July 27th 2019


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Articles from this issue:

COVER STORY Fixing Australia: Can we trust the Morrison Government?

ENERGY Yallourn early closure more than a mere challenge, Mr Premier

CANBERRA OBSERVED Can Labor learn a lesson or is it unredeemable?

NATIONAL AFFAIRS High power prices lead to more deaths of elderly

GENDER POLITICS Catholic Ed's document strong on doctrine, weak on protocols

ENERGY Renewables do push up power price: Chicago economists

OBITUARY The eminence of Dr Joe Santamaria

HISTORY OF SCIENCE Faith and reason and Father Stanley Jaki, Part 6: Medieval Christendom sparks a revolution

ENVIRONMENT As many Pacific islands are rising as are sinking

ASIAN AFFAIRS Uyghurs lose in ethnic power play

POETRY AND HISTORY The epic of the White Horse

HUMOUR On patrol with Father Bruce

MUSIC Joao Gilberto: Carrier of melodies

CINEMA Crawl: Toothful entertainment

BOOK REVIEW America's postwar boom and its end

BOOK REVIEW The story of the drafting of a great document

BOOK REVIEW The facts behind an undying distortion

LETTERS

POETRY

FOREIGN AFFAIRS Boris Johnson and the EU: Crash through or just crash

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BOOK REVIEW
America's postwar boom and its end




News Weekly, July 27, 2019

WHAT WENT WRONG: How the 1% Hijacked the American Middle Class ... and What Other Countries Got Right

by George R. Tyler

BenBella Books, Dallas, Texas
Hardcover: 576 pages
Price: AUD$47.99

Reviewed by Colin Teese

George Tyler comes to a discussion of the American economy with the necessary experience (the U.S. Treasury and the World Bank) to advance a coherent view of what has gone wrong with the U.S. economy over the last 30 years.

In more than 450 pages of comment and data, he paints a convincing picture of what went wrong and why.

He starts at the beginning, pointing out what most of us already know. After World War II, the United States constructed an economic world where U.S. business was able to generate the largest and most prosperous middle class in world history. Tyler doesn’t say so, but it is worth mentioning that, at the same time, the U.S. helped make most of the rest of the Western world rich.

The author attributes all this U.S. prosperity to something he calls “Stakeholder Capitalism”. This brand of capitalism called upon companies to take a broader view of their obligations, so as to include workers, trade unions and customers as well as shareholders. Many would believe this was nothing special given the legal privileges public companies enjoy, especially the benefit of “limited liability”, which means shareholders are able to avoid liability for a company’s debt.

Tyler points out that, among other things, stakeholder capitalism made it possible for workers to receive a fair share of the substantial productivity gains postwar U.S. business was able to generate. Worker rewards came in the form of regular and substantial wage and other compensatory privileges over the period from the 1950s to the 1970s.

Beyond this, the U.S. brand of capitalism enabled the U.S., by means of its underwriting of the Bretton Woods Agreement, to export the same ideas to northern European capitalist economies and beyond. More than that, as a result of the Marshall Plan, the United States undertook primary responsibility for the reconstruction of Western European industries destroyed in the War, again within the framework of stakeholder capitalism.

In Germany, for example, there was concern that German companies might come under undue influence of former Nazis. Thus was created a form of “co- determination” whereby a proportion of employees was appointed to boards of German companies.

Meanwhile, back in the U.S., stakeholder capitalism was under attack, in particular from celebrated U.S. economist Milton Friedman.

From the late 1950s he was vigorously and, for some, persuasively advancing the idea that companies answered to no obligation save that of maximising returns to shareholders. Later this proposition was endorsed by Jack Welch, then chairman of the largest U.S. company, General Electric, and an icon of U.S. business. This was significant because, over much of the postwar period, Welch’s company was a leader in advancing and protecting workers’ rights.

By the early 1970s, the Friedman influence had taken hold. Friedman’s arguments, pushed persuasively by a powerful advocate, could not have come at a more opportune time. As something of the postwar boom in demand was subsiding, U.S. companies were finding the going tougher. In the new environment, trade union pressures to retain guaranteed jobs, high wages, health care and pensions for their workers became more difficult to justify. Not least, it should be recognised, because of import competition from countries like Germany, which ironically, had been rehabilitated with Marshall Plan help.

Tyler believes the ascension of Ronald Reagan to the U.S. presidency finally overturned the postwar commitment to stakeholder capitalism and cemented into place what he calls “shareholder capitalism” – others have called it, perhaps more accurately, “managerial capitalism”.

Reagan was about more than merely shareholder capitalism: he mounted a full-scale attack on trade unionism and the protection it necessarily afforded workers. That, and deficit spending to finance business tax cuts, rounded out the Reagan program.

Tyler is especially critical of Reagan’s deficits, which he believes hang over the U.S. to this day. No less does he blame Reagan policies for what he calls “the attack on the U.S. middle class”. All of us are familiar with the story: wages in the U.S. stagnant for 40 years; almost all the benefits of productivity improvements going to the rich.

Perhaps more usefully, he outlines how shareholder capitalism has not benefitted shareholders or U.S. business but mostly has enriched management. Business policy has concentrated on short-term outcomes (getting the share price up) at the expense of making businesses stronger over the long term. Managers were rewarded (over generously) according to short-term outcomes.

It is all well argued and lavishly documented in an eminently readable style and at some length, but to this reader it has one underlying shortcoming. Tyler seems to be convinced that all of the deficiencies of what is, after all, neo-liberalism, are confined to the U.S.

In so far as wages are concerned, he is right. As he points out, when it comes to employee compensation, Europe and Australia have done it better; though, even on his own figures, Europe has fared much better than either Australia or the U.S. On labour relations, he makes a particularly favourable reference to Australia’s Fair Work legislation. Many Australians may not agree with him.

What Went Wrong certainly makes its point. One need look no further than the cover of the book. Its author believes that, if things are to change, a return to something like his stakeholder capitalism is needed. As well, he, along with many others, sees a need to rein in the power and influence of financial institutions.

Certainly, he is right to draw attention to the important and damaging influence of Ronald Reagan; in particular Reagan’s commitment to reducing taxes as the principal element in any policy to promote economic growth. Australian readers might observe that something of the same fascination holds true for both sides of our politics.


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