Rick Wartzman, “The End of Loyalty: The Rise and Fall of Good Jobs in America,” Public Affairs, 2017 Paperback, 363 pp.
Author Rick Wartzman chronicles the erosion of the relationship between American companies and their workers. Of course, this idyllic relationship now eroding had been short-lived--only lasting while economic growth was robust and companies fear of unionization prompted paternal behavior. Also, the US being the only-game-in-town in the post-WWII era helped. The erosion of loyalty portrayed in this book is shown through the stories of four major employers--General Motors, General Electric, Kodak, and Coca-Cola—through the history of these companies, the author shows how big businesses once took responsibility for providing their workers and retirees with an array of social benefits. At the height of the post-World War II economic-era, companies allegedly believed that worker pay needed to be kept high in order to preserve morale and keep the economy humming and dampen enthusiasm for unions.
But the corporate social contract didn't last. By tracing the ups and downs of these four corporate icons over seventy years, Wartzman illustrates just how much has been lost: job security and steadily rising pay, guaranteed pensions, robust health benefits, and so forth. Charting the Golden Age of the '50s and '60s; the turbulent years of the '70s and '80s; and the growth of downsizing, outsourcing, and instability in the modern era, Wartzman's narrative is a biography of the American Dream gone sideways.
The End of Loyalty is really the best explanation of the middle-class destruction I have read. I conclude that the US can no longer compete in manufacturing. Only through education and expertise in information-businesses as well as healthcare, do we have a chance at regaining these benefits and the ersatz loyalty that goes with it. Current high education expense has limited that route and must be reversed.
Addenda (Paul Krugman NYT 8/21/17):
The destruction of unions, not globalization and technology destroyed trucking jobs; in fact, the industry is facing a labor shortage. What happened to truckers was, basically, the collapse of their bargaining power due in part to a changing ideological climate — not least at the National Labor Relations Board — that encouraged private employers to fight unionization, and in part to deregulation that undercut the position of unionized firms. This is just one example.
Another example, at the opposite end of the spectrum: Does anyone doubt that financial deregulation played an important role in surging incomes at the very top of the income distribution?
My Notes:
Pg. 2f: In the past forty years, after adjusting for inflation, compensation for 80 percent of the workforce has barely gone up. In the twenty-five years prior to the 1970s pay and benefits for this huge demographic climbed by 90 percent. Today, nearly half the nation’s workforce earns less than fifteen dollars an hour. About a third of men in their prime don’t make enough to keep a family of four out of poverty or are altogether unemployed—double what it was thirty years ago. More than 10 percent of jobless men ages twenty-five to fifty-four have stopped looking for work—a trend particularly prevalent among those without a college degree. In the mid-1950s, only 2 percent of this group of men was on the sidelines.
Pg. 6: The author uses the lens of GE GM, Kodak, and Coke to document how a large part of our workforce prospered and then fell on hard times. The forces that come into play causing the downfall are globalization and heightened competition from low-wage countries; the fading influence of unions; the introduction of labor-saving technology; a newfound willingness to lay off enormous numbers of people even when there’s no crisis at hand; the outsourcing of all manner of work; the decline of manufacturing; and the rise of knowledge jobs for those with the skills and education to grab them and, simultaneously, the rise of third-rate service jobs for those without. (I would add the change in business philosophy which dropped business responsibility to workers, community, and morality to replace it with shareholder-only responsibility).
Pg. 110: Fewer than 500 companies employed more than a fifth of all American nonfarm workers in the 1950s—an incredible concentration for about half of the nation’s industrial output and a quarter of that of the entire free world. All told, by 1955 America was manufacturing roughly half of all items produced around the globe, even though it had only 6 percent of its population. Many of these goods were destined for export. Some of America’s competitive edge was the result of the industrial infrastructure in Germany and Japan having been so badly damaged during the war. And much was dependent on a burst of government spending aimed at countering the Soviets—during the Korean War, the Cold War, and the Space race. The military-industrial complex accounted for as much as 20 percent of total economic output in the 1950s. Also, the public investment in workers themselves through the G.I Bill of Rights (1944) disbursed college and training funds to nearly 8 million WWII veterans by the time the program expired in 1956.
Pg. 111: Wages and salaries climbed sharply during the course of the fifties for most everyone: up 54 percent overall for full-time blue-and white-collar workers. By the middle of the decade, almost half of all large- and medium-sized employers in the US were giving their workers pensions, and more than two-thirds were kicking in insurance of some kind, up from a negligible number just ten years prior. And, the income ratios stayed more or less the same, the rich were getting richer, but not disproportionately to everyone else. The share of national income going to the top 10 percent remained steady at about 33 percent throughout the decade and had only risen to 34 percent by 1972.
Pg. 119: In 1935 when Social Security was being discussed, it was deemed that health coverage wasn’t as vital as unemployment or old-age insurance and including health care coverage was perceived as possibly endangering passing the bill. An early draft of the bill had contained a provision for a federal panel to study the subject of health insurance, and this prospect alone was responsible for so many telegrams to the members of Congress that the entire Social Security program seemed endangered. In the passing years, employer-based health systems became ever more entrenched. During WWII the War Labor Board capped the amount of pay that companies could offer their employees, but was less stringent regarding benefits. Consequently, businesses used health coverage to attract available workers; Group hospital coverage nearly quadrupled during the war, to 26 million subscribers. In 1949, the Supreme Court’s ruling that benefits were a legitimate issue for collective bargaining helped cast corporate Americas as the nation’s leading conduit for health insurance.
Pg. 130: In 1956 the number of white-collar employees (defined as those in managerial, technical, and clerical jobs) for the first time surpassed the number of blue-collar laborers. This fundamental transformation of the American workplace would have a large influence affecting the social contract. Also, after WWII women would enter the workforce in overwhelming numbers, even though remaining locked out of most professions. (In 1960, women accounted for just 6 percent of doctors, 3 percent of lawyers, and less than 1 percent of engineers in the US.) [I remember reading at that time that 1 of every 7 jobs in the US related to the automobile industry]
Pg. 155: Even though nearly 34 percent of private-sector workers in the US belonged to a union in 1958, a slow but steady dismantling of unions was underway. The UAW came away in 1958 with its weakest set of contract wins in the postwar period. Protracted strikes against the nation’s steelmakers in 1959 and at GE in 1960 would yield no real gains for the unions. In 1960, labor won less than 60 percent of representation elections compared with about 75 percent in 1950.
Pg. 218: Nixon imposed wage and price controls to dampen the inflation erupting from President Johnson’s simultaneous war in Vietnam and his war on poverty. It seemed to work, so in 1973 the controls were scaled back. Inflation then went straight through the roof reaching 9 percent for the year. Then OPEC caused the cost of crude to quadruple and consumer prices rose more than 12 percent in 1974; wholesale prices bounded upward more than 21 percent. Looking back, economists would pinpoint 1973 as a defining marker—the beginning of a two-decade stretch in which productivity gains at US companies were less than half of what they had been after WWII. This would tear into the social contract between employer and employee. (Nixon resigned in August of 1974). Also, imports into the US exceeded exports for the first time since 1888. By 1976, the US would swing to a trade deficit that remains unbroken to this day. Through the 1970s, companies shifted work to less costly countries.
Pg. 221: In 1974, an ominous milestone was reached: Americans’ wages declined. It was the first time that this had happened since the end of WWII. This began a forty-plus-year period in which people’s paychecks would barely get any bigger once inflation was taken into account.
Pg. 228: Setting the CPI of 1967 at 100, the CPI increased to 217 by 1979--a nearly 90 percent rise in less than ten years (this equates to 6.6% annual inflation for each year). Now consider that in 1985 40 percent of unionized employees lost cost-of-living adjustments. The percentage of private-sector workers with pensions fell during the 1980s and the portion of workers with company-provided medical coverage began receding. Inflation-adjusted weekly earnings hit their lowest point since 1960.
Pg. 265: Milton Friedman, the influential University of Chicago economist, contended in a 1970 essay that a corporation had but one legitimate ‘social responsibility”: to increase its profits. A company pursuing anything else, including trying to “take seriously…providing employment,” was doing little more than preaching pure and unadulterated socialism.” Among those influenced by Friedman was Michael Jensen (Harvard Business School) who promoted the idea that the only legitimate measure of a company was its share value. This intellectual cover tied CEO’s wages to share value and the explosion in their pay, based on short-term share value that has occurred to this day. (Tying CEO pay to share value was also caused by the 1980’s corporate raiders aided by Michael Milken’s junk bonds).
Pg. 271: At the midpoint of the pay-range, top executives made about $150,000 a year during the 1950s—the same amount that they’d earned since the 1930s (when adjusted for inflation). Their pay remained at similar levels through the ‘60s and ‘70s as well. Compensation held remarkably steady for five straight decades. The median CEO compensation climbed more than 50 percent during the 80’s and it more than doubled from there during the 90’s. By 2005, it would more than double again, so that a large-company CEO in the middle of the pack was now making more than $9 million a year. A big reason for this surge was agency theory. As companies sought to align the interests of managers and shareholders, they began to issue ever more stock options to top executives. By 2001, shares of stock would account for 85 percent of CEO pay, up from about 10 percent in the previous five decades. (This shift in the method of compensation coincided with the longest bull market in American history—a 1,500 percent jump in the Dow Average from August 1982 to January 2000). (In 1965, CEOs at big companies made 20 times what the average worker did. By 2000, they’d make 376 times more.)
Pg. 277: Even in its heyday, the private defined-benefit pension system in the US never reached more than about half of the private-sector workforce. By 1985, workers in defined-contribution plans out-numbered those with guaranteed pensions, and over the next decade, the trend greatly accelerated. Hardly any new companies put defined-benefit plans into place anymore, choosing to offer only 401(k)s instead. Eventually, it became routine for older corporations to freeze their long-established retirement funds rather than keep building them up. Besides costing companies a third to half as much as defined-benefit plans, 401(k)s were attractive to top executives to supplant their traditional pensions.
Pg. 306: In March 1993, General Motors was no longer the biggest employer in America. Manpower, the temp agency, was with 560,000 workers compared to GM’s 367,000. Truth be told, the 560,000 was spurious unless you counted the workers over the course of a year. On any given day, Manpower had about 110,000 people working for it. Worker’s would typically spend just a few weeks in the company’s employ before moving on—which, really, was the whole point. The US is increasingly becoming a nation of part-timers and freelancers, of temps and independent contractors.
Pg. 311: The pull on manufacturers to go elsewhere was strong. By the early 1990s, the Big Three paid around eighteen dollars an hour—plus generous benefits—to unionized workers at parts plants. By contrast, workers at nonunion plants averaged about eight dollars to nine dollars an hour, with few benefits.
Plants based in Mexico or Asia paid workers in a week what UAW members earned in a day. Automakers in the US imported $30 billion worth of components in 1990, ten years later that had soared to more than $50 billion. (Clinton signed NAFTA in December 1993, putting him in conflict with fellow Democrats and organized labor.)
Pg. 321: A case can be made that Bill Clinton’s guiding of the economy was the best of any president. During his eight years in office, the US netted nearly 23 million new jobs. Unemployment reached a thirty-year low, falling below 4 percent. Productivity jumped, and real wages rose at their fastest rate since 1972 and inflation were stable.
However, during the ‘90s job opportunities for Americans became increasingly split, reinforcing a trend that had started in the late ‘70s. Employment was rising in high-education professional, technical, and managerial occupations, as well as in low-end service work: food preparers, health-care aides, security guards, and so on. But both blue-collar and white-collar jobs that once provided a middle-class life, even with little formal education, were now vanishing.
Pg. 331: Sam Walton in the 1960s set up his stores as separate corporate structures—all linked back to his family controlled financial partnership—so that revenues would come in at less than $1 million apiece, a threshold that permitted each location under government rules to pay less than the minimum wage. (A federal court eventually found this arrangement improper). However, as the decades passed, the pressure to extract more from the workforce increased. Wal-Mart managers around the country forced employees to work off the clock and skip breaks; broke child-labor laws; and used illegal immigrants to clean stores.
In 2005, most Wal-Mart workers took home less than ten dollars an hour, less than $18,000 a year, placing them below the poverty line. As a result, many of its employees had to turn to public relief: food stamps, Medicaid, and subsidized housing. Also, Wal-Mart has never allowed so much as a single one of its stores to be organized.
Pg. 343: Between 1967 and 2012, the ranks of US adults with at least a four-year college degree rose from 13 percent to 32 percent. Yet even when you added up all of those with four-year college diplomas, two-year associate degrees, and postsecondary vocational certificates, it still came out to less than half of the working-age population.
344: For most of those without the right credentials, the only option was to try to make it amid a decidedly low-wage landscape, one now dominated by poorly paying service providers. In 1960, eleven of the fifteen biggest employers in the country made things, led by GM, with nearly 600,000 workers. By 2010, only four manufacturers were in the top fifteen; the rest were in services, including not only Wal-Mart but also McDonald’s, Yum Brands (the parent of Taco Bell, KFC, and Pizza Hut), Target, and CVS. Many of these workers do not earn enough to adequately support their families, even at a subsistence level. (Yet, Costco in 2005 pays an average of seventeen dollars an hour, more than 40 percent higher than Wal-Mart).
Pg. 346: From 2000 through 2006, home prices increased across the country by more than 90 percent (in some places—Las Vegas, Phoenix, Miami—values more than doubled). By the middle of 2007, the bubble popped and the most severe downturn since the Depression of the 1930s commenced. Nationwide, housing prices didn’t bottom out until 2012, by then they’d lost a third of their value from their pinnacle in 2006. In the interim, more than 4 million homes had been foreclosed.
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