Power and Money in America (Noam Chomsky)

Noam Chomsky writes at Tomdispatch.com

Plutonomy and the Precariat
On the History of the U.S. Economy in Decline
By Noam Chomsky

The Occupy movement has been an extremely exciting development. Unprecedented, in fact. There’s never been anything like it that I can think of. If the bonds and associations it has established can be sustained through a long, dark period ahead — because victory won’t come quickly — it could prove a significant moment in American history.

The fact that the Occupy movement is unprecedented is quite appropriate. After all, it’s an unprecedented era and has been so since the 1970s, which marked a major turning point in American history. For centuries, since the country began, it had been a developing society, and not always in very pretty ways. That’s another story, but the general progress was toward wealth, industrialization, development, and hope. There was a pretty constant expectation that it was going to go on like this. That was true even in very dark times.

I’m just old enough to remember the Great Depression. After the first few years, by the mid-1930s — although the situation was objectively much harsher than it is today — nevertheless, the spirit was quite different. There was a sense that “we’re gonna get out of it,” even among unemployed people, including a lot of my relatives, a sense that “it will get better.”

There was militant labor union organizing going on, especially from the CIO (Congress of Industrial Organizations). It was getting to the point of sit-down strikes, which are frightening to the business world — you could see it in the business press at the time — because a sit-down strike is just a step before taking over the factory and running it yourself. The idea of worker takeovers is something which is, incidentally, very much on the agenda today, and we should keep it in mind. Also New Deal legislation was beginning to come in as a result of popular pressure. Despite the hard times, there was a sense that, somehow, “we’re gonna get out of it.”

It’s quite different now. For many people in the United States, there’s a pervasive sense of hopelessness, sometimes despair. I think it’s quite new in American history. And it has an objective basis.

On the Working Class

In the 1930s, unemployed working people could anticipate that their jobs would come back. If you’re a worker in manufacturing today — the current level of unemployment there is approximately like the Depression — and current tendencies persist, those jobs aren’t going to come back.

The change took place in the 1970s. There are a lot of reasons for it. One of the underlying factors, discussed mainly by economic historian Robert Brenner, was the falling rate of profit in manufacturing. There were other factors. It led to major changes in the economy — a reversal of several hundred years of progress towards industrialization and development that turned into a process of de-industrialization and de-development. Of course, manufacturing production continued overseas very profitably, but it’s no good for the work force.

Along with that came a significant shift of the economy from productive enterprise — producing things people need or could use — to financial manipulation. The financialization of the economy really took off at that time.

On Banks

Before the 1970s, banks were banks. They did what banks were supposed to do in a state capitalist economy: they took unused funds from your bank account, for example, and transferred them to some potentially useful purpose like helping a family buy a home or send a kid to college. That changed dramatically in the 1970s. Until then, there had been no financial crises since the Great Depression. The 1950s and 1960s had been a period of enormous growth, the highest in American history, maybe in economic history.

And it was egalitarian. The lowest quintile did about as well as the highest quintile. Lots of people moved into reasonable lifestyles — what’s called the “middle class” here, the “working class” in other countries — but it was real. And the 1960s accelerated it. The activism of those years, after a pretty dismal decade, really civilized the country in lots of ways that are permanent.

When the 1970s came along, there were sudden and sharp changes: de-industrialization, the off-shoring of production, and the shift to financial institutions, which grew enormously. I should say that, in the 1950s and 1960s, there was also the development of what several decades later became the high-tech economy: computers, the Internet, the IT Revolution developed substantially in the state sector.

The developments that took place during the 1970s set off a vicious cycle. It led to the concentration of wealth increasingly in the hands of the financial sector. This doesn’t benefit the economy — it probably harms it and society — but it did lead to a tremendous concentration of wealth.

On Politics and Money

Concentration of wealth yields concentration of political power. And concentration of political power gives rise to legislation that increases and accelerates the cycle. The legislation, essentially bipartisan, drives new fiscal policies and tax changes, as well as the rules of corporate governance and deregulation. Alongside this began a sharp rise in the costs of elections, which drove the political parties even deeper into the pockets of the corporate sector.

The parties dissolved in many ways. It used to be that if a person in Congress hoped for a position such as a committee chair, he or she got it mainly through seniority and service. Within a couple of years, they started having to put money into the party coffers in order to get ahead, a topic studied mainly by Tom Ferguson. That just drove the whole system even deeper into the pockets of the corporate sector (increasingly the financial sector).

This cycle resulted in a tremendous concentration of wealth, mainly in the top tenth of one percent of the population. Meanwhile, it opened a period of stagnation or even decline for the majority of the population. People got by, but by artificial means such as longer working hours, high rates of borrowing and debt, and reliance on asset inflation like the recent housing bubble. Pretty soon those working hours were much higher in the United States than in other industrial countries like Japan and various places in Europe. So there was a period of stagnation and decline for the majority alongside a period of sharp concentration of wealth. The political system began to dissolve.

There has always been a gap between public policy and public will, but it just grew astronomically. You can see it right now, in fact. Take a look at the big topic in Washington that everyone concentrates on: the deficit. For the public, correctly, the deficit is not regarded as much of an issue. And it isn’t really much of an issue. The issue is joblessness. There’s a deficit commission but no joblessness commission. As far as the deficit is concerned, the public has opinions. Take a look at the polls. The public overwhelmingly supports higher taxes on the wealthy, which have declined sharply in this period of stagnation and decline, and the preservation of limited social benefits.

The outcome of the deficit commission is probably going to be the opposite. The Occupy movements could provide a mass base for trying to avert what amounts to a dagger pointed at the heart of the country.

Plutonomy and the Precariat

For the general population, the 99% in the imagery of the Occupy movement, it’s been pretty harsh — and it could get worse. This could be a period of irreversible decline. For the 1% and even less — the .1% — it’s just fine. They are richer than ever, more powerful than ever, controlling the political system, disregarding the public. And if it can continue, as far as they’re concerned, sure, why not?

Take, for example, Citigroup. For decades, Citigroup has been one of the most corrupt of the major investment banking corporations, repeatedly bailed out by the taxpayer, starting in the early Reagan years and now once again. I won’t run through the corruption, but it’s pretty astonishing.

In 2005, Citigroup came out with a brochure for investors called “Plutonomy: Buying Luxury, Explaining Global Imbalances.” It urged investors to put money into a “plutonomy index.” The brochure says, “The World is dividing into two blocs — the Plutonomy and the rest.”

Plutonomy refers to the rich, those who buy luxury goods and so on, and that’s where the action is. They claimed that their plutonomy index was way outperforming the stock market. As for the rest, we set them adrift. We don’t really care about them. We don’t really need them. They have to be around to provide a powerful state, which will protect us and bail us out when we get into trouble, but other than that they essentially have no function. These days they’re sometimes called the “precariat” — people who live a precarious existence at the periphery of society. Only it’s not the periphery anymore. It’s becoming a very substantial part of society in the United States and indeed elsewhere. And this is considered a good thing.

So, for example, Fed Chairman Alan Greenspan, at the time when he was still “Saint Alan” — hailed by the economics profession as one of the greatest economists of all time (this was before the crash for which he was substantially responsible) — was testifying to Congress in the Clinton years, and he explained the wonders of the great economy that he was supervising. He said a lot of its success was based substantially on what he called “growing worker insecurity.” If working people are insecure, if they’re part of the precariat, living precarious existences, they’re not going to make demands, they’re not going to try to get better wages, they won’t get improved benefits. We can kick ’em out, if we don’t need ’em. And that’s what’s called a “healthy” economy, technically speaking. And he was highly praised for this, greatly admired.

So the world is now indeed splitting into a plutonomy and a precariat — in the imagery of the Occupy movement, the 1% and the 99%. Not literal numbers, but the right picture. Now, the plutonomy is where the action is and it could continue like this.

If it does, the historic reversal that began in the 1970s could become irreversible. That’s where we’re heading. And the Occupy movement is the first real, major, popular reaction that could avert this. But it’s going to be necessary to face the fact that it’s a long, hard struggle. You don’t win victories tomorrow. You have to form the structures that will be sustained, that will go on through hard times and can win major victories. And there are a lot of things that can be done.

Toward Worker Takeover

I mentioned before that, in the 1930s, one of the most effective actions was the sit-down strike. And the reason is simple: that’s just a step before the takeover of an industry.

Through the 1970s, as the decline was setting in, there were some important events that took place. In 1977, U.S. Steel decided to close one of its major facilities in Youngstown, Ohio. Instead of just walking away, the workforce and the community decided to get together and buy it from the company, hand it over to the work force, and turn it into a worker-run, worker-managed facility. They didn’t win. But with enough popular support, they could have won. It’s a topic that Gar Alperovitz and Staughton Lynd, the lawyer for the workers and community, have discussed in detail.

It was a partial victory because, even though they lost, it set off other efforts. And now, throughout Ohio, and in other places, there’s a scattering of hundreds, maybe thousands, of sometimes not-so-small worker/community-owned industries that could become worker-managed. And that’s the basis for a real revolution. That’s how it takes place.

In one of the suburbs of Boston, about a year ago, something similar happened. A multinational decided to close down a profitable, functioning facility carrying out some high-tech manufacturing. Evidently, it just wasn’t profitable enough for them. The workforce and the union offered to buy it, take it over, and run it themselves. The multinational decided to close it down instead, probably for reasons of class-consciousness. I don’t think they want things like this to happen. If there had been enough popular support, if there had been something like the Occupy movement that could have gotten involved, they might have succeeded.

And there are other things going on like that. In fact, some of them are major. Not long ago, President Barack Obama took over the auto industry, which was basically owned by the public. And there were a number of things that could have been done. One was what was done: reconstitute it so that it could be handed back to the ownership, or very similar ownership, and continue on its traditional path.

The other possibility was to hand it over to the workforce — which owned it anyway — turn it into a worker-owned, worker-managed major industrial system that’s a big part of the economy, and have it produce things that people need. And there’s a lot that we need.

We all know or should know that the United States is extremely backward globally in high-speed transportation, and it’s very serious. It not only affects people’s lives, but the economy. In that regard, here’s a personal story. I happened to be giving talks in France a couple of months ago and had to take a train from Avignon in southern France to Charles De Gaulle Airport in Paris, the same distance as from Washington, DC, to Boston. It took two hours. I don’t know if you’ve ever taken the train from Washington to Boston, but it’s operating at about the same speed it was 60 years ago when my wife and I first took it. It’s a scandal.

It could be done here as it’s been done in Europe. They had the capacity to do it, the skilled work force. It would have taken a little popular support, but it could have made a major change in the economy.

Just to make it more surreal, while this option was being avoided, the Obama administration was sending its transportation secretary to Spain to get contracts for developing high-speed rail for the United States, which could have been done right in the rust belt, which is being closed down. There are no economic reasons why this can’t happen. These are class reasons, and reflect the lack of popular political mobilization. Things like this continue.

Climate Change and Nuclear Weapons

I’ve kept to domestic issues, but there are two dangerous developments in the international arena, which are a kind of shadow that hangs over everything we’ve discussed. There are, for the first time in human history, real threats to the decent survival of the species.

One has been hanging around since 1945. It’s kind of a miracle that we’ve escaped it. That’s the threat of nuclear war and nuclear weapons. Though it isn’t being much discussed, that threat is, in fact, being escalated by the policies of this administration and its allies. And something has to be done about that or we’re in real trouble.

The other, of course, is environmental catastrophe. Practically every country in the world is taking at least halting steps towards trying to do something about it. The United States is also taking steps, mainly to accelerate the threat. It is the only major country that is not only not doing something constructive to protect the environment, it’s not even climbing on the train. In some ways, it’s pulling it backwards.

And this is connected to a huge propaganda system, proudly and openly declared by the business world, to try to convince people that climate change is just a liberal hoax. “Why pay attention to these scientists?”

We’re really regressing back to the dark ages. It’s not a joke. And if that’s happening in the most powerful, richest country in history, then this catastrophe isn’t going to be averted — and in a generation or two, everything else we’re talking about won’t matter. Something has to be done about it very soon in a dedicated, sustained way.

It’s not going to be easy to proceed. There are going to be barriers, difficulties, hardships, failures. It’s inevitable. But unless the spirit of the last year, here and elsewhere in the country and around the globe, continues to grow and becomes a major force in the social and political world, the chances for a decent future are not very high.

Noam Chomsky is Institute Professor Emeritus in the MIT Department of Linguistics and Philosophy. A TomDispatch regular, he is the author of numerous best-selling political works, most recently, Hopes and Prospects, Making the Future, and Occupy, published by Zuccotti Park Press, from which this speech, given last October, is excerpted and adapted. His web site is www.chomsky.info.

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Copyright 2012 Noam Chomsky

10 Responses

  1. Applause for the Professor and the best analysis of the last 20 years
    Only problem who out of the 99% are going to lift up out of the mess and follow the lessons above? Needs more than Occupy.
    The 1% want it to stay just the way it is.
    Make America Great again and export it the The World too.

  2. The acknowledged big problem is inequality. However, I have a more nuanced take on this bit:

    “When the 1970s came along, there were sudden and sharp changes: de-industrialization, the off-shoring of production, and the shift to financial institutions, which grew enormously. I should say that, in the 1950s and 1960s, there was also the development of what several decades later became the high-tech economy: computers, the Internet, the IT Revolution developed substantially in the state sector.”

    De-industrialization? Perhaps. How about a paradigm shift, instead. To his credit, he does mention the advent of the microchip. I would argue that there is another Kondratiev wave coming along in the form of the green revolution.

    • In the ’60s science fiction writers were already speculating about an automation crisis. They understood that replacing labor with automated capital meant that society had to make a decision about the distribution of the resulting profits. Why did the citizenry and their elected leaders not confront this with so much advance warning? We left the decision entirely in the hands of those who oppress us now.

  3. OK, but even as the writer concedes the precarious state of what used to be an effective proletariat, he has to also acknowledge their underlying effeteness in today’s World. Nothing today is going to happen from the bottom-up. Gov Kasich (R-Ohio), was right in observing OWS is just a bunch of idealists venting.

    The current Little People with time on their hands will get over it, just as soon as they get into a good MBA and/or JD program, or move back in with the folks to rake leaves and twitter their frustrations away. If some Great Man starts effectively organizing he/she will be co-opted by an appropriate opportunity. Take note on how Obama is struggling, and ultimately proving ineffective. This approach is a whole lot more efficient than Nites of Long Knifes, and the occasional Bradley Manning can serve his purpose as well—to keep us all civilized.

    Think about it: The Neo-Plutocrats are not just a bunch of guys in togas, bemoaning the lack of good domestic help: I see no formal conspiracy here, but one of natural evolution. These are people who happen to profit through what seems to be a natural, evolutionary economic process, that normally leads to a consolidation of wealth following by a revolution, where the goods get redistributed before the whole process begins anew.

    That vision I’d buy into, but at this point in the world’s development, hard technology and soft managerial practices have evolved to the point the 99.9% stand to be kept down and ground down far longer, harder and more professionally. In fact, the competence with which drones and the drones who drive them are being improved, makes me think the natural underlying tendency to enslave (in kinda, gentler way), is right around the corner. Isn’t that what the observation of a Precariat is REALLY all about??? Whattya think that zillion sq ft NSA facility out in Utah is all about???

    The vision described in this essary is ultimately a nostalgic one. If you want a crude film metaphor for the future I see shaping-up, screen the Terminator series

  4. What we know as civilized behavior is something that exists when the pie is growing. Now the pie is shrinking.

    This is the first time in our history that the rich have proven that they can get richer by making everyone else poorer. Even the worst robber barons of the GOP-beloved Gilded Age knew they needed more-affluent, better-educated consumers. Now, their descendants don’t. They will never let go of this disastrous process, even as society crumbles around them.

  5. 1% or 99% excellent, effective, political numbers that help define the latest destructive class warfare…very sad. Maybe we are missing the point. Prof Chomski raises the issue of powerful financial institutions buying politcal power. Everyone has a vote but the turnout (Given the issues is pathetic)….Should we strive to be in the 0.000001% (Billionairs Soros and Buffet) who simply buy the President they “Like”. Hmmmm….to buy or to vote!….interesting dilema!

  6. In addition to the economic factors listed here, I believe that women entering the work force ( in larger numbers than ever before ) in the 70′s and 80′s buffered the impact for the middle class. It felt like families could make financial gains when actually the per person spending power probably lessened. Families will not be seeing any bumps in spending power again ( unless we start sending our children to work ). Also, the market place will not be expanding so manufacturing and construction will feel the results. Natural disasters will force new spending and global warming will help with that. On a lighter note, I see many of our youth accepting simpler material expectations. If we can keep reasonable health, energy, food and education systems running, we will be ok.

    • Excellent observation as to how wage cuts were hidden by two-income families. However, as to the part about reasonable health, energy, food and education systems in the future, it sure seems that the intent of our owners is to do exactly the opposite. Is that because all of those things require deferred gratification, and as we get poorer we lose the ability to stand any more deferrals, or is it because the owners have a replacement socioeconomic model for our future that protects their interests by having the rest of us live lives brutish, nasty and short?

  7. A very succinct yet accurate description of American society.

    The semi-skilled and unskilled factory jobs that sustained families in the 1950s and 1960s are gone. Many of those families have parents that are toiling in menial jobs at low wages and are fortunate to be keeping their heads above water financially let alone enjoying a decent standard of living.

    Further, about 10 trillion dollars in Saudi investment plus trillions more in Chinese, Japanese, and “Caribbean financial institutions” are propping up massive federal deficit spending while saturating our financial markets with funding that has left America at the mercy of Communist China and foreign banks.

    Our economy will face more crisis – and no FDR to allay American fears and cure economic calamities to come.

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