DOLLARS
&SENSE
REAL WORLD ECONOMICS
Dollars & Sense magazine explains the workings of
the U.S. and international economies and provides
left perspectives on current economic affairs. It is
edited and produced by a collective of economists,
journalists, and activists who are committed to social
justice and economic democracy.
the d&s collective
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William Whitham, Jeanne Winner
staff
editors Alejandro Reuss, Chris Sturr
business and circulation manager De’En Tarkpor
work study
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the d&s board
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Steven Pressman, Alejandro Reuss,
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associates
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Thad Williamson
design
layout Chris Sturr
front cover design Chris Sturr
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www.dollarsandsense.org
2  l  DOLLARS & SENSE  l  JANUARY/FEBRUARY 2017
< From the Editors
Arise!
I f you’ve just awakened from a Rip Van Winkle-like sleep, you should probably stay lying
down for a little while. You’re in for a shock.
A presidential candidate who slandered Mexican immigrants as criminals and rapists,
claimed a Mexican-American judge was inherently biased against him, called for a ban on
Muslims coming to the United States, called for compulsory registration of Muslims in the coun-
try, boasted of sexually assaulting women, insinuated that gun advocates might assassinate his
opponent, and pledged to abide by the election result “if I win” … was elected president.
Here’s another shocker. Who among us expected to hear the Republican nominee for
president—just four years after the party’s nominee was private-equity mogul Mitt
Romney—say the following, as Donald Trump did in a October 2016 speech? “The establish-
ment has trillions of dollars at stake in this election. For those who control the levers of power
in Washington and for the global special interests. They partner with these people who don’t
have your good in mind. ... It’s a global power structure that is responsible for the economic
decisions that have robbed our working class, stripped our country of its wealth and put that
money into the pockets of a handful of large corporations and political entities.”
The leading figures in the mainstream of the Democratic Party certainly did not expect an
adversary raging against corporate globalization (even with the anti-Semitic dog whistles au-
dible in Trump’s denunciations of the “global elite”). For decades, leading Democrats had
bought into the neoliberal economic agenda, steering away from policies that could get
them branded as “anti-business.” They derided criticism from the left as juvenile and quixotic,
not dreaming that they would be outflanked on the right by a populism like Trump’s.
The analysis by liberal and progressive commentators since the election has focused
largely on why Trump won and what it says about the country. We have to remember, how-
ever, that election results are not revelations of the national soul—especially not under the
United States’ non-majoritarian presidential election system. The overt racism, nativism, and
misogyny of Trump, his allies, and supporters are important facts about the United States
today, but they are not the singular truth about the country or its people.
Yet there is nothing to be gained by minimizing what Trump has conjured. He tapped into
widespread sentiments of grievance in a manner typical of right-wing populists: simultane-
ously directing his supporters’ ire at (some of ) the wealthy and powerful and (some of ) the
poor and marginalized—blaming both, jointly, for the ruin of the country. The people Trump
speaks to and claims to speak for are overwhelmingly white, predominantly male, and the
grievances to which he gives voice are not simply those of workers and poor people in gen-
eral. They are, rather, the particular grievances of those who recoil at gradually sinking into a
mass they see as beneath them.
The articles in this issue attempt to dig deeply into both what has gotten us to this point,
and what are possible ways forward.
Our cover article for the issue, by political scientist Sasha Breger Bush, argues that what
we’re seeing is not the end of neoliberalism, but rather its transformation, from globalized
neoliberalism into “national neoliberalism,” and its culmination: a corporate capture of gov-
ernment now more complete than ever.
Steve Pressman and Gerald Friedman both add depth to our understanding of Trump and
what he represents. Pressman explains Trump in light of the squeeze on “middle class” in-
comes and the rise of economic inequality. Friedman adds to his previous analysis of
American nativism (the November/December 2016 cover story) an “Economy in Numbers” on
U.S. immigration in the current era.
David Bacon and Frank Ackerman, meanwhile, turn from retrospect to prospect. What
does the coming period hold in store? Bacon focuses on immigration policy, noting the con-
straints under which a Trump administration will operate. Even in an era of increased border
enforcement and deportations nationwide, Bacon argues, immigration policy will continue
to be driven by employers’ need for a cheap and controllable labor force.
Meanwhile, Ackerman looks at the prospect for meaningful climate action, even with the
Denier-in-Chief in the White House. He argues for a consortium of U.S. state and local gov-
ernments—a “Green-State America”—committing to meet the emissions-reduction goals set
down in the Paris climate agreement. “And this could be a model for other issues,” he con-
cludes. “Green-State America might also want to support international treaties on the rights
of women, the treatment of migrants, the rights of indigenous peoples, and more.”
To be sure, there will be many struggles ahead. Time to arise. D&S
 DOLLARS
&SENSE
REAL WORLD ECONOMICS

NUMBER 328 | JANUARY/FEBRUARY 2017

CON TENT S

page 15 page 30
TH E R E GUL AR S

4 the short run

6 active culture
FEATUR ES In Memoriam: John Maher

11 Trump and National Neoliberalism 7 comment
Trump’s ascendance means the end of globalism—but not of Green-State Climate Agreement
neoliberalism.
SASHA BREGER BUSH
8 making sense
Making America Irate Again
15 What Trump Can and Can’t Do to Immigrants
Understanding how the economic system Trump and his appointees
36 economy in numbers
will operate in constrains immigration policy.
U.S. Immigration in Perspective
D AV I D B A C O N

37 in review
21 The Global Economy Today
James K. Galbraith, Inequality: What
How we got here and where we need to go.
Everyone Needs to Know
A RT H U R M ACE WA N

30 Hopsopoly 38 ask dr. dollar

Global beer mergers reach a new level. How Does Subcontracting Affect
ROB LARSON Communities?

JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  3

< The Short Run
By Alejandro Reuss, Zoe Sherman, Chris Sturr, and Jeanne Winner
Maximum Wage
The Portland, Ore., city council has
decided to try to tackle income inequal-
ity—by focusing on the top end. Under
new rules established by the city, the
New York Times reported in December,
any Portland-headquartered company
that pays its CEO more than 100 times
as much as the median employee will
have to pay a 10% surcharge on its city
business taxes. If the CEO-to-median
pay ratio is more than 250, the sur-
charge will be 25%.
The highest-paid executives in the
U.S. have gotten hefty raises in the last
few years. In 2010, the median com-
pensation of the top 200 executives at
publicly traded companies was $9.6
million. By 2015, it had more than dou-
bled to $19.3 million. By contrast, the
federal minimum wage in 2010 was
$7.25 per hour. In 2015, the federal
minimum wage was … wait for it …
$7.25 per hour. (Oregon raised the
4  l  DOLLARS & SENSE  l JANUARY/FEBRUARY 2017
state minimum wage to $9.75 in sum-
mer 2016.) The money that doubled
the pay of those 200 highest paid ex-
ecutives would have been enough to
double the incomes of over 125,000
workers employed full time at the fed-
eral minimum wage.
No one is better versed in the data
on contemporary income inequality
than Thomas Piketty, author of
Capital in the 21st Century. Asked to
comment on the Portland measure,
he suggested, “[T]he threshold ‘100
times’ should be substantially low-
ered.” Hear, hear. —ZS
Hard at Work
Last December, a young fast food res-
taurant cashier was singled out on CBS
News for his “inspiring” work ethic
(“Why This Inspiring Teen Went Right
Back to Work after Car Accident”). After
an auto accident, Jakeem Tyler’s neck
was in a brace and his arm was in a
sling, but he was back at work, single-
handedly counting out change for
customers at a Chick-fil-A in Avon,
Ind. (To his credit, Mr. Tyler was raising
money for a homeless charity.)
The story, however, implied that
most U.S. workers take time off for the
slightest of reasons, quoting a custom-
er as thinking, “We sneeze too hard
and decide to call in [sick], but he’s
workin’ like nothing’s wrong.” But ac-
cording to surveys done by Family
Values at Work and NSF International,
close to 40% of U.S. workers have no
right to a paid sick day, and 37% of
workers have said they can’t afford to
take time off from work. If they do take
time off, what then? Almost 25% of
employees have reported they lost
their jobs or were told they would be
or could be fired for staying home.
The United States is one of the few
industrialized countries where it is not
national policy to guarantee workers
paid sick days. Not to take anything
away from Mr. Tyler, but that kind of
change would be really inspiring. —JW
All That Glitters
A New York restaurant has just made
the news for offering a $2,000 pizza
topped with, among other things, gold
leaf. The pie, offered by Industry
Kitchen in downtown Manhattan, also
includes “white stilton cheese shipped
from England, foie gras and truffles
from France and Osetra caviar gathered
from the Caspian Sea,” according to the
New York Daily News.
Commenters on social media have
derided the mix of ingredients. One said
the dish was “like a first year culinary
student stole all the expensive ingredi-
ents and put them in a pizza.” But what
about the gold? Gold leaf is very thin,
has no nutritional value, and has no
flavor. Of course, it is shiny and so may
add to the visual appeal of the dish, as
well as to the conspicuous consump-
tion involved in ordering a $2,000 pizza.
Edible gold leaf looks and sounds
rich, but it really isn’t all that expensive.
You can get a pack of 25 three-and-
three-eighths-inch squares (total area of
almost 285 square inches) for less than
$45. An entire 16-inch pizza is just over
200 square inches. So you could blanket
a large pie in gold for around $30.
It’s not clear from the Daily News arti-
cle just how much the rest of the ingre-
dients in Industry Kitchen’s luxury pizza
cost, but the headline-grabbing applica-
tion of gold makes us think that the
chefs are onto something. The restaurant
is just a couple of blocks away from Wall
Street. Maybe all you need to do is flash
a little glitter in front of the lunchtime
crowd, and they and their money, as the
proverb has it, are soon parted. —AR
Up Against the NYT
In early December, Donald Trump crit-
icized Chuck Jones, president of
United Steelworkers Local 1999,
which represents the workers at the
Carrier plant where Trump claimed to
have saved jobs.
<Two Cents
Un(der)employment
To the editors:
I love your magazine and I have read
Jeremy Brecher’s book Strike!—excel-
lent. However, Mr. Brecher (“Jobs,
It may have been surprising that the
New York Times ran a front-page article
about the tweet. It was definitely appall-
ing that the first paragraph of the piece
referred to Jones as a “union boss,” as
did the headline in the online version
(“Trump as Cyberbully in Chief? Twitter
Attack on Union Boss Draws Fire”).
I wrote to the Times’ public editor
to complain:
Why did the author use the term
“union boss” rather than “union lead-
er,”“labor leader,” or “president of the
United Steel Workers Local 1999”?
The term “union boss” is a staple of
anti-union rhetoric, just one step up
from “union thug.” To use such a term
in the context of an article about
President-elect Trump’s bashing of a
union leader is perverse.
My letter was published online in the
Dec. 16 “Friday Mailbag,” saying that
some readers were “flummoxed” by
the article’s use of the term “union
boss.” The only response from the
public editor’s office: “Happy week-
end, workers of the world.”
Justice, and the Clean-Energy Future,”
September/October 2016) commits
the same mistake I see over and over
again by economists of all stripes, as
well as investigative reporters. When it
comes to discussing the actual versus
the statistical unemployment rate,
these various authors omit several fac-
tors: many are underemployed, and
many are able only to find part time
work (a job should be considered a
job only when it is full time mini-
mum wage at least). employment Rate” pointed out the
Now, I expect these errors/ommis-
sions from the mainstream media and
right-wingers, but since your magazine
is so superior and strives for excellence,
could you consider these points the
next time anyone writes for you on the
subject of unemployment/jobs?
—Karen Holden, Duluth, Minn.
JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  5
What made up for the snarky, red-
baiting response from the Times was
the flood of great online comments
supporting my criticism. A sampling:
“I am grateful to be working in a
union workplace every day and
embarrassed that this newspaper is
so openly siding with the union-
bashing world.”
“You treat someone standing up
for union members with a sleazy
reference to communism? Shame
on you!”
“I notice that the ONLY leaders of
organizations that are routinely
referred to as ‘boss’ are labor union
leaders, who are generally elected
officials. … Meanwhile, work super-
visors and heads of big companies
… are only referred to in print by
more respectful terms. It’s as if
getting elected to office makes you
a ‘boss,’ but not getting elected to a
leadership position exempts you
from the term.”
See the D&S blog (dollarsandsense.org)
or the Dec. 16 “Friday Mailbag” for more
examples of labor solidarity. —CS D&S
$.02
The editors respond:
Thank you for your supportive com-
ments about Dollars & Sense.
The article briefly mentioned the pro-
jected effects of “clean energy” programs
in creating jobs and reducing unemploy-
ment, but didn’t delve into how the offi-
cial unemployment rate is calculated.
D&S was a pioneer in criticizing the
“official” unemployment rate from the
Bureau of Labor Statistics (BLS). Over 20
years ago, our article “The Real Un(der)
failure to count “discouraged workers”
(those who want jobs but have stopped
looking) or “involuntary part-time work-
ers” (those who want full-time work but
can only find part-time jobs). Today at
least some other media outlets follow
us in reporting the BLS’s broader mea-
sures of unemployment. D&S
< Active Culture

In Memoriam: John Maher

An Activist Life
John Maher was both a fixture on the Cambridge activist scene for many years and an outstanding supporter of Dollars & Sense.
All of us here were greatly saddened by news of his passing in early November 2016. The tribute here, jointly written by friends and
family members, can only begin to give those who did not know him a sense of his personality, commitment, and life—one
certainly well lived. It is especially appropriate that we should pay tribute to John in this issue, which marks the beginning of our
“Costs of Empire” project. The idea for the project originated in discussions between John and members of the D&S collective. As for
many things, it would not exist were it not for him. —Eds.

J ohn Maher was a life-long activist

and organizer dedicated to peace,
justice, and the environment at home
and abroad.  Surrounded by his family,
he died of lung cancer Wednesday,
November 3. John was 78 years old.
Born in 1938 and raised in Houston,
Tex., John early developed a strong
moral compass and deep concerns
about social and economic
injustice.  These followed him up north
when he moved to Cambridge in 1956
to attend Harvard University, where he
also earned a masters degree in
Political Science.  Robert Zevin, his
friend and colleague of 54 years, said
recently, “John was an explorer with an
adventurous and open mind and a
deep concern for the oppressed and
disadvantaged.”
His convictions about injustice
motivated both his involvement in
the left-wing student movement of
the 1960s and his work for the
progressive H. Stuart Hughes’
campaign for U.S. Senate that
focused on nuclear disarmament. He
eventually engaged in a range of
different causes and organizations
including Students for a Democratic
Society and the Boston Draft
Resistance Group. He also worked in
a Cambridge factory (where he
organized workers), taught in Boston
and Somerville public schools, and
was active in Oxfam America,
becoming Director of Education and
Outreach in 1982.  He stepped down as director in
In the late 1980s, John started
working for Neighbor to Neighbor, a
national network challenging U.S.
policy in Central America.  In the early
1990s, he founded the Massachusetts
chapter, eventually becoming its
executive director, and turned its focus
to domestic issues, including single
payer health care.  Over time he
helped develop the Neighbor to
Credit: Massachusetts Peace Action
Neighbor Massachusetts organizing
model, still in place today: working
people advocating for their own
interests, from the grassroots up,
integrating issue-based and electoral
advocacy.  “John saw that the real fight
was at the local and state levels,”
according to Elena Letona, the current
executive director.  “He understood the
meaning of grassroots democracy.”  Policy Center and Massachusetts
2001, but continued as a volunteer,
going door-to-door with a clipboard
right up until his illness, and
continued as an adviser to the
organization until he died.  That
same year he was awarded a lifetime
achievement award from the
Democratic Socialists of America for
“lifelong commitment to the struggle
for social and economic justice.” 
During those last years he also wrote a
book, Learning from the Sixties, setting
down the story of his lifetime of social
engagement and reflecting on the
course of his activism over that fifty-
year span. 
He was an inspiration to a new
generation of young organizers. As
Carl Nilsson, a young organizer who
worked with John, wrote to him in his
final days, “You made me feel like the
work we do as organizers matters …
You taught me about laughter …
about how we need to laugh and
enjoy one another to sustain
ourselves as organizers.”  Tony Mack,
another young colleague, wrote, “You
taught me what it meant to run an
organization that put your beliefs
about how the world should be above
ego and the desire for power.” 
An active philanthropist in
progressive causes, John worked
closely with the New World
Foundation to support organizations
that build a base in the community,
develop working class leaders,
and strategically influence public
policy.  He sat on the boards of
the Massachusetts Budget and
Peace Action.
“When you met John he had a sweet
gentlemanly way,” his friend Janet
Moses recalls,  “but beneath that he was
a relentless scrappy fighter.” D&S

6  l  DOLLARS & SENSE  l JANUARY/FEBRUARY 2017

< Comment
Green-State Climate Agreement
How to keep America’s promises and protect the climate despite Trump.
BY FRANK ACKERMAN
W hen Donald Trump assumes the
presidency, he will make climate
denial into federal policy, renouncing
the Clean Power Plan and climate tar-
gets in general. This will damage the
fragile global momentum toward
emissions reduction established in the
2015 Paris Agreement. If the United
States refuses to cooperate, why
should much poorer, reluctant partici-
pants such as India do anything to cut
back on carbon emissions?
But among many things that the
dreadful 2016 election did not repre-
sent, it was not a statement of disbelief
about climate change. Large parts of the
country recognize the validity of mod-
ern science, understand the urgency of
the problem, and remain committed to
ambitious carbon-reduction targets.
Suppose that many of our state
governments got together and told
the rest of the world about our con-
tinuing commitment to action: we are
still abiding by the U.S. pledges under
the Paris Agreement, or even planning
to do more. Not just NGO reports, blog
posts, or individual signatures, but an
official, coordinated announcement
from government bodies with decision-
making power over emissions—pri-
marily states, perhaps joined by major
city governments and Indian tribes.
Initial steps in this direction have
already been taken. California began
exploring a state endorsement of the
Paris Agreement within days of the
election. The Pacific Coast collabora-
tive—California, Oregon, Washington,
and British Columbia—has reaffirmed
its regional commitment to the Paris
Agreement and climate protection in
general. This initiative would be more
powerful, both domestically and in-
ternationally, if it extended beyond
the Left Coast to include states across
the country.
The participating states could fall on
either side of the partisan divide, but
one side is clearly more likely to sign on
at present. Think of Green-State
America, initially, as the states that vot-
ed for Hillary Clinton, and have either a
Democratic governor or both houses of
the legislature controlled by Democrats.
(As it happens, that’s all the states that
voted for Clinton except Maine and New
Hampshire.) Those 18 states plus the
District of Columbia account for 30% of
U.S. greenhouse gas emissions. The gov-
ernor or the legislative leadership of
each state could sign the Green-State
Climate Agreement, pledging their state
to continued dialogue, cooperation, and
rapid reduction in emissions. City may-
ors and tribal leaders could do the same
for their jurisdictions.
Green-State America is the world’s
fifth-largest emitter, behind only China,
the rest of the United States, India, and
Russia. We emit more greenhouse gases
than Japan, Brazil, or Germany. If we
were a separate country, our participa-
tion would be essential to international
climate agreements. Even though we
are states rather than a nation, we
might be able to help reduce the inter-
national damage, by letting the world
know that much of America still cares
about the global climate.
Why should we address global plans
at the state level? The United States is a
federation of states, governed by archa-
ic 18th-century interstate agreements
such as the Electoral College. (If we
were a one-person, one-vote democra-
cy, Hillary Clinton would be our next
president, just as Al Gore would have
been 16 years ago.) The expected as-
sault on environmental and other regu-
lations is likely to include efforts to give
more power back to the states, reduc-
ing the role of federal rule-making in
favor of state-level pollution control. On
the other hand, there may be federal
attempts to force states to go along
JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  7
$
with the new (lack of) regulations.
State attorneys general are already pre-
paring to challenge anticipated attacks
on existing standards.
State-level international climate
policy is just one step further down
that road. Of course, states cannot sign
legally binding international treaties.
But statements of intent to cooperate
would go a long way toward maintain-
ing the global momentum toward
emission reduction.
Green-State America is less carbon-
intensive than the rest of the country;
with 30% of national emissions, we
have 43% of the U.S. population and
49% of GDP. Our emissions amount to
twelve tons of CO2-equivalent per capi-
ta, compared to 21 tons in other states.
There is more to be done to control car-
bon emissions in America—but it will
be easy for other states to join us, one
at a time, if they choose to do so.
And this could be a model for other
issues. Green-State America might also
want to support international treaties
on the rights of women, the treatment
of migrants, the rights of indigenous
peoples, and more.
For now, it’s time to act to protect
the climate. It’s time to tell the world
that Green-State America keeps its
promises, because climate change
trumps the election returns. D&S
F R A N K A C K E R M A N is principal
economist at Synapse Energy Economics
in Cambridge, Mass., and a Dollars &
Sense associate.
S O U R C E S : “If Trump quits, California could
apply to join UN climate talks,” Climate Change
News, Nov. 17, 2016 (climatechangenews.com);
Pacific Coast Collaborative, “West Coast Leaders’
Climate Change ‘Resolve Is Strong’ as COP22
Concludes,” Nov. 18, 2016 (pacificcoastcollaborative.
org); Vivian Yee, “To Combat Trump, Democrats
Ready a G.O.P. Tactic: Lawsuits,” New York Times, Dec.
14, 2016; Lauren Sommer, “If Trump Rejects Paris
Climate Treaty, Could California Sign On?” KQED
Science, Dec. 12, 2016 (kqed.org).
< Making Sense
Making
America
Irate Again
Donald Trump and the Middle Class
BY STEVEN PRESSMAN
T he main lessons from November’s
presidential election concern in-
come inequality.
Inequality in the United States has
been rising for decades. Economist
Thomas Piketty calculates that be-
tween 1980 and today the share of
total income going to the top 1% of
earners rose from 10% to 20%, leaving
relatively less for everyone else.
Inequality also slows economic
growth, since much income going to
the wealthy does not get spent. This
has led to lower incomes for many
American families and has decimated
the middle class.
Based on my calculations, the size
of the U.S. middle class fell from 59% in
1980 to 50% in 2013. My estimate
takes a four-person household with
income between $54,281 and
$162,003 (two-thirds to twice the me-
dian income for a family of four) as
being middle class. When surveyed,
most people cite this range as neces-
sary for a family of four to have a
middle-class existence in their commu-
nity, and this range is standard in empir-
8  l  DOLLARS & SENSE  l JANUARY/FEBRUARY 2017
Supporters of Donald Trump at a campaign rally at
Crowne Plaza Hotel, Warwick, R.I., April 25, 2016.
Credit: © Ellen Shub (ellenshub.photoshelter.com).
ical work estimating the size of the mid-
dle class. Adjustments are then made for
households of different sizes. The size of
the middle class is the percentage of all
families with incomes falling within the
range for their family size.
Things are even worse than this
nine-percentage-point decline in the
size of the middle class would indicate.
Middle-income households have been
working harder (more hours per per-
son and more workers per household)
to stay afloat, and there has been a
sharp rise in household debt. This
means that income must be used to
repay debt, with interest, rather than
support a middle-class lifestyle. In a
paper published in the Journal of
Economic Issues in 2011, economist
Robert Scott and I calculated that, tak-
ing into account just the interest that
must be paid on non-mortgage house-
hold debt (ignoring the fact that this
debt had to be repaid), the size of the
middle class fell by two percentage
points between the early 1980s (when
few families had much debt other than
mortgages) and 2006.
These numbers help make clear
that the American Dream of a middle-
class life is vanishing. People feel this
and know this, and they believe gov-
ernment has contributed to their prob-
lems. In anger and in frustration, they
have lashed out the only way they
know how—at the voting booth.
Donald Trump’s political genius was
to tap into this rage and into the prevail-
ing fears that the downward spiral
would continue. He mainly blamed
Washington politicians, free trade, and
immigration. Appealing to tens of mil-
lions of white working-class families who
felt left behind in 21st century America,
he promised a return to the 1950s and
1960s, when incomes were rising and
the future appeared bright. His main pol-
icy solutions were restricting immigra-
tion (“the wall”), protectionism (another
wall), and infrastructure spending to
create jobs (building a wall).
Hillary Clinton lost the election, in
part, because she failed to address the
issues that have created the Trump
phenomenon. At a minimum, she
failed to develop a simple message
about middle-class jobs; at worst, she
was viewed as a champion of global-
ization, financialization, and the mon-
ied interests that Trump voters reject-
ed and blamed for their economic
problems. Clinton rejected future in-
ternational economic agreements, like
the Trans-Pacific Partnership (TPP), but
said nothing about the old deals like
NAFTA. More positively, she talked
about raising the minimum wage, pro-
viding free higher education, and im-
proving Obamacare. These are impor-
tant, but they don’t solve the problem
of downward mobility. A $15/hour
minimum wage does little good if
there are few full-time jobs. Free col-
lege education does little good if it
doesn’t lead to good jobs. And while
Obamacare has provided some securi-
ty to American families, it hasn’t gener-
ated jobs or higher incomes, and was
successfully attacked as contributing
to unaffordable premiums.
Instead of attacking Trump’s econom-
ic plan, Clinton went after the low-
hanging fruit—Trump’s personality and
behavior. Nonetheless, Trumponomics is
badly flawed. Its main policy prescrip-
tions—deregulation and large tax cuts
for the wealthy (making traditional
Republicans happy), protectionism and
mass deportations (making his down-
wardly mobile supporters happy), and
repealing Obamacare (making both
groups happy)—would further decimate
the U.S. middle class. Deregulation and
large tax cuts for the wealthy have been
tried before. They provide a temporary
economic boost, but they also give firms
more incentives and more power to raise
prices and cut wages. Workers get
pushed harder, but do not gain from
their extra effort. In fact, the average
worker has seen little of the fruit from
their greater productivity since the be-
ginning of the Reagan era. Almost all
gains have gone to the top 1%.
Tax cuts will require more govern-
ment borrowing and higher interest
rates—to the detriment of heavily in-
debted American households.
Moreover, the additional income re-
ceived by the very rich must be put
somewhere. The money will likely gen-
erate another financial bubble, one aid-
ed and abetted by a financial sector that
has been deregulated (as major provi-
sions of Dodd-Frank get overturned).
Some revenue for large tax cuts can
be found by letting corporations re-
turn profits earned abroad to the
United States and taxing them at low
rates. Trump has proposed a “repatria-
tion rate” of 10%. But once this tax hol-
The American Dream
The City of London, the UK’s financial center,job” only when
of a middle-class life
Credit: Flickr user kloniwotski, via Wikimedia Commons, Creative Commons
is vanishing.
Attribution 2.0 Generic People
license.
feel this and know
this, and they believe
government has
contributed to their
problems. Donald
Trump’s political genius
was to tap into this rage.
iday ends, tax cuts will be paid for in
part by severely slashing social spend-
ing that benefits middle- and low-
income households. Cuts in Medicare
and Social Security, already high on
the Republican congressional agenda,
raise the prospect of lower living stan-
dards for the elderly, who will be
forced to take jobs, exerting further
downward pressure on wages.
Although “the wall” is a false prom-
ise, it is a good metaphor for the pro-
tectionism likely under President
Trump. This may save some jobs, but it
will also push up prices for everyone.
Even worse, protectionism rests on
a flawed understanding of economics.
Trump had it right that the U.S. trade
deficit costs us jobs and incomes; it
hurts Americans whenever produc-
tion and employment go abroad.
JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  9
Although protectionism may save
some manufacturing jobs, these may
not be good jobs. There is nothing
special about the jobs that left for
China and Mexico; they do not re-
quire employers to pay decent wages
and benefits. Those firms, now pro-
ducing in China and Mexico, are not
paying workers well there.
Also, think of the miners who sup-
ported Trump and his call for a turn
back towards coal as an energy source.
Coal mining used to be an awful job—
with low pay and extremely dangerous
working conditions. It became a “good
December 2013.the miners organized,
demanded better wages and working
conditions, and were supported by
their government. The result was im-
proved working conditions as well as a
middle-class paycheck. Something
similar can take place for the U.S. ser-
vice sector today—if we had a govern-
ment sustaining workers rather than
building walls.
After taking office, President Obama
saw health care as a way to help house-
holds priced out of health insurance
markets. It rested on three pillars—a
mandate to purchase insurance, gov-
ernment subsidies to low-income
households, and requirements about
what insurance companies had to cover
and what they could not do. To the det-
riment of Democrats, there were sharp
increases in Obamacare premiums right
before the 2016 presidential election.
And, as noted earlier, the lack of eco-
nomic gains made the government
insurance mandate less affordable.
Repealing Obamacare will help
many families—mainly the young and
healthy, who will take a chance and
not buy health insurance. However, it
will hurt families needing health insur-
ance because it will again make health
insurance unaffordable and ineffective
(due to limits on benefits and a failure
to cover “pre-existing conditions” that
existed before Obamacare and that
Obamacare prohibited). We are bound
to hear many news stories about peo-
 < Comment
It is unlikely Trump will
do anything to rebuild
the U.S. middle class
or help the people
who voted him into
power. Massive policy
failure by the Trump
administration and
Republicans in power
will open the door for
a progressive populist
agenda to help rebuild
the middle class.
››
A supporter of
Donald Trump at a
campaign rally at
Crowne Plaza
Hotel, Warwick,
R.I., April 25, 2016.
Credit:
© Ellen Shub
(ellenshub.
photoshelter.com).
10  l  DOLLARS & SENSE  l  JANUARY/FEBRUARY 2017
ple being denied care and dying as a
result of the repeal of Obamacare.
Trump can Tweet that these are lies,
but when many people know some-
one that this has happened to, there
will be substantial disgruntlement and
a longing for the good old days when
we had Obamacare to kick around.
The big problem is that there is
nothing in what Trump has proposed
so far, and nothing in his own history
as a businessman, that makes it likely
he will do anything to rebuild the U.S.
middle class or help the people who
voted him into power. It is even less
likely that Republicans in Congress
would support such programs.
Massive policy failure will open the
door for a progressive populist agenda
to help rebuild the middle class. Here
are some essential ingredients of such
an agenda.
First and foremost, there needs to
be a focus on creating good jobs and
aiding workers. Rather than expensive
higher education, Germany maintains
its large middle class through appren-
ticeship programs that ready their
workers for jobs in the German econo-
my. High-paying, public-sector infra-
structure jobs should be an automatic
response to economic stagnation or
slow growth. Supporting and strength-
ening unions is also crucial in attempt-
ing to revive the middle class; after all,
plentiful union jobs are what helped
build the U.S. middle class in the first
place. They make the difference be-
tween good jobs and bad jobs.
Second, we need stronger pro-
grams of unemployment insurance,
old-age insurance, and health insur-
ance to protect workers during times
of economic recession or slow growth.
The United States has the weakest
such programs in the developed
world, in addition to having the small-
est middle class among the major de-
veloped nations. Protecting workers
from risk is one of the things that gov-
ernment is supposed to do and what
such programs were designed to do.
Third, the United States lacks basic
programs that exist in advanced econo-
mies throughout the world and that
help sustain the middle class. To take
just one example, paid parental leave
could be established at little cost by
delaying the receipt of Social Security
benefits for a few weeks in exchange for
providing paid leave for parents around
the birth of a child. California and New
Jersey have established paid leave pro-
grams through their state unemploy-
ment insurance programs; these work
well and are highly successful.
Finally, the U.S. tax system is rid-
dled with provisions that mainly ben-
efit the wealthy. Political battles arise
whenever there is talk of eliminating
these “loopholes.” A better solution
would be to convert them all into
fixed-percent refundable tax credits
so that the benefits are not as skewed
toward high-income households. For
example, when rich homeowners de-
duct mortgage interest, they get
back a larger percentage of their ex-
penditures because they are in high-
er tax brackets. This makes no eco-
nomic sense, since middle-class
households need more help than
wealthy families. It also make no ethi-
cal sense. At the very least, benefits
from a refundable credits system
should be apportioned equally, with
everyone receiving close to 20% of
what they spend. According to the
Congressional Budget Office, such a
change would be revenue-neutral.
Donald Trump has understood the
fear and anger rising in America, but his
policies will not help his enthusiastic
supporters. To the contrary, Trump’s
supporters will fall farther behind
economically under President Trump.
Instead of making America great again,
Trump’s policies will harm his support-
ers, making them irate again. D&S
S T E V E N P R E S S M A N teaches
economics at Colorado State University
and is the author of 50 Major Economists
(Routledge, 2011).
BY SASHA BREGER BUSH

T H E ELECT IO N O F D O N AL D TRU MP P ORT E N D S T HE C OMP LE T I ON OF

the U.S. government’s capture by wealthy corporate interests. Trump’s election is widely seen in terms
of a dispossessed and disenfranchised white, male working class, unsatisfied with neoliberal globalization
and the insecurity and hardship it has unleashed, particularly across regions of the United States that were
formerly manufacturing powerhouses (like the Rust Belt states of Pennsylvania, Michigan, Ohio, and
Wisconsin, four states believed to have cost Hillary Clinton the election). While there is much truth to this
perspective and substantial empirical evidence to support it, it would be a mistake to see Trump’s victory
wholly in these terms.
This election appears to be a key stage in the ongoing process of American democratic disintegration,
though in my opinion Trump’s election does not signal the beginning of a rapid descent into European-
style fascism. Instead, the merger of state and corporate interests is proceeding along an already-established
trajectory. American democracy has been under attack from large and wealthy corporate interests for a long
time, with this process accelerating and gaining strength over the period of neoliberal globalization (roughly
the early 1970s to the present). This time period is associated with the rise of powerful multinational cor-
porations with economic and political might that rivals that of many national governments.
I am persuaded by the argument that the U.S. political system is not democratic at all, but rather an
“inverted totalitarian” system. Political commentator Chris Hedges notes: “Inverted totalitarianism is dif-
ferent from classical forms of totalitarianism. It does not find its expression in a demagogue or charismatic
leader but in the faceless anonymity of the corporate state.” Citing the American political theorist Sheldon
Wolin, Hedges argues that our inverted totalitarian system is one that retains the trappings of a democratic
system—e.g. it retains the appearance of loyalty to “the Constitution, civil liberties, freedom of the press,
[and] the independence of the judiciary”—all the while undermining the capacity of citizens to substan-
tively participate and exert power over the system.
In my view, what Trump’s election has accomplished is an unmasking of the corporate state. Trump gives
inverted totalitarianism a persona and a face, and perhaps marks the beginning of a transformation from
inverted totalitarianism to totalitarianism proper. By this I mean that I think we are entering a period in which
our political system will come to look more obviously totalitarian, with ever fewer efforts made to conceal its
true nature and with the demagoguery that we typically associate with this form of politics. In spite of this, it
makes no sense to me to call the system toward which we are heading (that is, if we do not stand up and resist
with all our might right this second) “fascism” or to make too close comparisons to the Nazis. The European
fascists put their faith in the power of the state to remake society. I do not see this on the horizon for the ››
JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  11
 N AT I O N A L N E O L I B E R A L I S M
liberal-capitalist U.S., where feelings of hatred and
distrust towards an oversized federal government
helped to elect Trump. Whatever totalitarian night-
mare is on our horizon, it will be uniquely American:
a kind of “corporate” or “market-based” totalitarian-
ism that is unique in world history. With its orienta-
tion towards the needs of the marketplace and big
business, it will resemble in many ways the system
that we’ve been living under for decades. If the pre-
Trump system of inverted totalitarianism solidified
in the context of global neoliberalism, the period of
corporate totalitarianism that we are entering now
seems likely to be one characterized by what I call
“national neoliberalism.”
Trump’s Election Doesn’t
Mean the End of Neoliberalism
Trump’s election represents a triumph of neoliberal
thinking and values. Perhaps most importantly, we
should all keep in mind the fact that Americans just
Donald Trump at a
campaign rally at elected a businessman to the presidency. In spite of
Crowne Plaza his Wall Street background and billionaire status,
Hotel, Warwick, Trump successfully cast himself as the “anti-estab-
R.I., April 25, 2016.
lishment” candidate. This configuration—in which
Credit: a top-one-percenter real estate tycoon is accepted as a
© Ellen Shub political “outsider”—is a hallmark of neoliberal
(http://ellenshub.
photoshelter.com).
thinking. The fundamental opposition between
market and government is a central dichotomy in the
››
neoliberal narrative. In electing Trump, American
12  l  DOLLARS & SENSE  l  JANUARY/FEBRUARY 2017
voters are reproducing this narrative, creating an ide-
ological cover for the closer connections between
business and the state that are in store moving for-
ward. (Indeed, Trump is already using the apparatus
of the U.S. federal government to promote his own
business interests.) As states and markets further fuse
in coming years, this representation of Trump and
his administration—as being anti-government—will
help immunize his administration from accusations
of too-cozy relationships with big business. Trump’s
promises to “drain the swamp” by imposing
Congressional term limits and constraints on lobby-
ing activities by former political officials will also
help to hide this relationship. (Has anyone else
noticed that Trump only addresses half of the “revolv-
ing door,” i.e., he plans to limit the lobbying of for-
mer politicians, but not the political roles of
businesspeople?)
Trump’s Contract with the American Voter, his
plan for the first 100 days in office, discusses poli-
cies and programs many of which are consistent
with neoliberal thinking. (I interpret the term
“neoliberalism” to emphasize at its core the impor-
tance of private property rights, market-based
social organization, and the dangers of government
intervention in the economy.) Trump’s plan redi-
rects the activities of the U.S. government along
the lines touted by neoliberal “market fundamen-
talists” like Milton Friedman, who advocate limit-
ing government’s role to market-supportive func-
tions like national defense (defense stocks are doing
very well since the election)
and domestic law and order
(Trump’s proposals have a lot
to do with altering immigra-
tion policy to “restore secu-
rity”). Trump also plans to use
government monies to revital-
ize physical infrastructure and
create jobs. Other government
functions, for example, health
care provision and education as
well as protecting the environ-
ment and public lands, are
open for privatization and
defunding in Trump’s agenda.
Under Trump, the scope of
federal government activities
will narrow, likely to infra-
structure, national defense,
and domestic policing and
surveillance, even if overall government spending
increases (as bond markets are predicting).
Trump also seems content to take neoliberal
advice in regard to business regulation (less is best)
and the role of the private sector in regulating itself
(industry insiders understand regulatory needs bet-
ter than public officials). Trump’s plan for the first
100 days specifies “a requirement that for every new
federal regulation, two existing regulations must be
eliminated.” As of the time of this writing, his selec-
tion of cabinet appointees illustrate a broad willing-
ness to appoint businesspeople to government posts.
As of mid-December 2016, a Goldman Sachs vet-
eran, Steven Mnuchin, has been appointed Secretary
of the Treasury; billionaire investor Wilbur Ross,
Secretary of Commerce; fossil-fuel-industry sup-
porter and Oklahoma Attorney General Scott
Pruitt, EPA administrator; fast-food mogul Andrew
Puzder, Secretary of Labor; Exxon-Mobil CEO Rex
Tillerson, Secretary of State. Trump’s business coun-
cil is staffed by the CEOs of major U.S. corpora-
tions including JP Morgan Chase, IBM, and
General Motors. To be fair, the “revolving door”
between government and industry has been perpet-
uated by many of Trump’s predecessors, with Trump
poised to continue the tradition. But this is not to
say that neoliberalism will continue going in a “busi-
ness as usual” fashion. The world is about to get
much more dangerous, and this has serious implica-
tions for patterns of global trade and investment.
Trump’s Election Does
Mean the End of Globalism
The nationalism, xenophobia, isolationism, and
paranoia of Donald Trump are about to replace the
significantly more cosmopolitan outlook of his post-
WWII predecessors. While Trump is decidedly pro-
business and pro-market, he most certainly does not
see himself as a global citizen. Nor does he intend to
maintain the United States’ extensive global foot-
print or its relatively open trading network. In other
words, while neoliberalism is not dead, it is being
transformed into a geographically more fragmented
and localized system. This is not only about the U.S.
election, but also about rising levels of global protec-
tionism and Brexit, among other anti-globalization
trends around the world. I expect that the geo-
graphic extent of the U.S. economy in the coming
years will coincide with the new landscape of U.S.
allies and enemies, as defined by Donald Trump and
his administration.
Trump’s Contract with the American Voter out-
lines several policies that will make it more expen-
sive and riskier to do business abroad. All of these
need not occur; I think that even one or two of these
changes will be sufficient to alter expectations in
business communities about the benefits of certain
cross-border economic relationships. Pulling the
United States out of the TPP, along with threats to
pull out of the Paris Climate Agreement and
attempts to renegotiate NAFTA, is already signaling
to other countries that the new administration will
not be interested in international cooperation. A
crackdown on foreign trading abuses will prompt
retaliation. Labelling China a currency manipulator
will sour relations between the two countries and
As states and markets further fuse in
coming years, the representation of Trump
and his administration as being anti-
government will help immunize his
administration from accusations of too-cozy
relationships with big business.
prompt retaliation by China. As Trump goes for-
ward with his anti-immigration and anti-Muslim
rhetoric and policies, he will alienate the United
States’ traditional allies in Europe (at least until
Europe elects its own nationalist and xenophobic
leaders) and communities across the Global South.
The U.S. election has already undermined perfor-
mance in emerging markets, and bigoted rhetoric
and policy will only increase anti-American senti-
ment in struggling economies populated largely by
people of color. Add to this the risk of conflict posed
by any number of the following: his antagonizing
China, allying with Russia, deploying ground troops
to stop ISIS, and pulling out of the Korean DMZ,
among other initiatives that seem likely to contrib-
ute to a more confrontational and violent interna-
tional arena. All of this is to say that Trump will not
have to intervene directly in the affairs of business in
order to make it less international and more national.
The new global landscape of conflict and risk, com-
bined with elevated domestic spending on infra-
structure and security, will bring U.S. business and
investment back home nonetheless. ››
JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  13
 N AT I O N A L N E O L I B E R A L I S M
National Neoliberalism
and State-Market Relations
Fascist states are corporatist in nature, a state of
affairs marked by a fusion of state and business func-
tions and interests. In the fascist states on the
European continent in the 1930s and 1940s—sys-
tems that fall under the umbrella of “national social-
ism”—the overwhelming power of the state charac-
terized this relationship. Political theorist Sheldon
Wolin writes in Democracy, Inc., in regard to Nazi
Germany and Fascist Italy (as well as Stalinist
Russia), “The state was conceived as the main center
of power, providing the leverage necessary for the
mobilization and reconstruction of society.”
By contrast, in Trump’s America—where an
emergent “national neoliberalism” may be gradually
guiding us to a more overt and obvious corporate
totalitarian politics—we can expect a similar fusion
In Trump’s America, under national
neoliberalism, we can expect a fusion of state
and market interests as in the fascist states of
the 1930s and 1040s, but one in which the
marketplace and big business have almost total
power and freedom of movement.
of state and market interests, but one in which the
marketplace and big business have almost total
power and freedom of movement. State and market
in the United States will fuse further together in the
coming years, leading some to make close parallels
with European fascism. But it will do so not because
of heavy handed government dictates and interven-
tions, but rather because domestic privatization ini-
tiatives, appointments of businessmen to govern-
ment posts, fiscal stimulus, and the business
community’s need for protection abroad will bring
them closer. Corporate interests will merge with
state interests not because corporations are com-
manded to, but rather because the landscape of risk
and reward will shift and redirect investment pat-
terns to a similar effect. This may be where a bud-
ding U.S. totalitarianism differs most starkly from
its European cousins.
14  l  DOLLARS & SENSE  l  JANUARY/FEBRUARY 2017
Of course, it helps that much of the fusion of
state and market in the United States is already
complete, what with decades of revolving doors
and privatization initiatives spanning the military,
police, prison, healthcare, and educational sectors,
among others. It will not take much to further
cement the relationship. D&S
S A S H A B R E G E R B U S H is an assistant profes-
sor of political science at the University of Colorado-
Denver and author of Derivatives and Development:
A Political Economy of Global Finance, Farming, and
Poverty (Palgrave Macmillan, 2012).
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Calmes, “What is Lost by Burying the Trans-Pacific Partnership?” New
York Times, Nov.11, 2016 (nytimes.com); Szu Ping Chan, “From Brexit to
the rise of protectionism: is the world facing an era of permanent
low-growth?” The Telegraph, Oct. 10, 2016 (telegraph.co.uk); Shawn
Donnan, “WTO Warns on Rise of Protectionist Measures by G20 Econo-
mies,” Financial Times, June 21, 2016 (ft.com); Ben Geier, “Even the IMF
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What Trump Can and Can’t Do to Immigrants
B Y D AV I D B A C O N

People make their own history, but they do not make it as they please; they do not make it under self-
selected circumstances, but under circumstances existing already, given and transmitted from the past.
—Karl Marx, “The Eighteenth Brumaire of Louis Bonaparte,” 1852

W H ILE TH E GOVERN M EN T O F F I C I A LS D EV E LOPI N G A N D E N F ORC I N G

››
U.S. immigration policy will change on January 20, the economic system in which they make that Protest in front of
policy will not. As fear sweeps through immigrant communities in the United States, understanding that Oakland City Hall
system helps us anticipate what a Trump administration can and can’t do in regard to immigrants, and against the
election of
what immigrants themselves can do about it. Donald Trump as
Over the terms of the last three presidents, the most visible and threatening aspect of immigration pol- U.S. President.
icy has been the drastic increase in enforcement. President Bill Clinton presented anti-immigrant bills as
Credit:
compromises, and presided over the first big increase in border enforcement. George W. Bush used soft © David Bacon
rhetoric, but sent immigration agents in military-style uniforms, carrying AK-47s, into workplaces to (dbacon.igc.org)
arrest workers, while threatening to fire millions for not having papers. Under President Barack Obama, a
new requirement mandated filling 34,000 beds in detention centers every night. The detention system
mushroomed, and over 2 million people were deported.
Enforcement, however, doesn’t exist for its own sake. It plays a role in a larger system that serves capital-
ist economic interests by supplying a labor force employers require. High levels of enforcement also ensure
the profits of companies that manage detention and enforcement, who lobby for deportations as hard as
Boeing lobbies for the military budget. ››
JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  15
 TRUMP AND IMMIGRANTS
Immigrant labor is more vital to many indus-
tries than it’s ever been before. Immigrants have
always made up most of the country’s farm workers
in the West and Southwest. Today, according to the
U.S. Department of Labor, about 57% of the
country’s entire agricultural workforce is undocu-
mented. But the list of other industries dependent
Immigrants, workers, on immigrant labor is long—meatpacking, some
union members, construction trades, building services, healthcare,
people of faith and
community activists
restaurant and retail service, and more.
demonstrated in During the election campaign, candidate Donald
Silicon Valley, calling Trump pledged in his “100-day action plan to Make
for a moratorium on America Great Again” to “begin removing the more
deportations and the
firing of than two million criminal illegal immigrants from
undocumented the country” on his first day in office.  In speeches,
workers because of he further promised to eventually force all undocu-
their immigration
mented people (estimated at 11 million) to leave.
status.
In a society with one of the world’s highest rates
Credit: of incarceration, crimes are often defined very
© David Bacon
(dbacon.igc.org)
broadly. In the past, for instance, under President
George W. Bush federal prosecutors charged work-
››
ers with felonies for giving a false Social Security
16  l  DOLLARS & SENSE  l  JANUARY/FEBRUARY 2017
number to an employer when being hired. He fur-
ther proposed the complete enforcement of
employer sanctions—the provision of the 1986
Immigration Reform and Control Act that forbids
employers from hiring workers without papers.
Bush’s order would have had the Immigration and
Customs Enforcement agency (ICE) check the
immigration status of all workers, and required
employers to fire those without legal immigration
status, before being blocked by a suit filed by
unions and civil rights organizations.
Under President Obama, workplace enforcement
was further systematized. In just one year, 2012,
ICE audited 1600 employers. Tens of thousands of
workers were fired during Obama’s eight years in
office. Given Trump’s choice of Alabama Senator
Jeff Sessions as Attorney General, greater workplace
enforcement is extremely likely. Sessions has been
one of the strongest advocates in Congress for
greater immigration enforcement, and has criticized
President Obama for not deporting enough people.
Last year he proposed a five-year prison sentence for
any undocumented immigrant caught in the coun-
try after having been previously deported.
Industry Needs Immigrants
Both deportations and workplace firings face a
basic obstacle—the immigrant workforce is a
source of immense profit to employers. The Pew
Hispanic Center estimates that, of the presumed
11 million people in the country without docu-
ments, about 8 million are employed (comprising
over 5% of all workers). Most earn close to the
minimum wage (some far less), and are clustered in
low-wage industries. In the Indigenous Farm
Worker Survey, for instance, made in 2009,
demographer Rick Mines found that a third of
California’s 165,000 indigenous agricultural labor-
ers (workers from communities in Mexico speak-
ing languages that pre-date European colonization)
made less than minimum wage.
The federal minimum wage is still stuck at
$7.50/hour, and even California’s minimum of
$10/hour only gives full-time workers an annual
income of $20,000. Meanwhile, Social Security
says the national average wage index for 2015 is
just over $48,000. In other words, if employers
were paying the undocumented workforce the
average U.S. wage it would cost them well over
$200 billion annually. That wage differential subsi-
dizes whole industries like agriculture and food
processing. If that workforce were withdrawn, as
Trump threatens, through deportations or mass
firings, employers wouldn’t be able to replace it
without raising wages drastically.
As president, Donald Trump will have to ensure
that the labor needs of employers are met, at a price
they want to pay. The corporate appointees in his
administration reveal that any populist rhetoric
about going against big business was just that—
rhetoric. But Hillary Clinton would have faced the
same necessity. And in fact, the immigration
reform proposals in Congress from both
Republicans and Democrats over the past decade
shared this understanding—that U.S. immigration
policy must satisfy corporate labor demands.
During the Congressional debates over immi-
gration reform, the Council on Foreign Relations
(CFR) proposed two goals for U.S. immigration
policy. In a report from the CFR-sponsored
Independent Task Force on U.S. Immigration
Policy, Senior Fellow Edward Alden stated, “We
should reform the legal immigration system so that
it operates more efficiently, responds more accu-
rately to labor market needs, and enhances U.S.
competitiveness.” He went on to add, “We should
restore the integrity of immigration laws, through
an enforcement regime that strongly discourages
employers and employees from operating outside
that legal system.” The CFR, therefore, coupled an
enforcement regime—with deportations and fir-
ings—to a labor-supply scheme.
This framework assumes the flow of migrating
people will continue, and seeks to manage it. This
is a safe assumption, because the basic causes of
that flow have not changed. Communities in
Mexico continue to be displaced by 1) economic
reforms that allowed U.S. corporations to flood the
country with cheap corn and meat (often selling
below the cost of production—known as “dump-
ing”—thanks to U.S. agricultural subsidies and
trade agreements like NAFTA), 2) the rapacious
development of mining and other extractive con-
cessions in the countryside, and 3) the growing
impoverishment of Mexican workers. Violence
plays its part, linked to the consequences of dis-
placement, economic desperation, and mass depor-
tations. Continuing U.S. military intervention in
As president, Donald Trump will have to ensure
that the labor needs of employers are met, at a
price they want to pay. Hillary Clinton would
have faced the same necessity.
Central America and other developing countries
will produce further waves of refugees.
While candidate Trump railed against NAFTA
in order to get votes (as did Barack Obama), he
cannot—and, given his ties to business, has no will
to—change the basic relationship between the
United States and Mexico and Central America, or
other developing countries that are the sources of
migration. Changing the relationship (with its
impact on displacement and migration) is possible
in a government committed to radical reform.
Bernie Sanders might have done this. Other voices
in Congress have advocated it. But Trump will do
what the system wants him to do, and certainly
will not implement a program of radical reform.
H-2A Guest Workers
The structures for managing the flow of migrants
are already in place, and don’t require Congress to
pass big immigration reform bills. In Washington ››
JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  17
 TRUMP AND IMMIGRANTS
State alone, for instance, according to Alex
Galarza of the Northwest Justice Project, the
Washington Farm Labor Association brought in
about 2,000 workers under the H-2A guest
worker program in 2006. In 2013, the number
rose to 4,000. By 2015, it grew to 11,000. In
2016, it reached 16,000. That kind of growth is
taking place in all states with a sizeable agricul-
tural workforce.
The H-2A program allows growers to recruit
workers outside the country for periods of less than
a year, after which they must return to their coun-
try of origin. Guest workers who lose their jobs for
whatever reason—whether by offending their
employer, or not working fast enough, for exam-
ple—have to leave the country, so joining a union
or protesting conditions is extremely risky. Growers
can only use the program if they can show they
can’t find local workers, but the requirement is
often unenforced.
The program for foreign contract labor in agri-
culture is only one of several like it for other indus-
Arresting people at the border, firing them from
their jobs for not having papers, and sending
people to detention centers for deportation, all
push the flow of migrants into labor schemes
managed to benefit corporations.
tries. One study, “Visas, Inc.,” by Global Workers
Justice, found that over 900,000 workers were
brought to the United States to work every year
under similar conditions. The number is growing.
In the context of the growth of these programs,
immigration enforcement fulfills an important
function. It heralds a return to the bracero era,
named for the U.S. “guest worker” program that
brought millions of Mexican farmworkers to the
United States between 1942 and 1964. The pro-
gram was notorious for its abuse of the braceros,
and for pitting them against workers already in the
United States in labor competition and labor con-
flict. In 1954 alone, the United States deported
over a million people—while importing 450,000
contract workers. Historically, immigration
18  l  DOLLARS & SENSE  l  JANUARY/FEBRUARY 2017
enforcement has been tied to the growth of con-
tract labor, or “guest worker” programs.
Arresting people at the border, firing them from
their jobs for not having papers, and sending peo-
ple to detention centers for deportation, all push
the flow of migrants into labor schemes managed
to benefit corporations. The more a Trump admin-
istration pushes for deportations and internal
enforcement, the more it will rely on expanding
guest worker programs.
The areas where programs like H-2A are already
growing were heavy Trump supporters. In eastern
Washington, a heavily Trump area, immigration
agents forced the huge Gebbers apple ranch to fire
hundreds of undocumented workers in 2009, and
then helped the employer apply for H-2A workers.
While the undocumented workers of eastern
Washington had good reason to fear Trump’s
threats, employers knew they didn’t have to fear the
loss of a low-wage workforce.
Deportations and workplace enforcement will
have a big impact on unions and organizing rights.
Immigrant workers have been the backbone of
some of the most successful labor organizing of the
last two decades, from Los Angeles janitors to Las
Vegas hotel workers to Republic Windows and
Doors in Chicago. At the same time, the use of the
E-Verify database under President Obama often
targeted workers active in labor campaigns like
Fight for $15, as did earlier Bush and Clinton
enforcement efforts.
Unions and immigrant communities have
developed sophisticated tactics for resisting these
attacks, and will have to use them effectively
under Trump. Janitors in Minneapolis fought the
firing of undocumented fast-food workers in
Chipotle restaurants. The International
Longshore and Warehouse Union (ILWU) teamed
up with faith-based activists, immigrant-rights
groups, and environmentalists to stop firings of
undocumented workers in Bay Area recycling
facilities, winning union representation and
higher wages as a result. The same unions and
community organizations that have fought
enforcement in the workplace have also fought
detentions and deportations.
These efforts will have to depend on more than
a legal defense. The Supreme Court has already
held that undocumented workers fired for organiz-
ing at work can’t be rehired, and their employers
don’t have to pay them back pay.
Border Enforcement
Trump’s threatened enforcement wave extends far
beyond the workplace. He promised increased
enforcement on the U.S.-Mexico border, expand-
ing the border wall, and increasing the number of
Border Patrol agents beyond the current 25,000.
Immigration enforcement already costs the gov-
ernment more than all other federal law enforce-
ment programs put together.
Trump proposed an End Illegal Immigration
Act, imposing a two-year prison sentence on anyone
who re-enters the U.S. after having been deported,
and five years for anyone deported more than once.
Under President Obama, the United States deported
more than two million people. Hundreds of thou-
sands, with children and families in the United
States, have tried to return to them. Under this pro-
posed law, they would fill the prisons.
One of Trump’s “first day” commitments is to
“cancel every unconstitutional executive action,
memorandum and order issued by President
Obama.” This promise includes Obama’s executive
order giving limited, temporary legal status to
undocumented youth brought to the United States
by their parents (Deferred Action for Childhood
Arrivals, or DACA). DACA has been attacked by
the right-wing ideologues advising Trump’s transi-
tion team since Obama issued his order.  organized hunger strikes with the support of activ-
The 750,000 young people who gained status
under DACA—the “Dreamers”—have been one
of the most active sections of the U.S. immigrant-
rights movement. But they had to give the govern-
ment their address and contact information in
order to obtain a deferment, making them vulner-
able to deportation sweeps. Defending them will
likely be one of the first battles of the Trump era.
Trump further announced that on his first day
in office he will “cancel all federal funding to
Sanctuary Cities.” More than 300 cities in the
United States have adopted policies saying that
they will not arrest and prosecute people solely for
being undocumented.
Many cities, and even some states, have with-
drawn from federal schemes, notably the infamous
“287(g) program,” requiring police to arrest and
detain people because of their immigration status.
Trump’s proposed order would cancel federal fund-
ing for housing, medical care, and other social ser-
vices to cities that won’t cooperate. As attorney
general, Sessions can be expected to try to enforce
this demand. After the election, many city
governments and elected officials were quick to
››
announce that they would not be intimidated.
Immigrant Latino
The Dreamers especially see direct action in the workers from the
streets as an important part of defending commu- Woodfin Suites
nities. In the push for DACA, youth demonstra- hotel in
Emeryville, Calif.,
tions around the country sought to stop deporta- and their
tions by sitting in front of buses carrying prisoners supporters
to detention centers. Dreamers defended young protest after
hotel managers
people detained for deportation, and even occu- fired 20 workers,
pied Obama’s Chicago office during his 2012 accusing them of
re-election campaign.  lacking legal
In detention centers themselves, detainees have immigration
status.
ists camping in front of the gates.  Maru Mora Credit:
Villapando, one of the organizers of the hunger © David Bacon
(dbacon.igc.org)
strikes and protests at the detention center in
Tacoma, Wash., says organizers cannot just wait for
Trump to begin his attacks, but have to start build-
ing up defense efforts immediately. She advocates
pressuring the Obama administration to undo as
much of the detention and deportation machinery
as possible before leaving office. “We don’t want
him just to hand over the keys to this machine as it
is right now,” she warns.
The success of efforts to defend immigrants,
especially undocumented people, depends not
just on their own determination to take direct
action, but on support from the broader commu-
nity. In Philadelphia, less than a week after the
election, Javier Flores García was given sanctuary
by the congregation of the Arch Street United
Methodist Church after being threatened by fed-
eral immigration agents. “Solidarity is our protec-
tion,” urged the Reverend Deborah Lee of the
Interfaith Movement for Human Integrity in
California. “Our best defense is an organized ››
JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  19
 TRUMP AND IMMIGRANTS
community committed to each other and bound
together with all those at risk. … We ask faith
communities to consider declaring themselves
‘sanctuary congregations’ or ‘immigrant welcom-
ing congregations.’”
But while many workers may have supported
Trump because of anger over unemployment and
the fallout from trade agreements like NAFTA,
they also bought his anti-immigrant political
arguments. Those arguments, especially about
immigrants in the workplace, even affect people
on the left who opposed Trump himself. Some of
those arguments have been made by Democrats,
and used to justify enforcement measures like
E-Verify included in “comprehensive immigra-
tion reform” bills. One union activist, Buzz
Malone, wrote a piece for In These Times arguing
for increased enforcement of employer sanctions,
although he envisioned them more as harsher
penalties for employers who hire the undocu-
mented. “Imprison the employers ... and all of it
would end,” he predicted. “The border crossings
would fizzle out and many of the people would
leave on their own.”
What Is to Be Done?
To defeat the Trump enforcement wave, immi-
grant activists in unions and communities will
have to fight for deeper understanding and greater
unity between immigrants and U.S.-born people.
Workers in general need to see that people in
Mexico got hit by NAFTA even harder than people
in the U.S. Midwest—and their displacement and
migration isn’t likely to end soon. In a diverse
workforce, the unity needed to defend a union or
simply win better conditions depends on fighting
for a country and workplace where everyone has
equal rights. For immigrant workers, the most
basic right is simply the right to stay. Defending
that right means not looking the other way when a
coworker, a neighbor or a friend is threatened with
firing, deportation, or worse.
The rise of a Trump enforcement wave spells
the death of the liberal centrism that proposed
trading increased enforcement and labor supply
programs for a limited legalization of undocu-
mented people. Under Trump, the illusion that
there is some kind of “fair” enforcement of
employer sanctions and “smart border
20  l  DOLLARS & SENSE  l  JANUARY/FEBRUARY 2017
enforcement” will be stripped away. Sessions will
have no interest in “humane detention,” with
codes of conduct for the private corporations run-
ning detention centers. The idea of guest worker
programs that don’t exploit immigrants or set
them against workers already in the United States
will face the reality of an administration bent on
giving employers what they want.
So in one way the Trump administration pres-
ents an opportunity as well—to fight for the goals
immigrant rights advocates have historically pro-
posed, to counter inequality, economic exploita-
tion, and the denial of rights. As Sergio Sosa,
director of the Heartland Workers Center in
Omaha, Nebr., puts it, “we have to go back to the
social teachings our movement is based on—to
the idea of justice.” D&S
D A V I D B A C O N is a journalist and photographer
covering labor, immigration, and the impact of the
global economy on workers. He is author of several
books, including Illegal People: How Globalization
Creates Migration and Criminalizes Immigrants
(Beacon Press, 2009).
S O U R C E S : “Donald Trump’s Contract with the American Voter”
(donaldjtrump.com); Chico Harlan, “The private prison industry was
crashing—until Donald Trump’s victory,” Wonkblog, Washington Post,
Nov. 10, 2016 (washingtonpost.com); U.S. Immigration and Customs
Envorcement, “Delegation of Immigration Authority Section 287(g)
Immigration and Nationality Act” (ice.gov); Interfaith Movement for
Human Integrity (im4humanintegrity.org); Community Initiatives for
Visiting Immigrants in Confinement, “End the Quota” (endisolation.
org); Jens Manuel Krogstad, Jeffrey S. Passel, and D’Vera Cohn, “Five
facts about illegal immigration in the U.S.,” Pew Research Center, Nov.
3, 2016 (pewresearch.org); Bureau of Labor Statistics, “Foreign-Born
Workers: Labor Force Characteristics, 2016,” May 19, 2016 (bls.gov); Jie
Zong and Jeanne Batalova, “Frequently Requested Statistics on
Immigrants and Immigration in the United States,” Migration Informa-
tion Service, April 14, 2016 (migrationpolicy.org); “Selected Statistics
on Farmworkers,” Farmworker Justice, 2014(farmworkerjustice.org);
“Indigenous Mexicans in California Agriculture,” Indigenous Farm-
worker Study (indigenousfarmworkers.org); “U.S. Immigration Policy
Task Force Report,” Council on Foreign Relations, August 2009 (cfr.org);
“Visas, Inc.: Corporate Control and Policy Incoherence in the U.S.
Temporary Foreign Labor System,” Global Workers Justice Alliance,
May 31, 2012 (globalworkers.org); “H-2A Temporary Agricultural
Workers,” U.S. Citizenship and Immigration Services (uscis.gov); Buzz
Malone, “Stop Blaming Immigrants and Start Punishing the Employers
Who Exploit Them,” Working In These Times, Nov. 15, 2016 (inthese-
times.com); David Bacon, Illegal People (Beacon Press, 2008); David
Bacon, The Right to Stay Home (Beacon Press, 2013); David Bacon,
author interviews with Alex Galarza, Maru Mora Villapando, Deborah
Lee, and Sergio Sosa (2016); Mae M. Ngai, Impossible Subjects: Illegal
Aliens and the Making of Modern America (Princeton University Press,
2004); Ronald L. Mize and Alicia C. Swords, Consuming Mexican Labor:
From the Bracero Program to NAFTA (University of Toronto Press, 2010).
The Global Economy Today
How We Got Here and Where We Need to Go
B Y A R T H U R M A C E WA N

G lobalization has run into a backlash.

There has long been opposition to the efforts of governments and large corporations in the high-
income countries—especially the United States—to establish new rules of global commerce. This opposition
appeared in the protests against the North American Free Trade Agreement (NAFTA) in the early 1990s and
against the World Trade Organization (WTO) in the later 1990s. Remember the Zapatistas in 1994 and
Seattle in 1999? (See boxes, this page and next page.)
In 2016, however, the backlash against globalization became espe-
COSTS OF
EMPIRE
cially formidable. It emerged as a dominant theme in Donald
Trump’s ascendency to the U.S. presidency, and also was a major fac-
tor in Sen. Bernie Sanders’ strong campaign for the Democratic
nomination. In the United Kingdom, the Brexit vote to take the
country out of the European Union was also in part a reaction against
This article inaugurates our globalization, as has been the growing strength of right-wing politi-
“Costs of Empire” project, which cians elsewhere in Europe. Globalization has become the focal point
will include a special issue in for the reaction of many to a wide range of social and economic ills,
March/April and articles
a reaction that has also been fueled by latent—and not so latent—
throughout 2017.
xenophobia and racism.
Whatever other factors are involved, the backlash against globalization is based on the very real damage
that has been done to economic equality, security, and the overall well-being of many people by the way
international commerce has been organized. How did we get here—what’s the history of our current situ-
ation? Could international commerce be organized differently? Are there alternatives? ››

NAFTA AND THE ZAPATISTAS

T he Zapatista Army of National Liberation (Ejército Zapatista de Liberación Nacional, EZLN), popularly known as the
“Zapatistas,” is a revolutionary leftist political militant group based in Chiapas, the southernmost state of Mexico.
On the morning of January 1, 1994, the day that NAFTA went into effect, the Zapatistas issued their First
Declaration and Revolutionary Laws from the Lacandon Jungle, and an esti-
mated 3,000 armed Zapatista insurgents seized several towns and cities in
Chiapas. They freed the prisoners in the jail of San Cristóbal de las Casas and set
fire to several police buildings and military barracks in the area. The guerrillas
enjoyed brief success, but the next day Mexican army forces counterattacked,
and fierce fighting broke out in and around the market of Ocosingo. The
Zapatista forces took heavy casualties and retreated from the city into the sur-
rounding jungle.
The Zapatistas’ initial goal was to instigate a revolution throughout Mexico. Flag of the EZLN.
As this did not happen, they used their uprising as a platform to protest the Credit: Lucho, GNU Free
signing of NAFTA, which the EZLN believed would increase the gap between Documentation License, via
Wikimedia Commons.
rich and poor people in Chiapas—a prediction that has been vindicated by sub-
sequent developments.
The Zapatistas have continued to exist into the 2000s, operating principally from their base in Chiapas (though also
making unarmed forays around Mexico), issuing several further declarations, and organizing for social justice.

JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  21

 G L O B A L E C O N O M Y T O D AY
Not a New Phenomenon
At least since people began walking out of Africa
tens of thousands of years ago, humans have been
expanding the geographic realm of their economic,
political, social, and cultural contacts. In this broad
sense, globalization is nothing new, and it might
reasonably be viewed as an inexorable process. To
oppose it would be little different than trying to
stop the ocean tides.
Globalization, however, is not one, well-defined
phenomenon. It has taken different forms in different
periods and has been connected to political power in
different ways. It will certainly take new and different
forms in the future. Colonialism, for example, has
been a predominant form of globalization for thou-
sands of years, and only disappeared—well, not
Pepper spray is applied to the crowd at the WTO protests in
Seattle, Nov. 30, 1999. Credit: Steve Kaiser, Creative
Commons Attribution-Share Alike 2.0 Generic license.
THE BATTLE IN SEATTLE
O n November 30, 1999, the World Trade Organization (WTO)
convened a Ministerial Conference to launch a new round
of trade negotiations. The negotiations were quickly overshad-
owed by massive and controversial street protests outside the
hotels and the Washington State Convention and Trade Center,
in what became the known as “The Battle of Seattle.” (A
Hollywood movie with this title and based on the 1999 events
was released in 2007.)
The large scale of the demonstrations, estimated at no less
than 40,000 protesters, dwarfed any previous demonstration in
the United States against a world meeting of any of the organiza-
tions generally associated with economic globalization (such as
the WTO, the International Monetary Fund, or the World Bank).
22  l  DOLLARS & SENSE  l  JANUARY/FEBRUARY 2017
entirely (consider Puerto Rico)—in the second half
of the 20th century. Neo-colonialism, a system in
which major powers exercise de facto control over the
policies of lesser powers but without the formal, de
jure controls of colonialism, often came into force as
colonialism waned. From the 16th through the 18th
century, under the ideology of mercantilism,
European powers explicitly regulated their own coun-
tries’ foreign commerce through import restrictions
and export promotion. Mercantilism often went
along with colonialism, and colonial powers also put
economic restrictions on the countries they con-
trolled. In the second half of the 20th century, the
increasing integration of countries in Western
Europe, leading to the formation of the European
Union and creation of a common currency, is still
another example of the varied forms of globalization.
Virtually everywhere among the now high-
income countries—the United Kingdom and the
United States are prime cases—early industrializa-
tion was accomplished with high levels of govern-
ment protection for manufacturing. At the same
time, these countries’ governments used their power
to extend their global economic engagement, to seek
resources or markets or both. For example, Britain
developed a far-flung empire, and also employed its
powerful navy to assure that, in regions outside the
empire, markets and resources were available for
British commerce—for the sale of textiles in Latin
America, opium in China, etc. The United States,
late to the era of colonialism, extended its realm of
control, over land and other resources, by expanding
westward across the continent. But the United States
became a colonial power at the end of the 19th cen-
tury, taking Puerto Rico, the Philippines, Hawaii,
and Guam (and Cuba for a two and a half year
period). At the same time, this country increasingly
became a neo-colonial power, using military strength
especially in the Caribbean and Central American to
protect U.S. financial and other interests. (See box
on Smedley Butler, next page.)
Interruption and Reassertion
Globalization was severely interrupted in the first
half of the 20th century by two world wars and the
Great Depression. Furthermore, after the wars, two
major areas of the world—the Soviet Union and its
“satellite” countries, as well as China—were largely
outside of the international capitalist system. In this
context, the United States—with only 6% of the
world’s population, but some 27% of the world’s
output, became the undisputed leader of the “free
world.” With this economic prowess, its extreme mil-
SMEDLEY BUTLER ON INTERVENTIONISM
Excerpt from a speech delivered in 1933, by Major General Smedley Butler, USMC (retired).

“I spent thirty-three years and four months in active military service as a member of this
country’s most agile military force, the Marine Corps. I served in all commissioned ranks
from Second Lieutenant to Major-General. And during that period, I spent most of my time be-
ing a high class muscle-man for Big Business, for Wall Street and for Bankers. In short, I was a
racketeer, a gangster for capitalism ….
“I helped make Mexico, especially Tampico, safe for American oil interests in 1914. I helped
make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I
helped in the raping of half a dozen Central American republics for the benefits of Wall Street. The
record of racketeering is long. I helped purify Nicaragua for the international banking house of
Brown Brothers in 1909-1912 .... I brought light to the Dominican Republic for American sugar
interests in 1916. In China I helped to see to it that Standard Oil went its way unmolested.
“During those years, I had, as the boys in the back room would say, a swell racket. Looking back on it, I feel that I
could have given Al Capone a few hints. The best he could do was to operate his racket in three districts. I operated on
three continents.”

itary strength, and the relative devastation of other
economically advanced countries—was virtually able
to dictate the terms, the rules of operation, in the
international economic system.
The goal of the U.S. government in this regard
was that U.S. firms would have access—indeed, they
should have the right of access—to resources and
markets throughout the international system. As one
step toward accomplishing this end, the United
States, with the acquiescence of other countries,
established the dollar as the central currency of inter-
national commerce. (See box on the Bretton Woods
conference.) Both directly and through its influence
over international institutions (the World Bank, the
International Monetary Fund, and the General
Agreement on Tariffs and Trade), the U.S. govern-
ment pushed for the minimization of countries’ barri-
ers to foreign trade and investment—that is, “free
trade.” Trade barriers were, however, slow to come
down as other advanced countries sought to rebuild
their industries after the war and many lower-income
countries sought to protect their nascent industries.
Nonetheless, governments and business interests in
these other countries also wanted foreign investment,
resulting in the great expansion of U.S.-based multi-
national firms from the 1950s onward.
But trade barriers would eventually come down.
The United States, which had built its own indus-
trial capacity behind tariff walls in the 19th century,
now insisted in the latter half of the 20th century
that low-income countries abandon similar walls.
Having reached the top, the United States was
pulling the ladder up. The International Monetary
Fund (IMF) played a major role in pushing low
income countries to lower their import restric-
tions. When these countries turned to the IMF for
financial assistance (especially during the debt cri-
sis of the 1980s), the condition for that assistance
was “structural adjustment,” which included low-
ering import restrictions.
The efforts of the U.S. government began to
achieve notable success in the 1990s, with NAFTA,
which removed many trade barriers among the
United States, Mexico, and Canada (and did a good
deal more, as discussed below). Then it promoted
the formation of the World Trade Organization
(WTO), which, according to its own website, “is the
only global international organization dealing with
the rules of trade between nations.” (The U.S. gov-
ernment, however, failed in its effort to establish the
Free Trade of the Americas Agreement (FTAA)—
about which negotiations took place through the
1990s and which would have included virtually all
countries in the Western Hemisphere.)
The U.S. government has established either bilat-
eral or small group (e.g., NAFTA) “free trade” agree-
ments with 20 countries, most put into effect since
2000. Even without such agreements, access to the
U.S. market and U.S. access to foreign markets have
expanded considerably. There are still regions of the ››
JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  23
 T H E G L O B A L E C O N O M Y T O D AY
world, China and Russia for example, where signifi-
cant restrictions on foreign trade and investment
still apply and with which the United States has no
general trade agreements. Yet U.S. firms are none-
theless heavily involved in these countries as well.
Compared to the situation after World War II, to
say nothing of the 19th century, tariffs and other
trade restrictions are now quite low.
The changes are illustrated, in Table 1, with
data from the world’s twelve largest economies. It is
not simply tariff changes, however, that have
brought about a burgeoning of international com-
merce. Other sorts of restrictions on trade (e.g.,
quantitative import restrictions, or “import quo-
tas”) have come down. And major advances in
transportation and communications technology
have also played a role. All in all, the rising role of
international trade and investment has been
huge—making the current age truly an era of eco-
nomic globalization (at least in the broad sense).
In the decade of the 1960s, world exports aver-
aged 12% of world GDP, but in the recent ten-year
span of 2006-2015, the figure was 30%. The inter-
national trade of the U.S. economy also grew over
the same period, though at a much lower level.
(Larger countries tend to have lower imports and
Table 1: Tariff Rates for Twelve Largest Economies,
Late 1980s-Early 1990s vs. 2014
(weighted mean, all products)
Late 1980s
or Early 1990s 2014
United States 4.0% (1989) 1.4%
China 32.2% (1992) 3.2%
Japan 3.8% (1988) 1.2%
Germany 3.6% (1988) 1.5%
United Kingdom 3.6% (1988) 1.5% enables the financial system to generate a credit
France 3.6% (1988) 1.5%
India 54.0% (1992) 6.8% (2009)
Brazil 31.9% (1989) 7.8%
Canada 7.2% (1989) 0.8%
South Korea 13.8% (1988) 5.2%
Russia 6.2% (1993) 4.9%
Source: World Bank (data.worldbank.org).
Note: The twelve largest economies are selected on the basis of 2016 nominal GDP in U.S. dollars,
International Monetary Fund data (see statisticstimes.com/economy/countries-by-progectedgdp.
php). The date in the “Late 1980s or Early 1990s” is the earliest date for which figures are available in
the World Bank souce.
24  l  DOLLARS & SENSE  l  JANUARY/FEBRUARY 2017
exports, relative to the size of their economies, than
small countries.) Foreign direct investment (FDI)
has grown especially rapidly in recent decades,
with annual net inflows of FDI in the world rising
100 fold between the 1970s, when the average was
$21 billion, and the period 2006-2015, with an
average of over $2.1 trillion. (FDI includes invest-
ment that establishes control or substantial influ-
ence over the decisions of a foreign business—such
as a wholly owned subsidiary—plus purchases of
foreign real assets such as land and buildings.)
Financialization and Crisis
There is also the international financialization phe-
nomenon—the rising role of financial markets and
financial institutions in the operation of the econ-
omy. The global amount of debt outstanding grew
from $45 trillion in 1990 to $175 trillion in 2012,
increasing from almost 2¼ times global GDP to
almost 2½ times. (The most rapid growth took
place before the Great Recession, followed by a
slow-down in subsequent years.)
The economic instability associated with finan-
cialization became apparent in the Asian financial
crisis of 1997. The rapid exodus of capital from
countries where economic problems were develop-
ing greatly exacerbated the downturn. The financial
crisis that emerged in the United States in 2008 and
2009, then spread to Europe and elsewhere, exposed
the full and devastating force of global financial
activity. The great size and extensive web of connec-
tions among financial institutions created a severe
threat to the world economy. “Free market” ideol-
ogy was put aside, and the U.S. government inter-
vened heavily—with a huge bailout of the banks—
to keep the economy from imploding.
Financialization created, and continues to cre-
ate, a vast increase in debt levels in many coun-
ties. “Debt … is an accelerator,” notes University
of Massachusetts economist Gerald Epstein, “that
bubble.” The bubble allows financial institutions
(banks, hedge fund, private equity firms, etc.) to
extract wealth form from non-financial firms and
individuals, and can also quicken the pace of eco-
nomic activity more generally. Bubbles, however,
burst, leading to economic distress, deflation, and
bankruptcies.
Beyond instability and crises, financialization
appears to impede economic growth by diverting
resources from productive activity into financial
speculation. Also, financialization harms economic
growth by contributing to extreme income inequal-
ity, which is increasingly recognized to have a nega-
tive impact on growth. Furthermore, though per-
haps in a more extreme form, large financial firms
present the same problems that arise with other
large firms operating internationally, namely that
the many options created by their global opera-
tions—to say nothing of their political influence—
make them difficult to tax and regulate.
Free Trade? Only in the Rhetoric
Even with U.S. trade-and-investment agreements,
reduction in restrictions on international com-
merce, technological changes, and the WTO rules
of operation, many aspects of world commerce
remain contested terrain. U.S. financial and non-
financial firms, along with firms from other coun-
tries, want not only trade and investment access,
but also as much assurance as they can get for the
right to access. So under the banner of “free trade”
the United States pushed forward to establish the
Trans-Pacific Partnership Agreement (TPP), with
eleven other countries along the Pacific Rim, and
the Transatlantic Trade and Investment Partnership
(TTIP), with the European Union. These agree-
ments would expand the share of U.S. trade and
investment taking place within realms where the
“rules of the game” are firmly established—and
those rules would essentially be rules promoted by
large U.S. firms and the U.S. government, but of
course with the cooperation of large firms and gov-
ernments elsewhere. With the ascendancy of
Donald Trump to the presidency, however, the
TPP now seems dead, and the future of the TTIP
and other agreements is unclear.
A key to understanding these and earlier trade-
and-investment pacts is to recognize that they are
not “free trade” agreements. These agreements,
while removing some barriers to international trade
and investment, have focused on creating protec-
tions. This is most clear in regard to patents and
copyrights—so-called “intellectual property rights.”
As Dean Baker, the co-director of the Center for
Economic and Policy Research has written:
The TPP is not about free trade. It does
little to reduce tariffs and quotas for the
simple reason that these barriers are
already very low. [See Table.] …In fact,
the TPP goes far in the opposite direction,
increasing protectionism in the form of
stronger and longer patent and copyright
protection. These forms of protection for
prescription drugs, software and other
products, often raise the price by a factor
of a hundred or more above the free mar-
ket price. This makes them equivalent to
tariffs of several thousand percent.
Patents and copyrights are alleged to encourage
innovation, but there is no reason to think that the
particular—especially high—U.S. system of pro-
tections promoted in these agreements is a good
way to accomplish this end. There are more effec-
tive ways to promote innovations, but few more
effective ways to promote profits for large pharma-
ceuticals and software firms.
Furthermore, while these agreements assure the
unrestrained movement of capital—establishing
rights for foreign investment in the participating
countries—they do not provide for the movement
A key to understanding the TPP and TTIP and
earlier trade-and-investment pacts is to recognize
that they are not “free trade” agreements.
These agreements, while removing some barriers
to international trade and investment, have
focused on creating protections.
of labor. People are inherently less mobile than
capital, regardless of immigration restrictions. Yet,
removing restrictions on capital mobility and
doing nothing to facilitate the movement of labor
or protect labor increases the power of firms over
workers. Power depends on the availability of
options. These agreements give greater options—
and therefore greater power—to businesses. This
power shows up in the stagnation, and in many
cases the decline, of workers’ wages, as their jobs
are shifted to lower-wage countries and they are
forced to accept lower wages in other employment.
Even when firms do not actually move abroad, the
threat of movement is sufficient to weaken work-
ers’ bargaining power.
Power to businesses is also provided—in these
agreements, in NAFTA and the more recently ››
JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  25
 T H E G L O B A L E C O N O M Y T O D AY
proposed agreements—through provisions that
give foreign investors the right to sue govern-
ments in private international arbitration (not
the courts). These provisions are known as
“investor-state dispute settlement,” or ISDS.
ISDS allows a firm to sue, claiming that new
financial regulations, environmental laws,
worker protections, food and health safety stan-
dards, or other laws and regulations threaten
their profits. A recent example of the use of
ISDS is the case filed in 2016 by TransCanada,
claiming that the U.S. government’s blocking
construction of its Keystone XL pipeline vio-
lated its rights under NAFTA and seeking $15
billion in compensation. The danger of these
agreement provisions is not only that the suits
will be costly, but that they will inhibit the estab-
lishment of important laws and regulations.
(There is, by the way, no provision for workers
to sue when new laws or regulations harm their
livelihoods.) The ISDS provisions and the pat-
ent and copyright protections in these various
international agreements belie the rhetoric that
they are free trade agreements.
In reality, there is no such thing as free trade, if
the term is taken to mean international commerce
without any impact from government actions.
Governments’ involvement in economic activity is
ubiquitous and their impact on their countries’
international commerce is affected by far more
than tariffs, import quotas, and direct subsidies for
export activity. Perhaps the best example is govern-
ment expenditures on education and research. If
these expenditures are high relative to other coun-
tries’, the country has a trade advantage in goods
and services that rely on highly skilled labor. These
expenditures are, in effect, an indirect, though
important, subsidy to certain kinds of exports. A
particular and historically important case is that of
government support of agricultural research and
extension activity, which has long-placed U.S. agri-
culture in a strong position in international trade.
More recent examples are the U.S. Defense
Department’s grants for information technology
development and the National Science Foundation’s
support for activity biotechnology. Clearly, such
expenditures, as well as the broad government sup-
port of public education, have profound effects on
countries’ international commerce.
The point here is not that governments should
stop all economic engagement that affects interna-
tional commerce, an impossible task that even cel-
ebrants of free trade themselves do not advocate.
Instead, we should recognize that choices must be
and are being made regarding the nature of a coun-
try’s trade. Those choices are bound up with all
sorts of other choices about governments’ engage-
ment with their economies. The matter of how
international commerce should be organized can-
not hidden behind the rhetoric of free trade.

The Bretton Woods Arrangements

I n July 1944, the U.S. government convened a conference at the
Mount Washington Hotel in Bretton Woods, N.H., to set the rules
for the international economy in the period after World War II.
Representatives from 44 governments, all of them U.S. allies in the
war, attended. A principal outcome of the conference was the es-
tablishment of the U.S. dollar’s central role in international com-
merce. Other countries agreed to maintain the values of their cur-
The Mount Washington Hotel, Bretton Woods, N.H.
rencies in a fixed relation to the dollar, and to change that value Credit: Mwanner, August, 1980, public domain.
only under extreme circumstances. The United States, in turn,
would maintain the value of the dollar in relation to gold at $35 per ounce—i.e., the U.S. government agreed to ex-
change other countries’ dollars for gold at this rate. This arrangement was intended to maintain international economic
stability and to serve as a foundation for open markets in the world economy.
The arrangement worked well for the U.S. government and U.S. firms. With global transactions taking place in dol-
lars, most dollars were never traded in for gold. It was a bit like a person writing checks to pay for purchases and know-

26  l  DOLLARS & SENSE  l  JANUARY/FEBRUARY 2017

Global Commerce and Political Power
The rhetoric of free trade, in any case, is simply
one of the tools that the U.S. government, its allies,
international agencies, and large firms use in shap-
ing the world economy. Economic and political-
military power is the foundation for this shaping.
Following World War II, when the U.S. accounted
for more than a quarter of world output, it had tre-
mendous economic power—as a market, an invest-
ment source, and a source of new technology. U.S.
firms had little competition in their global opera-
tions and were thus able to penetrate markets and
control resources over a wide range (outside of the
U.S.S.R., the rest of the East Bloc, and China).
Along with this economic power, the military
power of the United States was immense. In the
context of the Cold War and the rise of democratic
upsurges and liberation movements in many
regions, the role of the U.S. military was welcomed
in many countries—especially by elites facing
threats (real or imagined) from the Soviet Union,
domestic liberation movements, or both.
This combination of economic and military
power, far more than the rhetoric of free trade,
allowed the U.S. government to move other gov-
ernments toward accepting openness in interna-
tional commerce. The Bretton Woods conference
was a starting point in this process; U.S. represen-
tatives at the conference were largely able to dic-
tate the conference outcomes. In terms of inter-
national commerce, things worked quite well for
the United Sates for about 25 years. Then, how-
ever, various challenges to the U.S. position
emerged. In particular, the war in Indochina and
its costs, competition from firms based in Japan
and Europe, and the rise of OPEC and increase in
energy costs began to disrupt the dominant U.S.
role by the early 1970s.
Still, while the period after the 1970s saw slower
economic growth, both in the United States and in
several other high-income countries, the United
States continued to hold its dominant positon. In
part, this was due to the Cold War—the Soviet
threat, or at least the perceived threat, providing the
glue that attached other countries to U.S. leader-
ship. Yet, by the 1990s, the U.S.S.R. was no more,
and China was becoming a rising world power.
In spite of the changes in the world economy,
the United States at first appears to have almost the
same share of world output in 2016, 24.7%, as it
had in the immediate post-World War II period,
and is still considerably ahead of any other country.
Yet this figure evaluates output in the rest of the
world’s countries at market exchange rates. When
the figures are recalculated, using the real purchas-
ing power of different currencies, the U.S. share
drops to 15.6%, behind China’s 17.9% of world
output. Of course, as China has a much larger pop-
ulation than the United States, even using the pur-
chasing power figures, per person GDP in the U.S.
is almost four times greater than in China; it would
be almost 7 times greater using the market exchange ››

ing that most of those checks would never be cashed; they would simply be used like money among other people. The
stability this arrangement created also worked well for many other countries.
The dollar system, however, ended in 1971. A combination of heavy private and government (largely military)
spending abroad and inflation and recession at home meant that the U.S. government could no longer maintain the
$35 per ounce of gold relationship and abandoned the system (closed the “gold window”). The dollar continued to play
a central role in global commerce, but through a series of changing arrangements, which were accompanied by greater
instability in currency relationships.
The Bretton Woods agreements also created the International Monetary Fund, the World Bank, and the General
Agreement on Tariffs and Trade (precursor to the World Trade Organization). These institutions, dominated by the U.S.
and allied governments, have played major roles in affecting both the organization of the global economy and of many
national economies.
The Bretton Woods conference was very much dominated by the United States. This country’s great economic pow-
er—largely unscathed by war devastation experienced elsewhere—placed it in position to insist on rules and regula-
tion for the international economy that would decisively establish it as the one superpower in the capitalist world, de-
moting Britain to the status of junior partner. As a wartime ally of the United States, the Soviet Union took part in the
Bretton Woods conference, but—perhaps needless to say—did not sign the agreements.

JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  27

 T H E G L O B A L E C O N O M Y T O D AY
rates. (See box on market exchange rates and pur-
chasing power comparisons.)
The rise of China has not moved the United
States off its pedestal as the world’s dominant eco-
nomic power. Moreover, U.S. military strength
remains dominant in world affairs. Yet the challenge
is real, even to the point that China has recently cre-
ated an institution, providing development loans to
low-income countries, to be an alternative to the
(U.S.-dominated) World Bank. Investment by
Chinese firms, too, is spreading worldwide. Then
there are the military issues in the South China Sea.
At the same time, the United States is engaged
in seemingly intractable military operations in the
Middle East, and has continued to maintain its
global military presence as widely as during the
Cold War. Having long taken on the role of pro-
viding the global police force, for the U.S. govern-
ment to pull back from these operations would be
to accept a decline in U.S. global power. But, fur-
ther, the extensive and far flung military presence
of U.S. forces is necessary to preserve the rules of
international commerce that have been established
over decades. The rules themselves need protec-
tion, regardless of the amount of commerce directly
affected. The real threat to “U.S. interests” posed
by the Islamic State and like forces in the Middle
East, Africa, and parts of East Asia is not their
appalling and murderous actions. Instead, their
threat lies in their disruption and disregard for the
rules of international commerce. From Honduras
GDP COMPARISONS:
MARKET EXCHANGE RATES AND
PURCHASING POWER PARITY
T o understand the difference between comparing countries’
GDP using market exchange rates and based on purchasing
power, suppose that the market exchange rate between the U.S.
dollar and the peso in another country is one dollar equals one
peso, and with this 1-to-1 exchange rate, this other country has
a GDP that is one-half as large as the U.S. GDP. However, assume
it turns out that one peso in this other county can buy as much
as two dollars in the U.S. That is, in term of purchasing power,
two dollars is equal to one peso. Based on purchasing power,
the two counties have the same GDP.
28  l  DOLLARS & SENSE  l  JANUARY/FEBRUARY 2017
and Venezuela to Saudi Arabia and Iraq, if U.S.
policy were guided by an attempt to protect human
rights, the role of U.S. military and diplomatic
polices would be very different.
Continuing to operate on a global level to halt
threats to the “rules of the game”—in a world were
economic power is shifting away from the United
States—this country is threatening itself with
imperial overreach. Attempting to preserve its role
in global affairs and to maintain its favored terms
of global commerce, the U.S. government may be
taking on financial and military burdens that it
cannot manage. In the Middle East in particular,
the costs of military operations during the 21st cen-
tury have run into the trillions of dollars. Military
bases and actions are so widespread as to limit their
effectiveness in any one theater of operations.
The potential danger in this situation is two-
fold. On the one hand, the costs of these opera-
tions and the resulting strain on the U.S. govern-
ment’s budget can weaken the operation of the
domestic economy. On the other hand, in the con-
text of the rising challenges to the U.S. role in
global affairs and the rising role of other powers,
especially China but also Russia, U.S. forces may
enter into especially dangerous attempts to regain
U.S. power in world affairs—the treacherous prac-
tice of revanchism.
Are There Alternatives?
Although globalization in the broad sense of a geo-
graphic expansion of economic, political, social,
and cultural contacts may be an inexorable process,
the way in which this expansion takes place is a mat-
ter of political choices—and political power. Both
economic and political/military expansion are con-
tested terrain. Alternatives are possible.
The backlash against globalization that appeared
in 2016, especially in the U.S. presidential cam-
paign, has had both progressive and reactionary
components. The outcome of the election, having
had such a reactionary and xenophobic founda-
tion, is unlikely to turn that backlash into positive
reforms, which would attenuate economic inequal-
ity and insecurity. Indeed, all indications in the
period leading up to Trump’s inauguration (when
this article is being written) suggest that, whatever
changes take place in the U.S. economic relations
with the rest of the world, those changes will not
displace large corporations as the principal benefi-
ciaries of the international system.
 Nonetheless, the Sanders campaign demonstrated
the existence of a strong progressive movement
against the current form of globalization. If that
movement can be sustained, there are several reforms
that it could push that would alter the nature of glo-
balization and lay the foundation for a more demo-
cratic and larger changes down the road (Sanders’
“revolution”). Two examples of changes that would
directly alter U.S. international agreements in ways
that would reduce inequality and insecurity are:
Changing international commercial agree-
ments so they include strong labor rights and
environmental protections. Goods produced
under conditions where workers’ basic rights, to
organize and to work under reasonable health and
safety conditions, are denied would not be given
unfettered access to global markets. Goods whose
production or use is environmentally destructive
would likewise face trade restrictions. (One impor-
tant “restriction” could include a carbon tax that
would raise the cost of transporting goods over
long distances.) Effective enforcement procedures
would be difficult but possible.
Establishing effective employment support
for people displaced by changes in international
commerce. Such support could include, for
instance, employment insurance funds and well-
funded retraining programs. Also, there would
need to be provisions for continuing medical care
and pensions. Moreover, there is no good reason
for such support programs to be limited to workers
displaced by international commerce. People who
lose their jobs because of environmental regula-
tions (such as coal miners), technological change
(like many workers in manufacturing), or just stu-
pid choices by their employers should have the
same support.
Several other particular reforms would also be
desirable. Obviously, the elimination of ISDS is
important, as is cessation of moves to extend U.S.
intellectual property rights. The reforms would also
include: global taxation of corporations; taxation of
financial transactions; altering the governance the
IMF, World Bank, and WTO to reduce their role as
instruments of the United States and other high-
income countries; protections for international
migrants and protection of their rights as workers.
The list could surely be extended.
Changes in international economic relations,
however, cannot be separated from political changes.
The ability of the United States and its allies to
shape economic relations is tied up with military
power. Military interventions and the threat of mili-
tary interventions have long been an essential foun-
dation for U.S. power in the global economy. These
interventions and threats are often cloaked in dem-
ocratic or humanitarian rhetoric. Yet, one need sim-
ply look at the Middle East to recognize the impor-
tance of the interests of large U.S. firms in bringing
about these military actions. (Again, see the box on
Smedley Butler.) It will be necessary to build oppo-
sition to these military interventions in order to
move the world economy in a positive direction—
to say nothing of halting the disastrous humanitar-
ian impacts of these interventions.
No one claims that it would be easy to over-
come the power of large corporations in shaping
the rules of international commerce in agreements
or to reduce (let alone block) the aggressive mili-
It will be necessary to build opposition to
U.S. military interventions in order to move
the world economy in a positive direction
—to say nothing of halting the disastrous
humanitarian impacts of these interventions.
tary practices of the U.S. government. The pros-
pect of a Trump presidency certainly makes the
prospect of progressive change on international
affairs—or on any other affairs—more difficult.
There is, however, nothing inevitable about the
way these central aspects of globalization have been
organized. There are alternatives that would not
undermine the U.S. economy (or other econo-
mies). Indeed, these alternatives would strengthen
the U.S. economy in terms of improving and sus-
taining the material well-being of most people.
The basic issues here are who—which groups in
society—are going to determine basic economic
policies and by what values those policies will be
formulated. D&S
A R T H U R M A C E W A N is a professor emeritus at
the University of Massachusetts Boston and one of
the founders of Dollars & Sense.
S O U R C E S are available at dollarsandsense.org.
JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  29
 Hopsopoly

Global beer mergers reach a new level.

BY ROB LARSON

W H E N M A J O R B E E R L A B E L B U D W E I S E R A N N O U N C E D T H AT T H E Y W O U L D
rename their product “America” through the 2016 U.S. election, it raised droll hackles from a variety of observ-
ers. George Will suggested in the conservative National Review that the beer was less than fully American because it was pro-
duced by a foreign-owned firm, an irony also observed in the more liberal Washington Post. John Oliver’s HBO staff did what
most US media did in 2016, and took the opportunity to give more TV time to the Trump campaign, in this case to mock
Trump’s taking credit for the name change. Most commenters counted themselves clever for being aware the Bud label is
foreign-owned, but all of them missed the real point: It’s not that “America” is foreign-owned, but that it’s owned by a brand-
new global semi-monopoly that perfectly represents the power-mongering of neoliberal capitalism.

Macrobrew
There are indeed American men and women who will tell you it broke their hearts when in 2008 Anheuser-Busch was
bought by the InBev transnational. InBev is itself a product of the merged Belgian InterBrew giant and the Brazilian con-
glomerate AmBev, as Barry Lynn reviews in his book on market concentration, Cornered. Lynn observes that this merger,
along with 2007’s union of Miller and Coors under South African Breweries’ control, meant that beer-loving America was
subject to corporate decisions made further and further away, and thus “basically reduced to reliance on a world-bestriding
beer duopoly, run not out of Milwaukee or St. Louis but out of Leuven, Belgium, and Johannesburg, South Africa.”
And now, just Belgium! Unmentioned in any of the recent rash of commentary was that “America’s” owner AB InBev itself
announced this year a $108 billion purchase of SAB Miller, which together would sell about 30% of the world’s beer, including
45% of total beer sales in the United States. The merger would create a “New World of Beer” in which AB InBev will have
“operations across multiple continents and a host of countries,” as the business press described it. The Financial Times projected
that the combined global giant is expected “to control almost half the industry’s total profits.” SAB Miller will also benefit from
bringing its operations under AB InBev’s umbrella, since the latter pays an incredibly low effective tax rate in its Belgian corpo-
rate home, paying well under 1% on its nearly $2 billion profit in 2015.
Of course, regulators have to approve large-scale mergers in each of the many, many countries in which the merged
empires do business. The European Union’s competition laws, and antitrust law in the United States, are meant to bring legal
action against monopolists, or firms planning to merge into something close to one. But in the neoliberal era, a capital fact
is the steep drop-off of anti-monopoly suits—the business press has reported that, from Reagan to Obama, the repeated
promise to aggressively enforce limits to market concentration “hasn’t worked out that way.” And indeed, for the proposed

30  l  DOLLARS & SENSE  l  JANUARY/FEBRUARY 2017

hopsopoly the news is so far, so good. In addition
to Australia and South Africa, the European Union
is set to allow the consolidation, China’s Ministry
of Commerce okayed the plan and the U.S. Justice
Department approved the $100 billion deal, with
reservations (see below).
These approvals require certain divestments—
sales of pieces of the corporate empires before, or
just after, they merge. Such sales can keep market
concentration numbers just low enough for regula-
tors to sign off. Yet these deals are so big that the
divestments are themselves concentrating the mar-
ket—Molson Coors is buying AB InBev’s share of
their currently joint-owned MillerCoors for $12
billion. These spun-off assets mean Molson Coors
will itself have a 25% share of the U.S. beer mar-
ket, second only to the new SAB-AB InBev combi-
nation. In the same way, Constellation Brands
became the third-largest American brewer by buy-
ing several beer labels from the Mexican firm
Grupo Modelo back in 2013, when InBev was
buying it and needed to divest a few brands to
appease regulators.
Tapping the Craft Keg
Smaller-batch craft beers produced by indepen-
dent microbrewers provides limited escape from
monopolized beer. Constellation paid a full $1 bil-
lion for the California craft brewer Ballast Point, in
a move the Wall Street Journal suggested “signals
that the craft-beer industry, which has a roughly
10% market share in the U.S., has crossed a thresh-
old and become a big business that large brewers
expect to continue to grow in the years to come.”
The growth potential of microbrews is a valuable
opportunity for the majors, especially considering
that beer’s share of total U.S. alcoholic-beverage
spending fell in 2015 for the sixth straight year,
and not just to its perennial foe—wine—but also
to liquor as the craft cocktail trend flourishes. And
this is in spite of the industry spending over a bil-
lion (yes, billion) dollars annually just on TV ads.
This all means that the future growth center of
microbrews is increasingly essential to the industry
majors, as are export markets. But the growth hopes
for microbrews are dimming. The industry must
look fearfully at the slowing growth of craft labels,
with a mid-single digit growth rate in 2015-16,
down from double digits in previous years. What
growth there is, is concentrated in the labels held by
the industry giants. Market observers notice that
while niche labels are still taking market share from
the majors, albeit more slowly, “AB InBev’s own
U.S. craft portfolio … increased sales 36% in the
first half [of 2016]. After a spate of acquisitions,
most notably that of Goose Island, AB InBev is the
third-largest craft brewer in the country,” although
that reflects the fragmented contours of that market
segment. In the less concentrated craft market, few
beers have a large market share, unlike in large-scale
commercial brewing. The Journal notes, “Craft beer
accounts for just 1% of the company’s total vol-
ume,” still an important future growth center for
what they call “big beer.”
That slowing craft growth is having big effects on
the markets for beer ingredients, especially hops, the
flowering body of the Humulus lupulus plant used to
give beers their bitter or sweet flavors. Hops suppli-
ers haven’t been able to keep up with spiking demand
from craft brews for a wide array of obscure varieties,
despite a growing proportion of U.S. hops growers
Budweiser’s owner, Belgium-based AB InBev,
announced this year a $108 billion purchase of
SAB Miller. The resulting hopsopoly would sell
about 30% of the world’s beer, including 45% of
total beer sales in the United States.
producing for small labels since the global brands’
hops are now mostly grown in Germany. The slow-
growing plant, and the fast-changing demand for
particular varieties have limited the ability of hops
growers to keep pace, and with the market’s own
growth now slowing, the fear is rising of an oversup-
ply in the industry if crops are only harvested as
demand fades. The very small size of the many craft
labels, and their uncertain prospects, means farmers
are often resistant to committing their production
to obscure microbrewers.
Growth-seeking is also driving the major brew-
ers toward foreign markets, as the New York Times’
DealBook feature observes that “in China,
Anheuser-Busch InBev and SABMiller are betting
on premium products,” with “the two beer behe-
moths” buying up large stakes in China’s top-
selling brands. “Together, the international brew-
ers account for about one-third of the overall beer
market in China. As they pursue a merger, given ››
JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  31
 H O P S O P O LY
their dominance, Anheuser-Busch InBev and
SABMiller are expected to prune their portfolio in
China to keep regulators happy,” and indeed the
popular Snow brand was ultimately sold off to a
Chinese state-owned company.
These different growth prospects are all threat-
ened by a gradual worldwide reconsideration of
health benefits of modest alcohol consumption.
While public health agencies had for years consid-
ered small amounts of alcohol to have some health
upsides (mostly heart-related), the emerging view
is that these benefits are outweighed by health
risks, leading to a growing number of health agen-
cies amending their guidance to recommend lower
levels of consumption.
As with other industries, from tobacco to chem-
icals, the industry is pushing back in significant
part by getting directly involved in the research
process. A former cigarette-industry executive now
working for booze giant Diageo claimed in the
press that a study critical of alcohol advertising was
“junk science” and said, “We push back when there
are dumb studies.” This raises again the prospect of
“science capture,” the growing phenomenon of pri-
vate entities with a material interest attempting to
influence the scientific process. Indeed, some are
funding their own research, the findings of which
unsurprisingly support the economic activity of
the industry doing the funding.
High-Proof Political Economy
The corporate beer empires aren’t shy about using
their newly enlarged market power, either. Cornered
author Barry Lynn recounts a classic episode in
which Anheuser-Busch targeted Boston Beer, the
owner of Sam Adams:
For reasons still not entirely clear, the giant firm
unleashed a devastating, multifront assault by armies
of lawyers, lobbyists, and marketers who accused
Boston Beer (to the government and to the public
through the media) of deceptive packaging.
Anheuser-Busch then followed up with an even
more devastating second assault, in which it locked
Boston Beer products out of the immensely powerful
distribution networks that it controls. Ultimately, an
arbitrator rejected all of the megafirm’s contentions,
and Boston Beer survived to brew another day, but
the company, less than 1% the size of Anheuser-
Busch, was left on the verge of bankruptcy.
Boston Beer remains the second-largest U.S.
craft brewer, but the industry has not forgotten this
power play.
And today’s even-bigger corporations are brewing
up new retail-level strategies. The Journal reports that

Economies of Ale
S cale economies occur when a firm’s per-unit costs decrease as the scale of production increases. Typically observed
in industries, like manufacturing, that have high up-front costs, economies of scale arise from “spreading” a large
starting investment over a growing amount of output. A brewery that cost $10 million to build, and which produces
one million cans or bottles in a year, would have a per-unit fixed cost of $10. Producing ten million cans, the per-unit
fixed cost is just a dollar per can. The big costs of brewing tanks, sturdy equipment for mixing the ground grains and
the flavorful hops, the cost of the actual brewery structure itself—all add to a brewery’s starting investment and create
the potential for scale economies.
Economies of scale are usually observed at the plant or factory level, but can also arise at higher levels of operation,
including in administration. For example, two large companies may merge and then lay off one of their human resourc-
es departments, if one computerized HR office can handle all the employees at the new, merged firm. But these returns
to scale, associated with a higher level of market concentration, are often counterbalanced by increasing layers of cor-
porate bureaucracy and the challenges of managing large commercial empires.
So returns to scale constitute strong incentives for firms to grow, both in dollar terms and in market share, gaining
scale and profitability. They do have limits, but once firms have reached large and cost-efficient sizes they are often
happy to go on growing or merging, in order to gain more market power. The result is that in many industries, from the
manufacturing sector to telecommunications to financial services, rich competitive markets give way over time to oth-
er market structures, including the few large companies of an oligopoly or the single colossal monopolist.

32  l  DOLLARS & SENSE  l  JANUARY/FEBRUARY 2017

AB InBev had planned to “offer some independent
distributors in the U.S. annual reimbursements of as
much as $1.5 million if 98% of the beers they sell are
AB InBev brands.” The money would come in the
form of the conglomerate footing the bill for distribu-
tors’ share of marketing costs, like displays at the retail
level. The move has craft brewers crying foul, and
understandably, since it leaves independents with a
pitifully small fraction of store display space and pro-
motion dollars left for them to fight over. The incen-
tive plan also requires that distributors only carry craft
brewers that operate below certain low thresholds of
annual production, which most do.
The importance of this corporate proposal lies in
the middle-man layer of the industry, created by
state laws at the end of Prohibition. Beer brewers
must sell their output to distributors, who then sell
it on to the retailers where you pick up a six-pack.
While there are hundreds of distributors in the
United States, most are under agreement to sell
exclusively either product from AB InBev or
MillerCoors. But in addition to deals like these, the
beer manufacturers are also able to buy and operate
their own distributors—the state of California is
investigating AB InBev after it bought two distribu-
tors in the state, with concerns about the giant
declining to carry independent micros. The com-
pany presently owns 21 distributors in the United
States and has further used its gigantic revenues to
continue buying up independent brewers like Goose
Island—now part of the global company and thus
available to AB InBev’s distributors—on its terms.
Raise a Glass
Popular opposition to the megamerger has been
scattered, in a year punctuated by billion-dollar
mergers in agriculture, chemicals, insurance, and
drugs. In South Africa, a market important
enough to require merger clearance as a condition
of the deal (and the “SA” in “SABMiller”), a labor
union objected to the deal’s terms. Among those
terms are rules covering a 2010 issue of SAB
shares to workers and retailers, which would have
matured in 2020. The union membership prefers
to “cash out” earlier, or be granted an up-front
payment in addition to the existing shares. Labor
opposition to market concentration is always
notable, although this case revolves more around
the treatment of the workforce on a quite specific
compensation issue, rather than an objection to
capital accumulation in general.
The ultimate approval of the merger by the South
Africa’s Competition Tribunal was significantly a
foregone conclusion. As Bloomberg observes, South
Africa’s bond rating has been downgraded, reflecting
world investor fear of policy changes not to their
advantage. This meant that the country’s leader,
President Jacob Zuma of the African National
Congress (ANC), was especially eager to approve the
megadeal, all the more after recent poor showings for
the ANC in local races. This led to unusually prompt
action by Zuma—Bloomberg noted in March 2016
that “SABMiller itself is still waiting for approval to
merge its African soft-drink bottling assets, 15
months after it filed the request,” while the AB
InBev-SAB merger took just half that time.
A number of other unions represent organized
brewery workers in the United States, including the
Machinists, the Operating Engineers, the Auto
Workers, and the International Brotherhood of
With the worldwide trend for tighter corporate
ownership and global oligopoly, it’s the
investor class that’s getting fat off our beer.
A more aggressive labor movement of
organized malters and brewers, reinforced by
irate craft consumers, could resist further job
cuts and demand bolder regulatory
roadblocks to this consolidation.
Teamsters (IBT). The IBT lodged an objection to a
particular feature of the deal, writing a letter to the
Attorney General requesting antitrust scrutiny of the
related closure of the “megabrewery” operated by
MillerCoors in Eden, N.C. While MillerCoors is to
be sold to Molson as part of the deal, the closure does
affect the market significantly, particularly since the
huge facility produces 4% of all U.S. beer output,
making the reduction more than can be compen-
sated for at other facilities. This significant tighten-
ing of supply raised the question of antitrust viola-
tion to the IBT, due both to the further concentration
of the market but also to the fact that the facility was
essential for rival brewer Pabst, which for years has
not brewed its own hipster swill but has had it ››
JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  33
 H O P S O P O LY
produced by Miller under contract at the Eden brew-
ery. Miller had previously indicated it has no interest
in maintaining the deal past its expiration. The U.S.
legal settlement appears to make no mention of this
issue, but Pabst is now suing Miller over the terms of
their brewing agreement, and the IBT lawsuit against
Miller continues. For their part, unions from the
acquiring company have also been skeptical, noting
that the giant corporation has cut its Belgian work-
force in half, to just 2,700 over ten years. The Times
reports, “They also predict that the company will
load up on debt to buy SABMiller, leading to pres-
sure for further cutbacks.”
Beyond labor, the large and still-growing craft
sector of the marketplace has looked with suspicion
on industry consolidation for some time and had a
clear eye of the stakes, if not typically engaging in
action beyond contacting legislators or regulators.
The press in brewery-heavy St. Louis describes how
craft independents view the deal “warily,” as “smaller
breweries remain worried a larger A-B InBev will
have more influence on what beers retailers stock on
their shelves and hamper access to supplies such as
hops.” They also see influence-building intent
behind legislation the corporations have supported,
like a bill passed by the Missouri state legislature
allowing brewers to lease large commercial coolers to
retailers. Craft brewers oppose the governor signing
the bill, “arguing only large brewers such as A-B
InBev can afford to buy the coolers, which will likely
be filled by retailers with A-B brands.”
Likewise, industry rag All About Beer Magazine
has expressed enormous skepticism of not just the
new megadeal but the whole history of consolidation
in the industry, in the United States and the UK.
In a beautiful expression of widespread market-
skepticism, Lisa Brown wrote, “This is about a com-
pany that has historically used the strategy of control-
ling and purchasing the wholesale tier of the industry
now getting much more influence and potential con-
trol of that sector, while also gaining a lot more spend-
ing money for lawyers and lobbying.”
Reflecting these popular sentiments, the Brewers
Association—the industry group representing the
many small craft brewers and independent labels—
requested significant safeguards from the
Department of Justice should the deal clear. It
wanted an end to AB InBev’s preferential distribu-
tion and limits to its “self-distribution” plans, since
influence over distributors gives big brewers an addi-
tional potential lever of power over retailers.
Evidently the DoJ heard the complaints, because
(happily for today’s craft drinkers) the department’s
allowance of the merger came with numerous

OPIATE OF THE MASSES

F ittingly, the first great scholar of capital concentration, Karl Marx, was a product of the beer-loving German people.
Marx pioneered the study of capitalism’s near-universal gravitational tendency, and for today’s economy we have
an analytical vocabulary to help understand the growth of capital.
• Concentration of capital, the growth of market share by a few big firms within a market.
• Consolidation, the growth of corporate capital by buying firms in separate industries.
• Capital accumulation, the overall growth in the capital stock of an economy.

Marx wrote in his giant classic study, Capital, that “The laws of this centralization of capitals, or of the attraction of capital
by capital,” depended ultimately on “the scale of production. Therefore, the larger capitals beat the smaller. It will further be
remembered that, with the development of the capitalist mode of production, there is an increase in the minimum amount
of individual capital necessary to carry on a business under its normal conditions.” In other words, fancier technology and
more expensive investments make it harder for small brewers to operate at the low costs of established firms.
Many more conservative economists have resisted this conclusion, and insisted that free markets have an endur-
ingly competitive character, even in older industries. Friedrich Hayek, the Austrian economist and one of the conserva-
tive world’s most revered thinkers, derided the argument that “technological changes have made competition impos-
sible in a constantly increasing number of fields. … This belief derives mainly from the Marxist doctrine of the ‘concen-
tration of industry.’”
Marx might reply by raising a glass in toast, filled with amber-hued global corporate beer.

34  l  DOLLARS & SENSE  l  JANUARY/FEBRUARY 2017

conditions on top of the planned divestments, with
some directed at these kinds of maneuvers. The
department limited AB InBev from enforcing dis-
tributor incentive deals (like the one above), and
crucially imposed a cap of 10% on the proportion of
AB InBev’s sales that can be sold through wholly-
owned distributors. This is intended to limit the
giant’s influence over distribution and hopefully
reserve shelf space for independent labels.
The agency further put the Big Beer giant under
a new requirement to submit for approval all acqui-
sitions of craft beers for the next ten years, benefit-
ing consumers desiring a wider range of brews, and
preserving more successful independents from cor-
porate concentration. These requirements, resulting
from demands for redress from retailers and craft
brewers, do sound satisfyingly stringent. However,
the firm retains enormous market power, is strategi-
cally positioned to grow in developing markets
(especially in Africa), and can be expected to work to
undermine or evade these rules in the future. As
always, antitrust rules keep oligopoly from maturing
into full monopoly, and impose meaningful limits
on anticompetitive practices, at least when enforced
aggressively. That enforcement tends to ebb and
flow however, and it’s unclear how the Trump
administration will prioritize breaking up giant
mergers with its emerging neoliberal shape.
With the worldwide trend for tighter corporate
ownership and global oligopoly, it’s the investor class
that’s getting fat off our beer. A more aggressive labor
movement of organized malters and brewers, rein-
forced by irate craft consumers, could resist further
job cuts and demand bolder regulatory roadblocks to
this consolidation. Or better yet, rather than choos-
ing your poison between super-concentrated markets
or moderately concentrated ones, an incensed and
tipsy anticapitalist movement could take over these
global giants’ facilities and brew the beers themselves.
There are few consumers who enjoy shop-talk
about their personal favorites more than beer
drinkers, providing a natural opportunity for shar-
ing this and other episodes of capitalist globaliza-
tion. Raising consciousness about capitalism’s pre-
dations, even in beer, could encourage a movement
to socialize brewing. In a democratically managed
economic system, the freewheeling ethos of the
microbrew movement would be free to flourish
without being blackballed out of the market by the
majors, or bought out if they manage to succeed.
Now that would be a happy hour! D&S
R O B L A R S O N always preferred whiskey anyway.
He’s a professor of economics at Tacoma Community
College and author of Bleakonomics and the forthcom-
ing Capitalism vs. Freedom. He lives in Tacoma, Wash.
S O U R C E S : Tripp Mickle, “Budweiser to Rebrand Beer to
America Through Elections,” Wall Street Journal, May 11, 2016 (wsj.
com); George Will, “This Bud’s for You, America,” National Review, May
18, 2016; Travis M. Andrews, “Budweiser seeks approval to be called
‘America’ this summer,” Washington Post, May 10, 2015 (washington-
post.com); Tripp Mickle and Saabira Chaudhuriab, “InBev’s SABMiller
Deal Still Faces Hurdles,” Wall Street Journal, Nov. 11, 2015; Barry Lynn,
Cornered: The New Monopoly Capitalism and the Economics of Destruc-
tion (John Wiley & Sons, 2009); James Fontanella-Khan and Patti
Waldmeir, “China brewer sale clears path to AB InBev’s £71bn SAB-
Miller deal,” Financial Times, March 2, 2016 (ft.com); James Kanter,
“Anheuser-Musch InBev Aims Its Tax-Trimming Skills at SABMiller,” New
York Times, Oct. 19, 2015 (nytimes.com); Leonard Silk, “Economic
Scene; Antitrust Issues Facing Reagan,” New York Times, Feb. 13, 1981;
Brent Kendall, “Justice Department Doesn’t Deliver on Promise to
Attack Monopolies,” Wall Street Journal, Nov. 7, 2015; Foo Yun Chee
and Martinne Geller, “EU regulators to conditionally clear AB Inbev,
SABMiller deal,” Reuters, May 20, 2016; Tripp Mickle and Saabira
Chaudhuriab, “SABMiller Board Backs AB InBev’s Higher Offer,” Wall
Street Journal, July 29, 2016; Tripp Mickle and Brent Kendall, “Justice
Department Clears AB InBev’s Takeover of SABMiller,” Wall Street
Journal, July 20, 2016; Gina Chon and Scheherazade Daneshkhu, “AB
InBev-SABMiller merger critics in US seek concessions,” Financial Times,
Dec. 8, 2015; Tripp Mickle, “Constellation Brands to Buy Craft-Beer
Maker for $1 Billion,” Wall Street Journal, Nov. 16, 2015; Tripp Mickle,
“Cocktails Sip Away at Beer’s Market Share,” Wall Street Journal, Feb. 15,
2016; Nathalie Tadena, “Bud Light is a Heavier TV Ad Spender than its
Peers,” Wall Street Journal CMO TOday blog, May 22, 2014; Trefis Team,
“Does The Declining U.S. Beer Trend Spell Doom For Brewers?,” Forbes,
June 29, 2015 (forbes.com); Stephen Wilmot, “Why Craft Brewing
Slowdown Won’t Benefit Big Beer,” Wall Street Journal, Aug. 26, 2016;
Tripp Mickle, “Trouble Brewing in the Craft Beer Industry,” Wall Street
Journal, Sept. 27, 2016; Amie Tsang and Cao Li, “China embraces Craft
Beers, and Brewing Giants Take Notice,” Dealbook, New York Times, Jan.
15, 2016; Justin Scheck and Tripp Mickle, “With Moderate Drinking
Under Fire, Alcohol Companies Go on Offensive,” Wall Street Journal,
Aug. 22, 2016; Tripp Mickle, “Craft Brewers Take Issue With AB InBev
Distribution Plan,” Wall Street Journal, Dec. 7, 2015; Tripp Mickle,
“Anheuser Says Regulators Have Questioned Pending Distributor
Buyouts,” Wall Street Journal, Oct. 12, 2015; Tripp Mickle, “AB InBev
Defends SABMiller Buy to Senate,” Wall Street Journal, Dec. 8, 2015;
Tripp Mickle, “AB InBev Facing Union Opposition to SABMiller Acquisi-
tion,” Wall Street Journal, June 3, 2016; Janice Kew, “Zuma Appeal to
Business Bodes Well for AB InBev-SAB Beer Merger,” Bloomberg News,
March 15, 2016; James P. Hoffa, president, International Brotherhood
of Teamsters, letter to U.S. Attorney General Loretta Lynch, June 6,
2016 (teamster.org); Bruce Vielmetti, “Historic brewing names Pabst,
MillerCoors locked in legal battle,” Milwaukee Journal Sentinal, May 5,
2016 (jsonline.com); Lisa Brown, “Craft brewers eye merger of A-B
InBev and SABMiller warily,” St. Louis Post-Dispatch, June 26, 2016
(stltoday.com); Lew Bryson, “Mega-Merger? How About No?,” All About
Beer Magazine, May 17, 2016; Brewers Association press release,
“Brewers Association Statement on AB InBev Acquisition of SABMiller,”
July 20, 2016; U.S. District Court for the District of Columbia, United
States of America v. Anheuser-Busch InBev SA/NV, and SABMiller plc,
July 20, 2016; Karl Marx, Capital, vol. 1, ch. 25 (1867); Friedrich Hayek,
The Road to Serfdom (1944).
JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  35
< Economy in Numbers $
U.S. Immigration in Perspective
BY GERALD FRIEDMAN

I n a 1958 speech to the Anti-Defamation League, later published as a book, then-Senator John F. Kennedy [D-Ma.] called
America a “nation of immigrants.” “The interaction of disparate cultures, the vehemence of the ideals that led the immigrants
here, the opportunity offered by a new life,” Kennedy intoned, “all gave America a flavor and a character that make it as unmis-
takable and as remarkable to people today it was to Alexis de Tocqueville in the early part of the nineteenth century.”
Since the early 19th century, migration to the United States has been among the greatest movements of people in human histo-
ry. Communities and economies have been transformed by the arrival of young people and workers. In successive waves, the send-
ing areas have moved east and south, starting with Great Britain and Ireland, then Germany and Scandinavia, then southern and
eastern Europe, and today Asia, Africa, and Latin America. Each wave of migrants has been met with nativist complaints from those
who came earlier—accusing the new immigrants of ruining American culture and lowering wages. Instead, each wave has contribut-
ed to the making and remaking of American culture, and the best evidence is that immigration raises income and wages. D&S
G E R A L D F R I E D M A N is a professor of economics at the University of Massachusetts-Amherst.
S O U R C E S : Migration Policy Institute tabulations of the U.S. Department of Homeland Security, Office of Immigration Statistics, Yearbook of Immigration Statistics, various
years (dhs.gov); Gianmarco Ottaviano and Giovanni Peri, “Immigration and National Wages: Clarifying the Theory and the Empirics,” National Bureau of Economic Research
(NBER) working paper, July 2008 (nber.gov); Michael Greenstone Adam Looney, “What Immigration Means For U.S. Employment and Wages,” Hamilton Project, May 12, 2012
(hamiltonproject.org); George J. Borjas and Lawrence F. Katz, “The Evolution of the Mexican-Born Workforce in the United States,” in J. Borjas, ed., Mexican Immigration to the
United States, NBER, May 2007 (nber); Heidi Shierholz, “Immigration and Wages,” Economic Policy Institute, Feb. 4, 2010 (epi.org).

Figure 1: Annual Arrivals as Percentage of Population While the share of annual immigrants in the American
1.8% population has been rising in recent years, it remains well
1.6% below the level of the 19th century. Beginning with the
Irish and German migrations of the 1840s, successive waves
1.4%
of immigrants—from Scandinavia, then from Eastern Europe,
1.2%
and then from Southern Europe—each brought the number
1.0% of annual arrivals to 1%, or even more,of the existing U.S.
0.8% population. Legal restrictions, following the First Red Scare of
0.6%
1917-1920, as well as the Great Depression and the two
World Wars nearly stopped immigration in the 1930s and
0.4%
1940s. Since then, the annual flow of immigration has risen
0.2% slowly but steadily until it now equals over 0.3% of the U.S.
0.0% population, barely a quarter the level of the great immigra-
tion waves of the 19th century.
1821
1828
1835
1842
1849
1856
1863
1870
1877
1884
1891
1898
1905
1912
1919
1926
1933
1940
1947
1954
1961
1968
1975
1982
1989
1996
2003
2010

Immigrants increase wages of native-born workers. Nativists and others op-

posed to immigration argue that, by increasing the number of people competing Figure 2: Effects of Immigration on Wages
for work, immigration lowers the wages of native-born workers. Most econo- of U.S.-Born Workers, 1990-2006
mists, however, have found little effect of immigration on wages, even in localities 1.0%
with large inflows. Immigration has little or no negative effect on the wages of 0.9%
native-born workers because immigrants are often not very close substitutes for 0.8%
native workers. Many immigrants have less education or training than native 0.7%
workers and therefore compete for different occupations, for the most part com- 0.6%
peting with other immigrants rather than with native-born workers. Immigrant 0.5%
workers, in addition, often have quite different skills and training from even native 0.4%
workers of comparable education. Instead of lowering wages by increasing the 0.3%
supply of labor-market competitors, immigrants can increase the demand for 0.2%
native-born workers by providing complementary workers, such as dishwashers 0.1%
to work with native-born cooks and wait staff, or building laborers to work with 0.0%
native-born carpenters and electricians. No High High Some College All
After taking account of the different substitution and complementary effects, School School College Graduate workers
Diploma Diploma
economists Gianmarco Ottaviano and Giovanni Peri argue, immigration has a rela-
only
tively small positive effect on the wages of less skilled native-born born workers, a
larger positive effect on the wages of the more-skilled, and a positive effect overall.

36  l  DOLLARS & SENSE  l JANUARY/FEBRUARY 2017

< In Review
All Parts Are Not Created Equal
Inequality: What Everyone Needs to
Know, by James K. Galbraith (Oxford
University Press, 2015).
BY STEVEN PRESSMAN
M ore than anything else, inequality
has been the economic and so-
cial issue of the 21st century. It has also
affected politics. Falling incomes and
fears of continued downward mobility
helped propel Donald Trump to the
White House.
In his latest book, James Galbraith,
economist and professor at the
University of Texas’s Lyndon B. Johnson
School of Public Affairs, guides us
through the issues surrounding inequal-
ity—how it is measured, what causes it to
rise, why it is bad, and how to reduce it.
While containing many strengths,
including the author’s deep under-
standing of the problem, Inequality is
rather uneven. Galbraith frequently
misses the obvious; at other times, he
clearly has an ax to grind.
Measuring inequality requires reli-
able data. Galbraith clearly explains
why the two main data sources are
problematic. Survey data on incomes
are top coded at $1 million, making it
hard to know what is happening at the
very top of the distribution; and tax
data only includes taxable income.
However, he ignores two other mea-
surement issues—differences in
household size and differences in re-
gional cost of living. A single person
living in a rural area may have the
same income as a family of four in a
large city, but they do not have equal
living standards.
Further complications arise when
we seek a single measure of inequality.
Economists favor the Gini coefficient.
Galbraith explains its derivation and its
technical limitations, but not its main
drawback—the intuitive meaning of
the numbers. To the contrary, he con-
tends the numbers are easy to com-
prehend. But, really, what does a Gini
of .433 mean?
Inequality does an excellent job of
summarizing the main economic ex-
planations for rising inequality and
debunking the two standard ones
(technical change and globalization).
Yet it fails to make one key point—all
developed countries have been sub-
ject to these two forces but in some
(e.g., Denmark and France) inequality
has not increased.
The first chapter makes a very good
case for greater equality—inequality
lowers spending and economic
growth, and gives political power to
those with lots of money to contribute
to political campaigns. The last chapter
makes a rather bizarre case for equal-
ity—more egalitarian societies are
more likely to win wars.
The main shortcoming of Inequality
is that it spends too much time criticiz-
ing Thomas Piketty’s Capital in the 21st
Century, which Galbraith clearly dis-
likes. He published a highly critical re-
view of it in Dissent Magazine in spring
2014. Here he repeats his earlier criti-
cisms and adds some new ones.
Galbraith is correct that Piketty errs
by using “wealth” and “capital” inter-
changeably. Likewise, he is correct that
Piketty offers no explanation for why
the rate of return on wealth (which
Piketty designates “r”) should remain
constant over several centuries, or why
it should typically exceed the rate of
economic growth (“g”). These are gaps
in Piketty’s analysis, but they do not
undermine his main point: r > g leads
to greater inequality over time.
On the other hand, Galbraith inad-
visedly criticizes Piketty for ignoring
benefits such as Food Stamps and
JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  37
Medicaid, when measuring inequality.
Most inequality measures do so. Food
Stamp benefits are very small; and it is
hard to understand why Medicaid ben-
efits should be added. One’s living stan-
dard is not any greater due to expensive
health problems that require using
Medicaid benefits.
Galbraith also errs when he argues
that inflation counters Piketty’s results.
Piketty estimates r and g after inflation is
taken into account; inflation affects them
both equally.
Finally, Galbraith’s case against
Piketty’s wealth tax is rather perplexing.
He opposes it because people may be
forced to sell assets to pay the tax, re-
ducing the assets’ value, and therefore
causing us to overtax the rich. This is a
strange case for a champion of equality
to make. Galbraith instead supports a
land tax, as proposed by the American
economist Henry George (1839-1897),
as well as higher inheritance taxes. He
also supports greater union power and
a higher minimum wage.
However, a land tax falls dispropor-
tionately on middle-income homeown-
ers with large mortgages. This is because
a very large fraction of the wealth held
by middle-class households consists of
their home equity, and most land taxes
(such as property taxes) ignore the debt
undertaken to own land. Furthermore,
taxing land values may lead to just the
sort of the forced selling that Galbraith
opposes. And there are better policy
options. We can expand social insurance
programs (such as Social Security, paid
parental leave, and unemployment in-
surance), rely more on the corporate
income taxes, and make the individual
income tax more progressive.
Of course, none of this is likely to hap-
pen in the next four years. Given
President Trump’s policy pronounce-
ments, there will likely be huge tax cuts
for the wealthy and inequality will remain
the issue of our time. D&S
S T E V E N P R E S S M A N teaches eco-
nomics at Colorado State University and is
the author of 50 Major Economists
(Routledge, 2011).
< Ask Dr. Dollar
The Fallout from Subcontracting
Dear Dr. Dollar:
Has there ever been a study done on the economic impact of subcontracting on
a local community? When, for example, a school district subs out its custodial
work, with the obvious concomitant reduction of pay and benefits suffered by the
employees involved, has anyone ever tried to determine the economic impact on
the local community? — Paul Gottleib, Montgomeryville, Penn.
BY ZOE SHERMAN
A t a former workplace, I had some
full-time, year-round, benefits-
eligible coworkers on the janitorial and
security staff. Over the years I was
there, an increasing proportion of the
cleaning and security work was trans-
ferred to subcontracted cleaning and
security companies.
My first impulse was to do the
mental arithmetic this way: If the in-
stitution finds it more cost effective
to subcontract the work rather than
hire directly, they must pay the com-
pany supplying the services less than
they pay their own employees. In ad-
dition, the subcontracting company
must take a cut. (For example, a
friend who was employed by a temp
agency around the same time told
me her agency took a one-third cut: If
a client paid the agency $15/hour for
her to show up and do some work,
she herself would get paid $10/hour
for that work.) So that means the
people actually in the building doing
the work as subcontractors must be
getting paid a lot less than people
who were hired directly.
In addition, subcontracting raises a
host of other issues, beyond just pay
and benefits questions. Under a sub-
contracting relationship, the people
who do the work are not directly em-
ployed by the institution for which
they perform the assigned work tasks.
Instead, subcontracting inserts an
intermediary between the worker and
the ultimate employer. The intermedi-
ary can in principle, and even some-
times in practice, make the process of
matching workers and employers
more efficient: The employer can
38  l  DOLLARS & SENSE  l JANUARY/FEBRUARY 2017
make one call and pay one invoice
and have as many workers as needed,
rather than dealing with recruitment
and hiring and payroll. (The interme-
diary who does deal with all the re-
cruitment, hiring, and payroll can en-
joy economies of scale on those
tasks.) Workers, meanwhile, can be
matched to any number of jobs with-
Inequality is rising
between workers
and bosses and also
among workers.
There is a strong case
that subcontracting
and other “flexible
staffing arrangements”
contribute to both of
those disparities.
out having to take on the costs of
searching and applying for many jobs.
This sounds great, except that sub-
contracting reshapes power relation-
ships in ways that keep the rewards of
efficiency gains beyond most workers’
grasp. A common pattern identified
by economist Ian Taplin in his study of
the apparel industry is this: A “core”
firm will subcontract out the most
labor-intensive, lowest-profit-margin
portions of the production process.
The subcontractors are dependent on
the core firm for sales and locked in
intense price competition with one
another. The flexibility gained by the
core firm is “squarely predicated upon
deskilling, wage depression, and la-
bor intensification,” often carried out
within the subcontracted companies.
In other words, whatever gain sub-
contracting brings too often come at
the expense of workers’ employment
security and their ability to use their
voice to affect working conditions at
their workplace. The labor-market
intermediaries that match workers to
jobs—for-profit temp agencies and
the like—can make demands on
workers’ availability to work, but only
pay them when they have a customer
for that work. The intermediaries also
increase the administrative distance
between the workers and the people
whose decisions most directly affect
their working conditions. That dis-
tance weakens the social reciprocity
that a direct, long-term employment
relationship can sometimes foster and
lessens the opportunity for collabora-
tive problem solving. Subcontracted
workers are more easily discarded and
replaced, so subcontracting also
weakens workers’ ability to exercise
voice in more combative ways, such
as strikes. And subcontracting can
sometimes be a cover for discrimina-
tory employment practices, making it
harder to enforce equal employment
opportunity standards.
So subcontracting can be tough on
the workers who are most directly
affected. You asked, though, how it
affects the larger community. That’s a
multi-headed hydra of a question.
In the example of a school district
subcontracting custodial work, de-
cent-paying employment opportuni-
ties disappear and lower-paying jobs
appear in their places. Custodians’ in-
come goes down, so they buy less.
Their reduction in spending means a
loss of income for the people they buy
things from. Now that those people’s
income is lower, they spend less too,
and so on. This ripple effect multiplies
the initial loss of income into a larger
loss of aggregate income for the
whole population.
 $?

In addition, many factors other
than lower income for the workers
cleaning the school are in play. Do the
same individuals keep doing the
work, but under worse conditions? Or
are the subcontracted workers differ-
ent people? And if the subcontracted
workers are different people, what
happens to the people who lost their
jobs? What does the district do with
the money it does not spend on de-
cent pay, benefits, and working condi-
tions for custodial workers? If budget-
ing in your school district looks like
budgeting in my district, perhaps the
district spends any money it squeezes
out of the custodial services budget
on maintaining comparable levels of
health benefits paid to teachers in the
face of rising insurance premiums. In
that case the choice to subcontract
custodial services reallocates income
from workers who maintain school
buildings to a few other recipients: to
the owners and direct employees of
the subcontracting company, to those
who work at health insurance compa-
nies and, to the extent that teachers
use their health insurance benefits to
get care, to those who work in the
medical sector. In the for-profit sector,
subcontracting tends to concentrate
economic rewards in the hands of the
company at the top of the hierarchical
production structure.
The intermediation and job insecu-
rity associated with subcontracting, like
the changes in income, can also have
spillover effects on the community at
large. There are two competing tenden-
cies for how subcontracting and other
types of what are called “flexible staff-
ing arrangements” affect other workers.
Employers could offer full-time, long-
term employment to those employees
they would find hardest to replace by
concentrating the risk and desired flex-
ibility on the temporary/contingent/
subcontracted workers. A study of in-
dustries in Alabama in the 2000s found
that this divergence within the work-
force was significant: the greater an
employer’s use of flexible staffing ar-
rangements to manage fluctuations in
demand for their products, the greater
the employment stability for a core of
full-time workers. Job quality for some
workers is maintained at the expense of
other workers.
On the other hand, having an avail-
able employment arrangement that
directly disempowers the workers who
are caught in it can weaken the bargain-
ing position of all workers. Sociologist
Erin Hatton argues in her book The Temp
Economy that the growth of the temp
industry has culturally legitimated treat-
ment of workers as disposable and
shrinks the steady employment core. In
other words, job quality for all workers is
threatened; the interests of employers
are protected at the expense of workers.
Macroeconomic data suggest that
both things are happenings in the U.S.
economy: overall, workers are in a
weaker position and inequality be-
tween workers and owners is rising.
Inequality is also rising among workers.
A small group of well-compensated
workers—often salaried profession-
als—occupy the rungs just below own-
ers on the income distribution ladder
while a widening swath of the popula-
tion is confronted with stagnant or fall-
ing wages. There is a strong case that
subcontracting and other “flexible staff-
ing arrangements” contribute to both
of those disparities. D&S
Z O E S H E R M A N is an assistant
professor of economics at Merrimack
College and a member of the Dollars &
Sense collective.
S O U R C E S : Cynthia L. Gramm and John F. Schnell,
“The Use of Flexible Staffing Arrangements in Core
Industrial Jobs,” Industrial and Labor Relations Review,
January 2001; Erin Hatton, The Temp Economy: From
Kelly Girls to Permatemps in Postwar America (Temple
University Press, 2011).
Questions about the economy?
Ask Dr. Dollar!
Submit questions by email (dollars@
dollarsandsense.org) or U.S. mail (c/o
Dollars & Sense, 89 South St., LL02,
Boston, MA 02111).

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JANUARY/FEBRUARY 2017  l  DOLLARS & SENSE  l  39

Our Economic Well-Being
A Popular Economics Collective Responds to Questions about the Economy
from a United Methodist Congregation

I n 2014, members of the congregation of the Bay Ridge United Methodist

Church took out a half-page ad in the New York Times, posing a question and a
challenge—how can we explain changes in economic well-being in the United
States, especially the broad differences between the post-World War II era, from
the late 1940s to the early 1970s, compared to the era since the early ‘70s? The
congregation offered an “Economic Well-Being Award” to “an economist, or
group of economists, who identify the factors associated with the stronger
economy in the period from 1946 to 1971, and the factors associated with the
weaker economy in the period from 1972 to 2012.”

This new edited volume, Our Economic Well-Being, is a response from the editorial
collective of Dollars & Sense. (Profiles of the BRUMC congregation and the D&S
collective were the basis of “Church Economics Prize,” the February 13, 2015 episode
of the PBS program “Religion and Ethics Newsweekly” (available at pbs.org).)

It’s absolutely clear that the congregation’s question—why the economy doesn’t
seem to work as well for (at least many) ordinary people as it once did—is
among the most urgent questions in the United States today. In the course of
the 2016 presidential election campaign, the message that the economy had
been “rigged,” serving only a small group of wealthy and powerful people,
resonated with millions. That should not be surprising, after decades of wage
stagnation, rising income inequality, declining job security, and increasing
personal debt.

It’s imperative, first, to come up with answers to the congregation’s question,

diagnosing how the U.S. economy took its current form, and how that differs from
what we would want. We can believe that there are, indeed, very serious problems with the U.S. economy, while
rejecting the idea that immigration, social welfare programs, labor unions, regulation of business, or excessive
taxes on the “job creators” are the sources of the problems.

Second, it’s necessary to come up with solutions—to the multiple problems we confront—that are rooted in a spirit
of solidarity and compassion for each other, across lines of race and ethnicity, nationality and immigration status,
gender and sexuality. As the BRUMC congregation put it in its initial letter, we must strive to promote “civil liberty
and economic justice, for all.” This means that our answers to current grievances must reject the scapegoating of
the marginalized, disenfranchised, and downtrodden, and instead seek solutions consistent with the
admonition, from the gospels, to “love thy neighbor as thyself.”

Pre-order your copy today at dollarsandsense.org/OEWB. DOLLARS

Bulk discounts for church groups, community groups, and unions.
&SENSE
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