Sunday, December 21, 2008

Auto CEO’s: Second-Class Capitalists


Copyright © 2008 by Mark Gabrish Conlan for Zenger’s Newsmagazine • All rights reserved

Until about four weeks ago, anyone in the U.S. who concedes that we have a ruling class at all would have assumed that the CEO’s of General Motors, Ford and Chrysler were charter members of it. Not anymore. These three people — Rick Wagoner of General Motors, Alan Mullaly of Ford and Robert Nardelli of Chrysler — got a rude awakening when they came to the U.S. Congress, hats in hands, and asked for loan guarantees of $25 billion from the federal government to keep their companies alive until spring.

The first time they petitioned Congress, they were rudely upbraided for coming there on corporate jets and widely ridiculed as latter-day Neros fiddling while their companies burned. They came a second time, presumably either driving their own products or at least taking more hoi polloi methods of transportation, and won a bailout bill from the House of Representatives — only to see it stall in the Senate at the hands of Republicans, who repudiated the lame-duck President of their own party to send a Right-wing populist message to the slavering masses of talk-show listeners and a fuck-you finger to organized labor.

What’s most amazing about the defeat of the auto bailout is that the $25 to $35 billion the company CEO’s were asking for is chump change compared to the $700 billion (actually more like $850 billion to $1 trillion when all the pork-barrel earmarks needed to buy the votes to pass it were added) Congress eagerly gave to the U.S. financial sector to bail it out of its economic mistakes. The auto companies finally got their bailout, but only as $14 billion in crumbs from the huge fund set up to bail out the financial companies — and they had to agree to a humiliating set of conditions to do it: no more corporate jets, no more multi-million dollar salaries and new controls on the way they do business and the kinds of cars they were allowed to sell.

One could argue — indeed, a progressive socialist like myself can’t help but argue — that all American capitalists are way overpaid and the economy would probably be better off if more firms followed the policy of the world’s first (unsuccessful) attempt at a socialist revolution, the Paris Commune of 1870-71: no manager was to be paid more than the company’s highest-paid worker. But the vast difference between the humiliation the auto CEO’s were put through and the kid-gloves treatment their equally clueless financial-sector brethren got indicates just how decadent American capitalism has become and how totally remote it is from the actual production of goods and services.

All capitalist systems need some sort of banking and financial sector. There needs to be a place for people to park their capital so it can be injected back into the system and finance more economic activity. It also helps if there’s a way for budding entrepreneurs to sell stock in their enterprise in exchange for shares in future profits, so people whose ambitions and imaginations exceed their financial resources can nonetheless start companies and bring innovative new products to market.

But what the current economic crisis proves more than anything else is that the financial tail of American capitalism is now wagging the productive dog. This hasn’t happened overnight, of course. In the 1920’s America’s financiers sold many people on the idea that their financial futures would be secured by investing in the stock market and buying, selling and trading wealth they had done nothing to create. After the rude awakening of the 1930’s, people mistrusted the stock market as an investment vehicle for decades — until enough of the Depression generation died out and the market boomed in the 1960’s. The bubble inevitably burst in 1970 — just as it did later in 1987, 2000 and 2008 — but the landing was softened by the regulatory protections introduced under Franklin Roosevelt’s “New Deal.”

Beginning in the 1970’s, and increasingly over the next three decades, the banking and financial sector of the U.S. economy and the politicians to whom they were giving major “campaign contributions” dismantled most of the New Deal-era regulations of the financial system on the ground that “the market” should be left free to develop “innovative” financial systems without the hindrance of all those pesky rules. Deregulation allowed the formation of giant financial conglomerates that offered all sorts of investment services — and lots of inherent conflicts of interest as the same people who were paying the analysts who told you that a particular stock was a good buy were also paying the brokers who would make money selling it to you.

At the same time, American capitalists were de-industrializing the country and shipping industrial and manufacturing jobs en masse off to the lowest bidders. Virtually all this country’s productive industry moved abroad — first to Mexico and elsewhere in Latin America; then to China, where a nominally “Communist” dictatorship kept wages ultra-low and barred unions with a ferocity even Wal-Mart would envy. In doing this, American capitalists of this generation forgot a lesson even their most militantly anti-union ancestors like Henry Ford well knew: if you want to have a functioning economy, you not only have to keep down your production costs; you also have to pay your workers enough wages so they can actually afford to buy your products.

The result has been a bastardization of capitalism in which it is considered hopelessly déclassé to earn your profits by actually producing goods or services. Instead, the new capitalist heroes are the people who become rich selling … well, not even selling stocks or bonds, but “derivatives,” assets with no value of their own that are basically bets on how other assets are selling in the marketplace. A share of stock in a company is, in a sense, itself a “derivative,” since its price at any given moment is based on the marketplace’s perception of how well the company is going to do — but the creative financial-products market has designed “derivatives” based on stock prices, and “derivatives” based on other derivatives, leading up to financial instruments of such built-in complexity almost nobody knows what they’re really worth.

This is at least one reason why the auto bailout faced a fierce storm of opposition while the giveaways to the financial sector passed relatively smoothly. Everyone knows what an automobile is and, even if they know nothing about the mechanics of one, at least they know how it’s supposed to function. Since the auto bailout was voted down by Congress, the letters-to-the-editor pages of major newspapers have been filled with anecdotes from people about how crappy their last American car was and how much more reliable they’ve found the competing products from Japan, Germany or wherever. But nobody without an advanced degree in economics has much hope of knowing what a credit-default swap or a collateralized mortgage security really is, let alone whether any such offering is overpriced or underpriced.

Another reason the auto bailout failed in Congress was that the Republican party in the Senate seized on it as part of their 140-year jihad against labor unions. The United Auto Workers (UAW) has been one of the few long-term success stories of American labor; from the 1930’s, when they used sit-ins and other classic civil disobedience tactics (at a time when Mahatma Gandhi was a funny-looking guy in the newsreels and Martin Luther King was in grade school) to force the auto companies to recognize them, until the 1970’s they kept auto workers’ pay, health care, pensions and other benefits relatively high and built a proletarian workforce into a real middle class.

That began to unravel in the 1970’s, as foreign carmakers made inroads into U.S. markets (mainly because in the 1970’s, as in this decade, U.S. auto companies insisted on making giant, gas-guzzling vehicles even as skyrocketing gas prices led consumers to want smaller, more fuel-efficient cars), American car companies joined their industrial brethren in outsourcing as many jobs as possible and the companies got the UAW to agree to cutback after cutback. But the Senate Republicans seized on the auto industry’s crisis to deal the UAW a death blow; their price for agreeing to the bailout was that the UAW set a target date by which their members’ wages would be no higher than those paid to auto workers in nonunion plants — which would have eliminated the UAW’s entire reason for existence overnight.

They had help from the far-Right wing of America’s corporate media — talk radio and much of cable TV news — who endlessly repeated the propagandistic lie that the average UAW member was paid $75 per hour. “That wage figure — widely used by opponents of the auto industry bailout — is not in fact the wage paid to current workers,” Los Angeles Times reporter Jim Puzzanghera explained in a story published December 13. “It is an approximation of the costs of salaries and benefits for current and retired workers. After wage concessions in recent contracts, the UAW says its workers at GM, Ford and Chrysler plants range from $33 an hour for skilled trades to $14 an hour for new hires.”

The savagery of the Republican attack on the UAW — and their openly expressed hope that without a bailout, the big U.S. automakers would go bankrupt and the bankruptcy judges supervising their affairs would void the UAW contracts and slash the pay of their employees — illustrated Solidarity Divided co-author Bill Fletcher’s comment in his recent speech at Activist San Diego that America’s ruling class is committed to the utter destruction of the labor movement. And the success of the “$75 per hour” big lie shows that Fletcher was right about something else, too; that with unions committed only to improving the pay and benefits of their members, and not to building any sense of solidarity as a working class, America’s existing labor movement has left workers all too vulnerable to status-based propaganda campaigns that lead them to see other workers as enemies: “Why the hell should they get paid $75 per hour while I’m only making minimum wage?”

Whether the U.S. auto industry limps along until spring, they get a better deal from the Obama administration and the greater (but still not filibuster-proof) Democratic majority in the Senate, whether they merge (as GM and Chrysler have reportedly been discussing) or go out of business altogether and add cars to the long list of products (including consumer electronics) not made by U.S. companies at all, the strange saga of the attempted auto bailout and the weird treatment the car companies got at the hands of the government all too willing to give the financial sector whatever it wanted has already reinforced the message of the past 30 years. Workers are unimportant, easily replaceable cogs of production just like the machines they operate. Companies that actually make things are unimportant. The gods of American capitalism are the financiers, the investment bankers, the stock manipulators and others who suck off the producing power of the working class and seek new ways to make money off each other — or, as Bernard Madoff’s investors and customers are all too well aware by now, to rip each other off.