Ch. 13 The History and Philosophy of Economic Extractionism

"The point is ladies and gentlemen that greed,
for lack of a better word, is good."
- Gordon Gecko, Wallstreet

In the early 1970's the direction in which our economy was moving changed. Pretty dramatically. Production continued to increase, but working class wages plateaued and became stagnant. 

(Side Note: if you want an enlightening, and disturbing snapshot into the true extent of the changes that happened in the early 70's, go take a quick scroll through the website https://wtfhappenedin1971.com/ )

So what the heck did happen in 1971?

Consider that the thinking behind these new economic trends began with Milton Friedman’s opinion piece for the New York Times in 1970.

Friedman titled his opinion piece “The Social Responsibility of Business is to Increase its Profits.” The title alone is pretty cringeworthy...

Here’s a direct quote from Friedman’s piece:

“The businessmen believe that they are defending free enterprise when they declaim that business is not concerned ‘merely’ with profit but also with promoting desirable ‘social’ ends; that business has a ‘social conscience’ and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers. They’re—or would be if they or anyone else took them seriously— preaching pure and unadulterated socialism. Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.” (New York Times, 1970.)

Sound familiar? 

It should, because every conservative talking point about the economy seems to stem from these ideas, and the theory of Shareholder Supremacy. (And let's not forget that scary, scary, scary bogeyman buzzword Socialism.) 

Essentially, what Friedman was saying is this: Eliminating discrimination, unemployment, and even avoiding pollution in the environment is pure socialism undermining the basis of a free society. In his mind, the basis of a free society is really just free, unencumbered markets which exist specifically to increase profits. That’s it, that’s the bottom line. A business is supposed to create value for its shareholders, and that’s it.

This is the philosophy that spawned Reagan's trickle-down policies and the ultimate conversion of our economic culture to one of neoliberalism and Economic Extractionism. 

The idea was sold to the voters who elected Reagan that if regulations on corporations and the wealthiest Americans were reduced or removed, new jobs would be created, and the wealth would trickle back down to the masses.

But in reality, looking at the facts (which can’t be argued with no matter how hard people try to polish Reagan’s legacy), it’s clear that this theory does not work. In fact, these policies led to the greatest wealth redistribution in a generation, the termination of welfare benefits for tens of thousands of Americans, and a dramatic rollback of unions and organized labor movements. 

Reagan not only removed business regulations, he also dropped the tax rate for the wealthy from 70% to 28% (Drier, 2011). According to trickle-down theory, this move should have led to a huge increase in jobs and an increase for the standard of living for the working class. 

Instead, we can see from the facts that the gap between rich and poor grew even larger. The income of the lowest 90% of earners went up by 17%. But due to the inflation rate of 13.5%, most of that increase went right back out the door…into the waiting palms of capitalists.

By contrast, the upper 10% of wealthiest Americans grew their wealth by a staggering 106% (InflationData, 2020.) CEO compensation rose by a ludicrous 1,460% between 1978 and 2021, while the average worker pay only rose by 18%. Again, inflation has by and large made the gains by the working class irrelevant. 

Why did we get these insanely bad results? Because of the implementation of public policies and corporate practices based on Friedman and his shareholder supremacy theory, and the induction of CEOs into the owner class via the awarding of stock options. This incentivized the CEO to keep stock value at the forefront of their executive strategy.

At the peak of the labor union movement, nearly a third of all Americans were union members. In 1979 that meant 21 million Americans were involved in some sort of organized labor movement.

Reagan, however, began a movement of union busting which started with his breaking of the Air traffic controller’s strike in 1981.

Reagan gave a hard-line speech about the strike being “illegal” and how the air traffic controllers would be fired if they did not return to work. Two days later, on August 5, 1981, Reagan fired 11,000 striking air traffic controllers.

This led to a paradigm shift in the way that unions were dealt with in the United States and led to a domino effect. After Reagan’s bold, some would say cruel move, striking copper miners in Arizona were fired. Other workers lost their jobs, like paper mill employees on strike in Maine. Unions that covered bus drivers, meat packers and other industries found their own strikes broken, and themselves replaced with non-union workers.

It seemed that once the employers knew they could break strikes, they tried to encourage such behavior so they could more easily replace their work force with non-union labor. This made Unions less likely to strike, since they knew they would be replaced. Since striking is the main currency and leverage that unions have, this led to a weakening of power in unions from coast to coast.

Thanks in large part to Reagan, we now have a historic low of 10% union membership in the United States. Union busting continues to be a common practice. Just look at how Starbucks and Amazon have handled the formation of prospective unions in their respective companies.

Since the 1970s, we’ve experienced a grotesquely out of proportion increase in CEO pay because of their ability to increase profits for shareholders. Yet, worker wages stagnated into a virtual flatline for the 80s and beyond.

Even though wages stayed pretty much the same, expenses did not. The cost of living and education continued to rise even as wages stagnated. Education has gone up by nearly 1000% since the 1960s. 

This is an insane level of increase that outpaces inflation and any kind of common sense. Education is not the only cost that has increased, either. Housing prices have risen disproportionally.

In order to afford a home, a family must generate roughly one-third of the house’s total cost in annual income (Chang, 2023). In 2023, the average price of a home was nearly six times higher than family income. In other words, the cost of housing has doubled while wages have stagnated.

Higher cost of living + stagnant wages + increasing shareholder profits

=

Ever increasing economic inequality

Just to be clear, although Reagan's administration fully embraced the philosophy of Economic Extractionism, and supercharged neo-liberal capitalism, he was not the only US President guilty of perpetuating this system. To one degree or another, every single administration for the last 50 years has embraced, or at least turned a blind eye to this redistribution of wealth to the owner class. 

The results speak for themselves, but knowing that the system is rigged for the owner class isn't really news. That knowledge doesn't help us change anything. 

But remember in Chapter 6, when we talked about The Key to Changing the World? This is where the metaphorical rubber meets the road and we start to look at how we can deconstruct the old system and perhaps create a system (and a world) that works for everyone, and not just the top percenters. 

As a reminder, the key to changing the world is to change culture. 

Culture = Beliefs + Values + Behavior

This is not an overnight process, but it is absolutely possible. How can we know this? Because the capitalists, over the last 50 years, have changed our culture from one where workers wages rose in near tandem with productivity, to a culture where it is generally accepted and normalized for a CEO's wages to increase by 1,460%, while workers wages increased by only 18%. 

Read that sentence again and consider how crazed that is. 

So what are the beliefs, values and behaviors that make up our current economic culture?

Beliefs

• Profit is more important than workers rights, civil rights, the environment, the health and wellbeing of the populace, etc...
• There is a divide between owners and workers and authoritarian hierarchy is natural and necessary (a mostly unspoken context for this belief is a belief that some people are inherently better than others, we'll talk more about that in later chapters). 
• Labor is an expense to be eliminated when possible. 
• There is a natural equilibrium to the market. Supply is equal to demand, you can't raise wages without raising prices, etc. 
• Self interest and even greed is good, or at the very least natural and inevitable. 
• Competition is necessary for innovation and prosperity.
• Nature and natural resources are commodities.

Values

• Accumulating and hoarding profits is admirable.
• Competition
• Austerity (but only for the working class). 
• Self sufficiency and rugged individualism (but only for the working class). 
• Unfettered, infinite growth.
• For profit privatization (of everything).  

Behaviors

• The working class is exploited and coerced to work for subsistence/survival wages in order to maximize profits for the owner class. (A major majority of the population is in this situation.)
• Authoritarian hierarchical structures are maintained in the workplace, churches, schools, marketplaces, housing etc.  
• Politicians and government are subverted to serve the interests of the capitalists and owner class.
• Natural resources are extracted and commodified for profit, with no regard for ecological impacts. 
• The planet is polluted and poisoned for profit. (With a potential, existentially threatening ecological catastrophe looming on the horizon.)
• A boom and bust approach to the economy which leads to crashes and inevitable taxpayer funded bailouts for big corporations and banks. 
• Wars are fought, hundreds of thousands of innocent men, women and children are killed, genocides are ignored or glossed over... for oil and profits. 

This is not necessarily a comprehensive list, but it gives us something to work with when we begin the conversation about how we shift our conversation and change our thinking. 

In the next chapter we'll begin to explore the idea of community wealth building, and how we can start to create an economy that works for everyone. Not just the top percenters.