Democratic Underground

You Can't Go Home Again

August 14, 2004
By T.W. Croft

The town was burgeoning rapidly and pushing out into the wilderness, people were confident of a golden future, no one gave a second thought to a reckless increase in public borrowing. Bond issues involving staggering sums were being constantly "floated" until the credit structure of the town was built up into a teetering inverted pyramid and the citizens of Libya Hill (N.C.) no longer owned the streets they walked on.

In the early 1930s, Thomas Wolfe wrote You Can't Go Home Again, quoted here. In it, he recalled the investment bubble and the frenzy of riches (or, hoped-for-riches) that was the bullish culture of America, circa late 1920s.

The protagonist of the story returned home to find himself a stranger in a strange town that had boomed beyond recognition. The banks had developed frothy and untenable real estate projects. Across the country, rapid conglomeration and growth were shadowed by corporate corruption. New "citizen investors" fueled the boom, pulling on a sense of false wealth like an overly expensive new suit. Communities went crazy vying for growth.

And, then of course, it all changed. Black Monday on Wall Street was followed by a Great Depression. Main Street was thrown into a tragic downturn, as one quarter of all Americans lost their jobs, and the depression spread around the world.

"…To deny the evidence of their senses"

When the bubble of their unreal world suddenly exploded before their eyes, many of them were so incapable of facing harsh reality and truth that they blew their brains out or threw themselves from the high windows of their offices into the streets below... All that, however, was in the future. It was very imminent, but they did not know it, for they had trained themselves to deny the evidence of their senses. In that mid-October of 1929, nothing could exceed their satisfaction and assurance.

In 2001, another bubble collapsed, dragging the U.S., Canada and elsewhere into a global recession. The world was stunned by Enron and similar scandals, amid the greatest speculative implosion since '29. The crash destroyed over $7 trillion in public equities. The follow-on 2002 corporate scandals morphed into the largest bankruptcies in history in North America and Europe. The mutual fund scandals unfolded in 2003. Generations of workers lost their jobs, and many more watched helplessly as their retirement funds became victim to "Grand Larceny."

And to put a circle around just how bad this melt-down turned out to be, Securities and Exchange Commission Chairman William H. Donaldson was quoted last year asserting that the stock market's decline over the past three years has had a more dramatic impact on a larger number of investors than did the crash of 1929. His speech to the New York Economic Club called for a fresh "fundamental examination" of the way companies are run, including the manner in which executives are paid and corporate performance is measured.

Meanwhile, the collapse and its hangover devastated the manufacturing and basic economy sectors, resulting in 2.8 million job losses in the U.S. Manufacturers have suffered their longest period of job loss in 80 years. The ripple effect has been horrible, as many older industrial towns and farm-industry communities face a terrible decline.

Dragged down by the downturn, an exorbitant military adventure abroad and absurd tax cuts for the rich, larger cities in the U.S. heartland like Pittsburgh, Cleveland, and Buffalo are near bust. The "feds," cities, states and provinces on both sides of the border have been firing hundreds of thousands of public workers to pay for the war (in the U.S.), adopting austerity measures, and urging privatization and "public-private partnerships" (the dreaded P3's).

The collateral damage to working people, particularly to their retirement programs, has been steep. As Dean Baker pointed out in a 2003 study commissioned by the Steelworkers, the impact has been especially severe for industries where under-funded pension obligations put workers' pensions at risk, damaged corporate balance sheets, and undermined companies' ability to finance operations. Worse, the report made it clear that the sweeping damage done to pension funds didn't have to happen. Pension fund managers were blind to the economic bubble and the heretofore mythical prowess of the so-called "New Economy".

Richard Minns in "Collateral Damage, The International Consequences of Pension Funds" (from Money on the Line; Workers' Capital in Canada) argued that pension funds contributed to financial speculation and a "herd" mentality, often with negative results for productive investment, economic growth, employment, and incomes, affecting entire populations. He asserts that pensions' socio-economic impacts must be assessed, especially in light of the role of pension funds in global financial integration.

The False Recovery?

Who should cavil, then, at the fact that a banker might derive a portion of his income from the work of children in the textile factories of the south? - from the labor of sharecroppers in the tobacco fields? - from steel mills in the Middle West where armed thugs had been employed to shoot into the ranks of striking workers? A banker's business was to invest money wherever he could get the best return.

It's been two and a half years since the U.S. recession ended. A tsunami of cheap imports and corporate off-shoring spurred on a vicious global deflationary cycle in the last three years. Once limited to "old industries", outsourcing has now spread to every sector and occupation in the economy. America's trade deficit grew to half a trillion dollars by 2003.

Earlier this year, Morgan Stanley's Stephen Roach coined the hoped-for rebound the "false recovery." Job creation had lagged by half that of the last six recoveries, on average. Roach blamed offshoring and the "IT enabled global labor arbitrage." New York Times reporter Louis Uchitelle noted that American companies have been hiring "just-in-time", temporary/contract workers, investing gains overseas.

Even as the economy finally picks up, the nation's investors and workers can't suddenly rest easy. As Roach put it, "Suddenly, there's another perfect storm on the horizon... - surging oil prices, the China slowdown, and the onset of a Fed tightening cycle; a general sense of geopolitical angst" arises from the Iraq/terror wars.

And, just as gigantic new M&A's began queuing up, Investor's Daily reported that 72% of the 25 biggest mega-deals since 1998 destroyed value for its shareholders. New scandals and old fallout continue: Worldcom's $70 billion+ re-statement, Boeing's contracting games, the RiteAid accounting scandal, etc.

Internationally, Shell drastically re-stated its oil reserves and Parmalat somehow misplaced $8-10 billion. Sadly, the record of federal prosecutors regarding the corporate kleptocrats has been abysmal; New York's Elliot Spitzer and activist pension funds have been much more active. A new award-winning movie that opened recently in Canada titled, The Corporation, is subtitled: The Pathological Pursuit of Profit and Power.

Unless corporate governance takes root and capital investment is greatly expanded, the economy will have a difficult time fully recovering. Venture funds were underwater for the last three years and only now recovering, and investors in general are very cautious. Banks are still consolidating and playing it safe. Meanwhile, the White House has cut back domestic investment programs and has gutted the manufacturing extension programs. Where will Main Street find new investment capital?

The Mystic Qualities of Capital

I do not think the enemy was born yesterday... I think the enemy is old as Time, and evil as Hell, and that he has been here with us from the beginning. I think he stole our earth from us, destroyed our wealth, and ravaged and despoiled our land. I think he took our people and enslaved them, that he polluted the fountains of our life, took unto himself the rarest treasures of our own possession, took our bread and left us with crust, and not content, for the nature of the enemy is insatiate - tried finally to take from us the crust.

In the 1930s, President Hoover's Treasury Secretary Andrew Mellon formulated tax reduction for the wealthy as the nation was plunged into depression. Using his family banking fortune (made in Pittsburgh) to advance his interests in coal, aluminum and oil while in the White House, Mellon and his cronies spun endless myths to explain the lack of jobs. Not a single net new job was created during Hoover's term, and he was ousted.

Today, another seemingly ironclad set of "market myths" have fallen hard. In a March 2004 article in Harpers Magazine, John Ralston Saul explained "The Collapse of Globalism." "We have scarcely noticed this collapse, however, because Globalization has been asserted by its believers to be inevitable - an all-powerful god; a holy trinity of burgeoning markets, unsleeping technology, and borderless managers... (but)... Once belief was gone, the churches began to empty."

Maybe Bill Greider, in The Soul of Capitalism, put the contradiction best:

If capitalism were someday found to have a soul, it would probably be located in the mystic qualities of capital itself. The substance begins simply enough as personal savings and business profits, then flows like oxygen through labyrinthine channels into the heart and muscle of economic life…With a few important exceptions, the agents of capital operate with dedicated blindness to capital's collateral consequences, an indifference to the future of society even as they search for the future's returns. The great contradiction--and the reason reform is possible--is that Wall Street works with other people's money, mainly the retirement savings of ordinary Americans whose values it ignores, whose common interests are often trampled.

During the recent Presidential primaries, American voters increasingly turned away from the faith-based economics of the roaring '90s.

Money on the Line

I think the true discovery of America is before us. I think the true fulfillment of our spirit, of our people, of our mighty and immortal land, is yet to come. I think the true discovery of our own democracy is still before us. And I think that all these things are certain as the morning, as inevitable as noon.

As the editors of Money on the Line put it, " unions and their pension funds are on the threshold of developing more innovative practices of long-term benefit to members as well as the broader community…Indeed, it can be pointed out that the country itself will benefit from more productive approaches to investment with goals of job creation, community development, corporate accountability, and long-term sustainable growth."

Greider also described this rising power of "Labor's Capital":

Leo Gerard, now president of the United Steelworkers of America, became an early apostle for mobilizing labor's capital as he saw small manufacturers in the industrial Midwest decimated either by financial maneuvers or their inability to raise capital. Gerard, who is Canadian… created the Heartland Labor Capital Network, which promotes the goal of replicating Canada's successful labor-sponsored investment funds (Quebec's Solidarity Fund, by attracting small investors with tax incentives, has become the largest source of venture capital in the province). Gerard envisions a growing galaxy of like-minded investment firms that do "control investing" for corporate rehabilitations, with union pension funds putting up some of the capital. In return, the takeover insiders would have to agree at a minimum to honor employees and their rights: to remain neutral on union organizing and guarantee speedy recognition of new locals through card-check registration by a majority of workers…

These developments coincide with the revolt of a new breed of "gray panthers" who are concerned about the destruction of retirement security and the need for longer-term, productive investment traditions. Senator Ted Kennedy, in a major address at City University of New York in March, 2004, charged that:

Progressives cannot continue to play defense in the battle of ideas. The stakes are too high. Nor can we allow ourselves to be cast as mere defenders of the status quo. We must make the debate between our vision of the future versus theirs.

And part of Kennedy's vision?

At least a small portion of the trillions of dollars in pension funds could be invested in public projects. If just five percent of the nation's pension funds were invested, at competitive rates, directly in job-creating and economy-building activities, more than $300 billion in assets could be made available, in a manner consistent with both the security and growth of the pension funds...The nation's pension funds can help achieve such a goal.

Labor and communities are increasingly taking a stand, and "voting" with their money. Joined by New York Attorney General Elliot Spitzer, and led by California Treasurer Phil Angelides and other progressive Treasurers, state and union pension funds climbed to the forefront of the corporate scandal lawsuits. And CalPERS, with over $150 billion in assets, implanted labor and human rights standards into its emerging market investment practices, and pulled its investments out of Burma in the last two years.

Even business owners - so-called "small republicans" - are waking up to the brutality of unchecked corporate power as it "out-sources" everything in sight. Labor and business coalitions for "trade sanity" are emerging in states like Connecticut, Pennsylvania, and Wisconsin, fighting extreme off-shoring and unfair trade agreements. Midwest governors are demanding that the Administration and Congress address the jobs crisis and unfettered trade, and Lou Dobbs is nailing corporate reprobates exporting North American jobs every night on CNN.

Some, like Senator Kerry, are listening and proposing new manufacturing investment and trade strategies. Canada's NDP Leader Jack Layton has been particularly pointed:

The WTO has been called the 'mother of all backroom deals' - the greatest transfer of economic and political power in history... from communities and nation states into the hands of a small number of global corporations.

A counterattack is now in full swing. The Republicans and the Chamber in California have attacked CalPERS and the labor coalitions that challenged the grocery chains during the recent strikes. NYSE Chair John Thane, in op-ed pieces in the Wall Street Journal, is leading an incredibly vapid and dangerous backlash to the corporate governance reforms of Sarbanes-Oxley, claiming they have gone too far and cost too much. And, the national chamber and Business Roundtable and other national corporate groups have formed lobbying and educational fronts to counter the grass-roots revolts against offshoring, trying to put a friendly face on mass job loss.

In the last half-decade, another generation of workers have suffered the destructive consequences of a finance capital regime that was out of control. It is tragic so many have had to suffer to expose this mass swindle. The sharks-in-suits must be stopped from orchestrating yet another Wall Street putsch; once again pilfering the savings and assets of working families. Workers in France took to the streets to protect their retirement programs; maybe it's time we all did. We really can't go home again.

T.W. Croft is the Director of the Heartland Labor Capital Network. Read about the evolution of the Network, and a good collection of labor/capital articles, in Money on the Line: Workers Capital in Canada, edited by Isla Carmichael and Jack Quarter, published by Canadian Centre for Policy Alternatives .

(Quotes in italics from Thomas Wolfe, You Can't Go Home Again)

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