Who Rigged the Economy Against Workers? – Inside Sources

Widespread worker insecurity and downward mobility in today’s American economy contrast sharply with expanding prosperity and opportunity in the postwar era that extended into the mid-1970s. In that earlier period, good-paying jobs were so plentiful that high-school-educated workers sometimes held two full-time jobs because the income was too hard to pass up.

Truly honoring Labor Day requires asking: What happened? Who rigged the economy against workers — and how did they rig it?

Of course, an extended explanation for the troubling state of working America would look a lot like the solution to “Murder on the Orient Express” (they all did it). However, no groups have shaped recent economic life more than institutional investors who demand a relentless business focus on short-term shareholder gains and the policymakers who ignore or cynically exploit the workers they produce.

Institutional ownership of corporate America has grown dramatically since the end of World War II. Today, institutional investors — including managers of pension funds, mutual funds and private-equity funds — control 70 percent of U.S. corporate equities, up from less than 10 percent in 1950. The growing influence of these money managers has pressured corporate leaders to maximize shareholder value through restructuring, downsizing, outsourcing, offshoring and all sorts of cost-cutting. Fund managers have also used their influence to shape public policy and promote academic research that aligns with their business goals.

Americans’ lives have become increasingly precarious in the era of managed money. As corporations turned from creating value through business reinvestment to extracting value to satisfy near-term investor demands, daily life has become more perilous in areas ranging from air travel to healthcare.

Demands for greater financial returns often compel firms to scrimp on quality controls, operational capacity and standards of care. Worker well-being has taken the biggest hit, a trend that includes decades of sluggish wage growth, stalled upward mobility, erosion of employer-provided pensions and other benefits, corporate hostility to collective bargaining, the spread of unstable work schedules, and endless rounds of workforce reductions.

Rising job insecurity is a defining characteristic of the managed-money era. Economist William Lazonick recently identified three stages in the evolution of the current era, each increasing the extent to which precarity (the state of having little to no security, stability or predictability) has spread throughout the labor force.

The first stage eliminated the jobs of blue-collar workers with a high school diploma. The next stage ended the “career with one company” norm, putting the job security of white-collar workers in jeopardy, many of whom were college educated. The third stage left nearly the entire labor force vulnerable to displacement as even advanced job opportunities began moving offshore.

Now the situation is even more precarious. More than 10 percent of workers rely on alternative work arrangements, according to the Bureau of Labor Statistics, including freelance, contracted, on-call and temp agency work. Many of those workers depend on gigs coordinated through a smartphone app (such as Uber and DoorDash). As independent contractors, they receive no health insurance or other benefits and are incentivized to always be available.

Meanwhile, college graduates face increasingly uncertain entry-level employment prospects, federal civil-service jobs are no longer secure, and workers throughout the economy contend with the threat of being replaced by automation or artificial intelligence.

Supporters of a shareholder-driven economy often argue that institutional investors pursue maximum financial gains in the interest of retired teachers and other pensioners — that money managers merely look after the financial interests of ordinary Americans.

The distribution of stock ownership is wildly unequal, and four in 10 households have no retirement savings in any form. Besides, the retirement argument is a red herring: any economy that thrives on generating retirement funds for workers by creating severe insecurity for that same workforce definitely needs reform.

Capitalism comes in wide varieties. And the nation that mastered the socio-technical challenges needed to succeed in two world wars and then reach interstellar space can certainly fashion a more broadly prosperous, sustainable and humane economy. Understanding the rigged economy provides a starting point for constructive reform, and getting to work on that reform is the best way to show respect for American workers — and our commitment to the promise of America.