America’s Collective Action Problem

Globalization has given us the potential to live more productive, prosperous, and socially connected lives — or has it?

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The breakdown of Washington’s establishment has presented itself as a major theme this election cycle, weaving through the populist rhetoric espoused on the campaign trail by Democratic and Republican candidates alike. These candidates, specifically Donald Trump and Sen. Bernie Sanders, have successfully tapped into an anger in the collective psyche of the American public — an anger directed towards political dysfunction on Capitol Hill, the spin of news stories that fail to explore nuanced issues, and the perceived notion that the system is rigged against them.

Americans are not wrong to feel this way.

A New Gilded Age

Worsening prospects for the middle class, due in part to the harmful effects of globalization and the increased political power of a wealthy few have caused many to dub this era as “The New Gilded Age.” The Gilded Age, a term coined by Mark Twain, defines a period in the late 19th century that holds an uncanny resemblance to our own. While globalization provides the buzz word for working class struggles today, many historians blame industrialization for similar problems faced back then. This post-Civil War economy helped fickle businessmen, known as robber barons, establish trusts and concentrate substantial market power in their respective industries, effectively stripping working people of their rights and the potential to bargain for better wages during the last years of the 19th century.

Like the portrayal of corporate giants today, these robber barons were “represented as exemplars of unrestrained individualism…fiercely competitive…practitioners of undiluted laissez faire capitalism,” according to the Foundation for Economic Education. But a closer analysis of the era may suggest otherwise. The report goes on to state that the men who controlled these markets poured money into the pockets of politicians to ensure legislation that would stifle competition. They weren’t free market fundamentalists, but rather leaches of the government that structured a system that could only benefit them. How’s that for an “invisible” hand?

In short, the Gilded Age economy led to the rise of powerful industry leaders, who in turn used their acquired wealth to organize the market to fit their interests, creating a vicious cycle of wealth and power at the expense of the typical American. But if we are to follow this historical example all the way through, the future does not have to look so bleak.

Directly following the Gilded Age, a new wave of thinkers, calling themselves progressives, revitalized government, and pressured politicians to start serving those for whom the government was created. It fostered a movement of “trustbusting” and the need for widespread reform. It established a standard for workers’ rights, and laid the foundation for the New Deal era of the early 1940s to late 1960s, a sweet spot in American history defined by widespread middle class growth.

So, what changed since the booming years after World War II?

Globalization: A Catalyst for Decline

Since the 1980s, wages have declined while corporate profits have increased, and although worker productivity has dramatically risen since the 1960s, more and more Americans have succumbed to poverty in the same time. In addition, the Economic Policy Institute notes that, while CEOs earned 20 times more than their average employee in 1965, they earned 303 times more in 2014, and CEO compensation has risen almost 1,000 percent, after adjusting for inflation, since 1978.

However, many argue that these trends are not caused by a rigged system against the middle class, but rather “natural market forces” incurred by the effects of globalization. As technology replaces jobs through automation and business outsources labor due to free trade policies, it is only natural that the working class will take a hit.       

But this is only one side of the story.

In his book, Saving Capitalism, Robert Reich dispels the existence of “a natural market” in today’s globalized economy. His overall thesis states that the tired debate between “freer markets” or “bigger government” is misguided. It is a critical distraction from what the real debate should be. No matter where one lies on the political spectrum, it is a simple fact that the government organizes the market and is supposed to make sure all economic actors play by the rules. It sets interest rates, decides property rights, enforces contracts, and determines what happens to those who file bankruptcy. With all this in mind, Reich claims that the “free market” is a theoretical facade that diverts attention away from the better suited argument about how the market is organized and to whom it should cater.

While the trend of globalization may have acted as a catalyst for deepening inequality and decreased bargaining power for middle class citizens, the current market’s setup only makes these effects worse for a majority of Americans. One only needs to look at the transformation of the American economy from a system that lifted the economic tides of all participants half a century ago, to one that has currently relegated the American Dream to a myth, according to Nobel Prize winning economist, Joseph Stiglitz. In addition, an examination at the comparative success of advanced nations that have chosen to adopt a more mid-century U.S. model in the post-recession world may also provide some insight.

Rigging The Market

For example, stock buybacks, which were uncommon until loosened regulation in 1982, have become a common practice for CEOs looking to gain an extra buck. In this recent phenomenon, corporations spend trillions of dollars repurchasing shares of their own stock- effectively increasing stock value as lower supply in shares creates short-term demand for them. According to the Harvard Business Review, companies that make up the S&P 500 index “used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock.” This form of stock manipulation allows corporations to superficially raise profits while depleting resources on investment, development, and employee incomes.

While CEOs and shareholders, who initiate this process, cash out their own personal shares at the height of this artificially induced demand, the practice harms a vast majority of Americans. According to Reuters, “[t]hese financial maneuvers…cannibalize innovation, slow growth, worsen income inequality and harm U.S. competitiveness.” This is just one of many circumstances in which the market favors the “new robber barons” at the expense of the middle-class.

Another example of a broken system can be found in the destruction of America’s unions. While almost a third of Americans enjoyed union membership during the 1960s, fewer than seven percent of private sector workers could say the same in 2014. Many argue that “market forces” are responsible for dwindling union density, but Germany, which has faced many of the same burdens of globalization, boasts almost double the rate of membership. Consequently, the Deutschland’s average wages have increased over the last three decades, while the Unites States’ have stagnated. And, according to the New York Times, even though unionized German autoworkers were paid almost double their American counterparts, “Germany’s car companies in 2010 produced more than twice as many vehicles as American companies did, and they were highly profitable…”

This example not only challenges the conventional wisdom that unions are always harmful, but adds merit to the claims by many to have found the lost  “American Dream” in the social democracies of Northern Europe, where they praise these inclusive economies as a model of prosperity for all.

But this wasn’t always the case.

In fact, it is not the Northern European social democracies, but rather the United States, during the tenure of Roosevelt, Truman, Eisenhower, and Kennedy, that provides the best example of a prosperous and healthy middle class. A middle class that flourished under a 90 percent marginal tax rate for top earners. A middle class that acquired guaranteed economic security if they were willing to work for it. Today, the economic landscape paints a far less rosier picture. It details an economy where those who work over 40 hours a week may still depend on welfare, and where real opportunity only exists in memories of the past. This will be the first generation in American history to fare worse off than their parents economically.

Social Capital: A Catalyst for Change

While reversing globalization may prove impossible or even unhelpful, a focus on increasing social capital may provide some relief to these structural economic deficiencies.

Social capital, as outlined by political scientist Robert Putnam, refers to “the collective value of all ‘social networks’ and the inclinations that arise from these networks to do things for each other.” Social capital is at work when neighbors keep an eye on each other’s kids, or when a community comes together to rally for a cause. It is the communal fabric that establishes norms of reciprocity and keeps society functioning. It is integral for a stable and vibrant democracy.

America experienced its biggest share of social capital in the 1960s when group membership in organizations such as the American Legion or the local bowling league was at an all-time high. Since then, however, social participation has dwindled, and communities have grown further and further apart. The organizations that remain are exemplified not by an energetic grassroots appeal, but rather a dull top-down strategy, whereby members need little more than to send a check to headquarters that may be based thousands of miles away. While there are many reasons for this decline, such as economic hardship, the invention of the television, and an overall changing culture, the effects have devastatingly resulted in depleted communities of apathetic strangers, powerless to fight against highly organized, highly funded, and highly powerful interests that influence policy at the others’ expense.

A New Progressive Movement

In a highly globalized environment, one must ask: How is social capital so minuscule in a world that becomes “smaller and smaller” each year with the advent of new technologies that supposedly bring people together? One may argue that since real wages have remained stagnant, more and more people find less time to commit to communal activities or civic engagements, But another less cited reason may lie in the fact that social capital takes more than a Facebooklike”, or an online pledge. It demands real commitment that is often a non-starter for a complacent and apathetic populace — which in turn only reinforces the perception of powerlessness and indifference.

Some of the greatest organizations started during the onslaught of the Progressive Era- groups such as the NAACP or the Boy Scouts, that have become a (waning) staple in American life. Modern technology should only make face-to-face events more feasible and better organized. We should be able to use technology for more than writing about grievances, or sharing viral videos- we should use it to start building coalitions of Americans that are willing to fight for the ideals, opportunities, and values that the country once practiced.

This election has been anything but predictable as firebrand outsiders continue to gain success, while political elites, strapped with millions in Super PAC funds, slowly dwindle. It is a projection of American anger at a rigged system. The current economic and political landscape is fertile for a new Progressive movement, but the question remains: Are Americans willing to fight for it?