For the majority of the 20th century, the US economy was based around consumption. Somewhere in the late 1960s to early 1970s, that percentage began to decline. It is not a phenomenon unique to the US, it is part of an overall global decline in % GDP contribution globally. A decline in GDP % does not mean we are manufacturing or producing less, it just means that the profits from Manufacturing make up a smaller percent of the revenues in a country or world wide. One natural conclusion of this is that manufacturing is less profitable. But this is not the simple truth. The revenue per share for Apple, which manufactures computers, tablets, ipods and phones have increased in a graph that is the inverse of this. Certainly, some manufacturing areas ( automotive comes to mind) have struggled- but overall this is not true. The number of small to mid manufacturers making a happy profit continues to grow.
The other way to have your percentage decrease is to have some other area grow disproportionately. And there is an area that shows this very clearly- the financial industry. ( Graph from Professor James Kwak)
A year ago, Bloomberg gave us some more insights into the growth of the financial sector.
“Let’s start with the question of why finance has grown so much in recent years. We can get some clues to this by considering which parts of finance have grown. Financial economists Robin Greenwood and David Scharfstein took a look at this back in 2013, and found that the acceleration since 1980 has come from two sources: 1) asset-management fees, and 2) lending to households.”
That is, the largest area of profits for the Financial Sector are coming from everyday people- the households who pay what seem like small fees ( 1 or 2 % management fees here and there that add up) and the households who use credit more and more.
Why is this interesting and important? What is the link to “compliance”?
In Requiem for the American Dream, Noam Chomsky looks at the impact of the concentration of wealth and inequality , and how it is both a natural progression/cycle and a backlash to the movements in the 1960s that increased democracy. He shows how some of this was even seen as an “excess of democracy” by the people threatened by it. This is cyclical, a teeter/totter seeking a balance point and often tipping from one side to another. But every teeter totter only changes position when force is applied to it.
When the GDP ( and the profits of the super rich) were significantly made up from the profits of manufacturing, then the people had easy pressure points. Strike, Sit in, Slow Down, Destroy property– all of these were easy physical actions that had an immediate bottom line impact and quickly built of pressure that required a release of power and an increase of democracy.
We are now playing a different game. If you are a worker trying to get concessions from a single production company, a strike may still make sense. But when are are trying to make wide sweeping changes, to put overall general pressure on the pockets of the super rich so that they have no choice but to relieve their pressure by decreasing inequality just a bit, general strikes and the destruction of property have little impact at all.
Let’s go back to those two points where the financial industry makes a profit. Management Fees and Credit. Management Fees will require shopping around and pressure on the asset managers. For the most part, 401K investments and the like are chosen by companies, not by individuals. We can and should make sure we are informed and put pressure on people making the choices to make the choices most in our favor, this is a long game.
The second was credit. Yep, that percentage you pay on your credit card(s), the interest and fees on every loan you take. This becomes more of a psychological battle than a physical one. The pressures put on the market place by advertising are powerful and designed to make you feel unhappy and dissatisfied– and to spend to feel better. I am not saying “Do not buy things”. That is an absurd statement and would quickly fall apart. But what if we really focus on “Only buy within your means”? Some would argue that for them, this equals “Do not buy things”, but I say this is where we need to gather together and make this possible. Everyone has something to offer– there are ways to get those birthday presents or other necessary luxuries that do not always mean going into debt. Exchange of services or products without exchange of cash can assist in lowering credit usage in some of these cases.
How we can we collectively work to drop the profit out of the credit economy? How can we force the market out of being a credit market and back to being more of a production market, where the pressure points on our economic teeter totter are more accessible to all?
For me, this means consumption that I am in control of- and not something that is an impulse that continues to drive profits into the pockets of the super wealthy. It also means careful monitoring of the data to watch for the right pressure points to move the teeter totter back into balance. The actions of a single person will be close to meaningless. But the actions of a single person multiplied across millions can be a driving force.
What changes will it take for you to not contribute to the profits generated by credit?