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Thursday, January 14, 2010

How Not to Create Jobs

The Associated Press reports that after studying in detail over $21 billion in stimulus projects designated for road and bridge construction in the Administration’s first stimulus program, they found no discernible change in local employment associated with the completion of these projects. One of the five economists who reviewed their work stated: “There seems to me to be very little evidence that it’s making a difference.” Another economist commented: “In terms of creating jobs, it doesn’t seem like it’s created very many. It may well be employing lots of people, but those two things are different.” (Spending Fails to Stimulate Jobs, Matt Puzzo and Brett J. Blackledge, 2-12-10)

How can the widely lauded construction stimulus fail to improve the unemployment picture?

The answer lies in a gross misunderstanding of the New Deal employment programs and a slavish, dogmatic reliance upon the private sector.

I wrote - regarding the Obama stimulus program – in February of 2009:

Roosevelt sought job growth by directly employing the unemployed in Federal works projects. Obama, however, has pledged that 90% of his job-creating investments will be done though private firms. This raises many issues that Stanley Aronowitz perceptively explores in an article entitled "Facing the Economic Crisis" (Socialist Project, 12-26-08). He raises questions of wage rates, unionization, a living wage, and the technical composition of various kinds of projects. But most importantly, he notes that private sector job creation engages profits which siphon off the maximum impact of government expenditures; all things being equal, more jobs can be created from a given amount of dollars without awarding profits to a private firm. Aronowitz speculates that 30% gross profit would be a common return for a private firm given a government project. In fact, it is customary in bids for municipal and state government contracts for the private firm to offer estimates calculated at three times the cost of the hourly rate for the employees engaged in the project. Thus, for every three dollars of government stimulus, one dollar of hourly wages would be passed on for job creation. In any case, the Obama strategy would sharply reduce the impact of Federal expenditures designated for reducing unemployment, in sharp relief with the New Deal counterpart programs. Clearly, the economic advisors associated with Obama cannot escape their private sector fixation. (Looking Forward, MLToday,

Both the Aronowitz insight and my observation point to the folly of creating jobs through private sector, contractor-based programs, the approach to which Obama and his advisors swore allegiance. Now, a year later, that folly has been demonstrated. Scorning the New Deal approach and wedded to dogmatic, conventional thinking, $21 billion has been wasted - dare I say, misappropriated – against the professed goal of job creation. The folly goes deep. The notion that contractors would pass on an opportunity to use existing employees to secure super-profits on government contracts, the notion that they would, out of some new-found support for the common good, hire additional workers and forgo profits, should be ridiculous even to the neo-liberal brain trust assembled by Obama.

Despite these findings, the Obama economic team has proposed and the House has approved an additional stimulus of $28 billion for another round of road construction targeted at reducing construction unemployment. White House economic advisor, Jared Bernstein blithely asserted: “When you invest in this kind of infrastructure, you’re creating good jobs for people who need them.”

It is becoming more and more apparent that permanent unemployment is a structural component of contemporary monopoly capitalism. Even with the absorption of millions of potentially productive employees by the criminal justice system (the world’s highest incarceration rate) and the military-industrial system (permanent and expanding wars and military spending), state-monopoly capital has no use for millions of workers. More to the point, capital has every interest in maintaining a “reserve army of the unemployed”, as classical Marxism maintained. Desperate workers, desperate for a job, will work for less, pressuring the wage rates and benefits of those currently employed. As most commentators have conceded, the last recession produced a jobless recovery and this far deeper downturn has shown no signs of restoring jobs once any real or fantasy recovery comes. The last decade is the first in US history – including the decade of the Great Depression – to show negative job growth.

Because of the decades of privatization, contracting out, outsourcing, and public subsidization, the notion that more public funding will stimulate private job generation is as foolish as the notion that pouring public funds into the financial sector will restore sanity to banking practices. The same economic thinking that produced the crisis will not be undone by feeding the beasts that it produced.

The first order of business should be to send Geithner, Summers, Rubin, and the rest of the economic whiz kids packing. Their dogmatic, narrow, corporate-friendly thinking has only worsened the crisis while wasting resources and betraying the public.

In addition, a robust, well funded public works program is urgently needed: publicly funded, publicly run, with public employment, and with the public as the beneficiary. With the money spent and proposed, a million workers could easily be employed at decent wages and with benefits in repairing homes and neighborhoods, cleaning, inspecting, and beautifying communities, and developing and expanding public spaces. In short, the unemployed could be put to work in an updated version of the New Deal programs. As in the New Deal, the direct payment of wages to these public employees would expand consumption and fuel further economic activity while giving the re-employed a sense of worth and accomplishment.

This approach to job creation is not only the best route, but – in light of the failure of private sector stimulus – the only route to generating employment.

Zoltan Zigedy


Carl Davidson said...

ZZ, do you really believe that dumping a few million bucks on our local county government, then telling them to start new construction firms, with publicly elected or appointed leaders, and then recruit new hires to start on new projects designed by some public committee, is the best way to create new jobs?

ZZ, we are not living either in the workers' paradise where all concerned are angels, or in Stalinist conditions were you can be shot for sabotage and wrecking.

And FDR's CCC camps were semi-militarized, where the young men employed didn't see but a fraction of their wage, while the rest, pitiful as it was, was sent home to their parents. Even so, I would support them and my grandfather worked in one to keep our family going. But as a model, it leaves much room for improvement.

The feds do have construction firms, run the Army way under the Army Corp of Engineers. I suppose we could bring back the draft and dragoon people into them--but the last time I looked, the Army wasn't unionized.

Meanwhile we have youth agencies with contacts in the county, local construction firms in need of orders, union apprenticeship programs in need of new recruits, and community colleges with relevant courses in a career track needing students. Why not simply have them form a public-private collaborative, have the feds contract with them to do the locally needed work at union scale, set legal and binding standards against corruption, with a public interest law firm to keep check on them? And if any local firm thinks excess profiteering is going on, let them make a counter-bid under the same terms.

The best solution of all, of course, is once the collaborative is underway, work with local credit unions and the Mondragon Coops to restructure it into a local worker-owned and controlled coop after all concerned learn what they are doing and how to do it.

Meanwhile, resist the temptation to think that just because you put the adjective 'public' in front of something, all will be well.

Anonymous said...

Great analysis. The question is how will the needed changes come about? I would say that the needed changes will only come about through a struggle to organize the unemployed in an alliance with organized labor. And this will only come about if the communist and left forces MAKE IT HAPPEN. This is EXACTLY what is missing during this devastating crisis period.

zoltan zigedy said...

Carl, your comments are always welcome.

First, let me congratulate you on changing the website name from “Progressives for Obama” to “Progressive America Rising”. While overdue, I welcome this sober step back into reality.

I am sorry, though, that your overheated screed failed to recognize or address the failure of the Administration’s job-creation effort. I think that if you re-read the post, you’ll find that was the thrust of the article.

I’m surprised that you have such a low opinion of the New Deal programs aimed at addressing unemployment since those programs constitute the historic high point of Democratic Party “progressivism”. I would think these programs would be worthy of study by the leaders of Progressive Democrats of America.

I certainly respect your personal experience regarding the CCC. Since my family continued to work sporadically in the mines of Central and Southern Illinois, no one was engaged with the CCC or WPA programs. However, I knew plenty of neighbors who were. I heard only kind words and gratitude. Moreover, I never heard anyone suggest that they were “dragooned” into the program; nor did I they mention “angels” or “Stalinist conditions”. I would suggest you survey some of the retired steelworkers from J&L in Aliquippa and ask them what they heard of or experienced with the CCC and WPA programs.

It’s important to note that the Works Progress Administration was the key component in the Roosevelt Administration’s efforts to reduce unemployment. At its peak, it employed 3.3 million workers (equivalent to about 7 million with today’s US population). You write as though this is some utopian scheme or draconian impressments. It was neither. Details of the Acts, the structures, the records, the performance, the organization, etc. are readily available, completely transparent. And it worked!

Frankly, I think your suggested remedies for mass unemployment are, at best, na├»ve. Do you really think that “local construction firms”, “union apprenticeship programs”, and “community colleges” are the solution to a true unemployment rate of 17%? I take the problem seriously; these suggestions are not serious. The regulatory scheme that you suggest for “a public-private collaborative” is, for the most part, already in place. Do you really think that tinkering with the current Administration’s plan will produce jobs? Read the AP article.

Your dogged fixation on Mondragon cooperatives is noted, but they have nothing to do with creating jobs sufficient to address the problem. Yes, they offer new ownership relationships, but that is an aside to this question. You can’t responsibly tell the unemployed to wait for them any more than I can tell them to wait for socialism. Have you gotten around to responding to Louis Proyect’s ( thorough and devastating critique of the Mondragon project?

Carl, I know you’re wedded to market-based solutions and public-private enterprises, but get over your aversion to “public” solutions. They didn’t frighten the New Deal Democrats.


Carl Davidson said...

ZZ, I don't have a 'low opinion' of the WPA or the CCC. They built Raccoon State Park right down the road from me, and it provides wonderful social value for all to this day. As I said, it got my grandfather and other relatives through the Depression. He told me, though, that WPA stood for 'We Poke Along,' since no one wanted to work too fast, lest the work run out.

My Mom also told me stories of how, when the trains went by their home, all the kids would run out and yell to the 'Wobblies' to throw them chunks of coal for use in their stoves.

I think the New Deal programs were fine for what they were, temporary measures to put money in the pockets of working-class families in hard times.

But we need much more than that today, and I think you put entirely to much faith in the capitalist state, from the top level to the bottom, to set up a large number of new and thriving businesses, to hire and train millions of new workers gainfully, and do it apart from and in opposition to local businesses than are starving for purchase orders and new green upstarts begging for initial capital and orders to get off the ground.

Why turn these small, medium-sized and new business forces into enemies, when, with proper regulation, they could be allies?

Why you think local bureaucrats, who know little more than how to shuffle paper around and turn jobs into patronage, are going to do a terrific jobs at this is beyond me.

I'm not 'wedded' to market solutions. But I am committed to organize projects in such a way that they really do what they're supposed to do in an effective and efficient way, especially when spending the taxpayers money--and I do acknowledge that markets are going to exist for a long time, even under socialism, and we should make proper use of them.

As for Proyect, he's read the one outlyer book that trashes Mondragon because it's not yet the anarchist workers paradise, a criticism that's lighter than a feather. My suggestion is ask any number of MCC workers if they'd like to work at a regular firm, even at slightly higher pay. I don't think you'll find many takers.

So yes, study up on Mondragon. There's lots of lessons there, positive and negative. Get a complete picture. Best of all, go there and take a course on it at MCC university and visit the plants yourself. Then make an assessment based on social reality, rather than anarcho-Trotskyist polemics.

We'll be coming out with a longer CCDS paper shortly on what a socialist jobs program looks like for our country in our time. It includes some of what you're talking about, but also a lot more.

zoltan zigedy said...

Carl, I think there is a lot that we agree on, but there are some things that you get wrong. The New Deal programs were only temporary because the war "solved" the unemployment problem, not a solution that we should recommend. The programs were a toe hold on public ownership that might have opened other doors to a people's economy and reshaped the way people thought about public ownership. The history of the last thirty years is a process of discrediting, starving, and dismantling the remnants of these programs.

I know you are not suggesting that public workers are lazy or corrupted, but it bears pointing out that the shortcomings of the public sector that you mention must be laid at the doorstep of politicians and their cronies who "manage" the public sector.

Undeniably, they have little interest in maintaining or expanding the public sector since they get greater campaign contributions, graft, and influence from the private sector. That understanding explains the trend towards privatization, contracting out, and the growth of the public bond market, all moves that benefit political elites. "Efficiency" is just a cover for this process.

Of course this means that defending and expanding the public sector is a political fight, one for which few, even progressive, politicians have shown the stomach.

It is instructive to note that much heralded small business sector continues to shrink in the US. It now accounts for less than half of private sector employment. In Japan, it accounts for 67% and 70% in the EU. This only underlines the power and rapaciousness of monopoly capital in the US, a point that should resonate with small business people who face Walmart and Microsoft. I think that understanding should be our appeal to the small business sector.

With the dominance of our political system and economy by monopoly capital, should we not work for an anti-monopoly coalition independent of the corrupted two-party system?

Carl Davidson said...

ZZ says"

'Undeniably, they have little interest in maintaining or expanding the public sector since they get greater campaign contributions, graft, and influence from the private sector.'

Are you kidding? Both Mayor Daleys loved 'the public sector,' especially Streets and Sanitation, which was a huge part of the machine.

As for small business, yes, most of them fail. But in the 200 or so MCC coops over 50 years, only 2 or 3 have failed. Besides, one third of the Fortune 500 from 30 years ago are no longer there. They are replaced by what were small businesses, like the seven kids who launched Microsoft or the three that started Apple.

The MCC coops thrive because they're a three-in-one combination of factory, credit union and trade school. They're not dependent on outside forces for capital or skills and innovation.

We can do the same here with new green industrial manufacturing startups, combining unions, credit unions, community colleges and local government where needed. The feds can fund and oversee, but let local unionized workers and businesspeople take the lead, working together.

I'm for segmenting capital, but not between monopoly and non-monopoly, which is arbitrary, as is corporate and non-corporate. Better to draw the line between productive and speculative capital, then high road and load road.

Then form a popular front vs low-road speculative finance capital as the main immediate enemy, but with the working class and its allies at the core.