Democrats Resist Weakening Decades-Old Social Model

The era of jobs for life with ever-rising wages and benefits is over. Democrats need to adjust their policies.

Workers demonstrate for higher minimum wages outside a McDonald's franchise in Milwaukee, Wisconsin, January 1, 2014 (MTEA)

Democrats in the United States are deluding themselves and their voters if they vow to resist changes in the economy over which politicians have little control.

From their doubts about a transpacific trade pact to fights against flexible labor relations, Democrats are showing themselves to be uncomfortable with many of the tenets of globalization that have redefined the world economy since the 1980s.

They won a major victory on Thursday when the New Deal-era National Labor Relations Board — itself an outdated body — ruled that companies can be held responsible for labor violations committed by their contractors.

The ruling overturned decades of precedent and will mostly affect low-skilled workers. Fast food chains like Burger King and McDonald’s are expected to either assert more authority over local franchise owners or cut ties with them altogether.

The fast food industry has also been the target in another left-wing crusade: for a higher minimum wage. The state of New York wants fast food workers to be paid at least $15 dollar per hour, 70 percent above the current minimum wage.

New York’s Democratic mayor, Bill de Blasio, has also tried to crack down on Uber — a smartphone application that allows users to access rides for hire — in order to preserve the monopoly of the city’s Taxi and Limousine Commission.

The American Interest‘s Walter Russell Mead sees these various efforts as the desperate antics of a party that is trying to preserve what he calls the “blue” social model.

From the 1930s to the 1970s, Americans often had jobs for life, Mead explains; worked by the clock, not the task, were promoted and assigned on the basis of seniority, not performance, and employers had a kind of patriarchal responsibility to their employees.

The trade unions acted as mediators in this system, trying to raise wages and transform the patron-client aspects of the employment system into something that benefitted workers more. “This was the era of defined-benefit pension plans and employer-sponsored health plans.”

The system worked so long as the economy was dominated by large bureaucratic corporations that could absorb legal mandates for higher salaries and benefits.

“Unfortunately,” writes Mead, “the ever-rising costs imposed by this approach, however beneficial to workers, ran into the buzzsaw of economic transformation.”

The breakup of the stable oligopolies and monopolies that dominated the large American market without fear of competition, the globalization of manufacturing, the increased speed of technological change, the end of discrimination against women and minorities in the labor market — all these combined to make the costs of the full formal system increasingly uneconomic for all but the most profitable and secure firms.

When the blue model started unraveling in the 1970s, Republicans, under Ronald Reagan, championed a more laissez-faire form of capitalism, one with less regulation and control. Temporary work contracts proliferated as did the use of subcontractors and franchises.

In the last decade, the Internet gave rise to even more part-time work and opportunities for the self-employed.

Democrats see this as a rollback of the social progress they have made and blame corporate greed.

As fast as noble, public-spirited champions of the workers and middle class imposed new obligations on the greedy and unscrupulous capitalists, the same capitalists slithered out of their obligations by exploiting legal loopholes to transform their stable, jobs-for-life employees into hire-and fire-at-will contractors and subcontractors.

There is some truth to that. The liberalization of international finance in the 1980s introduced a stock market-driven obsession with short-term profit that coincided with the demise of the “blue” social model. Bosses’ paternalistic sense of responsibility toward their employees began to dissipate as many big companies were swept aside in a wave of technological innovation. Profits and incomes at the top rose while the average American worker was left little better off.

This trend has now come to a head with even Republicans admitting that life has got too hard for middle-income families.

This website has argued that the main political challenge in the years to come will be how to make life a little easier for those tens of millions of Americans who identify as middle class. The blue social model gave them security and a chance to rise above their station. What has come in its place seems to the many who are unable to keep up the very opposite.

But the answers cannot be found in the past. Democrats who insist on blue-model solutions for twenty-first century problems are either ignorant of the economic changes that are happening globally or deliberately deluding their supporters.

America’s is not the only economy undergoing this type of transformation. Some of Europe’s former welfare states, like Germany and those in Scandinavia, have already had to make significant adjustments. They are moving away from an industrial corporatism to an economy that is based more on services and policies that are tailored to individuals.

An example is shifting health insurance from employers to workers. Many Americans still get their insurance through their jobs. One good thing about President Barack Obama’s health reforms was that it broke this connection. Many Western European nations had already done the same.

Similar reforms are overdue in pensions and unemployment benefits. In many countries, only those in full-time work and on a permanent contract finance both through their employer or trade union. As jobs become more flexible, entitlement systems designed in the aftermath of World War II desperately need to be overhauled.

In America, it doesn’t look like Democrats are willing to. Mead laments that theirs is an impossible agenda because it is reactionary. “In the end it hurts everyone, especially the poor, whom, allegedly, the blue agenda is intended to protect.”

Imagine New York raised wages in the fast food industry to $15 per hour when parent companies, rather than local franchises, are suddenly responsible for respecting labor laws. Would McDonald’s and its competitors absorb the costs and give their workers good-paying jobs for life? Or would they either raise prices, narrowing the choices of food that poor people have, or speed up automation in their restaurants, further reducing the job opportunities available to the low-skilled?

If the latter is more likely, Mead predicts that Democrats would call for more food stamps and rent subsidies in turn to help the urban poor cope — paid for by higher taxes on those companies that are still profitable. Thus a cycle of government intervention would be triggered in which one failed policy necessary leads to another to remedy the shortcomings of the first.

Democrats need to learn to live with economic changes and design their policies for entitlements, salaries and labor relations accordingly, rather than seek to mold the economy in such a way that the “blue” model can possibly be saved. Republicans are prone to overlook the negative effects globalization and labor market flexibility have for low-skilled and low-wage workers. America needs a party that looks out for them. But it needs a party with sensible solutions, not one nostalgic for an era that isn’t coming back.

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