Why Building a More Democratic Economy Matters for Nonprofits

///Why Building a More Democratic Economy Matters for Nonprofits

Why Building a More Democratic Economy Matters for Nonprofits

“We are suffering not from the rheumatics of old age, but…from the painfulness of readjustment between one economic period and another.”  John Maynard Keynes, Economic Possibilities for Our Grandchildren, 1930

As the quote from John Maynard Keynes reminds us, this is not the first time the economy has faced upheaval. Keynes wrote at the beginning of the Great Depression, following the rise of record-setting economic inequality—records that in the US would hold for more than 80 years, until our time.

Today, we face a unique moment in our nation’s history. The US is rife with contradictions. It is home both to an emerging, multi-ethnic, multi-cultural nation—and to those who ardently defend white supremacypatriarchy, and other forms of domination. We are conservative and liberal, progressive and reactionary, religious and secular. Not only can it be confusing to be a nonprofit in such times, it actually is utterly bewildering.

A couple of quick observations:

  • We know we are in a time of flux and that old systems and assumptions are unlikely to hold.
  • In terms of the economy, this means we need to take emergent democratic forms of business ownership—such as employee ownership, land trusts, and community finance—seriously.

Oddly enough, a useful reminder comes from Herbert Stein, head of the White House Council of Economic Advisors under Richard Nixon and Gerald Ford, who quipped, “things that can’t go on forever, don’t.” Stein’s observation frequently goes under the moniker of “Stein’s Law.”

In 1930, when Keynes published the book quoted above, the world was in the midst of what would become known as the Great Depression. Increasingly, it became obvious that what could not go on forever, would not. Karl Polanyi, an Austrian economist, wrote about what he called the “double movement.” The idea is that social problems often generate the seeds of their own solutions. For example, out of the travails of the Great Depression emerged a principle “of social protection aiming at the conservation of [humanity] and nature as well as productive organization, relying on the varying support of those most immediately affected by the deleterious action of the market.”

A key agent that came to enforce this social protection was the labor union. US union membership was less than three million in 1933; by 1945, it had climbed to nearly 14.8 million, more than a third of all private-sector workers. One marker of labor’s rise in the US came in 1936-1937, when tool-and-die workers staged a sit-down strike at a General Motors factory in Flint, Michigan. These tactics were emulated by others, including civil rights organizers staging sit-ins at Woolworth’s lunch counters across the country—beginning in Greensboro, North Carolina.

Times have changed. Today, only 6.5 percent of private sector workers are in unions, and 10.7 percent of workers overall. Last month’s Supreme Court Janus decision, which bans mandatory union fees in the public sector, could drive membership even lower.

The decline of labor impacts politics—and, because government provides nearly a third of nonprofit funding, this affects nonprofits directly. Labor unions provided the political support necessary to pass social protections such as Social Security, Medicare, and Medicaid. Labor also lent support to the high marginal tax rates that financed these programs. Under Eisenhower, the top income tax rate was 91 percent. These measures helped dramatically reduce economic inequality.

But as labor union strength fell, this process operated in reverse: tax rates on higher earners fell and social program coverage frayed. Inequality returned to levels not seen in the US since the Great Depression. In 2016, economists Emmanuel Saez and Gabriel Zucman found, “The top 0.1 percent wealth share has risen from seven percent in 1978 to 22 percent in 2012, a level almost as high as in 1929.”

The wealth accumulation at the top is astonishing, but it is not just about the elite living large. For most Americans, wages, adjusted for inflation, have been largely stagnant for over 40 years, notes a recent Harvard Business Review article. Worse still, the Federal Bureau of Labor Statistics reports that labor’s income share has fallen by six percentage points in the last decade alone—that’s about four percentage points of gross domestic product.

In other words, worker income is more than $700 billion less—i.e., more than $5,000 per worker—than it would be, had labor’s share stayed the same as it was a decade ago. We’re talking about real money here. Most of the last decade, of course, took place during the administration of Barack Obama. Understanding the failure of conventional politics to make a meaningful difference at the pocketbook level helps explain key aspects of our nation’s current status, including the rise of the white nationalist right as well as increasing disaffection within the Democratic Party on the left—illustrated just last month by the primary victory of avowedly socialist candidate Alexandria Ocasio-Cortez in a New York City district for Congress.

Read more at Nonprofit Quarterly