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The economy: A classic tale of capital vs. labor


You could summarize the presidential candidates' debate on the state of the economy as follows. Bush: "The economy is strong." Kerry: "Is not." Bush: "Is too." While each cherry-picks a few factoids to support his case, at bottom they're both saying the other guy's wrong (if not lying) about the economy. Which is funny, since they're both right and, in fact, don't really disagree.

The situation here is that of the proverbial blind men describing an elephant. One says "it's wide and round" and the other says "no, it's long and narrow." They only seem to disagree, as is clear once you know which part of the beast each has his mitts on.

Forever overestimating his audience, Kerry hammers the point that Bush is the first president since Hoover to preside over a national decline in jobs during his term. The unstated punch line--lost on the majority of voters, swing or otherwise--is that the jobs picture hasn't been this bad since the Great Depression.

While that seriously overstates the case, there's no denying that the recovery from the 2000-2001 recession has been unusually anemic for workers. As eager as Bush is to tout the 1.7 million jobs created over the past year, he fails to note that this leaves the economy in the hole by about a million jobs since he took office.

To be fair, Bush took office at almost the exact peak of a roaring boom that was bound to go bust. So while payrolls have fallen under Bush, they've done so from an unusually high level. This is reflected in the current U.S. unemployment rate, which stands at a historically average 5.4 percent.

None of that, however, changes the fact that a million more people have lost jobs than found them during Bush's tenure. As damning as Kerry hopes this is, even more telling may be the fact that the 131 million Americans who do have jobs have seen their after-inflation income decline under Bush. (Again, Bush focuses on recent income gains without noting that these leave workers in the hole for his full term.)

Put these two facts together and you have the picture that Kerry wants to paint: For workers, the legacy of George W. Bush is fewer jobs and lower pay.

Not surprisingly, President Bush looks elsewhere to assess his stewardship of the economy. Ever the master of simplicity, he reminds us that the economy is indeed growing and has been for over two years. He takes pride in the recovery in the hard-hit manufacturing sector, where activity has expanded at the fastest pace in almost 20 years. And he repeatedly applauds the sharply rising productivity of American workers, which has reached levels not seen since the early '70s. This, then, is the picture Bush wants to paint: The economy's growing, factories are humming and workers are busy as bees.

While you can quibble with the details, Bush's picture overall is fair. The economy is growing at a healthy clip. Manufacturing has dramatically recovered. And productivity has soared. The irony is that all of this is perfectly compatible with the picture Kerry paints. It's the two blind men and the elephant.

Forever underestimating his audience, Bush draws attention to the very issue that explains how this is so. That issue is worker productivity.

In our sound-bite nation, Bush's praise of worker productivity sounds like a pat on the back for the working class, a well-deserved "atta boy" delivered by the Boss for a job well done. But what does it really mean to say that workers are much more productive? It means that employers are getting much more out of them without having to put any more into them. And that, in a nutshell, is the story of the current economic recovery.

So it's true, as Bush says, that the economy's growing and we're making and selling more widgets; but it's also true, as Kerry says, that we're doing so without adding workers or raising their pay. That's what "rising productivity" means.

Once this is understood, you know where to look for the real signs of strength in the current economy: corporations. Over the past year, earnings of U.S. corporations have grown over 20 percent per quarter. That's happened only four other times in the past 50 years. As the Wall Street Journal trumpeted recently, "US corporations are piling up cash at the fastest pace in 30 years."

While nobody wants to say it, this is just the latest chapter in the classic tale of capital vs. labor. The spoils of economic growth are always divided between these two competing interests. This time around capital is getting the lion's share. As Bob Herbert recently wrote in The New York Times, "The American workers' share of the increase in national income since November 2001, the end of the last recession, is the lowest on record. Employers took the money and ran."

Republicans, as the party of capital, see a booming economy where capital's share of the pie is growing. From their perspective the economy is swell. Democrats, as the party of labor, see a stagnant workforce whose share of the pie is shrinking. From their perspective the economy is lousy, even if it is growing. So the dispute only seems to be about the state of the economy--of the pie--itself. It's really about how the pie's being divided.

I understand why Bush doesn't spell this out, as it would undermine his carefully cultivated image as a man of the people. That, of course, is precisely why Kerry should.

Farnum Brown is senior vice president of Trillium Asset Management, the largest and oldest independent advisory firm devoted exclusively to socially responsible investing. He is also a former music writer for Spectator magazine and the Independent.

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