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Welcome, friends, to another edition of Economic Update, a weekly program devoted to the economic dimensions of our lives, jobs, debts, incomes, our own and our children's. I'm your host, Richard Wolff. I want to begin today with two bills, one of which has been passed in the House of Representatives in Washington, and the other one is being considered. The first one, which is called HR51, if you're interested, was passed by the House shortly and is only the second time in U.S. history that the House has voted to give statehood to Washington, D.C. so that issue has now come up again, and I want to talk about it because it gives us a window into American politics that we need to think about. First of all, the Republicans are lined up to stop it, and the Democrats may be lined up to pass it, and they have the votes to do so if they will be unified, which is far from clear. Here are the basic the District of Columbia has a population of 725,000 people. That makes it a more populous place than either the state of Vermont or the state of Wyoming. So in terms of size, it is not going to be, if it becomes a state, the smallest state in the United States. Not even close, number one. Number two, it is a question that has long been put forward that the people of that state do not, excuse me, of that area, District of Columbia, do not not have representation in Congress, and that they therefore have taxation because they have to pay without representation, which is something we're not supposed to have here in the United States. The Republicans know that, and they also know that they're typically in favor of local rules, state rights, all of the rest of it, and that makes them vulnerable. So they've come up with an alternative to make the District of Columbia part of the state of Maryland. Why is that a proposal of an alternative, then? There's no additional senators and no additional congresspersons. But it's the senators that's key, because if the District of Columbia becomes a state, it will have the right to elect two senators like every other state in this country. And given the demographics of D.C. it's crystal clear that those two senators will be A, Democrats and B black people. And you can see now why the Republican Party, especially the Republican Party of Donald Trump, is freaked out, to say the least, by this prospect. I want to talk about the larger issue. The Republicans don't want to give statehood to the District of Columbia, and they don't want Democrats and black people to vote at all. You all know, as the whole country does, that they have literally blanketed the 50 states of the United States with legislative proposals in every legislature to make it harder to vote or difficult to vote to get the vote down. But this is not new in American history. When the United States began after its Revolutionary war against Britain, it instituted voting, but not for most Americans. You may not know this, but it wasn't just black people at the time, slaves who were not given the right to vote, but women were not given the right to vote. It took them more than a century to do to get that right. It was also the case that if you didn't have property, you were not allowed to vote. In other words, the idea was limit the vote to a very small part of the population. So the notion of democracy was always qualified in the United States in ways that some today find downright embarrassing. It took a struggle. And why? Because if you make the vote limited to only a few, then the politics will respond to their desires and needs and leave everybody else in a secondary position. Should be interesting to think about. You know what then happens. The people left out are bitter about the people who aren't left out, and the people who aren't left out are frightened that if they don't get cozy with the leaders that they've put into office, there may be a difficulty in them holding on to the preferences they get by being a small part of the electorate. That happened between the propertied and the property less. But it also happened particularly after the Civil War with white versus black to keep the blacks out. Then politics responds more to the whites than the blacks. That sets up the conflict between white and black, which keeps the folks at the top in power because they've divided everybody else. Think about it. It's important. HR1 is the effort of the Democratic Party to counter the Republican effort to stifle voting. Same issue. Coming at it from a slightly different direction. It's an important struggle to watch. It will shape politics in profound ways. The second update we have time for today is going to be dealing with President Biden's proposal. He's now made three major the COVID Relief Plan, the Infrastructure plan, and what he now calls the American Family Plan or Human infrastructure. All kinds of proposals that I've talked about and that we will talk about again. But he has also proposed that he will pay for these programs and they're expensive, not only by borrowing huge amounts of money, which we've talked about and which he will do. He's proposing to do it and the Republicans will make him do more of it. But he has also proposed to do something about the grotesquely unfair tax structure we have in the United States. So I'm going to go briefly with you. Bear with me through the major parts of his proposal to show two one, how unfair our tax system has been. Something, by the way, produced by both Republicans and Democrats. And the second thing I'm going to emphasize is how very modest President Biden's proposals are. So let's begin with corporate tax, profits tax. When Mr. Trump became president, the corporate profits tax in the United States was 35%. That wasn't as much as the corporations ever paid because they got out of it with exemptions and deductions and all kinds of loopholes. But that's not for today. It was 35%. And in December of 2017, Mr. Trump dropped it to 21%. A staggering gift to corporate and business America coming at the end of a 30 year period when they had done better than in any 30 year period in American history. At no time did the rich and the corporations need a tax cut less than when Mr. Trump gave it to them. What is Mr. Biden's proposal to raise it from the 21% Trump lowered it to to 28%. He's proposing to bring it back only halfway the distance. And he's not going to get that, it's clear, not only from Republicans who will oppose it, but from at least two Democrats, a senator from Arizona and a senator from West Virginia who have indicated the likelihood they wouldn't go along with it. So we'll end up with what, 23, 24, 25%? Somewhere in there is the guess there's. That's not a big daring proposal on something as unfair as the corporate profits tax. One last point. Corporate profits tax across the board in this country now take 1% of GDP. 20 years ago it took 4% of GDP. So the burden of taxation on corporations has dropped drastically even before Trump, who dropped it further. It is something to think about. The second thing Biden proposes is to raise the top rate for individuals on their income tax from 37%. What it is now, if you earn over about $400,000 a year, to 39.5%. I'm not going to say much about that. That's not a stupendous increase from 37 to 39.5. And just a reminder, the top rate under the last administration of Franklin Roosevelt, the top rate on the richest Americans was 94%. Mr. Biden wants to bring it up to 39.5. You can draw the obvious conclusion. Capital gains, if you work hard for a living, you pay a much higher rate of tax on the wages and salaries you get versus a person who doesn't work but owns stock. If the stock goes up in price between the time a person buys it and sells it, an investor, they pay a capital gains tax, which is maximum 20%, nowhere near the 37% of your regular salary and wage income if you're in the top bracket. Mr. Biden proposes that if you earn more than a million dollars a year, which is a tiny minority of Americans, you will have to pay your individual rate. You cannot use the 20%. Everybody else can. So that's a small increase for a very small part of the American population. Next item. If you die today in America and, and you die at a point where stocks you paid $10 for are now worth 100, that's a capital gain of 80 bucks per share that isn't taxed as part of your inheritance. It's not counted. In other words, when you die, your obligation to pay any tax on your capital gains is zero. It's erased. It's an enormous gift to people, leaving wealthy estates to their descendants. It makes a joke out of the notion that we should all have a level playing field. We should all start from the same place. Because it means some people start with an enormous bundle of wealth and other people start with nothing unless they're so unfortunate as to inherit their parents debts. So requiring capital gains to be taxed at death is an interesting move. It does affect those at the very top. But given the loopholes that are in the law, the effect will be, how shall I say, Modest. And Indeed, everything about Mr. Biden's proposal to change the tax structure in modest. It looks good to progressives and I understand that, because compared to Trump, or compared for that matter to the traditional Republican Party establishment, it is quite something. Way better, no question. But in terms of the longer history of the United States, it is what you would expect. The Democrats are not as grossly favoring corporations and the rich as the Republicans. That has been true for a long time. And since Mr. Trump veered extra to the right, Mr. Biden is not the equal amount, but a little bit of tilt the other way. Okay. So much so that I want to make a final comment about it. It's becoming harder and harder for American capitalism to solve its problems. You can see that with the failure of how we coped or failed to with COVID 4% of the world's population in the United States, 20% of the world's deaths from COVID This is a criticism better than anything I could say, just those numbers and the economic crash and the unemployment and the inequality and the instability, I mean, the social problems are crowding up on us. Mr. Biden's is a very modest effort to change direction. My opinion as an economist, it's way too little, and it's coming too late for little to be enough. Time will tell, but it's important to understand the dimensions of this situation. We've come to the end of the first part of today's show. Before we get to the second half, I want to remind you our new book, the Sickness Is the When Capitalism Fails to Save Us from Pandemics or Itself, is available@democracyatwork.info books. And as always, I want to thank our Patreon community for their ongoing invaluable support. If you haven't yet, Please go to patreon.com economicupdate to learn more about how you can get involved. Please stay with us. We'll be right back with today's guest, Professor Michael Hillard. Welcome back, friends, to the second half of today's ECONOMIC update. It is with great pleasure that I introduce all of you viewers, listeners to my guest for today. He's Professor Michael Hillard, and he's a professor of economics at the University of Southern Maine. His research, which I have followed for years, covers labor relations, working class history, and, in general, the political economy of capitalism. He's the author, most recently of an important book. It's called Shredding labor and the Rise and Fall of Maine's Mighty Paper Industry. It was published in December of 2020 by the Cornell University Press. He regularly provides expert testimony in Maine on economic issues affecting working people. So first of all, Michael, welcome to ECONOMIC update.
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It's a pleasure to be with you.
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Rick Good. Well, you know, let's talk first about your new book. I know you worked on it for a long time, and I want to introduce it, if I may, briefly, since I know you're modest and you wouldn't want to tout it yourself. This is a very important piece of work, and I want to stress to folks why you might think, well, it's a particular story of a particular industry in a particular state, and it is all those things. But it's also about what might be called an American tragedy, because it's a tragedy repeated over and over again from one end of this country to the other as capitalism, the system we live in, promotes and develops an industry that becomes large and important and employs lots of people and builds an entire economy around itself until Some later point when the very small number of people who run that industry decide that they can make more money going somewhere else or doing something else, and then the whole edifice, sometimes built up over many decades, collapses. And it's important to understand this and what Michael has done, and I should say Professor Hillard, of course, but I've known him all these years. What he has done is given us a really granular analysis of. Of a case study. And that's why it's so important for so many of us. So let me begin. Besides congratulating you for it, tell us, in your view, is it reasonable to look upon, for example, what happened to the car industry in Detroit or what happened to the glass industry in New York State or the photography industry in New York State? And I could go on and on. As everyone listening or watching this program knows, is it reasonable to say that a basically tiny minority of the people involved in this industry were in a position to make decisions which they in fact made to wipe the industry out, affecting tens of thousands or hundreds of thousands of people who had no participation in making that decision? Is that a reasonable understanding of the research you did?
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Yeah. Thank you, Rick. I mean, I think you framed it really well. And as you and maybe some of your readers know, I mean, one of the basic ways to think about the history, long history of an industry is to use the colorful metaphor that Joseph Schumpeter coined about 100 years ago called creative destruction. Those kind of in the know know that he got all of his ideas for that metaphor from Marx's analysis of British capitalism in the 19th century. But the story of creative destruction is one of how overlapping forms of progress in developing technology and products and the change in where things are made and the change in the nature of capital and the decision makers over time means that some industries that were once mighty, like Maine's paper industry, will be set by a rapid process of decline in great injury to the people working in the industry. So I think there's two questions about this kind of story, which is that, first of all, is there a way of managing decline so it's not so harmful to human beings who work in the industry and how much of the decline was really inevitable. And I think what my book does with the case of paper mills in the state of Maine is to sort of say something significant on both accounts. So the core of my story is how a shift in the political economy of American capitalism around 1980 to what I would call the Wall street takeover of American industry, led to an acceleration of decline. Because basically, as most of your listeners probably know, we've had this model where corporations that lay off workers, shut down operations, do all kinds of financial engineering, can make massive amounts of windfall for shareholders. And I have one case study in there of how Scott paid was the investors installed. This guy named Shane saw Al Dunlap, who was kind of famous in the 1990s for ripping apart companies and making a lot of money for shareholders. Well, he did this with Scott paper that included three mills owned by Scott and Maine in the mid-1990s, basically destroyed some very profitable mills that were just out of business shortly after his regime. And then the other part of it was that he pocketed $120 million in windfall and shareholders pocketed $6 million in windfall. So that's part one of the story. Like what initiated this? Well, it was the type of the tiny elite that makes decisions for corporations shifting as American political economy turned towards what's been alternatively called shareholder primacy. The idea that you maximize profits for the shareholder. That's the only purpose of a corporation. Yeah. So in any event, but the other question is, so could that decline better, managed better? And one of the things that I talk about in my book at the very end is two things that might have made a difference. One would have been worker ownership. Because the people who worked in the mills, paper mills, are unusual as factories because up to this day, workers have an unusual amount of skill and control over the labor process. And what it means is that more than many other industries with assembly line type workplaces, this was an industry where the workers really did run the mill. And so owning it was not a big leap. And what they saw over the period of the 60s, 70s and 80s is a sort of new turnstile of outside managers who came in and ran the company very poorly and sort of, you know, injured brands by making bad decisions on the shop floor. I could go through it. It's a long story. So I think worker ownership would have made a big deal. And one of the paper mills that I feature most, the SD Warren Mill outside of Portland, Maine, the workers in fact really tried to do that and then were kind of blocked by their owners. I think the other thing that could have made a difference is something called industrial policy, which is like what we're hearing right now is that the Biden administration wants to invest in a lot of so called green technology and infrastructure and create manufacturing jobs in the United States. That's the federal government targeting industry to support well paid employment. So I make a Case that the competing countries around the world that sort of ate the lunch of the American industry had the benefit of that and our workers did not.
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Yeah, you know, it's remarkable to me, right there are the lessons and I want to draw you out a little bit on that because the same broad movements of financialization and Wall street dominance and short term shareholder profit maximization and stuff like that, that's one way of organizing capitalism and we're living with the results. But it's crazy to think that it's the only way, that it's the absolute necessary thing that might have happened. Could you talk just briefly about the case study you did where workers at least came close to the idea of taking over and setting up not only a different management and ownership, but a different direction that the industry might have gone?
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Yeah, well, I think one of the things is that it came at the end of a five year period where paperworkers in Maine got radicalized against capitalism, precipitated by a couple of strikes where sort of Wall Street, a couple of CEOs who bought into the new Wall street ideology provoked strikes in order to fire unionized workers and replace them with non union workers. That catalyzed a radical movement against capitalism that had never existed within the industry. I point to a very signature moment in 1987 where Jesse Jackson showed up and gave a speech against capitalism that was brilliant to about 4,000 workers at a a rally during the strike. And that kind of metastasized or spread into a growing sort of stop corporate greed. So workers more than ever really had come to the conclusion that the people at top had abandoned them and injured them and they had no more legitimacy. And to them, the model that might have made this again happen in this SD Warren mill outside of Portland, Maine was to have workers take over to democratically own the mill and to make investment decisions and pick their managers and all those kinds of things. I think of that and Scott Paper was worried on behalf of the entire industry of setting a precedent because it would have might have created a clamor. I think in Maine you would have seen many mills that where the workers would have gone in that direction. So that was a pivot point. If you know, it's hard to do counterfactual history, but I feel very confident if they had succeeded, they this would have set a model for the rest of the state. And we're talking about 15 or 20 mills that were still in operation then.
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Was there ever any planning? One of the questions I get all the time, was there anybody in Maine in a position of authority who understood what your research showed, that industries that rise in the history of capitalism fall and that the fall is painful and destructive, and you ought to plan for it like anything else you know is likely to happen. Right? You buy health insurance companies, cause you might get sick and you do this and that because this and that might happen. Was there anybody in a position of authority who said and did something to plan the institutional way to save all those people who lost jobs, all those communities that lost commerce and all the rest of it? Did that ever happen?
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You know, what's interesting is that I think so. I finished my book by talking about kind of more broadly how Mainers over the last 30 years have come to understand what we call neoliberalism, which is the regime of sort of an aggressive free trade, free markets, meaning deregulation, that came on during the Reagan and Thatcher period and is still with us to this day. And what I sort of really just sort of an ethnography from being a Mainer, you know, being somebody who follows the economy closely and is connected to policymakers when Democrats or in office, that sort of thing, is that the one thing that governors in particular, whether very right wing or left wing, would do is they would pursue trying to see if they could find some new investors for the mill. There were these desperate kind of end of story and end stage sort of efforts to save mills, but it was not planning and it accepted the rules of the marketplace. And I profile how there was the largest industrial, second largest industrial facility in Maine is owned by the federal government is Kittery Naval Shipyard. And it was slated to be closed by Congress back in 2005 in a statewide movement led by Susan Collins of all people, pressed Congress to change its decision and save these 4000 jobs. And they've in fact added about 1200 jobs since this happened about a dozen years ago. So I set that as an example of a model that really doesn't exist in any other industry, but could. But it's fair to say that where people now, I think, in the state reject the idea that we should leave the state out of things and that we shouldn't plan for these things. Now there's an embrace of it. And I think it's seen in the national politics that we have now that rejects sort of the, you know, free trade, deregulate, leave the market alone model.
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Michael, we only have 20 seconds, but I want a 20 second nugget from you. Is it reasonable to infer that whereas before in American history, industries left Detroit or Maine or upstate New York or wherever. And that now, over the last 10 or 20 years, we're seeing the similar thing only on a national basis, with a couple of exceptions of high tech in California and so on. But that basically where Maine went, the whole United States is at risk of going.
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I would put it this way. I think this has been a feature of capitalism from the beginning. That's why I made these allusion to thinkers 100, 150 years ago that recognized it. I think really what the contingency is at this point is rather, can we learn from history and can we learn from models in which, both at the local level, I think worker ownership is a profound option. And then nationally, having some kind of planning an industrial policy. I think maybe the good news is that we're at a point where a lot of the country's open to those ideas, and we just need to continue to have what I hope is a social movement that continues to push this. And one of the things I'm proud about with my book is that the main labor movement's reading my book. I think there's a new chapter ahead of us. I think that I'm a little bit more optimistic about.
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Wonderful, Michael. I wish we had more time. Thank you so much for your insights, for publishing, for doing that work, and to my entire audience, I think we've learned something, and I think you can think about the impact of it all on your lives. I look forward, as usual, to speaking with you again next week.