Monday, May 08, 2006

Caring for the poor in different models of capitalism

Due to the stimulation of the US economy that the large military budget causes, there is quite a lot of economic growth in America at the moment. A big part of the growth is "artificial", however. The US cannot sustain such growth figures in the long run without risking a hard landing for the economy with possible repercussions for the world economy.

The increasingly unequal distribution of income and wealth may even lead to economic depression. The poor spend all their income on basic necessities. The rich can afford to save. Their savings must be invested. Otherwise demand may fall and trigger an economic downturn.
These macroeconomic problems are aggravated by the rising number of people who are forced to live at or under the poverty line. Increasing expenses to housing and health care combined with insufficient wage increases to poor and middle class people put more in more people in a precarious economic position. This is corroborated by an investigation made by sociologist Mark R. Rank and quoted in the New York Times. According to this research there is a marked increase in the number of poor people in the USA. In the Eighties 13 per cent of all Americans between 40 and 49 experienced at least a year in which they were placed below the poverty line. In the 1990s this number increased to 36 per cent of all Americans in that age group, according to Mark Rank's analysis.

The deteriorating living conditions are worsened by the fact that the minimum pay is rarely increased. American law makers bow too easily to neoliberal economists' and employers' arguments that the poor should not be allowed to price themselves out of the labor market. The Eurosclerotic EU countries are cited as examples of countries where this happens. This is, however, a gross misinterpretation of what is going on in the EU labour market. The Nordic countries with high minimum wages have very low unemployment figures.

In the US a lot of workers make no more than the minimum pay, which at the national level is very low, much lower than in Denmark. Quote: “Workers who are covered by the FLSA are entitled to a minimum wage of not less than $5.15 an hour” (US, Department of Labor). In France the minimum wage (Le SMIC) was about 8 euros an hour in the beginning of 2006, or considerably more than the American minimum wage. In Denmark the minimum wage is not fixed by law, but as the workers are highly unionised by collective agreement. It was about 14 $ an hour at the end of 2005. Taking income taxes into consideration, it is only slightly higher than the French level.

In the other end of the income scale incomes are very high. Quote: “The average CEO of a Standard & Poor's 500 company made $11.75 million in total compensation in 2005” (Paywatch.org). Income disparities have been widening as a consequence of the neoliberal economic order.Of course, for a comparison, what is interesting is to look at average pay, and what you can get for that pay. According to most surveys, the average American wage earner/salaried employee made about 17 $ an hour in the beginning of 2005.

Here it is noteworthy that taking inflation into consideration, average pay has barely budged since the beginning of the 1980s. The neoliberal model has led to sharpening competition in the labour market and outsourcing to low-income countries. And average wage earners are the losers in the income race compared to high income earners.

And how much – or rather – how little do they get for the average income? Quote: “Meanwhile, those who secure the middle-class jobs of the 21st century will have to make $17 an hour stretch further than ever as they pay more for health care or risk doing without insurance and assume much or all of the burden for their retirement. Meanwhile, those who secure the middle-class jobs of the 21st century will have to make $17 an hour stretch further than ever as they pay more for health care or risk doing without insurance and assume much or all of the burden for their retirement” (Washington Post 31st of December 2004).

There is, sadly, a long way to go from a recognition of these facts and to a reformation of the system. When stingy employers and their political allies run a country reforms are not in sight.

3 Comments:

Blogger Sophia said...

This is one of the reasons the US is making war outside its territory, to distract the people from poor economic conditions. There is a civil war going on in the states, the Rich versus the Poor. One of the feature of the Bush adminsitration is huge tax cuts for corporate and the Rich. if there wasn't a war, people could have protested more vigourously.

6:30 PM  
Anonymous Cosmic Duck said...

Put in another way you could say that the war is part of an economic rationale. The war is necessary to keep up a high turnover in the TNC's. Pentagon contracts are necessary for the US to uphold a technological advantage that can spill over into civil production.

They are, however, overdoing it. It may lead to a militaristic state.

8:30 PM  
Blogger Sophia said...

Cosmic,
I agree with you but I am not sure of this apsect :''Pentagon contracts are necessary for the US to uphold a technological advantage that can spill over into civil production.'' You acn stimulate production by other means but then these means will not be under the control of the same people who provoke and monitor the war. The economic fallout of this war is one of wealth concentration inside the States.

9:17 AM  

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