixed. In the
early 20th century British leaders, rec-
ognizing the contradiction, devel-
oped various programs to provide
inexpensive rental housing for work-
ers. Following World War II, there were
the “council houses.” A government
authority purchased land outside old-
er cities at its agricultural value, built
infrastructure and modest row hous-
es, and recovered its investment from
the affordable rents. Later tax policies
increasingly favored housing, notably
the exemption of primary houses
from capital gains taxation.
After 1970, instead of subsidizing
construction of inexpensive rental hous-
ing, policies increasingly subsidized
homeownership. As the authors make
clear, this is a bad idea. More demand for
houses without more supply creates a
vicious circle: more homeowners g
more support for rising home prices g
home (land) prices rise as demand isn’t
met g more non-homeowners see
homes as a good investment g more
government support for homeowner-
ship g more (now heavily indebted)
homeowners. Since land values are the
capitalized value of expected land in-
come, low interest rates mean high land
values—and pressure on central banks
to keep interest rates low.
The authors explain how these poli-
cies have led to the financialization of
land and housing. They quote Financial
Times editor Martin Wolf (2008): “[T]he
US and UK economies … turned their
populations into highly leveraged
speculators in a fixed asset that domi-
nates most portfolios and impairs per-
sonal mobility.” It had to end badly—
and did, with the bubble leading to
the crash of 2008 and the government
bailouts of the banks. Only it didn’t
really end. As the authors point out,
both the surviving homeowners and
the big banks still have a powerful
vested interest in maintaining inflated
land values. The big banks are still
loaded with trillions in dodgy land-
based assets like securitized mortgag-
es; any increase in interest rates could
send them into a downward spiral. The
central banks are essentially keeping
the largest banks on life support—in
the process diverting resources from
productive investment by small and
medium businesses. The macro
models bequeathed by Clark can’t be-
gin to accommodate this reality.
(Even with low interest rates, the
big banks can still make money on the
spread between the near-zero rates
they get from central banks and the
rates at which they lend. A small
spread on a high volume of trading in
the international money markets can
be quite profitable.)
The big banks are still
loaded with trillions
in dodgy land-based
assets like securitized
mortgages; any increase
in interest rates could
send them into a
downward spiral.
I can pick some quibbles with the
book, notably the statement that
“while the idea of a single tax was
hugely popular, it was never imple-
mented.” The authors seem unaware
just how pervasive the land -tax move-
ment was outside the UK, notably in
South Africa, Western Canada,
Australia, New Zealand, and Denmark,
where land taxes remain alive though
diminished. In the early 1900’s, a num-
ber of U.S. cities including San
Francisco, Cleveland, and New York, as
well as Vancouver in Canada, instituted
de facto land taxation by shifting prop-
erty taxes from improvements to
land—with impressive results as de-
scribed in Mason Gaffney’s New Life in
Old Cities. In 1934, crusading journalist
Upton Sinclair ran for governor of
California on a platform including re-
placing all other taxes with a land tax.
He was defeated after a massive disin-
formation campaign funded by busi-
nesses all over the United States.
Another quibble is that the authors,
apparently unfamiliar with the me-
chanics of property assessment, cast
doubt on the ease and practicality of
land value taxation. Australian and
New Zealand assessors would beg to
differ. Today’s GIS systems make accu-
rate land assessment a no-brainer.
Only the political will is missing.
A further benefit of the book is an
extensive bibliography.
Since the book was written, the new
Scottish Parliament has begun serious-
ly considering land value taxes—a
great way to strike at absentee land-
owners, including Donald Trump. D&S
P O L LY C L E V E L A N D is an adjunct
professor of economics at Columbia
University’s School of International and
Public Affairs..

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NOVEMBER/DECEMBER 2017  l  DOLLARS & SENSE  l  29

< Ask Dr. Dollar
What Is U.S. Workers’ Share of National Income?
Dear Dr. Dollar:
How well do U.S workers fare in relation to workers in other countries when you
compare workers’ shares of national income? —Martin Voelker, Golden, Colo.
B Y A R T H U R M ACE WA N
N ot so well. That’s the answer that
we can readily obtain from what
is now well known about income in-
equality in the United States and oth-
er countries. Among high-income
countries, the United States is one of
the most unequal, if not the most un-
equal. Under these circumstances, it is
pretty clear that workers are getting a
smaller share of national income in
this country than in most other high-
income countries.
We do, in addition, have some oth-
er information that helps in answer-
ing this question. The International
Labour Organization provides data on
“labor’s share” of national income for
several countries. These data are
shown in Table 1 for 2013. (More re-
cent data were not available.) The
United States does not do so well,
falling about in the middle of the
countries shown in Table 1 (below).
There are, however, problems with
these standard “labor’s share” data.
The data include the wages and sala-
ries of everyone from Walmart clerks
to the president of Citibank. So the
data in Table 1 overstate what we
Table 1: “Labor’s Share”
of National Income,
Selected Countries, 2013
United Kingdom 62.3%
Japan 59.6%
France 59.0%
Germany 57.9%
United States 56.4%
Canada 56.0%
Italy 55.4%
Australia 54.8%
Source: International Labour Organization,
www.ilo.org/gwr-figures.
30  l  DOLLARS & SENSE  l NOVEMBER/DECEMBER 2017
want to know—that is the share of
income going to those most of us
think of as “working people,” a concept
that does not include executives.
The overstatement, however, is
not the same for all countries in the
table. Because the salaries of execu-
tives in the United States are general-
ly a good deal higher than those in
When you factor out
executives and adjust
for per capita income,
workers in the United
States do not fare
so well in relation
to workers in other
countries in terms of
shares of their nations’
incomes.
other countries, the labor’s share for
this country is overstated more than
for most other countries. If we could
correct the data to show the share
going to those we think of as “work-
ing people,” the U.S. position in Table
1 would be lower.
Some other useful data give us the
same general picture with some de-
tail. Consider Table 2 (opposite page),
showing for 2015 average hourly com-
pensation costs in manufacturing and
per capita income in U.S. dollars for
nineteen relatively high income coun-
tries. (Each country in the table has a
per capita income above $25,000 and
a population greater than five million.)
Compensation costs include direct
pay, social insurance expenditures,
and labor-related taxes. While it is not
clear if the pay of high-level execu-
tives is included in these figures, the
fact that they are presented on a per
hour basis suggests that the data are
for “working people.”
In Frame One of Table 2, countries
are ranked by hourly compensation
costs, and the United States falls right
about in the middle. However, to a
large extent (though by no means
entirely) the higher hourly compensa-
tion is associated with a higher per
capita income. Insofar as this is the
case, we see simply that countries
with high per capita incomes also
have higher wages in manufacturing.
No surprise. There’s Norway, right at
the top in terms of both hourly costs
and per capita income.
But if we are interested in how
workers do in the contexts of their
own countries, we need to adjust for
per capita income. One way to do this
is to use the figures in Frame One of
the table to calculate the number of
hours a person receiving the average
wage in manufacturing would have to
work to earn the per capita annual in-
come in the country. Things change, as
shown in Frame Two of Table 2. The
United States is no longer near the
middle, but now ranks near the bot-
tom. Norway falls just below the
United States, along with only Israel
and Singapore.
So, within the context of their own
countries, manufacturing workers in all
the other fifteen countries fare better
than manufacturing workers in the
United States. Belgium, with a per cap-
ita income of 75% of that in the United
States, has moved to the top of the list.
Questions about the economy?
Ask Dr. Dollar!
Submit questions by email (dollars@
dollarsandsense.org) or U.S. mail (c/o
Dollars & Sense, 89 South St., LL02,
Boston, MA 02111).

The figures in Table 2 should be
viewed as very rough indicators of the
actual situation. The value of wages in
different countries in dollar terms can
change substantially from year to year
as exchange rates change. Also, manu-
facturing plays very different roles in
different countries, and in all of the
countries in the table manufacturing
accounts for less than about 20% of
the workforce. So the manufacturing
experience is not necessarily typical for
the whole economies of these coun-
tries. Nonetheless, the general implica-
$? Our Economic
tion of the table regarding the com-
Well-Being
parison of U.S. workers and workers in
other countries seems reasonable and
is consistent with other data—for ex-
ample, data on income inequality.
The conclusion: Workers in the
United States do not fare so well in
relation to workers in other countries
in terms of shares of their nations’
incomes. D&S
A R T H U R M A C E W A N is professor
emeritus at UMass Boston and a
Dollars & Sense Associate.

Table 2: Average Hourly Compensation Costs in Manufacturing,

Average National Income, and Hours in Manufacturing Needed to
Earn Average National Income, Selected Countries, 2015
Frame One Frame Two A Popular Economics Collective
Responds to Questions about
Hours needed the Economy from a United
Hourly to earn
Compen- Per capita Methodist Congregation
Country Country per capita
sation Income annual
Costs income
I n 2014, members of the
congregation of the Bay Ridge
United Methodist Church took out a
Norway $49.67 $74,505 Belgium 867
half-page ad in the New York Times,
Belgium $46.56 $40,357 Italy 955 posing a question and a challenge—
Denmark $44.44 $53,014 German 971 how can we explain changes in
economic well-being in the United
Germany $42.42 $41,177 France 972 States from one era to another? The
Sweden $41.68 $50,585 Spain 1,086 congregation offered an “Economic
Well-Being Award” to “an economist,
Austria $39.19 $43,665 Finland 1,103
or group of economists, who identify
Australia $38.75 $56,554 Austria 1,114 the factors associated with the
Finland $38.46 $42,405 Denmark 1,193 stronger economy in the period from
1946 to 1971, and the factors
United States $37.71 $56,207 South Korea 1,195 associated with the weaker economy
France $37.59 $36,527 Sweden 1,214 in the period from 1972 to 2012.”
Netherlands $36.53 $44,493 Netherlands 1,218 This new edited volume is a response
Italy $31.48 $30,049 United Kingdom 1,397 to this question from the editorial
collective of Dollars & Sense.
United Kingdom $31.44 $43,930 Canada 1,400
Canada $30.94 $43,316 Australia 1,459 Order your copy today at
Spain $23.65 $25,684 Japan 1,461 dollarsandsense.org/OEWB.
Japan $23.60 $34,474 United States 1,491 Bulk discounts for church
Singapore $25.41 $53,628 Norway 1,500
groups, community groups,
and unions.
South Korea $22.68 $27,105 Israel 1,647

DOLLARS
Israel $21.69 $35,729 Singapore 2,111

&SENSE
Notes: Selected countries are all countries with per capita income greater than $25,000 and population greater than five million.
Compensation costs include direct pay, social insurance expenditures, and labor-related taxes.

Sources: For hourly compensation costs, The Conference Board (conference-board.org/ilcprogram/). For per capita income, The
REAL WORLD ECONOMICS
World Bank, (data.worldbank.org/indicator/NY.GDP.PCAP.CD).

NOVEMBER/DECEMBER 2017  l  DOLLARS & SENSE  l  31

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