In The Protestant Ethic and the Spirit of Capitalism, Max Weber posits that the most productive use of money is made by investing it to provide an impetus to nascent capitalism instead of wasting it on luxuries and self-gratification. In direct relation to this, Bowles defines accumulation as a “profit-driven investment” (134) which encompasses investment activities that transforms labor processes, incentivizes the increase in capital goods, and mobilizes a variety of resources in the production process. Within this accumulation process, he introduces the concept of a social structure of accumulation (SSA), or “the institutional setting within which accumulation occurs” (Bowles 142). Although SSAs change over long swings of 30-50 years, each SSA is characterized by the specific nature of relationships both within and among capitalists, workers, and the government. This is also related to sociologist Fred Block’s theory of capitalist rationality which hinges on the dynamics among three actors in the capitalist state: the capitalists/ruling-class, the workers, and the state managers/government. This paper argues that the decrease in the bargaining power of labor in comparison to capital, and a constantly fractious government-economy relationship have exacerbated crises in the United States capitalist economy since the decay of the regulated capitalism SSA, and during the subsequent emergence of transnational capitalism and data capitalism. In this paper, I use Bowles’ Understanding Capitalism: Competition, Command, and Change, and Mayer-Schonberger’s and Ramge’s Reinventing Capitalism in the Age of Big Data to supplement my arguments.
The beginning of the consolidated phase (high investment and economic growth rates, low unemployment) of the regulated capitalism SSA, emerging in the aftermath of the Great Depression, “brought an increase both in direct regulation of economic relationships and in indirect regulation of the economy as a whole” (Bowles 146). To bolster the nation’s economic growth, the United States government applied demand-side Keynesian macroeconomic policies to increase job creation and customer purchasing power, thereby increasing economic growth. This also resulted in a larger federal government and comprehensive social security and welfare benefits policies. During this period, the Wagner Act (1935) highlighted a pivotal victory in the unionization movement. Due to increasing bargaining power and collectivization of workers through strikes and protests, “Congressed passed a bill designed explicitly to protect workers’ efforts to form unions” (Bowles 148). The National Labor Relations Board (NLRB), formed to negotiate labor-capital disputes, and the Civil Rights Act of 1964 further showcase the strength of collective bargaining rights of workers. However, this postwar labor accord began to break down in the 1970s during the decay phase of the regulated capitalism SSA.
Fragmentation of the production process and “movement of some production processes abroad, to Mexico” intimidated workers and discouraged them from fighting for higher wages and better working conditions and ultimately to reduced employment in the US. Moreover, Bowles argues that “even in sectors of the economy in which workers enjoyed union protection, large firms came to rely more and more on bureaucratic control of organization” (153), underlining incentives, management structures and promotions according to strict regulations to thwart union movements. Finally, discrimination in the labor market, and the eventual segmentation of the labor market independent and subordinate primary markets, and secondary markets resulted in disaggregation and a loss of stability for a large number of unions and individual workers. As a result of a combination of these factors, union membership declined rapidly, and this was directly correlated to the decline in real wage for the first time since the 1970s. During this decay period, corporate profits continued to rise while real wages remained stagnant or decreased, resulting in popular mass movements and paving the path for future crises within the capitalist system due to increasing inequality between the capitalist class and the workers. Within the government-economy framework, the neoliberal policies of Ronald Raegan and his attacks on PATCO and other unions in the 1970s resulted in a massive decline in the size of government and its social security benefits packages. Bowles comments on the intertwined government-economy complex, stating that “another cause of the declining power of labor was the increased political influence of business owners relative to that of labor” (149). Thus, this shows the already decreasing power of labor when compared to capital and the relaxation of regulations and shrinkage in the size and activity of the government in the 1970s and 1980s, “leading to growing turbulence in the financial sector and the bankruptcy of many savings and loan institutions by the late 1980s” (Bowles 475).
According to Bowles, the transnational capitalism SSA “captures the global fragmentation of production by transnational corporations (TNCs)” (147). This SSA is marked by several processes that have resulted in the unprecedented growth of businesses and corporate profits even in the face of rapidly falling wages and labor share, thus resulting in intense income inequality and tensions in the labor-capital dynamic. From a capitalist perspective, several aspects strengthened their position: First, the TNCs could avoid paying high taxes on their profits in the US by either persuading Congress to declare a tax holiday and “fulfill their tax obligations on those earnings by paying a small fraction of the taxes they owed” (Bowles 163) or through “corporate tax inversion” – moving the firm’s headquarters to an offshore location or selling itself to an overseas entity (163). Further, corporate stock buybacks were used by CEOs of TNCs to artificially hike stock prices of their companies and increasing risks of price bubbles. Moreover, due to this increased capital production for the top business and earners, investment managers were under immense pressure to find new avenues of investment in an already saturating economy. By this logic, the 2008 crisis was also one of overproduction and overinvestment, specifically in the housing market – since businesses had high production rates due to high profits, they needed buyers for these financial products, such as subprime mortgages. On the other hand, on the labor side, the decreasing wages and loss of collective bargaining rights of labor meant rising inequality in the economy, resulting in underconsumption and stagnating consumer demand in the already overinvested sector: “This means that a shift of income from poor to rich will slow, perhaps even halt, the growth of consumer spending” (Bowles 476). The weakening of the social safety net also reduces the ability of lower to mobilize effectively and rely on government welfare during extenuating circumstances. Bowles comments on programs such as the Aid to Families with Dependent Children (AFDC) being radically revamped and reduced into more stringent and paternalistic programs such as the Temporary Aid to Needy Families (TANF) that reduced the duration of welfare a family could receive to only 5 years.
Within the financial sector, the constantly decreasing power of labor and the helplessness of their situation in the face of rising power of capital is evident. As mentioned before, due to the increasing stock of capital and corporate profits, investment bankers and asset managers were under increasing pressure to find new sectors to generate returns on this capital for high net wroth individuals. This paved the way for the financial sectors exploiting millions of middle class Americans to generate returns on their investments through the establishment of different financial instruments such as Mortgage Backed Securities (MBS), Collateralized Debt Obligations (CDOs), and Credit Default Swaps (CDSs). Let us understand how these instruments weakened the situation of the working class. Simply put, mortgage backed securities are a way of securitization for mortgages wherein “parts of the mortgage payments were bundled with payments from other mortgages into the MBSs” (Bowles 462). Not only are MBSs a way through which the mortgage lenders insulated themselves from harm in the event of non-payments, a lot of these MBSs contained subprime mortgages with high interest rates due to the low creditworthiness of the homebuyers (Bowles 463). This show labor exploitation by capitalists in two ways: First, due to increasing inequality and the compulsion to generate returns, banks started offering liar’s loans and ninja loans (no income, no jobs, no assets) and indulged in predatory lending known very well that these customers/homebuyers would eventually default on their payments due to their low creditworthiness. Second, they packaged these same high risk subprime mortgages and Adjustable Rate Mortgages (ARMs) into the MBSs and sold it to the general public, thus insulating themselves against the risk of default at the cost of the buyers. Further, according to Bowles, “the MBSs were themselves further securitized into even more complex and obscure derivatives called CDOs” (471) where they were combined with student loans, credit card debt, and others, and sold to the public. These debt instruments, such as student loans and credit card debt, showcase the decreasing power of non-business owning groups in American transnational capitalism and the increasing stranglehold of capital over these groups. In this way, millions of middle class Americans’ financial stability was destroyed due to the increasing power of capital in the transnational economy SSA.
The constantly shifting and fractious relationships between the government and the private economic actors were also responsible for the crises to a large extent. As mentioned before, in the aftermath of the Great Depression, the US government increased its size and activities exponentially and regulatory institutions such as the Federal Deposit Insurance Corporation (FDIC) and the Securities and Exchange Commission (SEC) were formed to regulate risky corporate behavior and ensure compliance. However, the government-economy dynamic has some inherent tensions built into it because “after crises ended, this trend reversed itself over time, and firms tended to accumulate debt and the regulatory regime tended to be weakened” (Bowles 482). During the 2008 crisis, the Federal Reserve, US Treasury, SEC, all arms of the state created in response to previous crises and to better regulate the economy became the very instruments of the financial sector in compounding the crisis. Essentially, it is structurally problematic for an augmented state to reverse provisions and return to reduced governance, creating more capitalistic crises in the long run (65) due to the fractious oscillation of the government between two states, one during crises and the other during normal periods.
Deregulation and re-regulation of the financial sector is a prominent example of complicated dynamic between government and private economic actors. In the post-depression era, the Glass-Steagall Act of 1934 was an integral piece of legislation that separated the banking activities into 2 separate types: commercial banks that “took deposit from the public and issued loans to people and businesses” (Bowles 465), and investment banks that “arranged the sale of securities and investment in securities” (Bowles 465). The activities of the two types of banks could not interfere/integrate with each other. During the Citicorp merger with Travelers Group, “under heavy lobbying Congress repealed Glass-Steagall in 1999” (Bowles 466). This deregulatory legislation was one of the major causes of the 2008 crisis. Moreover, state personnel such as Henry Paulson (former Goldman Sachs CEO) actively prevented the regulation of derivatives and deemed them as private negotiations, all ideas deeply entrenched in the practices of neoliberalism. The Federal Reserve actually increased the leverage ratio for banks to lend even more. All these instances show the increasing power of private economic actors, the unwanted overlap between government officials and businesses, and the tension in the government-economy framework. In an effort to re-regulate the financial sector in the aftermath of the 2008 crisis, the Obama administration passed the Dodd-Frank act to regulate the financial sector and mitigate the exacerbation of crisis in the future. By early 2016, Bowles comments that “many final regulations of the Act had still not been passed, and financial firms were pressing for repeal of the entire Act” (488). The government bailouts of the “Too Big to Fail” financial institutions in the aftermath of the 2008 crisis was another example of the tension between these two forces. Thus, on one hand, the government itself depends on corporate and income taxes for revenue to its federal and local arms but at the same time, proper management of the different economic sectors, (especially finance, insurance, and real estate) is imperative. This dichotomy has created much friction in the government-economy relationship in the transnational capitalism SSA.
The advent of big data and digital technologies within the transnational capitalism SSA has also resulted in weakening of labor compared to capital concentration within the global technology companies, major disruptions and transitions in the labor market and has thrown up new challenges to government on ways to regulate this contemporary data capitalism and maintain balances within the economy. Big data affects negatively affects labor in a number of ways: First, Mayer-Schonberger mentions the case of Amazon where “the best Amabots claim to put in one-hundred-hour workweeks in order to pore over the data and answer any and all questions posed to them” (89), highlighting the extreme labor bondage and exploitation that the era of big data has ushered in. Moreover, companies such as Amazon showcase an obsession with “digital Taylorism” wherein a vast number of central structures and rules govern the behavior of the employee, the working hours, the efficiency of labor, all through extensive metricization. Global sourcers and producers such as Amazon also create massive pressure on the supply chain through subcontractors, leading to inhuman working conditions and unsustainable wages for workers in several developing countries. Second, the loss of human jobs through several strategies facilitated by big data in capitalism is possibly the most detrimental impact on the bargaining power of labor. Mayer-Schonberger outlines two models through which this can occur: “one in which a firm owns most of its operational resources, but is managed and run mostly by machines” (131), and another wherein firms depend heavily on data-facilitated market mechanisms and shed a majority of organizational functions.